THAILAND – CUSTOMS AND FISCAL MEASURES ON CIGARETTES FROM THE PHILIPPINES
Document: Report of the Panel
Date: 15 November 2010
Document codes: WT/DS371/R
Complainant: Philippines
Respondent: Thailand
Third parties: Australia, China, EU, India, Taiwan, U.S.
Dispute stage: Appellate Body
Agreements cited: Art. 13, 10  Customs valuationArt. X:3, II:1(b), II:3  GATT 1994Art. 2, 3, 4, 5, 6, 7, 1.1, 1.2  Customs valuationArt. VII:1, VII:2, VII:5  GATT 1994Art. 16  Customs valuationArt. X:1, III:2, III:4  GATT 1994

THAILAND – CUSTOMS AND FISCAL MEASURES ON
CIGARETTES FROM THE PHILIPPINES

Report of the Panel

I. INTRODUCTION
A. COMPLAINT OF THE PHILIPPINES
1.1 On 7 February 2008, the Philippines requested consultations with Thailand pursuant to
Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
("DSU"), Article XXII:1 of the General Agreem ent on Tariffs and Trade 1994 (the "GATT 1994"),
and Article 19 of the Agreement on Implementati on of Article VII of the General Agreement on
Tariffs and Trade 1994 (the "Customs Valuation Agreement") with respect to the measures and claims
set out below.1
1.2 Consultations were held on 23 April 2008 and on 9 September 2008, but failed to produce a
mutually agreed solution.
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL
1.3 On 29 September 2008, the Philippines requested the establishment of a panel. At its meeting
on 17 November 2008, the Dispute Settlement B ody ("DSB") established a panel in accordance with
Article 6 of the DSU (WT/DSB/M/259), with standard terms of reference, to examine the matter
referred to the DSB by the Philippines in document
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 Philippines in
document and to make such findings as will assist the DSB in making
the recommendations or in giving the rulings provided for in those agreements."
1.5 On 16 February 2009, the parties agreed to the following composition of the Panel:
2
 Chairman: Mr Roberto Carvalho de Azevedo

 Members: Mr Richard Gottlieb
 Mr Alvaro Hansen

1.6 Australia, China, th e European Union
3, India, Chinese Taipei and the United States have
reserved their rights to participate in the Panel proceedings as a third party.

1 WT/DS371/1 of 12 February 2008.
2 WT/DS371/4 of 17 February 2009.
3 On 1 December 2009, the Treaty of Lisbon amendi ng the Treaty on Europe an Union and the Treaty
establishing the European Community (done at Lisb on, 13 December 2007) en tered into force. On
29 November 2009, the WTO 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. The third party
submission in this case dated 18 May 2009 and statement at the third party session on 11 June 2009 were made
by the delegation of the European Communities. On 8 January 2010, the European Union requested that in its
report, the Panel change instances of "European Communities" to "European Union", and instances of "EC" to
"EU", except for prior case titles and quotations.

C. P
ANEL PROCEEDINGS
1.7 The Panel held the first substantive meeting with the parties on 10 and 12 June 2009. The
session with the third parties took place on 11 June 2009. The second substantive meeting with the
parties was held on 4-6 November 2009.
1.8 On 16 December 2009, the Panel issued the descriptive part of its Panel Report. The Panel
issued its Interim Panel Report to the parties on 30 June 2010. The Panel issued its Final Report to
the parties on 4 August 2010.
II. FACTUAL ASPECTS
A. THE MEASURES AT ISSUE
2.1 This dispute concerns Thailand's customs and fiscal measures on cigarettes imported from the
Philippines.
2.2 The Philippines identified the following as the measures at issue in this dispute:
(a) Measures pertaining to customs valuation:
• the general rule and/or methodology provi ding for the systematic rejection of
transaction value and the systematic use of a deductive valuation method;
• individual determinations made by Th ai Customs for entries of cigarettes
exported from the Philippines and entered between 4 August 2006 and
19 March 2008, including:
o the Notices of Assessment for the entrie s listed in Annex I to the Philippines'
request for the establishment of a panel; and
o the assessment of value for purposes of setting the guarantee or cash deposit
at the time of entry for the entries listed in Annex II to the Philippines' request
for the establishment of a panel;
• Customs Act, B.E. 24694 (1926), including all amendments;
• Ministerial Regulation No. 132 B.E. 2543 (1990) issued under authority of the
Customs Act B.E. 2469 (1926) and the amending Ministerial Regulation No. 145
B.E. 2547 (2004) and Ministerial Regulation No. 146 B.E. 2550 (2007);
• Notification No. 23/2549 (2006) of Thai Customs, containing guidelines on
customs valuation;
• Customs Regulation No. 2/2550 (2007) Re: amendment of the Customs
Formalities and Guidelines Code B.E. 2544 (2001) re: Customs formalities to
prevent Customs value duty evasion, a nd amendment of Customs Department
Regulation No. 14/2549 (2006) re: Guideline for Fixing of Customs Value;

4 The "B.E." year number design ates the year in the Buddhist cal endar. The year number in
parentheses designates the corresponding year A.D.

• Customs Regulation No. 14/2549 (2006), re Guideline for Fixing of Customs
Value, as amended by Customs Regulation No. 2/2550 (2007);
• Customs Notification No. 29/2549 (2006) Procedure in requesting duty fee
assessment; and
• any amendments, implementing measures, or other related measures.
(b) Measures pertaining to Thailand's Value-Added Tax ("VAT") regime:
• Sections 79/5, 81, 82/7, 88, 88/2, 88/5, 88/6, 89(4), and 89/1 of the Revenue
Code of Thailand;
• Section 23 of the Tobacco Act B.E. 2509 (1966);
• Royal Decree, issued under the Revenue Code, Governing the Reduction of the
Value Added Tax Rates (No. 479), B.E. 2551 (2008);
• Royal Decree issued under the Revenue Code Governing Exemption from Value
Added Tax (No. 239) B.E. 2534 (1991);
• Order of the Revenue Department No. Por 85/2542 (1999);
• Notification of the Director-General of the Revenue Department on VAT
(No. 10);
• MRSP Notices issued by the Director-Gen eral for Excise. The currently
applicable MRSPs are set out in the Notice B.E. 2550 (2007) of 29 August 2007
(for domestic products) and in the Noti ce B.E. 2551 (2008) of 19 August 2008
(for imported products); and
• any amendments, implementing measures, or other related measures.
(c) Thailand's VAT-related requirements on wholesale and retail sellers of cigarettes that
are contained in the following measures:
• Sections 81 and 82/7 of the Thai Revenue Code;
• Royal Decree issued under the Revenue Code Governing Exemption from Value
Added Tax (No. 239) B.E. 2534 (1991);
• Order of Revenue Department Por 85/2542; and
• any amendments, implementing measures, or other related measures.
(d) Measures pertaining to Thailand's other fiscal measures:
• Thailand's excise tax regime operated through the following measures:
o the Tobacco Act B.E. 2509 (1966), Sections 5, 5 ter, and 5 quinquies;

o Notices of Director-General for Excise, setting out the ex factory prices. The
currently applicable ex factory pri ces are set out in the Notice B.E. 2550
(2007) of 29 August 2007; and
o any amendments, implementing measures, or other related measures.
• Thailand's health tax regime operated through the following measures:
o the Health Promotion and Foundation Ac t, B.E. 2544 (2001), in particular
Sections 11, 12, and 13 thereof; and
o any amendments, implementing measures or other related measures.
• Thailand's television tax regime operated through the following measures:
o the Thai Public Broadcasting Service Ac t 2551 (2008), in particular Sections
12, 13, and 14 thereof; and
o any amendments, implementing measures, or other related measures.
(e) Thailand's administration of its customs and fiscal measures as listed in (a)-(d) above
(f) Thailand's administration of its legal provi sions pertaining to guarantees, including
the following:
• the provisions of the Customs Act B.E. 2469 (1926) (as amended) in respect of
guarantees (specifically, Sections 112, 112 bis, 112 ter, and 112 quater);
• Customs Regulation No. 2/2550 (2007) Guideline to determine customs price
valuation; and
• any amendments, implementing measures, or other related measures.
(g) An investigation by Thailand's Department of Special Investigation ("DSI") of the
Thailand branch office of Philip Morris (Thailand) ("PM Thailand") in relation to the
declared customs value of imports from the Philippines
(h) Undue delay in Thailand's administrative decision making:
• delays in decision making by the Board of Appeals ("BoA"), which operates
under Section 112 sexies to Section 112 undevicies of the Customs Act; and
• failure to meet the 90-day deadline set in Thai law in Section 45 of the
Administrative Procedure Act B.E. 2539 (1996) for administrative decisions in
appeals against the maximum retail selling prices ("MRSPs") set by the Thai
Excise Department.
(i) Failure to provide for judicial or admini strative review of the customs authorities'
decisions relating to the imposition a nd collection of guarantees, pending the
issuance of a notice of assessment, coveri ng the customs duties and excise, health
and television taxes that may become payable

B. PROCEDURAL HISTORY
1. Additional procedures for the protection of business confidential information ("BCI"
procedures)
2.3 On 19 February 2009, the Philippines submitted a letter to the Panel requesting it to establish
special procedures to protect BCI. In the Annex to this letter, the Philippines proposed a draft of
suggested BCI procedures. Following an exchange of views on issues relating to BCI procedures at
the organizational meeting held on 25 February 200 9, the parties submitted their comments in writing
on 27 February 2009. Thailand also provided th e Panel with its own draft of suggested BCI
procedures on the same day. The Philippin es submitted, on 2 March 2009, its comments on
Thailand's written comments of 27 February 2009. In response, Thailand provided additional
comments on the Philippines' comments on 3 March 2009. On the same day, the Philippines made
further comments on Thailand's comments of 3 March 2009. Having considered, inter alia, the draft
versions of the BCI procedures submitted by the parties, their comments on each other's draft BCI
procedures and the BCI procedures adopted in pr evious disputes, the Panel adopted additional
working procedures concerning BCI on 11 March 2009. These procedures are set forth in Annex A-1.
2.4 In accordance with paragraph 2 of the BCI procedures, on 16 March 2009, the parties
submitted Approved Persons lis ts to the Panel and the other party. In the absence of objection from
the parties to the designation of an individual, incl uded in the list submitted by the other party, as an
Approved Person, the Panel designated these individuals as Approved Persons on 18 March 2009.
2. Amicus curiae briefs
2.5 On 27 March 2009, the Panel received a request from a private entity wishing to submit
information to the Panel with regard to this dispute. On 17 April 2009, the Panel responded by
requesting that such amicus curiae briefs be addressed directly to the parties and third parties to the
dispute. Upon receiving such briefs, the parties and third parties would decide whether and how to
use such briefs and/or any information contained therein in their submissions and arguments to the
Panel in these proceedings.
3. The Philippines' request to the Panel to seek certain documents from Thailand pursuant
to Article 13 of the DSU
2.6 The Philippines requested in its first written submission 5 that, pursuant to Article 13 of the
DSU, the Panel seek certain documents from Thailand to facilitate the Panel's objective assessment of
the claims, arguments and evidence before it. The Panel informed the parties on 1 April 2009 of its
decision to render its ruling in this regard after it has had an opportunity to review Thailand's first
written submission. Thailand noted at the first substa ntive meeting with the Panel, that some of the
documents on the Philippines' document list had alread y been submitted by the parties as part of their
first written submissions. Thailand further provide d the Panel with a number of other documents on
the Philippines' list as part of its first oral st atement. Further, Thailand also commented on the
relevance of several other documents on the Philippines' list. During the first substantive meeting, the
Panel asked the Philippines to clarify the remain ing documents on its list and any other additional
documents that it still considered necessary for th e Panel to seek from Thailand. The Philippines
submitted an updated list of documents on 15 June 2009.
2.7 The Panel considered the parties' views on the documents/information requested by the
Philippines in the light of the matters presented in this dispute. Pursuant to the authority vested in
panels under Article 13.1 of the DSU, the Panel sent a letter on 24 August 2009, requesting the parties

5 The Philippines' first written submission, paras. 685-713.

to submit certain documents/information as indicated in the Annex to the letter. The parties submitted
the requested documents/information on 4 September 2009. Pursuant to these submissions, comments
were received from the Philippines on 16 September 2009 and from Thailand on 25 September 2009.
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. T
HE PHILIPPINES
3.1 The Philippines requests that the Panel find that:
(a) with respect to the administration of customs and fiscal rules, Thailand violates:
• Article X:3(a) of the GATT 1994 because persons responsible for administering
Thailand's customs and tax rules are officers of Thailand Tobacco Monopoly
("TTM");
• Articles X:3(a) and X:3(b) of the GATT 1994 because of delays in its
administrative decision-making, particularly undue delays in the BoA's decision-
making; and
• Article X:3(b) of the GATT 1994 because Thailand provides no legal mechanism
whatsoever for the administrative or judici al review of decisions taken by Thai
Customs to collect guarantees for custom s duties and internal taxes potentially
due of the finally assessed customs value.
(b) with respect to customs valuation issues, Thailand violates:
• Articles 1.1 and 1.2 of the Customs Valuation Agreement by maintaining and
applying a general rule requiring the rejection of transaction value;
• Articles 1.1 and 1.2 of the Customs Valuation Agreement by improperly
rejecting PM Thailand's declared transaction values for [[xx.xxx.xx]] entries;
• Article 1.2(a) of the Customs Valuation Agreement by failing to communicate
"grounds" before rejecting transaction value;
• Article 16 of the Customs Valuation Agreement by failing to provide an
adequate explanation as to how the customs value was determined;
• if the Panel finds that Thailand valued PM Thailand's goods under Article 7 of
the Customs Valuation Agreement:
o Thailand improperly applied Article 5 of the Customs Valuation Agreement
by declining to use that provision for impermissible reasons;
o Thailand violated Article 7.1 of the Customs Valuation Agreement by
improperly incorrectly assessing the deductive value of PM Thailand's
transactions, specifically by failing to deduct three claimed items and by
deducting incorrect amounts for VAT and excise tax for certain transactions;
and

o Thailand violated Article 7.3 of the Customs Valuation Agreement by failing
to inform PM Thailand in writing of the customs value determined under
Article 7 and the method used to determine such value;
• if the Panel finds that Thailand valued PM Thailand's goods under Article 5 of
the Customs Valuation Agreement, Thaila nd violated Article 5 of the Customs
Valuation Agreement by improperly incorrectly assessing the deductive value of
PM Thailand's transactions; and
• Article 10 of the Customs Valuation Agre ement by disclosing in the Thai media
confidential customs valuation informati on provided by PM Thailand to Thai
Customs.
(c) with respect to VAT, Thailand violates:
• Article X:1 of the GATT 1994 by failing to publish the methodology and data
that it uses to determine the tax base for VAT, i.e., the government-fixed MRSP;
• Article III:2 of the GATT 1994 by imposing a higher VAT burden on imported
products than on like domestic products as a result of the level of the MRSPs;
• Article III:2 of the GATT 1994 by exempting resales of domestic cigarettes from
VAT liability;
• Article III:4 of the GATT 1994 by imposing more onerous administrative
requirements for VAT in connection with the resale of imported cigarettes; and
• Article X:3(a) of the GATT 1994 by failing to administer the VAT system in a
uniform, reasonable and impartial manner.
(d) with respect to excise, health and television taxes, Thailand violates:
• Article X:1 of the GATT 1994 by failing to publish the methodology and data
that it uses to determine the exci se tax base for domestic cigarettes, i.e., the
government-fixed ex factory price;
• Article X:1 of the GATT 1994 by faili ng to publish laws and regulations
governing the release of guarantees for pot ential liability for health, excise and
television taxes; and
• Article X:3(a) of the GATT 1994 by faili ng to administer the excise, health and
television taxes in a manner that is uniform, reasonable and impartial.
3.2 The Philippines requests that the Panel recommend that Thailand bring its measures found to
be WTO-inconsistent into conformity with its WTO obligations.
B. T
HAILAND
3.3 Thailand requests the Panel to find that with r espect to the measures within the Panel's terms
of reference, the Philippines has failed to establis h that Thailand has acted inconsistently with its
obligations under any of the provisions of the covered agreements cited by the Philippines.

3.4 Thailand notes that this dispute is unusual in that the Philippines is complaining about
individual completed acts (including, inter alia, the valuation of the [[xx.xxx.xx]] entries listed in the
panel request, the alleged breach of Article 10 of the Customs Valuation Agreement, and the use of
guarantee values in determining superseded MRSPs alle gedly in breach of Article X:3(a)), rather than
measures that have ongoing effect as of the date of establishment of the Panel.
6 In the event that the
Panel makes findings that Thailand has acted inconsis tently with its WTO obligations with respect to
any of these completed acts, the Panel should, consis tent with the guidance provided by prior panels
and the Appellate Body,7 refrain from making recommendations with respect to those completed acts.
IV. ARGUMENTS OF THE PARTIES
4.1 The arguments presented by the parties in thei r written submissions and oral statements are
reflected below.8
A. EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION OF THE PHILIPPINES
1. Introduction
4.2 This dispute concerns a series of inter-rela ted customs and internal tax measures taken by
Thailand regarding cigarettes imported into Tha iland from the Philippines by PM Thailand. These
customs and tax measures have been both formulated and applied by Thailand in ways that serve to
protect the interests of the State-owned monopoly producer of cigarettes, TTM. In addition to
protecting TTM's domestic cigarettes, these measures ar e characterized by a lack of transparency that
deprives the importer of the most basic informati on regarding the regulatory treatment of its goods,
and also by chronic delays in decision-making.
4.3 The Philippines in no way questions Thailand's pr erogative to regulate its domestic cigarettes
market, including through health measures, and la belling and advertising restrictions. No such
regulations or policies are at issue in this dispute.
2. Thailand violates Article X:3(a) of the GATT 1994 by failing to administer its customs
and internal tax rules in a "reasonable" and "impartial" manner
(a) The dual role of TTM Officials as Senior Thai Government Officials is inconsistent with
Article X:3(a) of the GATT 1994
4.4 Thailand violates Article X:3(a) because of pe rvasive institutional and personal links between
the Government of Thailand and TTM, which is a "Sta te Enterprise" under Thai law. Since at least
1995, persons responsible for managing TTM's co mmercial activities as members of the TTM Board
of Directors, have also held senior government po sitions in the Ministry of Finance as Director-
General ("DG") of Customs, DG Excise and DG Revenue.
4.5 These individuals have been responsible for admi nistering the customs and tax rules to which
imported and TTM's own cigarettes are subject. Through their governmental functions, these
individuals: improperly rejected PM Thailand's declared transaction values; imposed non-reviewable
guarantee values; substituted PM Thailand's transa ction values with higher assessed customs values;
subjected imported cigarettes to discriminatory VAT treatment; levied excise, health and television

6 Exhibit THA-36.
7 E.g., Panel Report, Dominican Republic – Import and Sale of Cigarettes , paras. 7.363, 7.393, 7.419;
Appellate Body Report, US – Certain EC Products, paras. 81 and 129.
8 The summaries of the parties' arguments are ba sed on the executive summa ries submitted by the
parties to the Panel. Footnotes in this section are those of the parties.

taxes on a tax basis that is inconsistent with the pr escribed tax basis and that is without foundation in
Thai law; systematically failed to meet basic transparency requirements, failing to publish rules
governing decision-making and explanations for d ecisions in relation to the customs and tax
measures; and systematically delayed decision-making.
4.6 Even in the context of a public monopoly, this involves an unacceptable conflict of interest.
By definition, the TTM officials' public powers profoundly influence the relative competitive
situation of domestic and imported cigarettes. Yet, the officials in question, as part of the domestic
producer's senior management, have incentives, including personal financial incentives – and,
moreover, are obliged by Thai law – to promote the domestic producer's interests, maximizing its
market share, revenues, and profits. Furthermore, the Minister of Finance himself has made public
statements that TTM should be protected to prevent imported cigarettes from eroding TTM's market
position and expressed concerns that PM Thailand's br ands would "snatch all of TTM's share if the
volume of imports is not reduced".9
4.7 The dual role of senior Government o fficials as senior TTM executives constitutes
"unreasonable" and "partial" administration of Tha iland's customs and tax laws under Article X:3(a).
First, it is not "reasonable" – "appropriate" or "suitabl e" – or "impartial" to vest government officials
that are TTM Directors with decision-making power over imported and domestic cigarettes, and over
domestic producers and importers of these goods . Doing so creates an "inherent danger" 10 that the
TTM Directors could use their governmental powers in a manner that confers a competitive advantage
on their own company, TTM, and its products. By any standard, such administration is neither
"reasonable" nor "impartial", as confirmed by the panel report in Argentina – Hides and Leather.
4.8 Second, Thailand's administration of its customs and tax laws is unreasonable and partial
because, in their capacity as government officials, TTM Directors have access to BCI provided by
PM Thailand in connection with the importation of cigarettes. Wearing a government "hat", the TTM
officials are vested with the power to request and, indeed, routinely request, sensitive BCI from their
competitors. This state of affairs creates an unacceptable risk – an "inherent danger"
11 – that TTM
could derive an unfair advantage from information th at should not be in TTM's hands. The situation
in this dispute is, again, similar to the situation in Argentina – Hides and Leather.
(b) Thailand violates Articles X:3(a) and X:3(b) of the GATT 1994 because of undue delays in
the BoA's administrative decision-making
4.9 Thailand has failed to ensure that administrativ e appeals against customs valuation decisions
are resolved promptly, as required by Articles X:3( a) and X:3(b) of the GATT 1994. Administrative
appeals filed by PM Thailand to the BoA betw een March 2002 and March 2003 have still not been
resolved, more than seven years later. It is not "reasonable" within the meaning of Article X:3(a) to
fail to decide customs valuation appeals for a period of six to seven years, thereby leaving an importer
without a prompt remedy against decisions taken by the customs authority. These delays are
especially unreasonable given that the BoA has not convened for over a year to consider
PM Thailand's appeals. Moreover, these delays are inconsistent with Article X:3(b), which requires a
WTO Member to maintain "tribunals or procedures" to ensure " prompt review and correction of
administrative action relating to customs matters" (emphasis added). By any standard, a process in
which the first administrative step towards the "review and correction" of valuation decisions lasts for
more than six years is not "prompt".

9 "Thanong presses to raise tax on imported cigarettes", Khao Hun, 31 August 2006. Exhibit PHL-1.
10 Panel Report, Argentina – Hides and Leather, para. 11.100.
11 Panel Report, Argentina – Hides and Leather, para. 11.100.

(c) Thailand fails to respect Article X:3(b) becau se no mechanism exists under Thai law for the
review of guarantee values
4.10 Thailand fails to respect Article X:3(b) of the GATT 1994 because it provides no legal
mechanism whatsoever for the administrative or judi cial review of decisions taken by Thai Customs
to collect guarantees for customs duties and intern al taxes potentially due on the finally assessed
customs value. Article X:3(b) requires a WTO Memb er to maintain "tribunals or procedures" to
ensure "prompt review and correction of administ rative action relating to customs matters". Under
Thai law, an importer is unable to seek any "review and correction" of the imposition of guarantee
values, let alone a prompt "review and correction". Therefore, Thailand violates Article X:3(b) of the
GATT 1994.
3. Thailand violates numerous provisions of the Customs Valuation Agreement
(a) Thailand acted inconsistently with Articles 1. 1 and 1.2 of the Customs Valuation Agreement
by improperly rejecting PM Thailand's declared transaction values for a number of entries
(i) Thailand violated Article 1.1 by improperly rejecting PM Thailand's transaction values as the
basis for customs values
4.11 Thailand acknowledged that PM Thailand's declar ed transaction values were the "price paid
or payable".
12 However, Thailand rejected PM Thailand' s declared transaction value for two reasons,
namely because: (1) the importer and exporter are re lated; and, (2) another, unspecified importer
imports "the same type of goods" at "3 – 4 times" the value of PM Thailand's declared transaction
value.
4.12 Article 1 of the Customs Valuation Agreemen t provides that the customs value is, in
principle, the transaction value declared by an im porter. An authority may disregard the transaction
value, and apply other valuation methods under th e Customs Valuation Agreement, only if a valid
basis is available to do so. Neither of the two reasons relied on by Thailand provides such a valid
basis.
4.13 Thailand's first reason – that the importer and exporter are related – is expressly excluded in
Article 1.2(a) as the sole reason for rejecting transac tion value. Thus, the existence of a relationship
between the buyer (PM Thailand) and the seller (Philip Morris Philippines Manufacturing Inc ["PM
Philippines"]) is not, in itself, a legitimate ground for rejecting declared transaction values. Moreover,
this relationship has been known to the Thai author ities for a number of years before Thailand began
rejecting PM Thailand's declared transaction values.
4.14 Thailand's second reason – that another, unspeci fied importer imports "the same type of
goods" at "3-4 times" higher prices – is also flawed . The price declared by one importer cannot, in
itself, be the grounds for rejecting the declared tr ansaction value of another importer. Thailand's
reliance on this benchmark is also logically in consistent, because Thailand relied on the other
operator's prices to reject PM Thailand's declared transaction value, but then assessed PM Thailand's
customs value at a much lower value than the other operator's prices.
4.15 The Philippines believes that the unspecified "[ ]other importer" is a duty-free operator.
However, the purchase prices of the operator at issu e are not a permissible benchmark because this
operator: does not import goods into the Thai customs territory; is exempt from internal taxes, which

12 Minutes of Meeting "Re Prescription of Import Prices of Cigarettes for Solving the Problem
regarding Prescription of Cigarette Prices According to the Policy of the Ministry of Finance," dated 14 March
2007 – Annex 8 to Thai Government Submission in Thai Central Tax Court Case. Exhibit PHL-74.

influences the selling price to the du ty-free operator; and, is in a very different position in the value
chain than PM Thailand. Importantly, an Opinion by the World Customs Organization, requested by
Thailand itself before it began rejecting PM Tha iland's declared transaction values in August 2006,
confirms that values declared by a duty-paid im porter and a duty-free operator are not comparable,
without extensive adjustments. Thailand did not perform any such adjustments.
(ii) Thailand violated Article 1.2(a) because it fa iled to inform PM Thailand of the grounds for
considering that the relationship between PM Philippines and PM Thailand influenced the
price
4.16 Thailand failed to comply with its duty unde r Article 1.2(a) of the Customs Valuation
Agreement to communicate the "ground s" for considering that the re lationship between PM Thailand
and PM Philippines influenced the price. First, Thailand failed to communicate adequate grounds.
As previously explained, Thailand's stated grounds for rejecting the declared transaction values are
inconsistent with Article 1.1. The communi cation of WTO-inconsistent grounds for doubting
transaction values cannot satisfy the requirement under Article 1.2(a).
4.17 Second, when Thailand provided a statement in December 2006 to PM Thailand why it was
doubting the declared transaction value, it failed to state that PM Thailand's prices were 3-4 times
lower than the prices declared by another operator. There is evidence showing that Thailand relied on
the other operator's prices in doubting PM Th ailand's transaction values before December 2006.
Nonetheless, Thailand informed PM Thailand of that ground only 5 months later, in April 2007.
4.18 Third, Thailand failed to inform PM Thailand of its doubts in a timely fashion. Thai Customs
began rejecting transaction values on 4 August 20 06, and PM Thailand requested a statement of
grounds on 8 August 2006. Thaila nd did not respond to that requ est until 19 December 2006, i.e.,
four-and-a-half months later. During this exte nded period, PM Thailand was required to provide
onerous bank and cash guarantees, and had no opport unity to defend its declared transaction value.
Thus, for almost two thirds of the time that Thailand took to assess PM Thailand's customs values,
PM Thailand was given no indication as to why its declared transaction values were being rejected.
During this time, PM Thailand was deprived of any opportunity to respond effectively to the
authority's concerns and to inform its decision-making process.
(iii) Thailand violated Article 16 of the Custom s Valuation Agreement by not providing an
adequate explanation of its customs value determination for entries at issue
4.19 Thailand's 12 April 2007 letter also violated Artic le 16 of the Customs Valuation Agreement.
First, Thailand failed to explain adequately w hy it rejected PM Thailand's declared transaction
values. Thailand's stated ground was that PM Thaila nd and PM Philippines are related, but it did not
explain how this relationship allegedly influenced the price between the parties. Moreover, Thailand's
one-sentence reference to imports from another impor ter "with 3-4 times price difference" is vague
and unclear, and failed to explain: who that "impor ter" is; from where it imports its goods; why its
prices serve as an indicator of what PM Thailand declared transaction values should be; and what
adjustments, if any, were made for that comparison.
4.20 In addition, the other "importer" appears to be a duty-free operator. PM Thailand informed
Thailand in August 2006 that a comparison of its prices with those of a duty-free operator was not
relevant or appropriate. In its April 2007 communica tion, Thailand failed to explain, in the light of
that comment, why it nevertheless considered that th e prices of a duty-free operator were pertinent.
Thailand also failed to explain why the "3-4 times" higher values of the other operator served as a
benchmark to reject PM Thailand's transaction va lues, but not as a benchmark to assess the customs
values.

4.21 Second, the communication's bald reference to the use of a "Fall Back" valuation method,
based on a deductive method, failed to explain precisely how and on what basis Thai Customs
calculated the assessed values. Third, Thailand al so failed to explain why the assessed values are
internally inconsistent. Thailand assessed at diffe rent values shipments entered at the same time,
sometimes on the same day, and under the same ci rcumstances. This erratic and arbitrary decision-
making demonstrates the crucial importance of adequate explanations.
(iv) Thai Customs violated Article 5 of the Customs Valuation Agreement by declining to use a
deductive valuation methodology without an adequate reason
4.22 Assuming that Thailand was entitled to reject PM Thailand's declared transaction values
under Article 1 of the Customs Valuation Agreement (quod non), Thailand violated Article 5 of the
Customs Valuation Agreement because it had no va lid reasons for declining to use the deductive
valuation method under this provision. Thailand's reason was that PM Thailand could not submit
audited financial statements for 2006. However, Article 5 does not require that the importer's "profits
and general expenses" be based on the audited financial statement for the year of importation. Indeed,
in an internal government document, Thai Cu stoms stated on 6 March 2007 that PM Thailand's
audited financial statement for 2005 – which were available to Thai Customs – provided a reliable
statement of profit and general expenses and could be used for valuation purposes. As a result,
Thailand violated Article 5 of the Customs Valua tion Agreement by failing to value PM Thailand's
goods using the deductive method under that provision.
(v) Thailand violated Article 7 of the Customs Valuation Agreement by failing to apply
"reasonable means" to value PM Thailand's cigarettes and instead relying on "arbitrary and
fictitious values"
4.23 Thailand valued PM Thailand's imports using th e "Fall Back" method under Article 7 of the
Customs Valuation Agreement, although it failed to disclose the specific methodology used. Under
Article 7, customs value must be determined us ing "reasonable means", which requires the use of
objective criteria that generate transparent, consiste nt, and predictable results. Thailand failed to use
"reasonable means" in its valuation of PM Thailand 's entries as evidenced by its inconsistent and
erratic decisions for PM Thailand's entries. Although these entries were made under the same
circumstances, Thailand valued the entries differently , including entries that were cleared on the same
day.
4.24 Further, Thailand's inconsistent and erratic decision-making demonstrates that Thailand
violated Article 7.2(g) by using "arbitrary or fictitio us values". For example, in a situation where two
entries cleared on the same day, Thailand accepted the transaction value for one of these entries, but
rejected it for the other entry, and then assessed a value above the transaction values.
4.25 Thailand also violated Article 7.3 by failing to provide an adequate explanation of the
valuation method used. Although Thailand disclosed that it had used a deductive method, Thailand
did not disclose: the starting point of the deductive calculations, the nature or amount of the
deductions made, the data sources used, and how the deductive method differed from deductive
valuation under Article 5.
(vi) Thailand violated Article 10 of the Customs Va luation Agreement by disclosing in the Thai
media confidential customs valuation information provided by PM Thailand
4.26 During August 2006 and for some weeks thereaft er, Thai Government officials repeatedly
disclosed to the Thai Press, PM Th ailand's declared transaction values. These repeated disclosures of
highly confidential information violated Article 10 of the Customs Valuation Agreement, which
requires that all information which is by nature confidentia l, or which is provided on a confidential

basis for purposes of customs valuation, be treated as "strictly confidential". Authorities must "not
disclose [that information] without the specific perm ission of the person" providing the information.
PM Thailand never authorized the disclosure of this information.
4. Claims pertaining to VAT
(a) Thailand violates Article X:1 of the GATT 1994 by not publishing the methodology used to
determine the tax base for VAT, i.e., the government-fixed MRSP
4.27 Under Thai law, the tax basis for VAT is a government-fixed MRSP determined for each
domestic and imported brand. To comply with Article X:1 of the GATT 1994, and consistent with the
Dominican Republic – Import and Sale of Cigarettes , Thailand must publish the "essential
information" concerning (a) the overall methodology u sed to determine the MRSPs for each brand;
(b) the methodology used to obtain data, including price surveys in Thailand and other countries, and
(c) the data relied upon by DG Excise in making its re gulations or rulings, including the results of any
surveys. Contrary to Article X:1 of the GATT 1994, Thailand has not published laws or regulations
addressing any of this information.
(b) Thailand imposes higher VAT on imported pro ducts than on domestic products, thereby
violating Article III:2 of the GATT 1994
4.28 Thailand violates Article III:2 of the GATT 1994 because it imposes VAT on imported
cigarettes "in excess" of VAT imposed on "like" domestic cigarettes. Imported and domestic
cigarettes are "like products" within the meaning of Article III:2 for the following reasons. They have
the same essential physical characteristics consisting of a paper tube, a mix of tobacco and additives,
and a filter. They have the same "end uses", and Thai consumers treat and perceive imported and
domestic brands as substitutable products satisfying the same demand. There is also market-based
evidence demonstrating that consumers "switch" between domestic and imported brands. The
cigarettes also fall under the same tariff heading, and Thailand makes no regulatory distinctions
between different types of manufactured cigarettes.
4.29 Imported cigarettes are taxed "in excess" of domestic cigarettes because MRSPs are higher
for imported than for domestic cigarettes. Consider ing the totality of the Thai cigarette market, over
90 per cent of imported cigarettes have a higher MR SP than over 95 per cent of domestic cigarettes.
Excess taxation of imported cigarettes also ar ises because Thailand established the MRSPs for
domestic cigarettes at the level of the retail selli ng price ("RSP"), whereas the MRSPs for imported
cigarettes are typically above the RSP. Because of this "gap" between the MRSP and RSP, imported
cigarettes are subject to a higher relative VAT burden than domestic cigarettes.
4.30 Thailand has not published the general rules used to calculate the MRSPs. Nonetheless, the
methodology used to calculate the September 2006 and March 2007 MRSPs has been disclosed and
involves discrimination prejudicial to imported bran ds. The methodology involved the addition of a
gross margin, which was 250 per cent higher for imported brands ( Marlboro and L&M) than for
domestic brands. For these imports, Thailand declined to use the importer's actual gross margin, even
though Thai Customs expressly found that this margin was "reliable" and, instead, Thailand
constructed a margin based on alle ged and undisclosed price surveys. In contrast, for domestic
brands, Thailand used TTM's actual gross margin.

(c) Thailand's de jure exemption of resellers of domestic cigarettes from VAT violates
Articles III:2 and III:4 of the GATT 1994, because the same exemption is not afforded to
resellers of imported cigarettes
4.31 Thailand also violates Article III:2 of the GATT 1994 by exempting resellers of domestic
cigarettes from VAT liability but not so exempting r esellers of imported cigarettes. Thus, resales of
imported products are subject to VAT, whereas resal es of domestic products are not. This constitutes
less favourable treatment, and excess taxation, of imported products that are "like" domestic products.
4.32 Thailand's exemption from VAT of domestic cigarettes also results in a violation of
Article III:4 of the GATT 1994. There are two elements to this violation. First, because resellers of
imported cigarettes are liable to pay VAT, they are also subject to VAT-related administrative
requirements from which resellers of domestic cigarettes are exempt. These administrative
requirements include the requirement to prepare and de liver a tax invoice; to maintain VAT records;
and to accept tax audits. These administrative requi rements constitute less favourable treatment for
imported cigarettes than for domestic cigarettes.
4.33 Second, if a reseller of imported cigarettes wishes to eliminate its VAT liability on resales, it
must claim a tax credit for VAT paid by the entity from which it bought the cigarettes. To obtain the
tax credit, the reseller is subject to an administrative procedure. Resellers of domestic cigarettes are
not subject to VAT, and are therefore not subject to this procedure. Again, this constitutes less
favourable treatment for imported cigarettes than for domestic cigarettes.
(d) Thailand administers the VAT system for one set of MRSPs for imported cigarettes in a
manner that is not uniform, reas onable and impartial, as require d by Article X:3(a) of the
GATT 1994
4.34 Thailand fails to administer its VAT system in a uniform, reasonable and impartial manner, as
required by Article X:3(a) of the GATT 1994. Th e Philippines' claim focuses on the VAT base, i.e.,
the MRSP. Thailand's administration of the VAT sy stem has not been "uniform", because the MRSP
tax base for imported cigarettes has been administered using different criteria and different calculation
inputs. Sometimes the calculations have been notional amounts, never actually paid, based on a
guarantee value. At other times, the calculati ons have been actual amounts based on the assessed
customs value. The guarantee value and the assessed customs value are legally different and serve
different purposes. Thailand's use of these different approaches has had an impact on the level of the
tax base and, hence, the tax burden. Because the MRSP lies at the heart of Thailand's VAT system,
the calculation of the MRSP using different criteri a means that a key component of Thailand's VAT
system is not uniformly administered.
4.35 Thailand's administration of the VAT system is also not "reasonable" and "impartial".
Specifically, the September 2006 MRSPs evidence unr easonable and partial administration, because
Thailand used a guarantee value as the starting-point for the MRSP calculation. This guarantee value
was described by Thailand as the "highest rate to which the products would be subject [to customs
duties]". It is not "reasonable" within the meani ng of Article X:3(a) to use an estimate of the
"highest" possible customs value to calculate a definitiv e tax. Indeed, even in Thai law, the guarantee
value is not treated as having a definitive character , and is instead used only to collect guarantees for
customs duties, as well as the excise, health and television taxes that may become due following the
assessment of the customs value.
4.36 Thailand's administration is also not "reasonable", because the amounts added in the MRSP
calculation are purely notional, and not the actual amounts ultimately paid on the basis of the assessed
customs value. To the extent that domestic law ca lls for the tax base to be established by the addition
of amounts for customs duties and internal taxes, reasonable administration under Article X:3(a)

precludes the addition of speculative, notional amounts. Moreover, Thailand also engages in "partial"
administration, because the starting-point for the MRSP calculation for domestic cigarettes is not
based on a "highest" estimated value but is, instead , the actual ex factory prices published in MRSP
Notices.
4.37 Finally, Thailand's administration of its VAT sy stem is not "reasonable" because Thailand
fails to establish and apply generally applicable criteria for determining the MRSP. Reasonable
administration of a tax requires that generally app licable rules be established to regulate the way in
which a tax base is determined with respect to subject products. The need for such rules has particular
importance in the case of taxes because they impose a direct pecuniary charge on subject persons and
goods.
5. Claims pertaining to the excise, health, and television taxes
(a) Thailand violates Article X:1 of the GATT 1994 by failing to publish the rules regarding the
determination of the ex factory price
4.38 Under Thai law, the government-determined ex factory price is the basis for the excise, health
and television tax on domestic cigarettes. The de termination of ex factory prices falls within the
scope of Article X:1, because it is a "regulation" or "administrative ruling" pertaining to "taxes or
other charges". Thailand publishes only the amount of the ex factory price, without providing any
further information on how that price is de termined. However, as the Panel found in Dominican
Republic – Import and Sale of Cigarettes, Article X:1 requires Thailand to publish the methodologies,
formulae and data used to determine the ex fact ory prices. Because Thailand has not done so, it
violates Article X:1.
(b) Thailand violates Article X:1 by failing to pub lish laws and regulations governing the release
of guarantees for potential liability for health, excise and television taxes
4.39 When Thailand delays the assessment of cust oms value, an importer may withdraw its
cigarettes from customs if it provides guarantees for its potential liability for customs duties, and for
excise, health and television tax. The guarantees are based on a guarantee va lue determined by Thai
Customs. If the subsequently assessed customs value is lower than the guarantee value, the importer's
liability for customs duty, excise, health and televi sion tax is lower than the guaranteed amount. In
that case, as occurred in July 2008, Thailand releases the guarantees to the extent that they exceed the
customs duties and taxes payable on the customs valu e. However, Thailand has published no laws or
regulations governing the release of these guarantees. This is contrary to Article X:1 because rules
concerning the release of guarantees are "[l]aws" or "regulations" "pertaining to … the valuation of
products for customs purposes", within the meaning of that provision.
(c) Thailand violates Article X:3(a) of the GATT 1994 by administering its excise, health and
television taxes in a non-uniform, unreasonable and partial manner
4.40 Thailand's administration of its excise, health, and television taxes is not uniform, reasonable
and impartial, contrary to the requirements of Artic le X:3(a) of the GATT 1994. Under Thai law, for
imported cigarettes, the base for the imposition of these taxes is the assessed customs value plus the
applicable customs duties ("Duty-P aid c.i.f. Price"). In some circumstances, however, Thailand
administers the taxes using a tax base that is without foundation in Thai law.
4.41 Specifically, in cases where: (1) Thai Custom s rejects the declared customs value and
assesses a higher value, and subsequently (2) that assessment is reversed and reduced following an
administrative or judicial ruling, Thailand does not collect the excise, health and television taxes on
the basis of the Duty-Paid c.i.f. Price. Instead, Thailand uses an unlawful tax base to collect the

excise tax, because it collects the tax on the basis of an initial incorrect valuation decision by Thai
Customs, which is then revised downwards on app eal. By definition, following administrative or
judicial reversal, the authorities' incorrect valua tion decision has no basis in Thai law and is not
warranted by the facts.
4.42 Thailand's administration is not uniform within the meaning of Article X:3(a), because the
excise tax is sometimes administered on the basi s of the assessed customs value (where that
assessment is correctly made by Thai Customs) and sometimes on the basis of another value that is
not the correctly assessed customs value (where Thai Customs has been found to have incorrectly
assessed the customs value). Thailand's administration is also not reasonable. As the Panel in
Dominican Republic – Import and Sale of Cigarettes found, it is not reasonable, under Article X:3(a),
to administer a consumption tax using a tax base that has no foundation in domestic law.
4.43 Finally, Thailand's administration of the excise, health and television taxes on imported
cigarettes is not impartial, because it lacks ev en-handedness. In particular, whereas imported
cigarettes are sometimes taxed in excess of the lawful tax base, domestic cigarettes are taxed on the
basis of the ex factory price, and never taxed in excess of that price.
6. Request to the Panel to seek specific docume nts from Thailand pursuant to Article 13 of
the DSU
4.44 The Philippines requests the Panel to exercise its authority to seek 21 specifically identified
documents (or categories of documents) from Thailand , pursuant to Article 13 of the DSU. Access to
these documents will facilitate the Panel's objectiv e assessment of the ar guments and evidence
presented by the Philippines
B. E
XECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION OF THAILAND
1. Introduction
4.45 This executive summary of Thailand's first written submission of 11 May 2009 responds to
the claims set out in the Philippines' first written submission of 23 March 2009.
4.46 The Philippines argues at length that Thailand improperly structures its governmental
operations, including the state-owned enterprise, TTM, and, as a result, acts inconsistently with its
obligations under the WTO Agreements, including under the Customs Valuation Agreement and
Article III of the GATT 1994. The real question before this Panel, however, is whether the
Philippines has proven that Thailand has applied its customs valuation and domestic taxation laws
improperly to cigarettes from the Philippines. Th is question must be addressed by reference to
Thailand's WTO obligations with respect to cu stoms valuation, under the Customs Valuation
Agreement, and with respect to national treatment, under Article III of the GATT 1994
2. Legal argument
(a) Claims under the Customs Valuation Agreement
(i) Thai Customs acted consistently with Articles 1.1 and 1.2 of the Customs Valuation
Agreement
Thai Customs had "doubts about the acceptability of the price"
4.47 The Customs Valuation Agreement does not e xplain or qualify what kind of information
constitutes "doubts" about the acceptability of the price. Thai Customs had legitimate doubts about

the acceptability of the transfer price between PM Thailand and PM Philippines as the customs value.
These doubts were based on the information that another importer was importing the same Philip
Morris brand cigarettes at c.i.f. prices approximately three times PM Thailand's transfer price. Thai
Customs communicated these doubts to PM Thailand in August 2006, when it first ceased to accept
automatically the transaction value and began to require guarantees on imports of PM Thailand.
PM Thailand failed to establish that the relationship did not influence the price

4.48 The Philippines argues that "the rejection of customs value is based on speculation that the
relationship might have influenced the price, and it has not been proved otherwise". 13 However, the
importer, not the customs administration, bears the burden of establishing that the relationship
between buyer and seller did not influence the price. As the WCO informed Thai Customs, "since the
acceptance of the transaction value is prima facie ba sed on the condition that the buyer and seller are
not related, the burden of proof is generally considered to be on the importer to demonstrate that the
transaction value is otherwise acceptable in spite of the fact that the buyer and seller are related" .14
In addition, in response to the question "is the impor ter responsible for ensuring that the price has not
been influenced by the relationship...?", the WTO Technical Committee stated, "[y]es. When
declaring the customs value under the transaction value method the importer has an obligation to
ensure to the greatest extent possible that the price is not influenced".15
4.49 When Thai Customs communicated its doubts rega rding the transfer price to PM Thailand,
PM Thailand bore the burden of establishing that the relationship did not influence the price.
However, in the period between 4 August 2006, wh en Thai Customs notified PM Thailand of its
doubts as to the acceptability of the transfer price, and 6 March 2007, when Thai Customs met with
PM Thailand's representatives to resolve en bloc outstanding issues regarding the valuation of
PM Thailand's imports, PM Thailand presented no evidence or otherwise took no steps to discharge
its burden of proving that the relationship did not in fluence the price. In addition, even after the 6
March 2007 meeting, PM Thailand fa iled to establish that the relationship had not influenced the
price. For example, in a letter to Thai Cust oms dated 14 March 2007, PM Thailand asserted that it
"negotiates with the exporter in the foreign country on an arm's basis in a manner consistent with the
normal practice in the cigarette industry ...".
16 However, PM Thailand offered no supporting evidence
whatsoever for this assertion. In these circumstances, Thai Customs could not rely on the transaction
value as the basis for customs value for the [[xx. xxx.xx]] entries listed in the Philippines' panel
request, because the importer had failed to resolve the doubts about the acceptability of the price.
Because PM Thailand failed to establish that the relationship did not influence the price, Thai
Customs properly declined to use the transaction value as the customs value
4.50 PM Thailand failed to establish that its relations hip with PM Philippines did not influence the
price. Consistently with Articles 1.1 and 1.2 of the Customs Valuation Agreement, Thai Customs did
not use the transaction value as the customs valu e for the [[xx.xxx.xx]] entries listed in the
Philippines' panel request. Instead, Thai Cust oms used the deductive method to determine the
customs value. Thus, the grounds on which Thai Customs did not use the transaction value as the
customs value were that PM Thailand failed to est ablish that the relationship did not influence the
transfer price. Contrary to the Philippines' argument, Thai Customs did not rely on a comparison
between PM Thailand's c.i.f. prices and the c.i.f. prices for duty-free imports as a ground for rejecting
the transaction value. The c.i.f. prices for duty -free imports constituted the reason why Thai Customs
had doubts about the acceptability of the price, but were not the ultimate grounds for not using the

14 Exhibit THA-9, p. 2 (emphasis added).
15 Technical Committee, Commentary 14.1, para. 16, Exhibit THA-26.
16 Exhibit THA-28.

transaction value as the customs value. Accordingly, Thai Customs did not act inconsistently with
Articles 1.1 or 1.2 of the Customs Valuation Agreemen t in not using PM Thailand's transfer price as
the customs value.
Thai Customs properly informed PM Thailand of the grounds for not using PM Thailand's
transfer price as the customs value
4.51 By letters dated 19 December 2006 and 12 Apr il 2007, Thai Customs clearly explained in
writing to PM Thailand that the transaction values we re not being used as the basis for customs value
"because the importer has yet to prove if the said relationshi p influences the customs value
determination or not" and "it cannot be proven wh ether the relationship has an influence on the
determination of customs value or not". 17 The minutes of the 6 March 2007 meeting also make clear
that Thai Customs acted because the importer "could no t prove" that the relationship did not affect the
price.18 In addition, as indicated in the notice of assessment provided in Exhibit THA-15, Thai
Customs informed PM Thailand that the entry at issue was being valued pursuant to the "price
assessment methodology number 6 deductive value pur suant to the minutes of the meeting dated
6 March". Thus, Thailand acted consistently with Article 1.2 of the Customs Valuation Agreement by
informing PM Thailand of the grounds.
(ii) Thai Customs acted consistently with Article 16 of the Customs Valuation Agreement
4.52 The Philippines claimed that Thai Customs ac ted inconsistently with Article 16 of the
Customs Valuation Agreement by failing to provide an adequate explanation of the determination of
the customs value of the [[xx.xxx.xx]] entries at issue. 19 As noted above with respect to the
Philippines' claim under Article 1.2, Thai Custom s fully informed PM Thailand of the grounds on
which it was acting.
4.53 In addition, Thai Customs fully informed PM Thailand how the customs value was actually
determined. In the 12 April 2007 letter, Thai Customs explained that "in the determination of customs
values, Method 6, which is the 'fall back' method, using the deductive method, was used (according to
the Ministerial Regulation no. 132/2545, Clause 3) under Article 7 of the GATT 1994 ... Please be
informed accordingly". In addition, PM Thailand was also provided with a detailed explanation of
why the deductive value was used and how it was calcu lated at the 6 March 2007 meeting, at which it
was represented by its accountants.20
(iii) Thai Customs acted consistently with Articles 5 and 7 of the Customs Valuation Agreement in
using the deductive method to determine the customs value for PM Thailand's imports
4.54 Thailand used the "deductive method" under Ar ticle 5 of the Customs Valuation Agreement
to determine the customs value of PM Thailand' s imports. Thailand explained this clearly to
PM Thailand at the meeting of 6 March 2007 and in its letter of 12 April 2007. 21 In the minutes of the
6 March 2007 meeting, Thai Customs stated that it was using the deductive value method pursuant to
Method 6 of Thai Customs' regulations, which corr esponds to the "fall back" method of Article 7,

17 See Exhibits PHL-66 and PHL-70.
18 Exhibit PHL-74, p. 4.
19 Philippines' first written submission paras. 287-324 and para. 715, third bullet.
20 Exhibit PHL-74, list of attendees.
21 See Exhibits PHL-70 and PHL-74.

rather than pursuant to Method 4 of its regulations 22, which would correspond to Article 5 of the
Customs Valuation Agreement.23
4.55 Thai Customs considered that its own regula tions prevented it from using the deductive value
under Article 5 of the Customs Valuation Agreemen t where current financial information was not
available but permitted it to use the deductive valu e under Method 6 using the most recent available
financial information. It is largely irrelevant how that method was described under municipal law 24:
the question is whether the deductive value method actually used by Thai Customs was consistent
with Article 5 of the Customs Valuation Agreemen t. The Philippines argues that Article 5 of the
Customs Valuation Agreement does not require that the customs administration use company data
from the year of importation in determining the deductive value. 25 This means that Thai Customs'
determination of the deductive value using the most recent available financial information was
consistent with Article 5 of the Customs Valuation Agreement.
4.56 Since this is the only ground on which the Philippines challenges Thai Customs'
determination of customs value as inconsistent with Article 5, the Panel should reject the Philippines'
claim under that article. 26 Because Thai Customs acted consistently with Article 5 in using the
deductive method, the Philippines' claim under Arti cle 7 of the Customs Valuation Agreement is
moot.
(b) Claims under Article III of the GATT 1994
4.57 Thailand's VAT system for cigarettes was designed so that Thailand would be able to ensure
collection of taxes on all sales of all cigarettes, both domestic and imported, thereby furthering
Thailand's revenue and public health objectives with respect to the sale of cigarettes in the Thai
market. For these reasons, Thailand decided to use a fixed price for each brand of cigarettes as the tax
base for VAT purposes. This fixed price is the MR SP, which is determined and used in the same
manner for both domestic and imported brands.
4.58 The Panel's terms of reference with respect to the use of MRSPs as the tax base for VAT are
limited to the MRSP notices in effect at the time of the establishment of the Panel, as listed in the
Philippines' request for the establishment of a pa nel. Previous MRSP notices (including those for
imported cigarettes in 2006 and 2007) that had been supe rseded and had ceased to have legal effect as
of the date of the establishment of the panel and that were not listed in the panel request are not within
the Panel's terms of reference.
(i) Thailand acted consistently with Article III:2 by using the MRSP as the VAT tax base
The Philippines has failed to establish that all imported cigarettes and all domestic cigarettes
are "like products"
4.59 The Philippines argues that all imported cigarettes and all domestic cigarettes are "like
products" within the meaning of the first sentence of Article III:2. 27 The Philippines does not make
the claim that imported and domestic cigarettes are "directly substitutable or competitive" under the
second sentence of Article III:2. The concept of "like products" under Article III:2, first sentence,
must be distinguished from products that are mere ly "directly substitutable or competitive". The

22 Thailand notes that due to a typographical error, Method 4 was inadvertently referred to as Method 5
in paras. 184-186 of its first written submission.
23 Exhibit PHL-74, p. 5.
24 See, e.g. Panel Report, US – Hot-Rolled Steel, para. 7.267.
25 Philippines' first written submission, paras. 342-353.
27 Philippines' first written submission, paras. 464-486.

Appellate Body has clarified that the definition of "like products" in Article III:2, first sentence,
should be construed narrowly
28; and only " perfectly substitutable products fall within Article III:2,
first sentence".29
4.60 There are a total of 19 domestic brands 30 and 86 imported brands 31 in the Thai market.
However, the evidence on consumer preferences supplied by the Philippines relates only to three
domestic brands and two imported brands. The Philippines has, thus far, failed to supply the evidence
on consumers preferences regarding all of these brands necessary to discharge its burden of proof.
4.61 The Philippines' evidence regarding the five "m ajor cigarette brands" consists primarily of
data on so-called "switch in" and "switch out" ratios 32, which are poor indicators of consumer
perceptions of substitutability. The sw itch in and switch out ratios between Marlboro and domestic
brands also appear to be relatively low. This ev idence does not support a finding that the five "major
cigarette brands" are "perfectly substitutable" "lik e products" within the meaning of the first sentence
of Article III:2. Also, the fact that there are si gnificant price differences between cigarette brands
indicates that all of these brands cannot be deemed to be "like" products. 33 Thus, the Philippines has
failed to discharge its burden of proving that all imported cigarettes and all domestic cigarettes are
"perfectly substitutable" and, therefore, "like products".
The Philippines has failed to establish that Thailand discriminates against imported cigarettes
4.62 The Philippines claims that imported cigarettes are taxed "in excess" of domestic cigarettes
because the MRSPs for virtually all imported cigarettes are above the MRSPs for virtually all
domestic cigarettes. However, it does not matter whether the MRSPs of imported cigarettes exceed
those of domestic cigarettes. The determination of whether an internal tax discriminates against
imported goods within the meaning of Article III:2 depends on whether the tax base for imported and
domestic cigarettes is established and applied in a manner that affords protection to domestic
cigarettes. The fact that the tax base for some cigarettes may be higher than the tax base for other
cigarettes does not reveal anything about whether the tax base is discriminatory within the meaning of
Article III:2.
4.63 The Philippines also argues that imported ci garettes are taxed "in excess" of domestic
cigarettes because the MRSP for imported brands exceeds the actual retail price while "such gaps
have never arisen for domestic cigarettes".
34 Actually, the Philippines' evidence does not support this
assertion with respect to domestic cigarettes. Even if it did, it would not establish that the MRSPs are
established in a discriminatory manner. First, Artic le III:2 does not prescribe a particular system of
internal taxation and it is not inc onsistent with Article III:2 to use a fixed price as the VAT tax base.
A comparison between the tax base chosen by a Me mber (e.g., the MRSPs) and a tax base that was
not chosen by the Member (e.g., the retail price) cannot in itself establish that a Member's tax base is
applied inconsistently w ith Article III:2. Both ad valorem and specific taxes (and a mix of the two)
are permissible under Article III:2. Thus, the Phili ppines' argument simply attempts to show that
there is a difference between the MRSP and the retail price for one impor ted brand and not for
domestic brands. It is not evidence of discrimination. Finally, Marlboro cigarettes are being sold at

28 Appellate Body Report, Japan – Alcoholic Beverages II, p. 20.
29 Appellate Body Report, Korea – Alcoholic Beverages, para. 118.
30 See Exhibit PHL-105.
31 See Exhibit PHL-77.
33 To illustrate, imported cigarettes marketed under the brand Marlboro have a recommended RSP that
is [[xx.xxx.xx]] per cent higher than that of the domestic brand Wonder and [[xx.xxx.xx]] per cent higher than
that of the domestic brands Krongthip and Falling Rain. See, Philippines' first written submission, para. 498,
table 4.
34 Philippines' first written submission, para. 499 (emphasis in original).

below the MRSP because PM Thailand took a business decision to do so. 35 The business decisions of
private companies cannot give rise to violations by Members of their GATT obligations. Article III:2
does not require Thailand to change its tax base simply because PM Thaila nd chooses to reduce its
prices.
4.64 Finally, the Philippines argues that imported cigarettes are taxed "in excess" of domestic
cigarettes because there were diffe rences in the methodologies used to determine the 2006 and 2007
MRSPs. As noted, the MRSPs for 2006 and 2007 (for imported cigarettes) are not within the Panel's
terms of reference. For these reasons, the Philippines has failed to make a prima facie case that, under
Thailand's VAT system, imported cigarettes are taxe d "in excess" of domestic cigarettes within the
meaning of Article III:2 of the GATT 1994 and the Panel should reject the Philippines' claims.
4.65 In any case, the MRSPs are calculated in the same manner for both imported and domestic
brands. The starting points for imported (the duty pa id c.i.f. price) and domestic brands (the ex
factory price) are equivalent as each is the price at which the cigarettes are first introduced to the Thai
market. The MRSP is initially based on the MR SP proposed by the manufacturer and updated
whenever the applicable tax rates are changed, or to reflect changes in the manufacturer's c.i.f. or ex
factory price or where the manufacturer proposes a change in the light of market circumstances.36
4.66 The Philippines argues that because MRSPs are periodically adjusted, the VAT burden is
sometimes increased for imported cigarettes but left unaltered for domestic cigarettes. This is because
the MRSPs may be adjusted in response to a requ est by the manufacturer (of either domestic or
imported brands), and is not evidence of any discr imination in the setting of the MRSPs. In these
circumstances, nothing in the use of the MRSPs as the tax base in Thailand's chosen VAT system
gives rise to discrimination between imported a nd domestic cigarettes and hence a violation of
Article III:2.
(ii) Thailand acted consistently with Article III:2 of the GATT 1994 with respect to the taxation of
resales of cigarettes
4.67 The Philippines claims that by [allegedly] ta xing the resale of imported cigarettes, but not
taxing the resale of domestic cigarettes, Thailand acts inconsistently with Article III:2.37 However, the
Philippines has failed to make a prima facie case. As illustrated in Exhibit THA-20, the tax burden on
imported and domestic cigarettes is exactly the same. The Philippines' explanations of the Thai VAT
system also reach the same conclusion, i.e., that the amount of VAT paid is exactly the same for both
imported and domestic cigarettes. 38 In addition, in practice, wholesalers and retailers incur no net
VAT liability with respect to resales of either imported or domestic cigarettes. 39 Accordingly, the
Panel should reject this claim.
(iii) Thailand acted consistently with Article III:4 of the GATT 1994 with respect to the
administrative requirements for its VAT system
4.68 The Philippines claims that Thailand acts inc onsistently with Article III:4 because a reseller
of imported cigarettes is subject to administrative requirements that are not imposed on resellers of
domestic cigarettes.40 However, the Philippines has failed to establish that any differences between
the reporting requirements modify the conditions of competition in favour of domestic cigarettes or

35 See Philippines' first written submission, para. 498, n. 385.
36 The examples provided in Exhibits THA-19 illustrate how this works with respect to examples based
on both domestic and imported brands.
37 Philippines' first written submission, paras. 517 and 546.
38 Philippines' first written submission, paras. 529-537.
39 See Exhibit THA-20.

results in "less favourable" treatment of imported cigarettes. First, any differences are minimal:
wholesalers and retailers are required to include sales of imported cigarettes (as well as all other
domestic and imported products subject to VAT) on their monthly VAT return and to maintain tax
invoices and input/output reports with respect to sales subject to VAT while wholesalers and retailers
that deal exclusively in VAT-exempt domestic ci garettes are not required to submit and maintain
these documents. However, these wholesalers a nd retailers must maintain equivalent
revenue/expenses reports with respect to sales of dom estic cigarettes. In addition, wholesalers and
retailers generally buy and sell bot h domestic and imported cigarettes. Since there are no different
chains of distribution with wholesalers and retailers dedicated uniquely to either domestic or imported
cigarettes, all wholesalers and retailers are subject to the same administrative requirements.
4.69 The reason for this minor difference in treatment is that because TTM is legally responsible
for all taxes on the cigarettes they sell and, as a governme nt entity subject to government control and
audit, presents no risk of tax underpayment, there is no need to submit resellers to the normal VAT
reporting, collection and enforcement mechanisms. Since importers such as PM Thailand are not
legally responsible for all taxes on their cigarettes, the resellers of those cigarettes present the same
risk of underpayment as any other sale of a produc t – domestic or imported – subject to VAT. The
resales of the imported cigarettes are, therefore, subject to the same normal VAT reporting, collection
and enforcement mechanisms as ot her products subject to VAT. The Philippines fails to explain how
this difference "modifies the conditions of competiti on in the relevant market to the detriment of
imported products".
41
4.70 If the Panel considers that the minor differences in reporting requirements for sales of
imported and domestic cigarettes modify the conditions of competition to the detriment of imported
products, Thailand submits that these differences are justifiable under paragraph (d) and the chapeau
of Article XX of the GATT 1994. Imported cigare ttes are subject to the basic reporting, collection
and enforcement mechanisms of Thailand's VAT law. These measures are necessary to secure
compliance with VAT law in that it is difficult to see how Thailand could administer its VAT system
without requiring VAT payers to maintain and submit the requested documents. Given that these
measures are applied to all products , imported or domestic, subject to VAT, they are not applied in a
manner that constitutes an arbitrary or unjustifiable discrimination or a disguised restriction on
international trade. Thailand's VAT reporting requi rements represent a minimal level of bureaucracy
for any tax system and, therefore, fall squarely within the scope of Article XX(d) and the chapeau to
Article XX.
(c) Claims under Article X of the GATT 1994
(i) Thailand acted consistently with Article X:3(a) with respect to its ownership of TTM
4.71 The Philippines asserts that Thailand acts inco nsistently with Article X:3(a) because
government officials that are TTM directors also have decision-making power over imported and
domestic cigarettes.
42 The Philippines argues that this creates an inherent danger that those officials
"could use their governmental powers in a manner that confers a competitive advantage on their own
company, TTM, and its products".43 However, Article X:3(a) must be interpreted to address only how
Members actually administer their laws and not to address perceptions or risks as to how Members
could administer their laws.
4.72 The Philippines' claim does not refer to the manner in which Thailand actually administers
any of its "laws, regulations, decisions, and rulings ". The Philippines' claim relates exclusively to

41 Appellate Body Report, Dominican Republic – Import and Sale of Cigarettes, para. 93.
42 Philippines' first written submission, paras. 69-87 and para. 714, first bullet.
43 Philippines' first written submission, para. 79 (emphasis added).

how Thailand could administer its customs laws a nd regulations rather than to how Thailand actually
does so. Moreover, the only evidence provided by the Philippines is two quotes from Thailand's
Minister of Finance in the press. These statements are not sufficient evidence to support a claim that
Thailand has failed to administer its customs and ta x laws in a reasonable and impartial manner under
Article X:3(a).
4.73 The Philippines' proposed interpretation of Artic le X:3(a) to address "risks" of how Members
"could" administer their laws would broaden th e scope of that provision to impose additional
obligations with which Members, including the Philippines, could not possibly comply.
Article X:3(a) was intended to address situations in which the risk of improper action by governments
became a reality, not to eliminate entirely the possibility of such risk.
4.74 Under Article XVII of the GATT 1994, Thailand en joys the right to maintain and operate
state-owned enterprises such as TTM. Article X:3(a) does not regulate the manner in which Members
exercise their sovereign rights with regard to the structure of their state enterprises or, indeed, their
customs and excise departments. In this sense, the Philippines' claim is, in e ffect, an attack on the
sovereign right of the Thai government to maintain and operate a state-owned enterprise. The Panel
should not read into that provision additional oblig ations limiting the rights of Members to maintain
state enterprises and to decide for themselves how they will exercise control over those enterprises.
4.75 The panel report on Argentina – Hides and Leather does not support the Philippines' position.
That case involved the presence of private sector indivi duals at the export clearance process. As that
Panel noted, however, the government has a relevant lega l interest in the transaction. In addition, that
case involved actual access to information rather than the risk of access. Finally, there are several
controls requiring Thai government officials to act consistently with the law in the course of their
duties.
(ii) Thailand acted consistently with Article X:3(a) and X:3(b) with respect to "administrative
tribunals for the purpose of prompt review"
4.76 The Philippines claims that Thailand acted incons istently with Articles X:3(a) and X:3(b) of
the GATT 1994 "because Thailand has failed to ensure that administrative appeals against customs
valuation decisions are resolved promptly". 44 However, the Philippines does not explain how the text
of Article X:3(a) imposes a specific time limit on the completion of administrative proceedings.
Article X:3(a) was not intended to impose absolute deadlines on Members within which to complete
such administrative proceedings. Absent any such deadline in Article X:3(a), the Panel should not
interpret the term "reasonable" to impose specifi c deadlines on Members' administrative proceedings
where none is prescribed in the text.
4.77 Even if Article X:3(a) could be interpreted to contain standards governing the completion of
administrative proceedings, the Philippines has fail ed to establish that any delays in Thailand's
administrative proceedings are "unreasonable" in the context of the time taken by other similarly-
situated WTO Members to complete similar proceedi ngs or in the context of the backlog of appeals
faced by Thailand following the coming into effect of the Customs Valuation Agreement. Moreover,
the Philippines has failed to provide any guidan ce as to how the Panel should determine what
timeframes would be inconsistent with Article X:3 based on any of the methods of interpretation
provided in Articles 31 and 32 of the Vienna Conven tion. Accordingly, the Philippines has failed to
establish that the BoA's processing of PM Thailand' s appeals is "unreasonable" conduct within the
meaning of Article X:3(a).

44 Philippines' first written submission, paras. 94-100 and para. 714, second bullet.

4.78 The Philippines also argues that the time taken to process these appeals constitutes a violation
of Article X:3(b). However, Artic le X:3(b) applies only to tribun als or procedures "independent of
the agencies entrusted with administrative enforcement".
45 Article X:3(b) does not apply to the BoA
as it is not "independent" of Thai Customs.
(iii) Thailand acted consistently with Article X:3(b) with respect to appeals against the imposition
of guarantees
4.79 The Philippines argues that Thailand acted in consistently with Article X:3(b) of the
GATT 1994 by failing to provide for an appeal agai nst the imposition of guarantees pending the final
assessment of duties. 46 However, the Philippines offers no ev idence whatsoever in support of its
claim, which therefore must be rejected. In fact , Article 42 of Thailand's Act on Establishment of
Administrative Court and Administrative Court Procedures, BE 2542 (1999) provides a right to
challenge all Thai government administrative actions (as described in Article 9), including orders
requiring guarantees. Therefore, contrary to the Ph ilippines' assertion, Thai law provides importers
with ways to contest guarantees.
4.80 In any event, Article X:3(b) of the GATT 1994, read in the light of the provisions of the
Customs Valuation Agreement, does not confer a right to appeal regarding amounts of guarantees
required pending final assessment of customs duties on imports. While Article 11.1 of the Customs
Valuation Agreement provides a right to appeal with respect to "a determination of customs value",
Article 13 does not contain any prov ision for an appeal of guarantees similar to that provided in
Article 11.
(iv) Thailand acted consistently with Article X:3(a) in its administration of the VAT system
4.81 The Philippines claims that Thailand fails to ad minister its VAT system consistently with
Article X:3(a).47 According to the Philippines, this is inconsistent with Article X:3(a), because the use
of different starting points in determining MRSPs in different periods does not constitute uniform,
reasonable and impartial administration of the law. This claim is not within the Panel's terms of
reference because it is not made in the Philippines' panel request. There is nothing in the Philippines'
panel request to suggest that it intended to make a claim under Article X:3 regarding how Thailand
calculated the MRSPs. The Philippines has not "pla inly connect[ed]" the use of guarantee values to
calculate MRSPs with obligations under Article X:3( a) of the GATT 1994 in a manner that "presents
the problem clearly".48 In addition, the factual basis for this claim consists primarily of the September
2006 and March 2007 MRSP notices, which are not w ithin the Panel's terms of reference.
Accordingly, the Panel should find that it cannot a ddress this claim because it is not within the Panel's
terms of reference. However, even if the Panel we re to address this claim, it should find that it lacks
legal merit.
4.82 The Philippines claims that Thailand was compelled under Article X:3(a) to use the
transaction value as the basis for the MRSP even when Thai Customs had doubts about the transaction
value and thus was requiring guarantees from PM Thailand pending final determination of the
customs value.
4.83 Article X:3(a) is not intended to limit the discretion of administrative agencies to apply their
rules on a case-by-case basis where different entities pr esent different factual circumstances. As the
Appellate Body has stated, "[d]ifferent results in the application of a law or provision do not

45 Panel Report, EC – Selected Customs Matters, footnote 894 (emphasis added).
46 Philippines' first written submission, paras. 101-113 and para. 714, third bullet.
47 Philippines' first written submission, paras. 562-611 and para. 716, fourth bullet.
48 See Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews, para. 162.

necessarily reflect non-uniform administration of the law itself, but may stem as well from the
exercise of discretion in the application of the law or circumstances of the case". 49 The Appellate
Body has also noted that "Article X:3(a) of the GATT 1994 does not require uniformity of
administrative processes".
50 Accordingly, if the Panel considers this claim, it should find that the
Philippines has not established as a matter of either fact or law that Thailand acted inconsistently with
Article X:3(a) with respect to the administration of its VAT system.
(v) Thailand acted consistently w ith Article X:1 with respect to rules relating to VAT and ex
factory prices
4.84 The Philippines claims that Th ailand acted inconsistently with Article X:1 of the GATT 1994
by failing to publish the methodology for determining MRSPs 51 and rules regarding the determination
of the ex factory price (which are used in the determination of MRSPs). 52 However, the Appellate
Body has said that "Article X:1 of the GATT 1994 ma kes it clear that Article X does not deal with
specific transactions, but rather with rules 'of general application'". 53 For this reason, "the particular
treatment accorded to each individual shipment cannot be considered a measure 'of general
application' within the meaning of Article X".54
4.85 The Philippines argues that Thailand must publish both the "overall methodology" used and
"data relied upon" in the determination of the MRSPs a nd the ex factory price that is used as the basis
for the excise, health and television taxes for dom estic cigarettes. With respect to the "overall
methodology" used to determine the MRSPs, this me thodology is stated in the beginning of every
published MRSP notice. Regarding the "overall methodology" used to determine the ex factory price,
Thailand has published Sections 5 ter and 5 quater of the Tobacco Act BE 2509 and the Notice of
Tobacco and Chew Tobacco Ex Factory Price that describe how the ex factory price is to be
calculated. Thus, the Philippin es' claim that Thailand has not published the "overall methodology"
used to determine MRSPs and ex factory prices must be rejected.
4.86 In addition, the Philippines claims that "the published rules and data must enable traders to
understand how a particular ex factory price has been established and to verify the calculations
underpinning that price"55 and that Thailand must publish the "methodologies, formulae and data used
to determine the MRSPs". 56 However, Article X:1 does not require the publication of company- or
transaction-specific determinations such as the determ ination of a particular ex factory price or the
calculation of brand-specific MRSPs. The Philippin es' claim with respect to the publication of
detailed, company-specific or confidential aspects of these calculations must be rejected.
(vi) Thailand acted consistently with Article X:1 with respect to rules relating to guarantees
4.87 The Philippines claims that Th ailand acted inconsistently with Article X:1 of the GATT 1994
by failing to publish laws or regulations governing the release of guarantees for potential liability for
health, excise and television taxes. 57 The release of guarantees is gove rned by the provisions of the
Customs Act governing the final assessment of customs duties (i.e., Sections 112 bis and 112quad of
the Customs Act). Because the release of guarantees takes place in the context of the final
assessment, there is no need for a provision of law other than the provisions governing final

49 Appellate Body Report, EC – Selected Customs Matters, para. 216.
50 Appellate Body Report, EC – Selected Customs Matters, para. 227.
51 Philippines' first written submission, paras. 446-457 and para. 716, first bullet.
52 Philippines' first written submission, paras. 639-648 and para. 717, first bullet.
53 Appellate Body Report, EC – Poultry, para. 111, citing Panel Report, EC – Poultry, para. 269.
54 Appellate Body Report, EC – Poultry, para. 113.
55 Philippines' first written submission, paras. 646 (emphasis added) and 448.
56 Philippines' first written submission, para. 448 (emphasis in original).
57 Philippines' first written submission, paras. 649-653, 717, second bullet.

assessment to address separately the release of guarantees. As the Philippines in effect acknowledges,
this is what happens under Thai Customs' practice.
4.88 Article X governs the publication and administratio n of rules, not the substantive content of
the rules themselves.
58 The Philippines fails to identify an exis ting rule of general application under
Thai law that Thailand has failed to publish. Instead, the Philippines argues that Thailand should have
a rule of general application regarding the rel ease of guarantees and should publish it. The Panel
should not permit the Philippines to convert the publication obligation in Article X:1 into an
obligation to have particular subs tantive laws. Accordingly, the Pa nel should reject the Philippines'
claim.
(vii) Thailand acted consistently with Article X:3 in its administration of the excise, health and
television taxes
4.89 The Philippines claims that Thailand acted in consistently with Article X:3(a) of the
GATT 1994 in its administration of its excise, health, and television taxes 59, arguing that in cases in
which Thai Customs rejects the declared custom s value and assesses duties based on a higher c.i.f.
value and, subsequently, the customs value is redu ced on administrative or judicial appeal, the basis
on which the taxes were initially assessed allegedly becomes "unlawful". 60 If the Philippines is
arguing that Thailand administers its laws inconsistent ly with Article X:3(a) simply because the c.i.f.
value is sometimes revised, this cannot be a viola tion of a WTO obligation. In any event, exporters
may request refunds whenever the c. i.f. value used as the basis for the excise, health and television
taxes is revised downward. The Philippines also ar gues that the administration of these laws is not
"impartial" under Article X:3(a) because while the ta x base for imported cigarettes may be revised as
part of the customs process, the tax base for domestic cigarettes may not be revised in a similar
fashion. However, the Philippines presents no evidence for this claim.
3. Conclusion
4.90 Thailand requests the Panel to find that the Ph ilippines has failed to establish that Thailand
has acted inconsistently with its obligations under any of the provi sions of the covered agreements
cited by the Philippines. This dispute is unus ual because the Philippines is complaining about
individual completed acts (including, inter alia, the valuation of the [[xx.xxx.xx]] entries listed in the
panel request and the alleged breach of Article 10 of the Customs Valuation Agreement), rather than
measures that have ongoing effects as of the date of establishment of the Panel. In the event that the
Panel makes findings that Thailand has acted inconsis tently with its WTO obligations with respect to
any of these completed acts, the Panel should, consis tent with the guidance provided by prior panels
and the Appellate Body61, refrain from making recommendations with respect to those completed acts.
C. EXECUTIVE SUMMARY OF THE ORAL STATEMENT BY THE PHILIPPINES AT THE FIRST
SUBSTANTIVE MEETING OF THE PANEL
1. Conflicting roles of TTM directors violate Article X:3(a)
4.91 Thailand violates Article X:3(a) of the GATT 1994 because senior Thai Government officials
administering customs and tax rules for cigarettes are simultaneously Directors of TTM. These

58 Appellate Body Report, EC – Poultry , para. 115. See, also, Panel Report, Dominican Republic –
Import and Sale of Cigarettes, para. 7.400.
59 Philippines' first written submission, paras. 654-684 and para. 717, third bullet.
60 Philippines' first written submission, paras. 659-660.
61 See, e.g., Panel Report, Dominican Republic – Import and Sale of Cigarettes , paras. 7.363, 7.393,
7.419; Appellate Body Report, US – Certain EC Products, paras. 81 and 129.

positions require them to promote TTM's commercial interests in competition with foreign cigarettes
and rewards them with a persona l financial bonus based on TTM's performance. Excise Director-
General and TTM Chairman Mr. Tamwatin asserted publicly that, inter alia, government powers
should be exercised to protect TTM by banning imported cigarettes unless prices were raised to the
level of the new maximum RSPs announced by his department. Further, Mr. Tamwatin publicly
disclosed, in violation of Article X:3(a) and Article 10 of the Customs Valuation Agreement,
PM Thailand's confidential declared transaction values.
4.92 This pattern of administration is neither "r easonable" nor "impartial" and could negatively
impact the competitive situation of imported ciga rettes through higher customs duties and taxes.
Article X:3(a) requires that decision-makers have no commercial or personal financial interests in the
decisions they are making. Contrary to Thailand's arguments, the manner of structuring and
organizing government is the very essence of "admin istration" under Article X:3(a) as found by the
Panel in Argentina – Hides and Leather. Thailand also incorrectly claims that Article X:3(a) requires
a showing of trade damage; rather, it calls for "an examination of whether there is a possible impact
on the competitive situation [of imports] due to alleged par tiality, unreasonableness or lack of
uniformity in the application of customs rules".
2. Appeal delays violate Articles X:3(a) and X:3(b) of the GATT 1994
4.93 Thailand also violates Articles X:3(a) and X:3(b) by failing to maintain independent tribunals
that promptly review customs decisions. Thaila nd unreasonably delayed deciding a large number of
appeals filed with the BoA, between March 2002 an d March 2003. In fact, the last BoA meeting on
these appeals occurred in September 2005. These exte nsive 6-7 year delays establish prima facie that
Thailand has not satisfied its obligation to mainta in procedures that achieve the required goal of
"prompt review" under Article X:3(b) consistent with the panel report in Colombia – Ports of Entry.
And even if the BoA is not an independent tribunal within the meaning of Article X:3(b), the claim
under Article X:3(b) still stands because of the delay in permitting indepe ndent review of an initial
decision. In that case, these 6-7 year delays and coun ting in reaching an initial valuation decision
capable of being appealed to an independent tribunal is also all the more unreasonable under
Article X:3(a).
3. Customs Valuation Agreement violations for rejected declared transaction values
4.94 Thailand rejected validly declared transaction values for a large number of entries without
satisfying the conditions of Customs Valuation Agreement Articles 1.1, 1.2, 1.2(a) and 16. Thailand
failed to provide sufficient "grounds" under Article 1.2(a) to reject such declared values when it relied
on PM Thailand's alleged failure to meet its "bur den" to prove that its relationship with PM
Philippines did not influence the price of its ciga rettes. Further, Thailand's new argument that
"PM Thailand presented no evidence or otherwise took no steps to discharge its burden of proving the
relationship did not influence the price" is c ontradicted by the considerable evidence that
PM Thailand provided to Thailand to support its decl ared transaction values. And even assuming that
Thai Customs had legitimate "doubts" about PM Thailand's declared transaction values in August
2006, several factors show that Thai Customs failed to examine the circumstances of sale in violation
of Article 1.2(a) of the Customs Valuation Agreement, including the minutes of the 6 March 2007
meeting; an analysis of Thai Customs deductive t esting; and Thai Customs acceptance of transaction
value for [[xx.xxx.xx]] entries that occurred at or around the same time as entries for which
transaction value was rejected.
4.95 The evidence also shows that prior to taking a final decision, Thailand failed to inform
PM Thailand of its "grounds for considering that th e relationship influenced the price", as required by
Article 1.2(a). Contrary to Thailand's arguments , neither the 12 April 2007 letter nor the minutes
(which were never given in writing) provided the required notice of such grounds enabling

PM Thailand to respond. The authority's finding that the burden of proof had not been satisfied does
not qualify as "grounds" under Artic le 1.2(a). Instead, the "grounds" must address the specific facts
and evidence before the authority, and explain the de ficiencies the authority has found to exist in the
evidence. Moreover, the Philippines disputes Tha iland's assertion that PM Thailand was represented
at the 6 March 2007 meeting. Finally, the evidence shows that, after taking a final decision, Thailand
did not provide PM Thailand with an "explanation in writing … as to how the customs value of the
importer's goods was determined", or provide a suffi ciently detailed and reas oned explanation of its
final decision to permit the importer to understand how and why the authority determined the assessed
customs values, as required by Article 16 of the Customs Valuation Agreement.
4. Thailand's violations of Articles 5 and 7 of the Customs Valuation Agreement
4.96 Having rejected the transaction values, Thailand violated Articles 5 and/or 7 of the Customs
Valuation Agreement. Although Thailand argues that it used Ar ticle 5 to value PM Thailand's goods,
the evidence suggests it used Article 7. If Thailand u sed Article 5, it violated that provision by failing
to deduct: sales allowances, internal transportation co sts, and amounts paid for the Provincial Tax. If
Thailand used Article 7, it violated Article 5 by failing to use that provision when it should have, and
also Article 7.1 because it failed to assess the customs value using "reasonable means".
5. Thailand's violation of Article X:3(b) of the GATT 1994
4.97 Thailand violates Article X:3(b) of the GATT 1994 because, under Thai law, an importer is
not afforded a right to appeal a decision by Th ai Customs imposing a "guarantee value" on imported
goods. The order imposing a guarantee is a final and complete action relating to customs matters, and
has an immediate impact on the competitive situati on and market access for imports. Thai judicial
decisions, legal opinions from experts in Thai law, and scholarly writings, establish that an importer
has no independent right to seek review of orders imposing a guarantee value.
6. Article X:1 claims pertaining to VAT
4.98 Thailand violates Article X:1 of the GATT 1994 by not publishing the calculation
methodology and data used to calculate MRSPs, wh ich serve as the tax base. The Philippines takes
issue with evidence submitted by Thailand on the calculation of MRSPs.
4.99 MRSP notices are administrative rulings of general application within the meaning of
Article X:1 because they establish prospective rules governing the maximum price and VAT paid on
future cigarettes sales. The protection of confid ential data under Article X:1 does not provide an
excuse for not publishing non-confidential data constituting an "essential element" of an
administrative ruling.
7. Thailand violates Article III:2 of the GATT 1994
4.100 The evidence demonstrates that all domestic and imported cigarettes in Thailand are "like"
products based on evidence of physical characteristics; end uses; consumers' tastes and preferences;
and tariff classification. Further, all cigarettes are subject to identical regulatory treatment. The
evidence of consumers switching between differently priced cigarette brands, predominantly in
response to price changes, shows the products are s ubstitutable. The evidence also shows a strong
correlation between changes in consumer demand fo r domestic and imported br ands, and changes in
the prices of these brands. This confirms that all cigarettes are "like".
4.101 Discrimination within the meaning of Article III:2 exists because imported cigarettes bear a
higher tax burden than like domestic cigarettes due to the Thai Government's decision to fix a higher
tax base for imports coupled with the same tax rate. Further, the Thai Government systematically

values imports higher than the market, while system atically valuing domestic products at the market
level. The MRSP calculation methodology discrimin ates in favour of domestic products because it
systematically adds a higher amount for marketing costs of imported products.
4.102 Additionally, Thai law exempts resellers of domestic cigarettes from VAT, but does not so
exempt resellers of imported cigarettes. Such de jure discrimination against imports is not a " basic
feature of any VAT system", as Thailand argues, but rather is a text-book case of discrimination under
Article III:2, first sentence.
8. Thailand violates Article III:4 of the GATT 1994
4.103 Thailand imposes more onerous administrative requirements in connection with resales of
imported cigarettes than with resa les of domestic cigarettes. This is because resales of imported
cigarettes are subject to VAT, whereas resales of dom estic cigarettes are not. An expert legal opinion
confirms the more onerous requirements imposed on imported cigarettes th an domestic cigarettes
which, if not met, results in the denial of tax credits for VAT paid on imported cigarettes and
penalties. Finally, Thailand has offered no va lid justification under Article XX(d) for this
discriminatory VAT exemption or lesser reporting requirements for domestic cigarettes.
9. Thailand's VAT system violates Article X:3(a) of the GATT 1994
4.104 There is no basis for Thailand's procedural claim under Article 6.2 of the DSU concerning the
Philippines' panel request. There was no obligatio n for the Philippines to explain why various VAT
measures are administered contrary to Article X:3(a) . Consistent with Appellate Body jurisprudence,
such a statement is not required by Article 6.2 as it sets out an argument, and not a measure or claim.
4.105 Thailand fails to administer VAT in a unifo rm, reasonable and impartial manner. Its
alternative use of both the assessed customs value and a guarantee value as the starting point for the
MRSP calculation results in non-uniform administration. Thailand's use of a guarantee value, which
is a provisional estimate of potential liability for customs duties, is not a "reasonable" basis for
calculating a definitive MRSP tax base. Under this approach, a guarantee value is treated as having a
definitive character that is inconsistent with its pr ovisional legal status. Further, Thailand's failure to
calculate the MRSPs using generally applicable criteria set forth in domestic law is also unreasonable.
Finally, Thailand's calculation of the MRSP usi ng guarantee values, and notional customs duties and
internal taxes, results in partial administration. Evidence demonstrates that imported cigarettes alone
are subject to an MRSP calculated using a provisional value as the starting-point for the calculation.
10. Failure to publish basis for ex factory price violates Article X:1
4.106 Thailand violated Article X:1 of the GATT 1994 by failing to publish the methodology and
data used to calculate the ex factory price – th e tax base for domestic ci garettes under the excise,
health and television taxes. The remarkably consis tent determinations of TTM's ex factory prices
over the past eight years highlights the need for, and impact of, Thailand's failure to publish the rules.
4.107 Thailand also violates Article X:1 by failing to publish rules governing the release of
guarantees collected for excise, health and television taxes. Expert testimony confirms, as a matter of
Thai law, that the provisions of the Customs Act cited by Thailand do not include rules and
procedures on the release of guarantees. Thus, alth ough Thailand argues that "guarantees are to be
refunded", it has failed to publish rules addressi ng the basic procedural questions surrounding a
refund.
4.108 Thailand violates Article X:3(a) of the GATT 1994 because, where the customs value initially
assessed by Thai Customs is reduced on appeal, Th ailand engages in (a) non-uniform administration

by using two different tax bases with respect to the same goods: sometimes the correct duty-paid c.i.f.
price and sometimes an amount based on an incorrect customs valuation ; (b) unreasonable
administration by collecting taxes using an incorre ct customs value as a tax base, which is without
foundation in Thai law; and (c) partial administration by administering the excise, health and
television taxes with respect to im ported cigarettes on an inflated basis that has no foundation in Thai
law; in contrast, domestic cigarettes are never taxed on a base in excess of the ex factory price.
4.109 The expert legal opinions explain that the lega l provisions cited by Thailand do not afford
importers a right to secure a refund of excise, health and television tax where the tax base is reduced,
as Thailand alleges. They note that the Tobacco Ac t, which imposes the excise tax, also provides no
such right. Further, no published rules set forth procedures governing an excise tax refund. The
statutory right to a refund of health and television tax is contingent on a refund of excise tax, and there
are also no procedures for refunds of these taxes. Thailand's defence is, therefore, not supported by
the facts.
11. Requested fact-finding under Article 13 of the DSU
4.110 The Philippines reiterates its request that the Panel seek information listed in paragraph 712
of its first written submission pursuant to Article 13 of the DSU.
D. E
XECUTIVE SUMMARY OF TH E ORAL STATEMENT BY THAILAND AT THE FIRST SUBSTANTIVE
MEETING OF THE PANEL
1. Introduction
4.111 Thailand questions the extent to which disput e settlement proceedings may be fruitful to
address issues that, in effect, have already been resolved. To the extent that the Philippines had
concerns regarding actions taken in the past by Th ailand, those concerns had been resolved by the
time the Philippines requested the establishment of a panel. For example, Thai Customs has used
PM Thailand's declared entered values as the customs value since September 2007, well over a year
before the request for the establishment of a panel. Similarly, to the extent that the Philippines' claims
regarding the MRSPs are based on the MRSPs fo r 2006 and 2007, those MRSPs were revised and
replaced before the panel request.
2. Claims under the Customs Valuation Agreement
4.112 In resolving the claims under the Customs Valuation Agreemen t, the Panel will need to
address the question of which party, the importer (in this case, a major multinational corporation) or
the customs administration bears the burden of estab lishing the reliability of a transfer price as the
basis for the customs value. The text of the Cu stoms Valuation Agreement and, indeed, supplemental
sources such as the WTO Technical Committee on Cu stoms Valuation make clear that when doubts
arise, this burden lies with the importer. As Thailand explained in its first submission, in this case, the
importer failed to discharge that burden.
4.113 The importer's failure to discharge its burden means that the customs administration is no
longer required to accept the transaction value as th e customs value. In addition, this failure may
affect the kind of information that is before th e customs administration and can be relied on to
determine the customs value under the alternative methodologies provided for in the Customs
Valuation Agreement. In considering how a customs administration must proceed when a
multinational corporation fails to discharge its bur den of establishing that its transaction value is
reliable, the Panel should ensure that it does not ad opt interpretations that would limit the right of
Members' customs administrations to seek and obtain information from importers or that would

provide importers with incentives not to cooperate with customs administrations in resolving doubts
about the reliability of a transfer price as the customs value.
3. Claims under Article III of the GATT 1994
4.114 Thailand uses the same methodology to estab lish the VAT tax base for both domestic and
imported cigarettes. Because there is no discrimina tion against imports inherent in that methodology,
Thailand cannot be found to be ac ting inconsistently with Articl e III:2 as long as the methodology is
applied even-handedly to both domestic and imported products. Moreover, the Philippines bears the
burden of proving that that methodology is not app lied even-handedly and in a manner such as to
discriminate against imports. In its first submissi on, the Philippines did not discharge this burden.
The Philippines' core argument was that the MRSPs are discriminatory because the MRSP for
Marlboro cigarettes was greater than the actual retail price of those cigarettes. This does not show
that the methodology for determining MRSPs is app lied in a discriminatory manner. Thailand is not
required under Article III:2 to use the actual selling price of the cigarettes as the tax base. And
Thailand is not required to reduce the tax base simply because PM Thailand – or even a wholesaler or
retailer – makes a business decision to sell PM cigarettes at prices below the MRSP.
4.115 The MRSPs for both domestic and importe d cigarettes are based initially on the
manufacturer's own recommended retail price for eac h brand. Thus, the determination of the MRSP
is necessarily a company-specific and, indeed, brand-specific determination. The MRSPs are updated
to reflect changes in any of the tax rates applicable to cigarettes, changes in the c.i.f. or ex factory
price, or other requests for changes by the ma nufacturer. This system is not in any way
discriminatory. The mere fact that PM Thailand would like to reduce its tax liability and is not able to
do so does not constitute discrimination ag ainst imported products or a prima facie case of a violation
of Article III:2.
4. Claims under Article X of the GATT 1994
(a) Article X:3 claim relating to TTM's Board of Directors
4.116 Article X:3 does not regulate the manner in which Members exercise their sovereign rights
with regard to the structure of th eir state enterprises. Moreover, th e Philippines' claim appears to be
based entirely on the risk of how Thailand might administer its laws, rather than the actual
administration as contemplated under Article X:3(a). Even assuming that the scope of Article X:3
should be expanded to cover the risk of improper administration, the factual basis of the Philippines'
claim remains vague and unsubstantiated. For exampl e, the Philippines alleges a conflict of interest
because two officials of the Revenue and Excise De partments currently serve on the board of TTM,
but fails to show that either official has any res ponsibility in the course of their duties in the Revenue
or Excise Departments for determining the tax bases or customs values for imported cigarettes. In
fact, neither Mrs. Sirisaengtaksin, who works fo r the Revenue Department and is currently seconded
to the Bureau of the Permanent Secretary of the Mi nistry of Finance, nor Mr. Keesiri, who works at
the Excise Department, has any direct responsibility for tax policy affecting imported cigarettes.
(b) Article X:3 claim relating to appeals
4.117 The Philippines claims that Thailand acts inconsis tently with Articles X:3(a) and X:3(b) of
the GATT 1994 because [[xx.xxx.xx]] appeals filed by PM Thailand before the BoA have not been
resolved promptly. In accepting Article X:3, Members of the WTO hardly anticipated that
Articles X:3(a) and X:3(b) would be interpreted to require them to conclude internal administrative
processes "promptly" and, therefor e, to reallocate resources away from other priorities to meet
deadlines derived from Article X:3. In any event, these appeals have not been resolved in part

because PM Thailand has presented revised data relati ng to these appeals that must be reviewed for
accuracy and sufficiency.
(c) Article X:3 claims relating to the uniform administration of VAT, excise, health and
television tax laws
4.118 Both of the Philippines' claims under Article X: 3(a) regarding non-uniform administration of
Thailand's VAT laws
62 and its excise, television and health taxes 63 are outside the Panel's terms of
reference. The Philippines' panel request contains no mention of a failure to administer laws and
regulations "uniformly". In addition, both of these claims are based on the unworkable premise that
WTO Members can never change their administrative policies. This premise could be interpreted to
mean that in order to achieve "uniform" administra tion, Thailand should stick with its approach in the
period September 2006 to March 2007 of using guarantee values to calculate MRSPs.
4.119 The Philippines also claims that by using guarantee values to calculate the September 2006
MRSPs, Thailand failed to administer its laws re asonably and impartially within the meaning of
Article X:3(a).64 Here again, the Philippines' interpretati on is unworkable. Administrators do not
operate in situations of perfect and complete in formation and, therefore, must be able to use
reasonable estimates or proxy info rmation when they have valid grounds to doubt the reliability of
information on which they would normally rely. Artic le X:3(a) should not be interpreted to prevent
Members from making reasonable decisions in this manner.
4.120 The Philippines argues that Thailand must administ er its laws through "transparent, objective
and generally applicable criteria"65, that it must create "generally applicable rules" 66 and that "[a]bsent
such rules, the administration of the tax cannot be justified under the rule of law". 67 Thailand has
explained that the MRSPs are determined according to generally-applicable criteria. Accordingly, the
Philippines' claim lacks the requisite factual basis. Also, Article X:3 is not intended to prevent
governments from conferring discretion on relevant o fficials to administer the laws. Many WTO
Members choose to implement their laws and po licies through the conferral of discretion on
administrative agencies and officers rather than thro ugh the adoption of explicit rules that attempt to
address every possible contingency. Article X:3(a) should not be interpreted so as to make this
method of administration GATT-inconsistent.
4.121 The Philippines also claims that Thailand violates Article X:3(a) because, in the event that the
originally-assessed c.i.f. value is later revised on appeal, the tax base for the excise, television and
health taxes would become retroactively incorrect. 68 The Philippines has not provided any evidence
indicating that in the circumstances to which it refe rs in paragraph 659 of its first written submission,
Thai officials actually did or would collect excise, health and television taxes using a tax base that is
"unlawful"69 and "has no basis"70 as a matter of Thai domestic law. To the extent that the Philippines
is complaining about what may occur in the event that duty assessments are revised in the future, the
Philippines' claim is not ripe and cannot be addressed by the Panel. Even if the factual basis of this
claim were clear, it would not suffice to establish a breach of WTO law. Article X:3(a) should not be

62 Philippines' first written submission, paras. 580-594
63 Philippines' first written submission, paras. 663-671.
64 Philippines' first written submission, paras. 605-610.
68 Philippines' first written submission, paras. 672-683.

interpreted in a manner that converts every failure to comply with domestic law into a breach of WTO
law.71
4.122 Also, as a matter of fact, Thai law provides fo r refunds of overpaid excise, television and
health taxes, although PM Thailand appears never to have requested such refunds from the Excise
Department. The Philippines has not explained how Article X:3(a) compels WTO Members to create
mechanisms to refund indirect taxes. Several Member s refuse to grant refunds of indirect taxes that
would confer windfall benefits on producers and sellers that have already collected the larger tax
amount from their consumers and, therefore, have not suffered any loss. Article X:3 should not be
interpreted to impose an obligation on Members to grant such windfall gains.
(d) Article X:1 claims
4.123 Thailand considers that the general methodologies for MRSPs have been published. Thailand
also notes that the last sentence of Article X:1 clarifies that there is no obligation to disclose
confidential information. The data us ed to determine MRSPs and ex factory prices are clearly
confidential. The laws or regulations governing th e release of guarantees collected by Customs have
also been published, and the Philippines has not explained precisely which existing laws and
regulations relating to this matter remain unpublished.
5. Claims relating to completed acts and expired measures
4.124 Many of the Philippines' claims relate to completed acts and measures that no longer exist. 72
This raises the question of whether the Panel can make recommendations with respect to these claims.
These expired measures and past acts include the va luation and assessment of duties with respect to
the [[xx.xxx.xx]] entries listed in the panel requ est, the setting of MRSPs for 2006, and the alleged
violation of Article 10 of the Customs Valuation Agreement. A list of the relevant claims is set out in
Exhibit THA-36.
4.125 Under Article 19.1 of the DSU, where a panel conc ludes that a measure "is" inconsistent with
a covered agreement, it shall recommend that the Member concerned bring the measure into
conformity with that agreement. The Panel ca nnot issue recommendations pursuant to Article 19.1
that Thailand bring expired measures or completed acts into conformity with the covered agreements.
As the Appellate Body has clarified, it amounts to legal error for a panel to make an Article 19.1
recommendation with respect to measures which no longer exist.
73 Following the Appellate Body's
guidance, numerous panels have refrained fro m making Article 19.1 recommendations regarding
measures that are no longer in force. 74 This rule applies with equal fo rce to "measures" that consisted
of individual, completed governmental acts.
4.126 By adopting Articles 19.1 and 21. 3 of the DSU, WTO Members accepted that they would not
have to undo past actions in response to a finding of violation of the cove red agreements and are
required only to cease the WTO-inconsistent conduct by the end of the reasonable period of time for
implementation. For this reason, remedies unde r the DSU are generally described as being

71 See Panel Report, US – Stainless Steel (Korea), para. 6.50.
72 See Thailand's first written submission, para. 335.
73 Appellate Body Report, US – Certain EC Products, para. 81; Appellate Body Report, EC – Bananas
III (Article 21.5 – Ecuador II) / EC – Bananas III (Article 21.5 – US), para. 479.
74 See, e.g., Panel Report, Chile – Price Band System , para.8.3; Panel Report, Dominican Republic –
Import and Sale of Cigarettes , para. 8.3; Panel Report, Turkey – Rice, para. 8.4; Panel Report, US – Stainless
Steel (Mexico), para. 8.3.

"prospective", rather than retrospective, in nature.
75 It would serve no purpose to allow a WTO
Member to obtain recommendations from panels with respect to past and consummated actions.
4.127 Because the conduct on which the relevant claims of the Philippines, as listed in
Exhibit THA-36, are based took place entirely in the past and has ceased or b een completed, in the
event that the Panel were to find violations with respect to these claims, there would be nothing
further that Thailand could do in order to achieve compliance with its WTO obligations. The Panel
should not issue recommendations under Article 19.1 of the DSU that Thailand bring itself "into
conformity" with its WTO obligations with respect to any of the claims listed in Exhibit THA-36.
4.128 In addition, because the Panel cannot make any recommendations with respect to the claims
listed in Exhibit THA-36, it is not clear whether any purpose at all is served by making findings
regarding these claims. Panels have a responsibility to prevent the WTO's dispute settlement
procedures from being used to obtain purely declaratory judgments or to address matters that are
completely moot by the time the panel is established. The Panel should decline to make findings with
respect to the claims listed in Exhibit THA-36 that would serve no clear purpose and would not
contribute to the resolution of any current and conc rete dispute between the Philippines and Thailand
regarding these matters.
6. Claim under Article 10 of the Customs Valuation Agreement
4.129 Regarding the Philippines' claim under Article 10 of the Customs Valuation Agreement,
Thailand is still studying this claim and reserves the right to provide further information at a later
date. This claim is one of those relating to past completed acts discussed above and listed in Exhibit
THA-36. The Panel should not make recommendati ons with respect to this claim and, in the
circumstances, Thailand questions whether there is any purpose to be served in making any findings
with respect to this claim.
7. Request for documents
4.130 In paragraph 712 of its first written submission, the Philippines requested the Panel to seek
certain documents or categories of documents. Th ailand's first written submission contained most of
the documents and categories of doc uments referred to by the Philippines. Two of the documents
requested by the Philippines were ac tually provided by the Philippines itself in its first submission.
These were item 6, Memorandum 0519/1605, dated 14 March 2007, which was the cover memo for
the minutes of the 6 March 2007 meeting, and item 9, the minutes of that meeting. Both of these
documents were attached as Exhibit PHL-74 to the Philippines' first written submission. Thailand
notes that those minutes were revised and re-circu lated one week later, on 21 March 2007. The
revised minutes, which Thailand now submits as Exhi bit THA-37, make clear that the customs value
for the [[xx.xxx.xx]] entries listed in the Philippi nes' panel request was determined using the
deductive value method in accordance with Article 5 of the Customs Valuation Agreement.
4.131 Thailand has reviewed the Philippines' list to see whether there were any remaining listed
documents that might assist the Panel. Accordi ngly, Thailand is submitti ng as Exhibit THA-38 the
documents referred to in items 1 and 8 of the Phili ppines' list. Item 1 contains instructions for
customs officers to act carefully in making customs valuation determinations and item 8 relates to the
approval of the amounts of guarantees used for PM Thailand's imports. Several other documents on
the Philippines' list, including items 2-5, relate to products other than cigarettes and have no relevance
to this case. Thailand will, of course, be happy to provide any other inform ation the Panel considers
necessary.

75 See, e.g., Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), footnote 494. See also
Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 299.

E. EXECUTIVE SUMMARY OF THE SECOND WRITTEN SUBMISSION OF THE PHILIPPINES
1. Violation of Article X:3(a) of the GATT 1994 because of dual role of TTM directors
4.132 Thailand violates Article X:3(a) through the act of vesting governmental power to apply Thai
customs and tax rules concerning domestic and impor ted cigarettes in individuals who simultaneously
serve as Directors of TTM and as senior officials in DG Excise, DG Customs, and DG Revenue. This
pattern of administration is an act that, in and of itself, creates an inherent conflict of interest and
constitutes partial and unreasonable administration, contrary to Article X:3(a).
4.133 In administering Thai customs and tax rules, these Thai Government officials are responsible
for, inter alia, assessing the customs value of imported cigarettes and fixing the tax base for VAT,
excise, health, and television taxes. As a matter of fact, TTM Directors have been directly involved in
the application of Thai customs and tax measures to cigarettes, inter alia , by signing the orders
imposing decisions, and by participating in and supervising the decision-making process. Their
decisions, therefore, have a considerable infl uence on the tax burden of imported and domestic
cigarettes and, as a result, the relative competitive situation of these cigarettes. The TTM Directors
also have access to BCI regarding imported cigarettes.
4.134 In fulfilling their role as TTM Directors, the sa me Thai Government officials have a financial
incentive and legal obligation to maximize TTM's co mpetitive advantage and to "make any decision
for the utmost benefit of" TTM. In making such decisions, they can rely on BCI about TTM's
competitors, available to them because of their role in the Thai Government.
4.135 The manner of structuring and organizing governme nt is the very essence of "administration"
under Article X:3(a), as found by the Panel in Argentina – Hides and Leather . In this dispute, the
Philippines has provided quantitativ e and qualitative evidence of th e unreasonable and impartial
pattern of administration, as well as of acts by individuals serving both as TTM Directors and Thai
Governmental officials resulting in unreasonable and impartial administration. Thailand also
mischaracterizes the decision in Argentina – Hides and Leather in arguing that the partiality and
unreasonableness in its administration must be balan ced against safeguards adopted to avoid abuses.
In fact, the safeguards asserted by Thailand neither remedy the conflict of interest facing Thai
Government officials simultaneously serving on th e Board of TTM, nor prevent abuses such as the
inappropriate flow of importers' BCI to the domestic industry.
2. Claims pertaining to customs valuation
(a) Standard of review with respect to customs valuation decisions
4.136 In reviewing a series of Thai customs valu ation decisions under the Customs Valuation
Agreement, the Panel must make an objective assess ment of the facts, and apply the appropriate
standard of review. The appropriate standard of re view is neither de novo review, nor total deference.
Instead, panels are required to conduct a critical revi ew of a national authority's determination to see
whether the authority explained how the facts support its decision. In reviewing an authority's
decision to reject transaction value, a panel cannot simply accept the authority's conclusion that the
importer failed to show that the re lationship between buyer and seller did not affect the price, nor can
a panel decide for itself, on a de novo basis, whether the transaction value should be accepted.
Instead, a panel must review whether the authority has provided an objective and coherent explanation
as to how it complied with its WTO obligations, and how the underlying facts support its decision.

(b) Violation of Articles 1.1 and 1.2 of the Customs Valuation Agreement by maintaining and
applying a general rule requiring the rejection of transaction value
4.137 Thailand violates Articles 1.1 and 1.2 by main taining and applying, from 4 August 2006 until
19 March 2008, a general rule regarding the rejec tion of transaction value, consisting of (1) the
systematic refusal, at the time of importation, to accept transaction value for entries of imported
cigarettes, with the collection of guarantees as a condition for allowing customs clearance; and, (2)
the systematic valuation of imported cigarettes us ing the deductive valuation methodology, instead of
transaction value, at the time of final assessment.
4.138 By maintaining such a general rule, Thailand violated the obligation to use "transaction value"
as the "primary basis for customs va lue", provided for in Article 1.1 and paragraph 1 of the General
Introductory Commentary of the Customs Valuati on Agreement. A WTO Member may depart from
its primary valuation obligation solely in the circ umstances set forth in paragraphs (a) to (d) of
Article 1.1. Under Article 1.1(d), where the buyer and seller are related, the customs value "shall be"
the transaction value, "provided" that the tr ansaction value is acceptable under Article 1.2.
Article 1.2(a) provides that the "fact" that the partie s are related is insufficient "grounds" to reject the
transaction value. In such a case, the customs aut hority must examine the circumstances of sale to
establish whether other "facts", besides the relationshi p, demonstrate that the relationship influenced
the price. Thailand's general rule violates Artic les 1.1 and 1.2 by providing for the systematic
rejection of transaction value without examination of the circumstances of sales.
(c) Violation of Articles 1.1 and 1.2 of the Customs Valuation Agreement by improperly
rejecting PM Thailand's declared transaction values in [[xx.xxx.xx]] transactions
4.139 Thailand violates Articles 1.1 and 1.2 by rejec ting PM Thailand's declared transaction values
for [[xx.xxx.xx]] entries, without: (1) examining the circumstances of sale; and, (2) identifying
adequate grounds, other than the relationship, warranting the rejection of transaction value.
4.140 The Philippines' claim that Thailand failed to examine the circumstances of sales is supported
by: (1) the minutes of the 6 March 2007 meeting; (2) Thailand's failure to examine PM Thailand's
evidence, including annual filings with deductive cal culations showing that the declared transaction
values enabled it to earn a sufficient amount to cove r its usual costs and profits, and an amount for
costs and profits similar to the amount earned by si milarly-situated distributors in transactions with
unrelated suppliers; (3) Thailand's failure to seek information concerning PM Philippines' costs and
profits – information which PM Thailand had identifi ed as being relevant if Thai Customs were to
apply a cost-plus testing methodology under Article 1. 2(a); (4) Thailand's incoherent and arbitrary
deductive methodology to test the declared transact ion values for all of PM Thailand's transactions
throughout 2006 and 2007; and, (5) Thai Customs' acceptan ce of the transaction values for
[[xx.xxx.xx]] entries in March and September 2007 hi ghlights the arbitrariness of the rejection of
transaction values for other entries occurring at the same time.
4.141 Thailand makes certain rebuttal arguments. On issue (1), Thailand's argument that the
minutes address sales in 2003 is contradicted by the express terms of the minutes, which state that
Thai Customs did not examine the circumstances of sale with respect to entries "since 1 August
2006". On issue (2), Thailand's ex post argument is that PM Thailand' s calculations were not in the
proper form and not supported by other evidence. However, Thai Customs never informed
PM Thailand of these points, and never gave PM Thailand an opportunity to respond to them,
contrary to Article 1.2(a). In any event, the cal culations were in the proper form and PM Thailand
could have provided additional support upon request. On issue (5), the Philippines provides
documentary evidence to counter Thailand's argument that [[xx.xxx.xx]] of the entries never occurred;
and it shows that Thailand's asserted clearance date for the other [[xx.xxx.xx]] entries was just three
days before an entry for which Thailand rejected the transaction value.

4.142 Thailand also violated Articles 1.1 and 1.2 by rejecting PM Thailand's declared transaction
values without valid reasons, as evidenced by Thai Cu stoms' letter of 12 April 2007, which informed
PM Thailand of Thai Customs' decision to reject transaction value. The letter states two invalid
grounds of rejection and evidences Thai Customs' fa ilure to critically examine all of the relevant
evidence. First, the "fact" that "another im porter" purchases cigarettes at a higher price than
PM Thailand is not a valid ground for considering that the relationship between PM Thailand and PM
Philippines influenced the price becau se, for a variety of reasons, the prices of the other party are not
comparable. During these panel proceedings, Tha iland has accepted that this first "ground" for
rejecting transaction value was flawed, and not relied upon by Thai Customs.
4.143 Second, Thai Customs' statement that PM Th ailand has not proven whether the relationship
had influenced the price is not a "ground" for re jecting transaction value because: (1) the Customs
Valuation Agreement does not establish a legal presumption and burden of proof against the
transaction value; (2) even if doubts could trigger a presumption and burden of proof against the
transaction value, the doubts must be reasonable at the time when the alleged burden of proof is
invoked as the basis to reject transaction value, which was not the case here; and, (3) even if a burden
of proof on the importer were to apply, the custom s authority should explain its decision rejecting
transaction value, and why the submitted evidence w as insufficient to allow the importer to meets its
burden of proof, which Thai Customs failed to do.
(d) Violation of Article 1.2(a) of the Customs Valuation Agreement by failing to communicate
"grounds" before rejecting transaction value
4.144 Thailand violated Article 1.2(a) by failing to inform PM Thailand of its "grounds for
considering that the relationship influenced the price" prior to Thai Customs' final decision to reject
transaction value. PM Thailand submitted evidence that allowed Thai Customs to establish that the
transaction values enabled PM Thailand: (1) to ear n a sufficient amount to cover its usual costs and
profits; (2) to earn an amount for costs and profits similar to the amount earned by unrelated
distributors.
4.145 Under Article 1.2(a), Thailand was obliged to communicate the objective facts that supported
Thai Customs' conclusions on the burden of proof in the light of this evidence. Such communication
would have offered PM Thailand "a reasonable opportunity to respond" to the customs authority's
dissatisfaction with the evidence. Absent an expl anation, PM Thailand is deprived of a reasonable
opportunity to address whatever deficiencies the authority perceived in the evidence.
4.146 Contrary to Thailand's assertion, Thai Cust oms' 19 December 2006 letter failed to inform
PM Thailand of the grounds for considering that the relationship influenced the price. An
unexplained, unsubstantiated, and conclusory statement that PM Thailand failed to meet its burden of
proof does not satisfy the requirement to communi cate "grounds". Until prompted by the Panel,
Thailand had never communicated its reasons for disregarding the evidence submitted by
PM Thailand.
(e) Violation of Article 16 of the Customs Valu ation Agreement by failing to provide an
adequate explanation as to how the customs value was determined
4.147 Thailand violated Article 16 by failing to pr ovide PM Thailand with an "explanation in
writing … as to how the customs value of the impor ter's good was determined" in its final assessment
decision. Under Article 16, Thailand is required to explain why it rejected the declared transaction
value, and to provide a sufficiently detailed and reasoned explanation permitting the importer to
understand how and why the authority determined the assessed customs value.

4.148 Thailand failed to explain the objective basis for rejecting transaction value and how it
proceeded in valuing PM Thailand's goods. Without an explanation of how the authority reached its
decision, importers and foreign governments are unable to exercise their respective rights under
Articles 11 and 19 of the Customs Valuation Agreem ent, and domestic courts and WTO panels are
deprived of a basis to review the authority's decisions.
4.149 Contrary to Thailand's assertion, the 12 Apr il 2007 letter does not sufficiently explain the
basis for Thai Customs' rejection of the declared transaction values because it contains an unexplained
statement that the burden of proof was not met. Furthermore, this letter does not explain how Thai
Customs determined the assessed customs values, because, for example, it does not reveal the starting
point of the deductive calculation allegedly used by Thai Customs, the specific elements and amounts
deducted; the sources of the data used; and ot her supporting calculations for the assessed values.
The minutes of the 6 March meeting also failed to satisfy the requirement under Article 16 because
they were insufficiently detailed.
(f) Violation of Articles 5 and/or Article 7 of the Customs Valuation Agreement by incorrectly
assessing the deductive value of PM Thailand's [[xx.xxx.xx]] transactions
4.150 The Philippines' primary claim is that, if the Pa nel finds that Thailand used Article 7 to value
PM Thailand's goods, Thailand improperly declined to use Article 5 for impermissible reasons, i.e., a
lack of contemporaneous financ ial information, and improperly applied Article 7.1 because Thai
Customs failed to make deductions for sales allowa nces, internal transportation costs, and Provincial
taxes. Thailand admits that PM Thailand clai med deductions for sales a llowances and Provincial
taxes, but contests that the information available to Thai Customs justified a deduction for either
amount. With respect to the deduction for internal transportation costs, Thailand disputes that
PM Thailand claimed such a deduction, and also c ontends that the available evidence did not support
the deduction. A proper deduction of these three it ems would have resulted in significantly lower
customs values than the values applied by Thai Customs.
4.151 PM Thailand submitted all information required to make the requested deductions. Although
Thai Customs requested additional information on certain issues, it requested no such information
regarding sales allowances and Provincial taxes, sugg esting that Thai Customs was satisfied that it
had all necessary supporting information available to make these deductions.
4.152 Before this Panel, Thailand now makes certain ex post arguments regarding the sufficiency of
the information PM Thailand provided. If Thai Cust oms had raised these concerns at the time of its
valuation, PM Thailand easily could have responded to them. The criticisms focus on information on
sales allowances and Provincial taxes provided with PM Thailand's letter of 7 March 2007. However,
the information with this letter responded to re quests regarding the greatest aggregate quantity
("GAQ") sales price, and not sales allowances and Pr ovincial taxes. Again, if Thai Customs had
requested additional information on sales allowances and Provincial taxes, PM Thailand would have
provided it. Indeed, on 12 March 2007, PM Tha iland provided information to the BoA on Provincial
taxes paid in 2002.
4.153 With respect to internal transportation costs, Thailand incorrectly argues that PM Thailand did
not claim a deduction for these costs, overlooking that each of PM Thailand's annual filings for
financial years 2003, 2004, 2005 and 2006 included a de duction for either inland freight or domestic
transportation. Even if PM Thailand's letter of 21 February 2007 did not mention transportation costs,
Thai Customs was put on notice that deductions for such items were required, and, in doubt, could
have requested further information in its letter of 27 February 2007.
4.154 Thailand argues that PM Thailand should have provided information to show that the claimed
deductions were made in connection with the sales on which the GAQ price was based. However,

Article 5 permits a deduction for the amounts "usually " incurred on sales in general, not least because
the transaction being valued is not the GAQ sale. It is also the approach ad opted by the BoA in its
decisions on the 2000-2002 appeals. In any event, if Thai Customs insisted on information showing
the deductions to be made from the sales on which the GAQ price was based, it was required to
request this information.
4.155 With respect to the alleged significance of PM Thailand's letter of 7 March 2007, Thailand's
arguments on the meeting of 6 March 2007 show that, by 6 March, Thai Customs had already
finalized its deductive calculation. Thus, before the 7 March letter arrive d, Thailand had already
decided not to deduct sales allowances, internal transportation costs, and Provincial taxes. As a result,
the sufficiency of the information submitted by PM Thailand in its 7 March letter was not the decisive
factor in Thai Customs' decision.
4.156 If the Panel finds that Thailand used Article 7 to value PM Thailand's goods, Thailand acted
contrary to Article 7.3 by failing to inform PM Thailand in writing "of the customs value determined
under the provision of this Article and the method used to determine such value".
4.157 Alternatively, if the Panel finds that Thaila nd used Article 5 to value PM Thailand's goods,
Thailand violated Article 5 because it failed to ma ke the required deductions for sales allowances,
internal transportation costs, and Provincial taxes. The arguments in support of the Philippines'
alternative claim are th e same as the arguments in support of its primary claim under Article 7
because the methodology and elements in a deducti ve calculation under Articles 5 and 7 do not, in
principle, differ.
(g) Violation of Article 10 of the Customs Va luation Agreement by disclosing business
confidential data
4.158 Thailand violated Article 10 because Thai Gove rnment officials disclosed PM Thailand's
business confidential data, in particular its decl ared transaction value and import volumes.
PM Thailand never gave "specific permission" to th e Thai Government to allow such disclosure and
repeatedly opposed the disclosur es. As a result, the Philippines has made a prima facie case of a
violation of Article 10.
3. Violation of Article X:3(b) of the GATT 1994 by failing to provide a right to challenge
guarantees
4.159 Thailand violates Article X:3(b) by failing to pr ovide for a right to seek the prompt review
and correction of administrative action by Thai Customs to impose guarantees on imported goods.
Pursuant to Article X:3(b), Th ailand is obliged to provide, inter alia , for the prompt review and
correction by an independent tribunal of guarantee orders, which are administrative actions relating to
customs matters. An order imposing a guarantee is a complete and final legal act that is conceptually
distinct from the final assessment of customs valu e. It imposes a definitive guarantee, and its
imposition is the culmination of an administrative process to establish the appropriate level of the
guarantee and, as such, is "the final manifestation of the application of a law in a particular case".
4.160 The obligation to furnish a guarantee is linked to, though conceptually distinct from, the
obligation to pay duties. A guarantee establishes an immediate legal obligation to furnish cash or
security, and thus imposes an immediate financia l burden on importers, producing also immediate
repercussions on market access and competitive oppor tunities. Allowing a challenge to an assessed
customs value cannot repair the harm caused in the interim by a guarantee, and may undermine
competitive opportunities. The severity of a guarant ee may even completely exclude imported goods
from the market or delay clearance. This underscores the need to provide for an independent right to
challenge a guarantee. Under Tha iland's interpretation, market access would be permanently lost as a

result of the guarantee, because the guarantee order c ould only be challenged as part of a challenge
against the final assessed customs value. If no final assessment follows, the importer would be
stripped of any opportunity to challenge the guarantee.
4.161 The Philippines also submits that Thailand is mi staken in its understanding of the relationship
between Article X:3(b), on the one hand, and the Anti-Dumping Agreement and the Customs
Valuation Agreement, on the other hand. First, guarantees collected in anti-dumping cases may be
challenged under Article X:3(b), and the WT O proceedings initiated by Thailand in US – Shrimp
(Thailand) confirm that a WTO Member can challenge a guarantee order at the WTO. The domestic
law of WTO Members should likewise provide for a right to challenge guarantees. Second, Article 11
of the Customs Valuation Agreement, which provides fo r a right to appeal against "a determination of
customs value", and Article X:3(b) of the GA TT 1994 can be applied together in a harmonious
fashion, which is consistent with the Interpretative Note to Annex 1A and settled WTO law.
4.162 Furthermore, obliging WTO Members to provide a right of appeal against a guarantee order
would neither interfere with a Member's right to collect a guarantee pending the assessment of the
customs value, nor would it interfere with the responsibility of customs authorities to determine
customs value.
4. Claims pertaining to VAT
(a) Violation of Article X:1 of the GATT 1994 by failing to publish the methodology and data
used to determine and revise MRSPs
4.163 Thailand violates Article X:1 by failing to publish the methodology and data used to
determine the MRSPs, which is the base for VAT. The Philippines has demonstrated that none of the
key features of Thailand's MRSP methodology, as descr ibed by Thailand, has been published. These
elements are: (1) "the primary source for the MRSPs is the manufacturer's recommended retail price"
("RRSP"); (2) DG Excise reviews the proposed MRSP/RRSP to decide whether to accept it as the
MRSP; (3) DG Excise "normally" revises MRSPs follo wing tax changes impacting the MRSP; (4)
when MRSPs are revised, DG Excise calculates a new MRSP adding: (a) the ex factory/c.i.f. price;
(b) the latest tax amounts; and (c) marketing cost s, which are "derived from information provided by
the manufacturers themselves".
4.164 Thailand also violates Article X:1 by failing to publish any data that forms an integral or
essential element of the determination of specific MRSPs. As the Panel in Dominican Republic –
Import and Sale of Cigarettes stated, Article X has a due process objective and the "essential
elements" or "essential parts" of an administrative ruling must be published. This interpretation is
consistent with the text of Article X:1, requi ring publication "in such a manner as to enable
governments and traders to become acquainted with them", and gives effect to the transparency
obligations in Article X:1. In this dispute, Th ailand should have published the price surveys it relied
on to determine the marketing costs for imported br ands in 2006 and 2007. It could also have
published indexed data, to protect the confidential character of certain information.
(b) Violation of Article III:2 of the GATT 1994 by taxing imported cigarettes in excess of like
domestic goods as a result of the MRSP levels
4.165 Thailand violates Article III:2 by imposing a VAT on imported cigarettes "in excess" of VAT
imposed on like domestic cigarettes.
4.166 The Philippines has demonstrated that all domestic and imported cigarettes are like. This
evidence pertains to physical characteristics, e nd uses, consumers' tastes and preferences, tariff

classification, and identical regulatory treatment. So far, Thailand has not put forward argument or
evidence to dispute the Philippines' overall assessment, based on the evidence as a whole.
4.167 Thailand incorrectly requires that the Pane l perform 1,634 separate comparisons between
each domestic and imported brand to establish likeness on a brand-by-brand basis. This approach
lacks support in the text of Article III:2 or the case law. Thailand also misinterprets the Appellate
Body report in Canada – Periodicals . In that report, the Appellate Body did not establish perfect
substitutability as the decisive legal standard under Article III:2, first sentence, as Thailand alleges.
Instead, it merely explained that perfectly substituta ble products fall within the scope of Article III:2,
first sentence.
4.168 Even if the Panel were to find that not all imported and domestic cigarettes are like, the
Philippines maintains that imported and domestic cigare ttes within a particular price segment are like.
Although price is not a decisive criterion in estab lishing likeness, the Philippines has demonstrated
likeness within price segments.
4.169 Thailand imposes VAT on imported cigarettes in excess of VAT imposed on like domestic
cigarettes because (1) the MRSPs for imported cigare ttes are higher than for like domestic cigarettes,
and (2) the MRSPs for imported cigarettes are systematically higher than the RRSPs for imported
cigarettes, whereas the MRSPs for like domestic cigarettes are systemically equal to the RRSPs.
Thus, the tax burden on imports is higher in absolute terms and also higher relative to the retail price.
4.170 Thailand has attempted to offer an explanation for the excess tax burden imposed on imported
cigarettes. The essence of this explanation is that DG Excise is not responsible for the level of the
MRSP, because the MRSP is based on information provided by the importer. However, the facts
contradict this explanation. Among othe rs, the evidence shows that the MRSPs for Marlboro and
L&M have systematically been higher than they would have been if based on PM Thailand's
information.
4.171 Thailand is also mistaken in arguing that the key question before the Panel is whether the
design, structure, and architecture of the measure discriminate against imported cigarettes. The
Philippines' claim in this dispute is brought under the first sentence of Article III:2. Under that
sentence, the issue is whether imported products ar e subject to any taxation "in excess" of the tax
applied to like domestic products.
(c) Violation of Article III:2 of the GATT 1994 by exempting resales of domestic cigarettes from
VAT liability
4.172 Thailand violates Article III:2 because it exempts resales of domestic cigarettes from VAT,
but grants no such exemption to resales of like im ported cigarettes. Thailand does not dispute this
different fiscal treatment but responds that resellers of imported cigarettes can offset their additional
VAT liability with a tax credit, leaving a zero "net" liability.
4.173 Thailand's defence fails. First, Thailand's compliance with Article III:2 cannot depend on
private parties' action. The fact that a reseller of imported cigarettes is given an opportunity to
mitigate the impact of a discriminatory tax thro ugh a tax credit does not cure the discriminatory
character of Thailand's VAT regime. Second, the ta x credit granted to resellers of imported cigarettes
will not always match perfectly their tax liability. A reseller may incur a "net" liability of greater than
zero if the volume of cigarettes sold in a given month exceeds the volume of cigarettes bought in that
month. Even if in certain months the tax credit might exceed the tax liability, it is well established in
the case law that more favourable treatment of im ported products in some instances does not justify
less favourable treatment in other instances. Third, the tax credit is not granted automatically but is
subject to legal conditions concerning VAT administrative requirements. The grant of a non-

automatic tax credit cannot ensure equal treatme nt where domestic cigarettes are automatically
subject to no tax liability. This is particularly so because penaltie s may be imposed on resellers for a
failure to comply with the administrative requirements regarding resales of imported cigarettes.
(d) Violation of Article III:4 of the GATT 1994 by imposing more onerous VAT administrative
requirements on resales of imported cigarettes
4.174 Thailand violates Article III:4 by subjecting r esales of imported cigarettes to more onerous
VAT administrative requirements, set out in Chapter IV of the Thai Revenue Code, than are imposed
in connection with resales of like domestic cigarett es. The detailed evidence showing the likeness of
imported and domestic cigarettes within the meaning of Article III:2, first sentence, also supports that
the products are like for purposes of Article III:4.
4.175 Under Thai law, VAT registrants are subject to different obligations depending on the
particular goods or services supplied. Chapter IV includes obligations to prepare and maintain
detailed tax invoices, tax input records, tax output records, goods and raw materials records, and
alternative records; filing VAT Form Por.Por.30; and accepting an audit process and sanctions in
case of non-compliance. None of these requirements apply in connection with resales of domestic
cigarettes. This is because Section 3(1) of Ro yal Decree No. 239 exempts resales of domestic
cigarettes from VAT. As a result, pursuant to S ection 81/2 of the Revenue Code, wholesalers and
retailers are exempt from the administrative require ments in Chapter IV in connection with their
resales of domestic cigarettes.
4.176 The more onerous VAT administrative requirements imposed in connection with resales of
imported cigarettes "affect" the sale and distribution of cigarettes within the meaning of Article III:4,
because they impose regulatory burdens on all selling parties in the distribution chain.
4.177 Thailand fails "to provide equality of competitive conditions for imported products in relation
to domestic products" – which is the ge neral thrust of the principle in Article III:4. Thailand's maze
of administrative procedures, requirements, and san ctions modifies the conditions of competition by
imposing extra hurdles in connection with resales of imported cigarettes. The resulting additional
costs and risks must be taken into account by a co mmercial operator in deciding which cigarettes to
supply and promote. Given the regulatory environmen t, retailers selling only domestic cigarettes – of
which there are around 68,000 – have a disincentive to start supplying imported cigarettes, because
they would then be subject to additional costs and ri sks. The Philippines adds that, in an Article III:4
analysis, the Panel need not determine the actual trade and competitive effects of the more onerous
VAT administrative burdens.
(e) Thailand's failed defence under Article XX(d) of the GATT 1994
4.178 Thailand has failed to justify its exemption of resales of domestic cigarettes from the VAT
administrative requirements in Chapter IV, under Arti cle XX(d). Thailand has not demonstrated that
the de jure exemption of resales of domestic cigarettes from VAT administrative requirements is
"necessary" to secure compliance with any domes tic laws and regulations, WTO-consistent or
otherwise.
(f) Violation of Article X:3(a) of the GATT 1994 by failing to administer its VAT regime in a
uniform, reasonable, and impartial manner
4.179 Thailand violates Article X:3(a) by failing to administer its VAT regime in a uniform,
reasonable, and impartial manner.

4.180 First, Thailand does not apply its VAT regime on the basis of generally-applicable criteria set
forth in Thai law, in particular the determination of the MRSPs. It is unreasonable to administer taxes
on an ad hoc, case-by-case basis, without criteria set forth in law. By way of example, in 2006 and
2007, DG Excise decided to calculate (discriminatory) marketing costs for imported cigarettes using
an international price survey and by using guar antee values as the starting point for its MRSP
calculations for imported cigarettes. These decisions were not grounded in Thai law, but were merely
the product of DG Excise's discretion.
4.181 Second, Thailand's use of a guarantee value, and not a customs value, as the starting point for
the calculation of MRSPs results in non-uniform a nd unreasonable administration. The practice of
administering VAT through two different starting points lacks uniformity because sometimes actual
tax amounts are added based on the actual duty-paid customs values, and sometimes notional amounts
based on the guarantee values are added. This al so involves unreasonable administration because the
notional amounts added for excise, health, and television taxes are "the highest" possible and based on
a provisional estimate of potential liability for cust oms duties. Furthermore, it constitutes partial
administration because such notional amounts are added only to the MRSPs for imported cigarettes
given that only those cigarettes are subject to provisional guarantee values. The starting point for the
MRSPs for domestic cigarettes, by contrast, is the ex factory price. Because provisional guarantees
can be collected to preserve the ability to collect taxes, there is no justification for transforming a
provisional guarantee into a definitive tax base.
5. Claims pertaining to the excise, health, and television tax
(a) Violation of Article X:1 of the GATT 1994 by failing to publish the methodology and data
used to determine the ex factory price
4.182 Thailand violates Article X:1 by failing to publis h the methodology and data used to calculate
the ex factory price, which is the tax base for the excise, health, and television taxes imposed on
domestic cigarettes and the starting point for the MRSP calculation. The methodology must address
the manner by which costs are calculated for purposes of determining the ex factory price, including
which costs are included and how costs are allo cated, among others, across different brands and
business activities. Concerns regarding the confiden tiality of data may be met by publishing indexed
data.
(b) Violation of Article X:1 of the GATT 1994 by failing to publish rules concerning the release
of guarantees for excise, health, and television taxes
4.183 Thailand violates Article X:1 by failing to pub lish rules concerning the release of guarantees
collected to cover potential liability for excise, h ealth, and television taxes. Thailand has asserted
that, as a general matter, guarantees are released. Ho wever, it has failed to publish rules addressing
the basic procedural questions surrounding the release of a guarantee, such as: to which authority an
importer can apply for a guarantee release and within what deadline; what documents are required to
obtain such release; how and when the authorit y communicates its decision; how the guarantees are
released; whether interest is payable on cash guarant ees; and, which Thai courts have jurisdiction to
hear appeals regarding the release of guarantees.
(c) Violation of Article X:3(a) of the GATT 1994 by failing to administer the excise, health, and
television taxes in a uniform, reasonable, and impartial manner
4.184 Thailand violates Article X:3(a) by failing, in some circumstances, to use a tax base for the
excise, health, and television taxes that has a basis in Thai law. Under Thai law, the tax base for the
excise tax on imported cigarettes is the duty-paid c.i. f. price; the health and television taxes are
a percentage of the excise tax payable. Thailand do es not rely on this tax base for imported cigarettes

if the customs value assessed by Thai Customs is re duced on appeal. In that event, the incorrectly
assessed customs value serves as the tax base.
4.185 Such administration is non-uniform because the taxes are administered using two different tax
bases for the same goods: sometime s the correct customs value and sometimes an incorrect customs
value. Such administration is also unreasonable because it has no basis in Thai law. Finally, it is
partial because Thailand only collects taxes using an incorrect customs value for imported, and not
domestic, cigarettes.
4.186 Thailand's WTO-inconsistent administration is not rendered WTO-consistent by an alleged
right to seek a refund, because it is not reasonable to subject importers to an additional procedure to
secure a refund of a tax imposed on a base that has al ready been found to be improper. In any event,
Thailand merely alleges that a refund is available. It has not provided evidence of the legal basis for
that right in Thai law. The opinions of two Thai legal experts confirm the lack of such right under
Thai law.
6. Violation of Articles X:3(b) and X:3(a) of the GATT 1994 because of undue delays in the
BoA's decision-making
4.187 Thailand violates Article X:3(b) by failing to ma intain procedures for the prompt review and
correction of customs decision by the BoA. So fa r, the BoA has taken more than seven years, and
counting, to resolve [[xx.xxx.xx]] appeals filed by PM Thailand regarding entries landed in 2002.
The considerable delays are caused by the BoA's ow n tardiness in administering the appeals, and not
PM Thailand, which has consistently responded promptly to the BoA's requests for information.
4.188 Even if the BoA is not an independent tribunal within the meaning of Article X:3(b), as
Thailand alleges, the claim under Article X:3(b) st ands because Thailand prevents the prompt review
and correction of Thai Customs' decision by an independent tribunal by interjecting a very slow
review process by a non-independent agency betw een Thai Customs' decision and the independent
tribunal.
4.189 Thailand also violates Article X:3(a) because th e delays of more than seven years in the
BoA's decision-making give rise to unreasonable administration. The duration of the process gives
rise to administration that is not appropriate or su itable to the circumstances. The Philippines rejects
the view that the word "reasonable" in Article X:3(a) imposes no obligations whatsoever on the
duration of the administrative process. Thailand has not explained why the drafters would attach
importance to "prompt review" of administrative decisions in Article X:3(b) but impose no disciplines
on the time taken to reach the initial decision.
F. E
XECUTIVE SUMMARY OF THE SECOND WRITTEN SUBMISSION OF THAILAND
1. Introduction
4.190 This executive summary of Thailand's rebuttal submission of 20 July 2009 responds to the
arguments put forward by the Philippines in its fi rst written submission of 23 March 2009, its opening
statement at the first meeting of the Panel with th e parties on 10 June 2009 and in its responses to the
Panel's questions, submitted on 1 July 2009.

2. Legal argument
(a) Standard of review
4.191 The correct standard of review means that Thai Customs' determinati ons must be reviewed
only in the light of the evidence provided by PM Thailand at the time at which Thai Customs made
the determinations at issue in this review.
(b) Claims under the Customs Valuation Agreement
4.192 The Philippines' claims under the Customs Valu ation Agreement can be summarised in two
simple propositions: first, Thai Customs should not have inquired into PM Thailand's transaction
values and, second, when it did, Thai Customs s hould have accepted the transaction values. Based on
the evidence and argument now before the Panel, neither of these propositions can be sustained.
(i) Thai Customs acted consistently with Articl es 1.1 and 1.2(a) of the Customs Valuation
Agreement in rejecting the transaction value for the [[xx.xxx.xx]] entries at issue
The obligation under Article 1.1 to use the transaction value is dependent on it being
established that the relationship between buyer and seller did not influence the price
4.193 The use of the transaction value is legally depe ndent on the proviso in Article 1.1(d) and the
second sentence of Article 1.2(a) being satisfied . Thus, the transaction value shall be accepted only
"provided the relationship [between buyer and seller] did not influence the price".
Thai Customs acted consistently with Article 1. 2(a) with respect to its "doubts" regarding the
reliability of the transaction value
4.194 Paragraph 2 of the Interpretative Note to Article 1.2(a) provides that an examination of the
circumstances of sale and the reliability of the tran sfer price "will only be required where there are
doubts about the acceptability of the price".
The legal standard governing "doubts"
4.195 The Customs Valuation Agreement does not define or limit the quality or quantity of "doubts"
that the customs administration must have in order to initiate an examination of the reliability of the
transfer price. The reason why the term "doubts" as used in Article 1.2(a) and its Interpretative Note
is not qualified by a standard such as "reasonable" is that the purpose of the "doubts" is, at first,
simply to initiate an examination of whether the relationship between the buyer and the seller
influenced the price, as happened in this case.
4.196 Under the Decision Regarding Cases Where Customs Administrations Have Reasons to
Doubt the Truth or Accuracy of the Declared Value (the "Decision"), the customs administration need
have "reasonable" doubts only when, under the second sen tence of paragraph 1 of the Decision, "if,
after receiving further information, or in the absen ce of a response, the customs administration still
has reasonable doubts about the truth or accuracy of the declared value, it may [reject the transaction
value]". Thus, under the Decision, the doubts need only be "reasonable" at the time of a final decision
to reject the transaction value.
PM Thailand did not provide any evidence to dispel Thai Customs' doubts
4.197 PM Thailand did not provide any evidence to dispel the doubts generated by the difference of
over 300 per cent between the c.i.f. prices for PM Thailand's imports and imports by another importer.

4.198 It is a fact that anot her importer was bringing Marlboro cigarettes into Thailand at c.i.f.
Bangkok prices more than three times PM Thailand's c. i.f. prices. This objectively-grounded fact
(Exhibit THA-7) clearly raises a doubt as to whether PM Thailand's c.i.f. prices were affected by the
relationship between buyer and seller.
4.199 Merely pointing out that there are some differe nces between the circumstances of sale for two
different sales that affects price comparability between the two does not establish that doubts based on
a price difference of over 300 per cent are "groundless" . Any differences in circumstances of sale
might have accounted for only, for example, half of the price difference between the other importer
and PM Thailand, which would still leave legitimat e doubts as to whether PM Thailand's price was at
arm's length. But PM Thailand provided no information or proof in this regard and, therefore, did not
dispel the doubts that had arisen or otherwise satisfied the proviso in Article 1.2(a).
Thai Customs fulfilled the obligation in Article 1.2(a) that the "circumstances surrounding the
sale shall be examined"
The nature of the obligation to examine the circumstances surrounding the sale
4.200 The customs administration's examination of th e circumstances of sale must be based on a
claim and allegations by the importer. It is for the importer, not the customs administration, to decide
by what means it wishes to establish that the relations hip did not influence the price. This is because
the importer, not the customs administration, possesses the necessary information and evidence to
enable the importer to select its preferred method of establishing that the relationship did not influence
the price. Once the importer makes its claim, the importer bears the burden of proof with respect to
evidence relating to that claim.
4.201 If the burden were on the customs administration to establish that the relationship influenced
the price, the customs administration w ould have to collect evidence regarding all of the methods
contemplated in Article 1.2(a) and the Interpretativ e Notes. This would be a completely unworkable
burden to place on the customs administration and w ould have repercussions for Members' practices
far beyond this case.
How Thai Customs examined the circumstances surrounding the sales at issue
4.202 In the circumstances summarised below, Thai Customs fully complied with its obligations
under Article 1.2(a) of the Customs Valuation Agr eement in initiating and conducting its examination
of the circumstances of sale and, ultimately, in rejecting the transaction value for the [[xx.xxx.xx]]
entries at issue in this case:
• Thai Customs had doubts regarding the re liability of those doubts and notified
PM Thailand that additional information was required.
• Between August 2006 and mid-February 20 07, PM Thailand provided no new or
additional information to establish that th e relationship did not influence the price
other than to rely on its past [[xx.xxx.xx]] filings.
• The [[xx.xxx.xx]] filings did not provide a deductive value calculation or provide any
supporting evidence for the GAQ price and other adjustments referred to therein.
• To the extent that the [[xx.xxx.xx]] filings advanced a "cost plus" approach, they did
not provide information regarding the seller's (i.e., PM Philippines') cost plus profits.

• Information about the importer's profits on the resale does not establish the reliability
of the transfer price between exporter and related importer (though it may be one
element in the deductive value calculation).
• When Thai Customs wrote to PM Thailand on 19 December 2006, it had no evidence
before it to establish the reliability of the transfer price.
• After PM Thailand indicated in its letter of 5 February 2007 that it wanted the
valuation expedited, Thai Customs conti nued its examination of the circumstances
surrounding these sales.
• Thai Customs sought and received inform ation from PM Thailand in extensive
correspondence, phone calls, and meetings between 16 February and 6 March 2007.
• This information was used to determine de ductive values for the entries at issue that
were ultimately used to arrive at the customs value for these entries.
Thai Customs properly communicated the "grounds for considering that the relationship
influenced the price"
4.203 Article 1.2(a) of the Customs Valuation Agre ement means that the customs administration
must give the importer preliminary notice if it cons iders that the proviso in the second sentence of
Article 1.2(a) has not been met. This notice must be provided in writing and an opportunity to
respond must be given before fina l valuation takes place. Thai Customs provided this written notice
when it informed PM Thailand on 19 December 2006 th at it had "yet to prove" that the relationship
did not influence the price.
4.204 Thailand disagrees with the Philippines' interpretation that the term "grounds" is limited to the
factual basis on which the customs administration acts. It would make no sense that the customs
administration would not be required to inform the importer how that factual basis provided a
sufficient legal basis for the customs administration to act. Furthermore, contrary to the Philippines'
argument, the absence of evidence also constitutes a factual basis on which the customs
administration may act. A notification that the fa ctual record does not contain sufficient evidence
clearly communicates information regarding the "i nformation or otherwise" on which the customs
administration is considering rejecting the transaction value.
4.205 PM Thailand's response on 5 February 2007 to the notification by Thai Customs on 19
December 2006 makes clear that the importer wa s fully informed and that its due process
requirements were fully respected.
It was not established that "the relationship did not influence the price"

4.206 PM Thailand failed to discharge its burden to establish that the relationship between itself and
PM Philippines did not influence the transfer price between the two. In these circumstances, Thai
Customs properly concluded that the proviso in the second sentence of Article 1.2(a) had not been met
and PM Thailand had failed to establish that its rela tionship with PM Philippines did not influence the
price. Accordingly, Thai Customs' decision to reje ct the transaction value was fully consistent with
the obligations in Articles 1.1 and 1.2 of the Customs Valuation Agreement.
(ii) Thai Customs acted consistently with Articles 5 and 7 of the Customs Valuation Agreement
4.207 For the reasons explained in paragraphs 75-86 of Thailand's answers to the Panel's questions,
Thailand's calculation of the deductive value was fu lly consistent with Article 5 of the Customs

Valuation Agreement. As a deductive value calcula tion, its WTO-consistenc y should be determined
by reference to Article 5 rather than Article 7 of the Customs Valuation Agreement.
(iii) Thai Customs acted consistently with Artic le 16 in providing an explanation of how the
customs value was determined
4.208 As Thailand explained in paragr aphs 172-178 of its first submission, Thai Customs provided
a written explanation in its letter of 12 April 2007 th at the customs value had been determined "using
the deductive method". In addition, Thailand ex plained that PM Thailand was provided with a
detailed explanation of why and how the deductive value was used at the 6 March 2007 meeting (see
Exhibits THA-64 and THA-65).
4.209 Anti-dumping/CVD investigations are far more complex investigations than a customs
valuation determination and it is to be expected that the standards for explaining anti-dumping or
CVD determinations would be much higher than th e standards governing explanations of customs
valuation determinations.
(iv) The release of guarantees for the [[xx.xxx.xx]] entries
4.210 Given that the Philippines has not made a claim with respect to the release of these
guarantees, and that PM Thailand has never raised th is issue with Thai Cust oms in an effort to
reconcile the figures in question, there is no reaso n why the Panel should dedicate its time to this
issue. Once PM Thailand is sure of its figures, Thai Customs would be happy to discuss with the
company any outstanding issues it may have regarding the release of guarantees.
(c) Claims under Article III of the GATT 1994
(i) Thailand acted consistently with Article III:2 of the GATT 1994 in using the MRSPs as the tax
base for its VAT system
Like product issues

4.211 The Philippines must establish th at every possible pair of imported and domestic cigarette
brands is "perfectly substitutable". The Phili ppines has not provided evidence establishing that
consumers perceive all of these pairs of brands to be "perf ect substitutes". Th e evidence regarding
consumer switching behaviour in the study subm itted as Exhibit PHL-111a does not cover all brands
and is of limited value. Moreover, significant pri ce differences between par ticular pairs of imported
and domestic brands undermine any conclusion that th ese pairs of brands are perfect substitutes. The
evidence submitted in Exhibits PHL-148 and PH L-149 is of limited value because it does not
establish relevant elasticities of demand and subst itution for particular brands of imported and
domestic cigarettes.
4.212 In any event, the key issue in this case is not whether particular cigarettes are fully
substitutable, but whether Thailand's system of de termining the tax base for VAT is applied in a
manner that discriminates against imported cigarettes within the meaning of Article III:2.
The use of the MRSPs as the tax base for cigarettes does not result in imported cigarettes
being taxed "in excess" of domestic cigarettes
4.213 Article III:2 does not require that all imported cigarettes must bear the same absolute tax
amount as all domestic cigarettes. This w ould imply that both price-based and ad valorem tax
systems would be per se inconsistent with Article III:2 of the GATT 1994. To the contrary, Members
are free to use both fixed price systems and ad valorem systems of internal taxation. Moreover, under

Article III:2 a comparison between the fixed price and the actual retail price cannot be used to
establish discrimination. If a difference between the fixed price and the retail price was sufficient to
establish discrimination, Members would, in effect, be compelled to use the actual retail price as the
tax base.
4.214 The proper test of whether Thailand's use of the MRSPs as the tax base for its VAT system is
inconsistent with Article III:2 is whether Thai Excise determines the MRSPs in the same manner for
both domestic and imported cigarettes. As Thailand has previously explained, the same methodology
is used to establish MRSPs for both domestic and imported cigarettes. The Philippines has yet to
make a prima facie case that Thai Excise establishes the MRSPs differently for imported and domestic
cigarettes or applies the methodology described above in a manner that affords protection to domestic
cigarettes.
4.215 The evidence before the Panel shows that the starting point for the determination of the
MRSP is the manufacturer's recommended retail pri ce and that Thai Excise does not independently
determine the "marketing cost" element of the MR SP. It also shows that exactly the same
methodology is used for domestic and imported cigare ttes. Furthermore, the fact that PM Thailand
and other importers were able to request and receive a change in the MRSPs for their brands shows
that there is no basis for the Philippines to argue th at there has "never been a transparent way for an
importer to provide information for the authority' s decision-making process" or that PM Thailand was
not "encouraged ... to provide input into the MRSP determination process". Thailand notes that the
methodology used to arrive at the MRSPs in the 2006-2007 notices was very different from the
methodology used before and after that period, on wh ich the Panel must rule. Accordingly, Thailand
urges the Panel to take care to ensure that its ru lings with respect to the MRSP methodology before it
are based on evidence relating to the methodology applied during the time of establishment of the
Panel and not on evidence relating to a different MRSP methodology that is not within the Panel's
terms of reference.
(ii) Thailand acted consistently with Article III:2 of the GATT 1994 with respect to the taxation of
resales of cigarettes
4.216 As Thailand explained in paragraphs 241-244 of its first submission, the amount of VAT paid
by the ultimate consumer on a pack of imported ciga rettes and a pack of domestic cigarettes is exactly
the same and is not affected by any difference in the VAT reporting requirements for imported and
domestic cigarettes.
4.217 The Philippines now argues that the issue is whether the tax burden "imposed on like
imported products exceeds the tax bur den imposed on like domestic products at any point in the
distribution chain ". There is no support for this interpreta tion in the text of Article III:2. The
emphasis in Article III:2 is on the taxes imposed on the product, without any reference to different
points in the distribution chain. The context provi ded by Article II:2(a) and Ad Article III of the
GATT 1994 also supports this reading of Article III:2. Moreover, as a practical matter, the
Philippines' argument would mean that all VAT systems are WTO-inconsistent because it is
inevitable that under VAT systems the tax burden w ill vary at different points in the distribution
chain, so that at some point the imported product may pay more tax than the domestic product (or vice
versa).
(iii) Thailand acted consistently with Article III:4 of the GATT 1994 with respect to the
administrative requirements for its VAT system
4.218 While the Philippines argues that the different administrative requirements for resales of
imported cigarettes imposed additional regulatory burdens on these sales that are not imposed on
resales of domestic cigarettes, the Philippines ignor es that (i) wholesalers and retailers of domestic

cigarettes that are VAT-registrants are subject to exactly the same regulatory requirements as
wholesalers and retailers of imported cigarettes that are VAT-registrants; (ii) any wholesalers and
retailers of imported cigarettes that are not VAT-registrants are subject to the same regulatory burdens
as wholesalers and retailers of domestic cigarettes that are not VAT-registrants; and (iii) for every
regulatory burden imposed on VAT-registered wholesal ers and retailers of imported cigarettes, there
is an equivalent regulatory bur den imposed on any wholesalers and retailers of domestic cigarettes
that are not VAT-registrants.
4.219 There is no compelling evidence before the Panel indicating that these different
administrative requirements create significant ince ntives for retailers or wholesalers to stock only
domestic cigarettes. The only evidence submitted by the Philippines is an opinion by a tax lawyer,
Mr. Veraphong, that the reporting and book-keeping re quirements for resellers of imported cigarettes
are "more onerous"
76 than those imposed on resellers of domestic cigarettes. Much of this analysis
amounts to a restatement of the differences in the reporting requirements imposed on VAT-registrants
and non-VAT registrants without any further expl anation of how these differences give rise to
incentives not to stock imported cigarettes. Moreove r, the analysis relies on alleged differences in
penalties for non-compliance with applicable reporting requirements.
77 Thailand does not accept that
Mr. Veraphong's analysis of penalties is complete or accurate. More importantly, Thailand does not
understand the Philippines to have advanced a claim th at any differences in the penalties applicable to
wholesalers and retailers that are VAT-registrants unde r Thai law when compared to those applicable
wholesalers and retailers that are not VAT-registrants would give rise to a violation of Article III:4 of
the GATT 1994.
4.220 In addition, Thailand contends that to the exte nt that the regulatory requirements for imported
cigarettes constitute less favourable treatment, those requirements are justified under Article XX(d) of
the GATT 1994. As Thailand explained in more de tail in its answers to the Panel's questions,
Thailand's VAT system, including the system of monthl y input/output tax reporting, is similar to that
used by many other WTO Members. 78 Accordingly, these reporting requirements are necessary, as
that term has been interpreted by the Appellate Body in Brazil – Retreaded Tyres, for the enforcement
of Thailand's VAT system.
(d) Claims under Article X of the GATT 1994
(i) Thailand acted consistently w ith Article X:3 with respect to the composition of the TTM
Board
4.221 The issue before this Panel is whether dual roles of governmental officials that create
potential conflicts of interest constitute in and of themselves "unreasonable" or "partial"
administration within the meaning of Article X:3(a) of the GATT 1994.
4.222 As Thailand has explained79, situations of dual roles and potential conflicts of interest are not
in and of themselves sufficient to demonstrate inconsistenc y with Article X:3(a). Jurisprudence
confirms that a complainant must demonstrate a number of additional elements for a violation of
Article X:3(a), including: (i) qualitative evidence of particular unreasonable or impartial acts by the
relevant public officials; 80 (ii) evidence that there are inade quate safeguards to ensure against
unreasonable or impartial administration by those officials; 81 and (iii) evidence that the dual role of

76 See Veraphong Affidavit, Exhibit PHL-182, paras. 15.1-15.2.
77 See Veraphong Affidavit, Exhibit PHL-182, para. 15.2, items 1, 2, and 5.
78 Thailand's answers to the Panel's questions, paras. 146-153.
79 Thailand's answers to the Panel's questions, paras. 202-207.
80 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews, para. 219.
81 Panel Report, Argentina – Hides and Leather, paras. 11.99 and 11.86.

the government officials is irrelevant for the administration of the legislation at issue. 82 There are
sound policy reasons for these additional elements. To prohibit all potential administrative actions
flowing from officials in such circumstance s would reverse the presumption of good faith
implementation of the discretion vested in the executive branches of government when implementing
WTO obligations. Furthermore, if the mere fact of public officials having dual roles or supervising
authority over competing interests was sufficient to establish a violation of Article X:3(a), the
regulatory capacity of governments would be severely curtailed.
4.223 In this case, the Philippines has not met its bur den of proving these three additional elements.
In fact, the Philippines has not provided any so lid evidence of a pattern of TTM Directors
simultaneously making customs or fiscal determinations regarding imported cigarettes.
The Philippines has failed to show unreasonable or partial acts
4.224 The Philippines concedes that it is not able to pr ovide evidence that "specific decisions taken
by TTM Directors in their capacity as government of ficials have actually been motivated by bias". 83
The Philippines merely re-submits its evidence that some TTM Directors have simultaneously been
employees of the Ministry of Finance.
84 This evidence fails to satisfy the requirement of qualitative
evidence of particular unreasonable or impartial acts by the relevant public officials.
The Philippines has failed to demonstrate inadequate safeguards
4.225 Thailand submits that any risk of partial administration of customs and tax laws by
government officials is mitigated by significant statutory safeguards governing the conduct of
Thailand's public officials (e.g., Thai Civil Service Act and Thai Criminal Code). Where government
officials are involved in the wrongful, dishonest, or inadequate exercise of their functions they shall
be subject to imprisonment (of one to ten years) and/or fines (of between two thousand and twenty
thousand baht).
85 The Philippines argues that paragraph 2.6.2 of the Ethical and Moral Guidebook for
Executives and Employees of Thailand Tobacco Monopoly would take precedence over these statutory
civil and criminal obligations and sanctions. 86 Thailand disputes the interpretation of the guidebook
given by the Philippines, which, furthermore was issued by the Human Resources Department of
TTM and has no legal status.
The Philippines has failed to demonstrate that the presence of government officials on the
board of TTM is irrelevant
4.226 The involvement of government officials in the administration of customs valuation and tax
laws is relevant. There are also legitimate reasons why individuals from these departments might be
appointed to the TTM Board to ensure that TTM itself complies efficiently with Thai tax and customs
laws.

82 Panel Report, Argentina – Hides and Leather, para. 11.86.
83 Philippines' answers to the Panel's questions, paras. 460, 462 and 463.
84 Philippines' answers to the Panel's questions, para. 460.
85 Thailand's first written submission, para. 274.
86 Philippines' answers to the Panel's questions, paras. 437-439.

(ii) Thailand acted consistently with Articles X:3(a) and X:3(b) with respect to the conduct of
appeals of customs valuation determinations
Thailand's conduct of these appeals is "reasonable" within the meaning of Article X:3(a)

4.227 The parties agree that the determination of what is "reasonable" requires an analysis of all
relevant circumstances surrounding the administra tion at issue, including "whether the undecided
appeals can be distinguished from those already decided".87
4.228 Thailand considers that there are several distinguishing fact ors between the resolved and
unresolved appeals. First, the [[xx.xxx.xx]] appeals that remain under consideration relate to entries
of Marlboro cigarettes landed in the year 2002. Thus , all [[xx.xxx.xx]] appeals relating to entries
landed in the years 2000 and 2001 have been addressed . Second, PM Thailand requested, by letter
dated 15 December 2005, that the BoA's determin ations for the [[xx.xxx.xx]] ongoing appeals be
based on revised profit and general expense inputs resulting in information exchange between the
BoA and PM Thailand through to mid-2007. Third, PM Thailand subsequently requested, in July
2007, that its appeals lodged in 2006 and 2007 be prioritised over the [[xx.xxx.xx]] ongoing appeals.
88
These extenuating circumstances explain why these appeals have not yet been completed.
Article X:3(b) does not impose obligations regarding the completion of particular appeals
4.229 The parties disagree on the scope of the legal ob ligation in Article X:3(b). Thailand submits
that Article X:3(b), unlike Article X:3(a), does not set standards governing individual instances of
review of administrative action. Instead, Article X:3(b) contains only an obligation to create an
institutional or procedural framework. In this context, Thailand notes that the Philippines has
presented no evidence of delays in processing appe als other than the [[xx.xxx.xx]] appeals (which
remain pending due to extenuating circumstances). In fact, the BoA has ruled on [[xx.xxx.xx]] of the
[[xx.xxx.xx]] appeals lodged by PM Thailand between 2000 and 2002.
4.230 Furthermore, the [[xx.xxx.xx]] ongoing appeals do not fall within the scope of application of
Article X:3(b) as the BoA is not a tribunal or procedure " independent of the agencies entrusted with
administrative enforcement". Section 112 sexies and septies of the Customs Act confirm that the BoA
includes representatives of and is staffed by the same administrative agency – Thai Customs – whose
decisions are the subject of review.
4.231 Even if Article X:3(b) applied to the BoA, fo r the same reasons explained above with respect
to the Philippines's claim unde r Article X:3(a), in the particular circumstances of this case, the BoA's
administration of the [[xx.xxx.xx]] appeals lodged by PM Thailand's for entries landed in 2002 is not
inconsistent with Article X:3(b).
(iii) Thailand acted consistently with Article X:3(b) with respect to appeals against the imposition
of guarantees
4.232 Thailand is not under an obligation to provide for appeals against the imposition of guarantee
values because a decision by a customs official to re quire a guarantee is not an "administrative action
relating to customs matters" within the meaning of Article X:3(b) of the GATT 1994. This is because
guarantees have only a "provisional legal status " and requiring a guarantee does not constitute
separate administrative action affecting the rights and obligations of importers.

87 European Communities' third party written submission, para. 62.
88 Thailand provided a detailed explanation of the ev idence relating to these extenuating circumstances
in its answers to the Panel's questions, paras. 221-225.

4.233 Even assuming that Thailand has to provide for the review of decisions requiring guarantees,
Article X:3(b) neither mandates that this revi ew be instantaneous nor prohibits it from being
conditioned on the exhaustion of internal procedur es. Contrary to the Philippines' arguments,
Article X:3(b) does not contain any language re quiring WTO Members to confer "independent and
immediate" rights to challenge all administrative ac tion relating to customs matters. The Philippines
appears to accept that, under Thai law, importers can seek independent judicial review of orders
requiring guarantees by the Tax Court after exhausting internal procedures. Thus, Thailand complies
with the requirements of Article X:3(b).
(iv) Thailand acted consistently with Article X:3(a) in its administration of the VAT system and its
excise, television and health taxes
Generally-applicable criteria to calculate MRSPs
4.234 Contrary, to the Philippines' assertion, Article X:3(a) does not require Members to adopt
generally applicable rules that attempt to address ev ery possible contingency in advance; instead they
are free to rely on discretion to administer their laws and regulations. It is perfectly "reasonable" for
Members to administer their laws through the conferral of discretion on administrative agencies.
4.235 In any case, even assuming that Article X:3(a) contains a requirement to administer laws and
regulations using "generally applicable criteria" , Thailand has complied with this requirement.
MRSPs are determined according to generally-applicable criteria.
Use of guarantee value data to calculate MRSPs for Marlboro and L&M
4.236 Thailand responds to the three claims advanced by the Philippines as follows:
4.237 The use of different data sources to calculate the c.i.f. price component of MRSPs does not
amount to non-uniform administration because the difference can be explained by reference to
differences in the circumstances of the case. In September 2006 Customs had legitimate doubts about
the reliability of PM Thailand's declared values and Th ai Excise had to resort to estimates; by August
2008 Customs was satisfied that PM Thailand's declar ed values were reliable and, at that point in
time, Thai Excise utilised the declared/assessed values.
4.238 The use of guarantee values in September 2006 was reasonable given the legitimate doubts
expressed by Thai Customs regarding the reliability of PM Thailand's declared values and the absence
of any credible alternative. The fact that th e guarantee values were based on a BoA ruling and were
not much higher than the declared or eventually asses sed values also indicates that the actions of Thai
Customs were not unreasonable.
4.239 The use of estimates was impartial because th e Philippines has not established that Thai
Excise would not use estimates to calculate the ex factory price component of MRSPs for domestic
brands if there were any doubts about the reliability of figures furnished by TTM.
Tax bases used to assess excise, television and health taxes
4.240 Thailand contests the Philippines' factual asserti ons that excise, television and health taxes
have been or will be collected by Thai official s in contravention of existing Thai laws. The
Philippines has not submitted any evidence in support of its assertions that Thai Excise has used
"unlawful" tax bases to assess excise, television and health taxes. The Philippines bears the burden of
proof on this matter and has failed to discharge its bur den. Accordingly, the Ph ilippines' claims must
be rejected.

4.241 Furthermore, even assuming that Thai official s somehow act inconsistently with Thai law
when they levy excise, television and health taxes, it does not follow that this gives rise to a breach of
Article X:3(a) of the GATT 1994. Article X:3(a) cannot be used to convert every failure by domestic
authorities to comply with domestic laws into breach es of international law. Article X:3(a) does not
impose an overarching requirement on WTO Members to ensure that their administrative actions
remain based on applicable domestic laws.
(v) Thailand acted consistently with Article X:1 with respect to the publication of rules and data
relating to VAT, ex factory prices and the release of guarantees
The overall MRSP calculation methodology and data used to calculate MRSPs

4.242 From August 2007 onwards, Thailand has published the overall MRSP calculation
methodology in the preamble to all MRSP notices issu ed by the Excise Department. This description
enables governments and traders to become acquainte d with the methodology used by Thai Excise.
Contrary to the Philippines' assertions, this descrip tion adequately explains the manner in which the
VAT amount and the marketing margin are calculated – at least sufficiently clearly that PM Thailand
and other importers are regularly able to request changes in their MRSPs.
4.243 Thailand is not under an obligation to publish data utilised to calculate MRSPs because this
material is not a law, regulation, judicial deci sion or administrative ruling of general application
within the meaning of Article X:1 of the GATT 1994 , or, alternatively this material is not an
"essential element" of any relevant law, regulatio n, judicial decision or administrative ruling of
general application. Concerning the data used in MRSP calculations for imported cigarettes, Thailand
cannot publish this material because publication would result in the disclosure of confidential
information.
Ex-factory price calculation methodology and data used to calculate ex factory prices for
TTM Brands
4.244 Ex-factory price determinations are not "administrative rulings of general application". The
relevant ex factory price determination applies to a single entity – TTM – and is used to set tax bases
for excise, health and television taxes paid by this single entity. Accordingly, the ex factory price
calculation methodology is not a measure of general a pplication. In the even t that the Panel accepts
that ex factory prices have general application, then publication of data used in arriving at these prices
is not required because (i) this data falls outside the scope of Article X:1 of the GATT 1994, and (ii)
publication of this data would result in the disclosure of confidential information.
Rules relating to the release of guarantees
4.245 The starting point of the analysis under Article X:1 must be the identification by the
complainant of an existing rule of general application that the respondent has failed to publish. In this
case, the Philippines has failed to identify any existing instrument or set of instruments relating to the
release of guarantees made effective by Thailand that Thailand has failed to publish.
(e) Issues relating to the Panel's terms of reference
(i) The Philippines' claim under the Customs Val uation Agreement regarding a "general rule or
methodology"
4.246 In its response to the Panel's question 1, the Ph ilippines attempts to resu scitate its claim that
Thai Customs had a "general rule and/or methodolog y" regarding the rejecting of transaction values
for PM Thailand's imports. The Panel should not ru le on this claim because (i) the Philippines has

failed to establish that a "general rule and/or me thodology" existed as that term is understood in WTO
jurisprudence; (ii) even if the general rule alleged by the Philippines ever existed, it is clear that it had
expired, at the latest, in September 2007 – long befo re the establishment of the Panel; and (iii) there
is no need for the Panel to rule on this claim in order to resolve the dispute before it.
(ii) The Philippines' claims regarding expired measures and completed acts
4.247 Thailand urges the Panel to consider carefully (i) whether each of the Philippines' claims
identified in Exhibit THA-36 are properly within its te rms of reference such that the Panel can rule on
those claims; (ii) whether and to what extent it is appropriate or useful for the Panel to rule on claims
that relate either to expired measures or completed acts; and (iii) whether the Panel is permitted under
Article 19.1 of the DSU to make recommendations with respect to such claims.
(iii) The Philippines' claims under Article X:3(a) regarding Thailand's admin istration of its VAT
system and the excise, television and health taxes
4.248 The Philippines makes two separate request s for findings and seven claims under
Article X:3(a) of the GATT 1994 regarding the manner in which Thailand administers its VAT
regime and its excise, television and health tax es. None of these claims is described in the
Philippines' panel request in a manner that suffices to present the relevant problems clearly because (i)
the Philippines fails to "plainly connect" the absence of generally applicable criteria to calculate
MRSPs, the use of guarantee values to calculate MR SPs, or the utilisation of unlawful tax bases to
assess excise, television and health taxes with Th ailand's obligations under Article X:3(a) of the
GATT 1994, and (ii) the panel request does not cont ain any reference to claims that Thailand
administers the VAT measures and the excise, television and health tax measures in a non-uniform
manner.
G. EXECUTIVE SUMMARY OF THE ORAL STATEMENT BY THE PHILIPPINES AT THE SECOND
SUBSTANTIVE MEETING OF THE PANEL
1. Article X:3(a) claim relating to the role of TTM Directors
4.249 Thailand violates Article X:3(a) by vesting governmental authority to apply Thai customs and
tax measures concerning domestic and imported cigarettes in government officials simultaneously
serving as TTM Directors, which results in partial and unreasonable administration of these measures.
As government officials, these individuals are ch arged with administering Thai customs and tax
measures for domestic and imported cigarettes. As TTM Directors, they have a duty and financial
incentive – in the form of significant bonuses – to advance TTM's competitive interests. The act of
vesting authority to apply Thai customs and tax meas ures in this manner is an act of administration,
distinct from additional acts such as the adoption of discriminatory MRSPs. TTM Directors are not
subject to an effective safeguard, explicitly provi ded in the Thai Civil Service Act, prohibiting
government officials from being a manager or managi ng director in a company. Thailand's other
safeguards have proven ineffective in practice an d have not prevented the disclosure of highly
sensitive BCI to TTM Directors and acts of partial and unreasonable administration.
2. Thailand violated the Customs Valuation Agreement in rejecting PM Thailand's
declared transaction values and in determining higher deductive values
(a) Articles 1.1 and 1.2: general rule requiring rejection of transaction value
4.250 Thailand has not rebutted the Philippines' prim a facie claim regarding the existence of a
general rule requiring the rejection of transaction valu e. In addition to five pieces of evidence already
submitted, the Philippines can now also rely on a series of memoranda, submitted by Thailand in

response to the Panel's Article 13 DSU request, c onfirming that, in August 2006, Thailand adopted a
general rule providing for the rejection of transac tion value without examination of the circumstances
of sale, and for the use of a deductive value as the minimum or reference price irrespective of
particular circumstances. This general rule applied to importers of cigarettes and alcoholic beverages,
and was not company-specific. Even if the rule is company-specific, a panel has jurisdiction to
consider a rule or norm prescribing that a particul ar company will be subjected to specific regulatory
treatment on a general and prospective basis.
4.251 The general rule falls within the Panel's terms of reference and may be the subject of findings
and recommendations. It has not expired and c ontinues to have effects through the [[xx.xxx.xx]]
valuation decisions, taken pursuant to the rule, that are pending before the BoA. Even if the Panel
were to find that the general rule has fully expired, it may make findings regarding expired measures.
(b) Articles 1.1 and 1.2: improper rejection of PM Thailand's declared transaction values in
[[xx.xxx.xx]] entries
4.252 Thailand violated Articles 1.1 and 1.2 by rej ecting PM Thailand's declared transaction values
in [[xx.xxx.xx]] transactions, without (1) examining the circumstances of sale, and (2) valid grounds,
other than the relationship between the buyer and seller.
4.253 The Philippines has advanced five pieces of ev idence, showing that no examination of the
circumstances of sale occurred and that Thailand di d not examine the relevant evidence, such as
deductive calculations, submitted by PM Thailand. Thailand has responded with contradictory ex post
reasons for why PM Thailand's evidence was inade quate; it has yet to provide evidence showing that
Thai Customs ever examined PM Thailand's evid ence. In fact, the minutes of the 6 March 2007
meeting expressly state that Thai Customs did not ex amine the circumstances of sale. Thai Customs'
explanation of its determination, in the 12 April 20 07 letter, also does not reveal an examination of
PM Thailand's evidence. Thailand now argues, ex post , that it did not use deductive testing in the
relevant period. However, the evidence before the Panel shows that Thai Customs used deductive
values as minimum test prices for the 2006 and 2007 entries at issue; when transaction value was
below the deductive test value, it was rejected w ithout a proper examination of the circumstances of
sale. Thai Customs also failed to examine PM Thailand's gross margin ev idence. This evidence
allowed Thai Customs to compare the gross margin s earned by PM Thailand with the gross margins
of similarly-situated distributors in transactions with unrelated suppliers. Thailand has advanced
contradictory reasons for not addressing that eviden ce. At the relevant time, however, Thai Customs
never communicated that its grounds for doubting th e transaction value included concerns over the
gross margin data for unrelated distributors. Thailand also argues, ex post , that at that time Thai
Customs was only required to examine "new" eviden ce, and not other evidence, such as the gross
margin evidence that PM Thailand previously submitted, and resubmitted after 4 August 2006.
However, an authority must exam ine any evidence, unless it has previ ously rejected it. Moreover,
alleged and unspecified telephone conversations a nd meetings, without a documentary record, are
insufficient, under the Customs Valu ation Agreement, to establish that the circumstances of sale were
examined.
4.254 Thailand also violated Articles 1.1 and 1.2 by failing to provide valid grounds for rejecting
transaction value. With respect to the first fact mentioned in the letter of 12 April 2007, Thailand has
expressly stated in these proceedings that Thai Customs did not rely on a comparison between
[[xx.xxx.xx]] (hereafter: "Importer A") prices and PM Thailand's prices.
89 At the relevant time,
PM Thailand explained why these prices were inco mparable, and Thai Customs did not ask it to
account further for the differences between these incomparable prices. With respect to the second
fact, also mentioned in the 12 April letter, the Philippines submits that a WTO Member cannot evade

89 Thailand's first written submission, para. 165.

its primary valuation obligation with a bald statemen t that the burden of proof was not met, without
also explaining why the evidence submitted was deficient.
(c) Article 1.2(a): communication of "grounds" before rejecting transaction value
4.255 Thailand violated Article 1.2(a) by failing to communicate grounds for considering that the
relationship influenced the price before rejecting transaction value. A communication of solely the
legal conclusion that PM Thailand "had ‘yet to prove' that the relationship did not influence the price"
is insufficient to communicate the factual "grounds " for the authority's conclusion, and deprives the
importer of a "reasonable opportunity to respond" to those "grounds".
(d) Article 16: adequate explanation of how customs value was determined
4.256 Thailand violated Article 16 by failing to provi de PM Thailand with a written and sufficiently
reasoned explanation, enabling the importer to understand how and why the authority rejected
transaction value and determined the assessed custom s value. Neither the 12 April letter nor the
minutes of the 6 March meeting provide an adequate explanation of Thai Customs' determination
because they rely on an improper comparison with Importer A's prices (upon which Thailand alleges
Thai Customs did not rely) and a bald, unsubstantiated statement that the burden of proof was not met.
(e) Articles 5 and/or 7: incorrect assessment of deductive value of PM Thailand's [[xx.xxx.xx]]
transactions
4.257 Thailand violated Article 5 by determining, fo r impermissible reasons, that it could not value
PM Thailand's goods using that provision, and/or Article 7 by incorrectly assessing the deductive
value of PM Thailand's [[xx.xxx.xx]] entries. Thailand now admits that it deducted incorrect amounts
for excise tax, causing inflated customs value, and VAT for certain entries. The fact that
PM Thailand may have benefited from the deduc tion of an incorrect VAT amount does not render
Thailand's actions WTO-consistent.
(f) Article 10: disclosure of business confidential data
4.258 Thailand violated Article 10 by disclosing BCI. Thailand accepts that c.i.f. prices for
imported cigarettes are BCI, and that their disclos ure would prejudice legitimate commercial interest
of importers of cigarettes.
3. Thailand violates Article X:3(b) of the GATT 1994 by failing to provide a right to
challenge guarantees
4.259 Thailand violates Article X:3(b) by failing to provide an unconditional right to appeal a
guarantee order, independently from the final notice of assessment. A guarantee order is a complete
and final act that is distinct from the final assess ment, and is administrative action in the sense of
Article X:3(b). Making the review of a guarantee conditional on the existence of final assessment of
customs value risks depriving importers of any re view of a guarantee, inflicting on them immediate
financial harm. An unconditional right to review of a guarantee is also needed in cases where the
guarantee excludes market access entirely, in which case there is no assessed customs value.
4. GATT 1994 claims pertaining to VAT
(a) Article X:1: publication of methodology and data used to determine MRSPs
4.260 Thailand violates Article X:1 by failing to pub lish the overall methodology used to establish
and revise MRSPs. Contrary to Thailand's ar gument, individual MRSP notices do not provide

adequate publication of the MRSP methodology, no r do they explain the methodology that Thailand
described before this Panel. PM Thailand complain ed about this lack of transparency in its ongoing
internal appeals against three MRSP notices. W ith respect to the December 2005 MRSP, Thailand
now argues that the "marketing costs", one of the elem ents in the calculation, are not "calculated" but
instead "derived" from the latest MRSP proposed by the importer. The available evidence and
calculations relating to the December 2005 marketing costs, which were applied again in the 2008 and
2009 MRSPs, contradict Thailand's explanation. In fact, Thailand's contradictory explanations
regarding the December 2005 MRSPs serve to emphasize the urgent need for published rules.
4.261 Thailand also violates Article X:1 by failing to publish data, in indexed format where needed,
used to calculate MRSPs. Timely publication of essential data underlying the MRSPs would prevent
errors from infecting the tax base, allow trad ers and foreign governments to review MRSP
calculations, and ensure that calculation disputes can be addressed immediately at the domestic level.
The repeated errors in the calculations submitted by Thailand to the Panel demonstrate the need for
publication of the data underlying the MRSPs.
(b) Article III:2, first sentence: excess taxation of imported cigarettes, as a result of the MRSP
4.262 The MRSP Notices of 7 December 2005, 18 September 2006, 30 March 2007, 29 August
2007, and 19 August 2008 fall within the Panel's terms of reference be cause they were identified in
the Panel Request as "MRSP Notices [in the plural] is sued by the Director-General for Excise" and
the Philippines indicated that the dispute concer ned MRSP Notices from the past "two and a half
years". The earlier MRSP Notices have not ceased to have effects; but, in any event, an expired and
superseded measure is covered by Ar ticle 6.2 of the DSU, as shown in EC – Bananas III (21.5) and
US – Zeroing (Japan) (21.5).
4.263 The Philippines has already demonstrated that all domestic and imported cigarettes are like,
through evidence pertaining to physical characteristi cs, end uses, consumers' tastes and preferences,
tariff classification, and regulatory treatment. Thailand has submitted neither argument nor evidence
disputing the Philippines' assessment. Thailand' s argument that the Panel must make 1,634
comparisons between different brands of imported and domestic cigarettes is not supported by the text
of Article III:2 or the case law.
4.264 Thailand's objections to the Philippines' ev idence measuring behavioural changes resulting
from relative price movements are unfounded. First, surveys of consumer opinion provide helpful
evidence of consumers' tastes and preferences, a nd were previously relied on by the Panel in Japan –
Alcoholic Beverages. Second, the fact that the evidence does not show calculations for 1,634 separate
elasticities of substitution and income-compensated cross-price elasticities of demand is irrelevant.
4.265 Thailand imposes VAT on imported cigarettes in excess of VAT imposed on domestic
cigarettes, because (1) the MRSPs for imported ci garettes are systematically higher than for like
domestic cigarettes; and, (2) the MRSPs for impor ted cigarettes are systematically higher than the
RRSPs for imported cigarettes, whereas the MRSPs for like domestic cigarettes are systematically
equal to the RRSPs. A table in each of PM Tha iland's three internal appeals against the 2006-2007
MRSPs shows that (1) MRSPs for all 13 major impor ted brands were higher than the MRSPs for the
three major domestic brands, and (2) a sizeable gap between the MRSP and RRSP exists for only
imported brands. The evidence before the Panel s hows that since December 2005, the MRSPs have
been consistently higher than they would have been if based on PM Thailand's information, and have
been consistently higher for imported brands than for like domestic brands, resulting in a gap between
the retail price and the MRSP for imported, but not domestic, brands.

(c) Article III:2, first sentence: de jure exemption of resales of domestic cigarettes from VAT
4.266 Thailand also violates Article III:2, first sentence, by de jure exempting resales of domestic
cigarettes from VAT while subjecting resales of imported cigarettes to VAT and a non-automatic,
conditional tax credit. Thailand applies different VAT systems to domestic and imported cigarettes.
It applies a single stage VAT system to domestic cigarettes, involving a de jure VAT exemption of
resales of domestic cigarettes. In that system, only TTM is VAT-liable, and VAT is due on sales at
only one stage of the distribution chain. In cont rast, a multi-stage VAT system applies to resales of
imported cigarettes, whereby VAT is due at each of the multiple stages in the distribution chain of
imported cigarettes.
4.267 Although Thailand argues that the additional VAT liability can be offset by a tax credit, a
Member cannot rely on action by a private party to m itigate the effects of a discriminatory tax. Also,
the tax credit is subject to conditions, and not granted automatically as Thailand alleges.
(d) Article III:4: more onerous VAT administrative burdens on resales of imported cigarettes
4.268 Thailand violates Article III:4 by subjecting resales of imported cigarettes to the VAT
administrative requirements set out in Chapter IV of the Thai Revenue Code, while exempting resales
of domestic cigarettes from those requirements. The Philippines has submitted expert statements
supporting its claim. Thailand's argument that resales of domestic cigarettes are, nevertheless, subject
to income tax administrative requirements, which it claims are "exactly the same" as the VAT
administrative requirements, fails because Thai law also de jure exempts income earned by resellers
of TTM cigarettes from income tax.
(e) Article X:3(a): administration of VAT regime
4.269 The Panel has jurisdiction to consider the Phili ppines' claim under Article X:3(a) because the
measures being administered, and the relevant lega l provision, were identified and connected in the
Panel Request.
4.270 Thailand violates Article X:3(a) by using a guarantee value as the starting point for
calculating MRSPs. Thailand effectively converts a provisional guarantee into a definitive tax base,
which is neither reasonable nor unif orm administration. Such administration is also partial because
Thai law does not authorize DG Excise to issue a provisional ex factory price, whereas an express
power exists to issue a provisional guarantee value. The Philippines further objects to a definitive tax
that is based on the highest estimated guarantee value.
4.271 Thailand also administers its VAT system in an unreasonable fashion by failing to base its
MRSP calculations on generally-applicable criteria set forth in domestic law. The Philippines has
shown, and Thailand has admitted, that MRSPs are ca lculated on an ad hoc basis, without criteria set
forth in law, allowing DG Excise to add, since De cember 2005, marketing costs that have not been
based on the importer's information. This is contrary to the objectives underlying Article X:3(a).
Moreover, Thailand's methodology used to calculate the 2006 marketing costs, which involved giving
arbitrary and differing weights to different retail pr ices in different countries, is also unreasonable –
especially in the light of the fact that MRSPs calculated for domestic bra nds during the same period
were based on TTM's information.

5. Claims pertaining to the excise, health, and television taxes
(a) Article X:1: publication of methodology and data used to determine the ex factory price
4.272 Thailand violates Article X:1 by failing to publish the methodology and data, indexed if
necessary, used to determine the ex factory pr ices. This methodology is a ruling establishing
"principle or criteria applicable in future cases", affecting an unidentified number of economic
operators. First, the ex factory price constitutes the tax base for the excise, health, and television
taxes, and, therefore, affects the taxes and prices paid by all purchasers of domestic cigarettes.
Second, the ex factory price is the starting poin t for calculating MRSPs for domestic brands, and,
therefore, applies generally to all of TTM's VAT-liable sales.
(b) Article X:1: publication of rules concerning the release of guarantees for excise, health, and
television taxes
4.273 Thailand violates Article X:1 by failing to pub lish rules concerning the release of guarantees
collected to cover the potential liab ility for excise, health, and televi sion taxes. Neither the Customs
Act, nor statutes imposing these taxes, provide ru les on the release of guarantees for these internal
taxes. Thailand's assertion that it has not adopted general rules concerning the release of guarantees is
contradicted by its description before this Panel of a "departmental practice" governing the release of
guarantees, applied "routinely" and "[i]n the overw helming majority of cases … without incident".
The Philippines urges the Panel to consider the ci rcumstances surrounding the tardy release date of
the health tax guarantees for [[xx.xxx.xx]] en tries, occurring between 18 August 2006 and 16
February 2007, in objectively assessing its claim that published rules are needed to protect importers.
(c) Article X:3(a): administration of the excise, health, and television taxes
4.274 The Panel has jurisdiction, on the same groun ds as those described in paragraph 21 with
respect to the Article X:3(a) VAT claim, to cons ider the Philippines' claim that Thailand violates
Article X:3(a) by failing to administer the excise, health, and television taxes in a uniform, reasonable,
and impartial manner. If the assessed customs value is reduced, following a successful appeal against
Thai Customs' valuation, Thailand refunds the excess customs duties collected but does not refund the
excess excise, health, and television taxes, which are based on the initial assessed customs value plus
customs duties. It is not reasonable to administer these three taxes on the basis of a customs value
that, as here, was found to be incorrect by a domestic court or tribunal, and that does not reflect the
statutory tax base. Finally, it is also partial admi nistration to impose tax on the basis of an incorrect
customs value, because this administration affects imported, but not domestic, cigarettes.
(d) Articles X:3(b) and X:3(a): undue delays in the BoA's decision-making
4.275 Thailand violates Articles X:3(b) and X:3(a) by failing, after more than seven years, to
resolve [[xx.xxx.xx]] appeals brought by PM Thailand. This delay is not jus tified by PM Thailand's
request that the BoA use a revised P&GE ratio for these [[xx.xxx.xx]] appeals. The issue of whether
to adjust the audited P&GE ratio to account for Thai Customs' higher assessed customs value has been
resolved in each of the four previous BoA ruli ngs regarding hundreds of entries from 2000-2002: the
BoA decided to adjust the company-wide P&GE ra tio by treating the extra customs duties and taxes
paid on the uplifted customs value as income. As shown in Exhibit PHL-251, for all entries from
April 2000 to December 2002, the BoA uniformly used a single, adjusted company-wide P&GE ratio
of [[xx.xxx.xx]] per cent. In these circumstances, PM Thailand's request from June 2004 for an
adjustment to the audited P&GE involved the BoA pursuing a consistent approach, without requiring
it to re-start its analysis. Instead, it is the BoA that indicated, at a meeting on 28 September 2005, that
it would depart from its previous rulings; any attend ant delay caused by that decision is attributable
solely to the BoA.

H. EXECUTIVE SUMMARY OF THE ORAL STATEMENT BY THAILAND AT THE SECOND
SUBSTANTIVE MEETING OF THE PANEL
1. Claims under the Customs Valuation Agreement
4.276 The Panel must not conduct a de novo review: it "cannot conduct a new inquiry into the facts
to decide for itself what conclusions it would have reached; nor can it substitute its own judgment for
that of a domestic authority. ... In a WTO customs valuation dispute, a panel's role is, therefore, not to
conduct a new examination into the facts, and to decide for itself the proper valuation of the goods." 90
The Appellate Body has said that a panel "has to put itself in the place of [the customs administration]
at the time that it makes its determination". 91 The Philippines has failed to show that any of
Thailand's arguments before the Panel are ex post in that they differ from the grounds on which Thai
Customs acted. The Philippin es seeks to use the concept of ex post justification – which is not found
in the DSU – to read into the Customs Valuation Agreement procedural obligations similar to those in
the trade remedy agreements, even though there ar e significant differences between the everyday
process of customs valuation and the extr aordinary remedy of anti-dumping measures. 92 Even if the
Panel agrees that some of Thailand's arguments are ex post, the Panel would not be able to rule that
the determination was substantivel y inconsistent with the Customs Valuation Agreement. The Panel
could rule only that Thai Customs had failed to provide a reasoned explanation of its actions.
4.277 Thai Customs had "doubts" within the meaning of Article 1.2(a) and its interpretative notes. 93
There is no requirement that the customs administra tion must either justify its doubts or even notify
the importer of the nature of the doubts.94 There is no requirement that the subsequent examination of
the circumstances of sale must focus on the nature of the original doubts. PM Thailand did not
"dispel" the doubts in this case.95
4.278 The evidence presented by PM Thailand did no t establish that the relationship between PM
Philippines and PM Thailand did not influence the price between the two. The importer bears the
burden of proof on this.
96 The [[xx.xxx.xx]] evidence addresses only the relationship between
PM Thailand and its resellers in Thailand and says nothing about the relationship between
PM Thailand and its affiliated supplie r, PM Philippines. The amount of profit made by the importer
on its resale does not establish that the price at which the importer bought from the related exporter
was at arm's length.
97 The fact that the profit ratio falls w ithin certain ranges also does not establish
that the price paid was at arm's length. Also, the source and probative value of the profit ranges relied
on by PM Thailand are too vague to be reliable. In March 2007, PM Thailand expressly requested
Thai Customs to use a "deductive method" "in testing the acceptance of the imported value". 98 It was
therefore reasonable for Thai Customs to use th e deductive method, as proposed by PM Thailand and
as "akin" to the method in the [[xx.xxx.xx]].

90 Philippines' second written submission, para. 58 (emphasis in original).
91 Appellate Body Report, US – Cotton Yarn, para. 78.
92 See Thailand's second written submission, para s. 116-118; Thailand's answers to the Panel's
questions, paras. 14-16.
93 See Thailand's first written submission, paras 130-134; Thailand's second written submission,
paras. 23-35.
94 See Thailand's first written submission, para. 134; Thailand's second written submission,
paras. 26-30.
95 See Thailand's second written submission, paras. 31-35.
96 See Thailand's first written submission, paras. 135- 139; Thailand's answers to the Panel's questions,
paras. 4-8; Thailand's second written submission, paras. 39-47.
97 See Thailand's second written submission, para. 63; Thailand's answers to the Panel's questions,
para. 44.
98 PM Thailand letter to Thai Customs, 6 March 2007, Exhibit THA-92, p. 1.

4.279 Thai Customs provided the necessary notificatio n of the grounds to consider that the
relationship between PM Philippines and PM Tha iland influenced the price in its 19 December 2006
letter.
99 Subsequent correspondence also makes clear th at PM Thailand was fully informed as to the
basis on which Thai Customs was acting and its opportunities to provide additional information.100
4.280 Thai Customs' examination of the circumstance s of these sales was also consistent with the
requirements of the Customs Valuation Agreement. This examination was a "process of consultation"
including the following events: (i) Oral communication on 15 February 2007 101; (ii) 16 February letter
from PM Thailand to Thai Customs 102; (iii) Request for information preceding 21 February 2007
letter103; (iv) 21 February 2007 letter from PM Thailand to Thai Customs 104; (v) 26 February 2007
letter from Thai Customs to PM Thailand's accountants 105; (vi) 27 February 2007 letter from Thai
Customs to PM Thailand 106; (vii) 2 March 2007 letter from Thai Customs to PM Thailand 107; (viii)
2 March 2007 letter from Thai Customs to PM Thailand's accountants 108; (ix) Thai Customs' meeting
with PM Thailand's accountants, 2 March 2007; (x ) Meeting of 6 March 2007; (xi) 6 March 2007
letter109; and (xii) 7 March 2007 letter.110
4.281 The 6 March 2007 meeting was part of the examination of these sales, requested by the
importer, and part of the process of consultation. When the Panel "has []put itself in the place of
[Thai Customs] at the time that it makes its determination" 111 it should conclude that Thai Customs
acted reasonably by valuing PM Thailand's entries using precisely the approach requested by the
company in its letter of 5 February 2007. Artic le 6 of the Customs Valuation Agreement provides
that Members cannot compel persons in other coun tries to provide information for the purposes of
determining customs value under that Article sugg esting that the customs administration is not
required to seek information from foreign sources in determining customs value even under other
methods. Moreover, when Thai Customs asked PM Thailand for information regarding the costs
incurred by PM Philippines, PM Thailand expressly told Thai Customs to use the deductive method
instead.112
4.282 Thai Customs fully examined th e circumstances of sale in the light of the evidence presented
by PM Thailand and found that: (i) there was no evidence provided regarding the circumstances of
sale such as how PM Thailand and PM Philippine s negotiated their prices; (ii) the [[xx.xxx.xx]]
method did not provide the customs administration with any basis to conclude that the price between
PM Philippines and PM Thailand was at arm's length, and (iii) even when viewed as "akin" to a
deductive value, the evidence did not establish that the related transfer price was at arm's length.
Accordingly, the Panel should find that Thai Cu stoms reasonably determined that the transaction
value was not acceptable for the reasons stated in Ar ticles 1.1(d) and 1.2(a) of the Customs Valuation
Agreement.

99 See Thailand's second written submission, para s. 93-107; Thailand's first written submission,
paras. 167 et seq.
100 See, e.g., PM Thailand's letter dated 21 February 2007, Exhibit THA-39B.
101 Exhibit PHL-137B ("we wish to confirm our advice yesterday ...").
102 Exhibit PHL-137B.
103 Exhibit THA-39B ("our company has been informed ... ").
104 Exhibit THA-39.
105 Exhibit THA-10.
106 Exhibit THA-11.
107 Exhibit THA-12 (Ref. 0519/540).
108 Exhibit THA-12 (Ref. 0519/539).
109 Exhibit THA-92.
110 Exhibit PHL-169.
111 Appellate Body Report, US – Cotton Yarn, para. 78.
112 PM Thailand letter to Thai Customs, 6 March 2007, Exhibit THA-92, p. 2.

4.283 With respect to the deductiv e value calculation, discounts, rebates and similar price
adjustments are not expenses, but instead form part of the price itself. Articles 5.1(a)(i)-(iii) of the
Customs Valuation Agreement do not require disc ounts to be deducted on the basis of "usual"
amounts. Deductions are required only for discounts that are tied to the particular unit price for the
GAQ sale. Provincial taxes are deductible " if included in the resale price on which the [deductive
value] is based ".
113 PM Thailand made no claims for a deduction for transportation costs.
Accordingly, Thai Customs properly calculated the deductive value.
4.284 The customs administration is not required to continue to make repeated requests for
information as part of its examination of the circumstances of sale. Even under the Anti-Dumping
Agreement, the respondent does not have a right to unlimited opportunities to present additional
data.
114
4.285 Thai Customs provided a written explanation of how the customs value was determined in its
12 April 2007 letter and by means of the minutes of the 6 March 2007 meeting, which were provided
to PM Thailand and referred to in at least one of the notices of assessment for these entries. 115 Thai
Customs acted reasonably and consistently with th e Customs Valuation Agreement in rejecting the
declared value and using the deductive method to value these entries in accordance with
Articles 1.1(d) and 1.2 of the Customs Valuation Agreement.
2. Claims under Article III of the GATT 1994
(a) Claim under Article III:2 with respect to the setting of MRSPs
4.286 The key issue is whether the tax base – the MRSPs – is established in the same manner for
imported and domestic cigarettes.116 The 2006 and 2007 MRSPs were not included in the Philippines'
panel request and are not within the Panel's terms of reference. 117 Instead, this dispute concerns the
2008 and 2009 MRSP notices and there is no evidence s howing that those MRSPs were established in
a manner that discriminated against imported cigare ttes. Rather, the evidence is clear that the 2008
and 2009 MRSPs were set using the same methodology for both domestic and imported cigarettes and
that the importers that actually made company-sp ecific requests for changes in their MRSPs relating
to those notices were treated in the same manner as domestic producers.
(b) Claim under Article III:2 regarding VAT on resellers
4.287 VAT is a tax on consumers, who pay exac tly the same tax on imported and domestic
cigarettes.118 The key issue is that the total tax on th e imported and domestic product is the same, not
whether the tax is collected uniformly from differe nt merchants at each stage of the distribution
process.
4.288 The Philippines' claim also fails because: (i) a reseller never pays more VAT on imported
cigarettes than on domestic cigarettes; (ii) a reseller always obtains an input tax credit on its purchases
of cigarettes before it incurs the obligation to pa y output tax on its sales of cigarettes; and (iii),
resellers can use VAT paid on their purchases of services and equipment to increase their offset

113 Exhibit PHL-206, p. 223, para. 743.
114 See, e.g., Panel Report, Korea – Certain Paper, para. 7.85.
115 See Thailand's first written submission, paras. 172-178; Thailand's second written submission,
paras. 113-119.
116 See Thailand's second written submission, paras. 134-135.
117 See Thailand's first written submission, paras. 194-203; Thailand's answers to the Panel's questions,
paras. 243-245; Thailand's second written submission, paras. 144-145.
118 See Thailand's second written submission, paras. 156-161; Exhibit THA-61.

against VAT output tax payable on sales of imported cigarettes.
119 If the Philippines' argument were
accepted, Members would not be able to use VAT sy stems based on input/output tax offsets, because
such systems inevitably result in different taxes bein g collected at different points in the distribution
process.120
(c) Claim under Article III:4 regarding VAT forms
4.289 The requirement to file a Por.Por.30 depends on the entity's total sales, not on whether it sells
imported or domestic cigarettes. Thailand att aches as Exhibit THA-89 samples of Por.Por.30s
submitted by TTM and by a convenience store th at show amounts for both VAT and VAT-exempt
sales. Furthermore, the Revenue Department's Instruction No. Paw. 86/2542, published in 1999,
regarding the types of documents required for VAT compliance, makes clear that sales receipts may
double as tax invoices, thereby avoiding duplication of requirements under the Accounting Acts and
the Revenue Code (Exhibit THA-90, clause 6). In ac cordance with this instruction, many companies
produce a single document that serves as a receipt and a tax invoice.
3. Claims under Article X of the GATT 1994
(a) Article X:3 claim relating to TTM's Board of Directors
4.290 A complainant must show actual acts of partial or unreasonable administration in order to
prove a violation of Article X:3(a). The Philippines concedes that it is not able to provide evidence
that "specific decisions taken by TTM Director s in their capacity as gove rnment officials have
actually been motivated by bias." 121 Press reports of alleged "statements of intent by the conflicted
individuals to protect the domestic producer" 122 do not constitute acts of unreasonable or partial
administration. A claim under Article X:3(a) generally requires evidence of "a pattern of decision-
making".123 In this case, the sole alleged act, the disclosure of confidential declared values to the Thai
press in 2006 124, has not had a significant impact on the overall administration of the Thai Customs
Code. Specific statutory safeguards prevent such a result.125
4.291 Even if Article X:3(a) were read to regula te how governments structure their administrative
processes, rather than how they actually administer their laws and regulations, the Philippines' claims
must fail. An "administrative structure" whereby government officials are simultaneously on the TTM
Board does not "compromise all" or "taint the entirety" of the government's administration in
individual cases.126
4.292 As a matter of fact, Thai law contains strict st atutory safeguards, which take priority over the
TTM Guidebook and which protect against improper administration of Thai law by government
officials serving on the TTM Board. 127 Financial incentives for TTM Directors are modest, based as
much on attendance at meetings as profits 128, and calibrated to ensure that Directors act consistently
with those statutory controls. This case therefore differs from Argentina – Hides and Leather , in

119 See Thailand's answers to the Panel's questions, paras. 159-160.
120 See Thailand's second written submission, paras. 150-155.
121 See Philippines' answers to the Panel's questions, paras. 460, 462 and 463. Also, Philippines' second
written submission, para. 25.
123 Panel Report, US – Hot-Rolled Steel, WT/DS184/R, para. 7.268.
124 Philippines' answers to the Panel's questions, paras. 469-470.
125 Exhibit THA-85.
126 Philippines' second written submission, paras. 23 and 26.
127 Thai Civil Service Act and Criminal Code.
128 Thailand's second written submission, footnote 17 1; see also Exhibit THA-3, pages 44-45, and
Exhibits PHL-6 and PHL-7.

which there were no controls on the treatment of c onfidential information available to private industry
representatives present at export inspections.129
(b) Article X:3 claims relating to the BoA's treatment of appeals on Marlboro cigarettes landed in
2002
4.293 There are three circumstances that justify th e BoA's treatment of the pending appeals as
"reasonable": (i) the spike in appeals due to Th ailand's implementation of new Customs Valuation
Agreement disciplines in 2000; (ii) PM Thailand itself requested that the BoA use new information
regarding P&GE ratios into account in those a ppeals (by letters dated 15 December 2005 and
12 March 2007); and (iii) PM Thailand requested that the subsequent appeals be prioritised over the
pending appeals. Thailand submits, in addition to the 19 July 2007 le tter, a statement confirming that
"PM Thailand's company representatives also came to me et our officials and told them, verbally, that
they would prefer Thai Customs to prioritise the appeals of the [[xx.xxx.xx]] entries landed in 2006
and 2007 ahead of the appeals of [[xx.xxx.xx]] entries landed in 2002". 130 Since that letter of 19 July
2007, PM Thailand "has not submitte d any additional communications to Thai Customs" regarding
delays of the appeals of the entries landed in 2002.131
4.294 Article X:3(b) does not apply to the BoA as it is not "independent". The context of
Article X:3(c) confirms that procedures subject to Article X:3(b) must be "fully and formally
independent" of the agency being reviewed. Thaila nd's BoA is not. It is headed by the Director-
General of Customs and has a Customs civil servant as secretary. It is supported by a "team of officers
[of the Customs Department] that acts as secretariat". 132 The Sub-Committee for Customs Valuation
of the BoA, charged with the "power and respons ibility to ... consider the appeal" and to present a
"conclusion" to the BoA, is composed entirely of Customs Department officials.133
(c) Claim regarding appeals against the imposition of guarantees
4.295 An administrative decision requiring an im porter to furnish a guarantee is not an
"administrative action relating to customs matters" w ithin the meaning of Article X:3(b). Under Thai
law, importers have unconditional rights to appeal decisions imposing guarantees directly to the Thai
Tax Court. 134 Article X:3(b) of the GATT 1994 does not require that WTO Members provide
"immediate and independent" rights of appeal to affected importers. 135 Instead, WTO Members are
permitted to impose requirements to await the comple tion of internal proceedings and the exhaustion
of alternative remedies before rights of appeal can be exercised.
(d) Administration of the VAT system and excise, television and health taxes
4.296 The Philippines argues that a failure to coll ect refundable guarantees for VAT liability from
cigarette sellers is a breach of Article X:3(a). 136 Article X:3(a) requires only that Members'
administration of their laws be "reasonable". It is i rrelevant that the Philippines may be able to think
of a different way of doing things. The relevant question is whether Thai authorities administered
Thailand's VAT laws and regulations irrationally by utilising guarantee value data to calculate
MRSPs. In the light of the doubts regarding the re liability of the declared customs value, it was not

129 Panel Report, Argentina – Hides and Leather, para. 11.101.
130 Exhibit THA-87, para. 7.
131 Exhibit THA-87, para. 8.
132 Exhibit THA-87, para. 1.
133 Exhibit THA-88, paras. 2 and 3 (Order of the Appeal Committee No. 1/2552).
134 Exhibit THA-91, letter from the Attorney Genera l's Office, and Exhibit PHL-183, response to
Question 4.1.
135 Thailand's second written submission, paras. 233-236.
136 Philippines' second written submission, paras. 507-508.

irrational to use the guarantee values. Also, VAT is a tax on consumption ultimately paid by
consumers.
137 Any refund would be due to consumers, not to importers or domestic manufacturers.
V. ARGUMENTS OF THE THIRD PARTIES
A. ORAL STATEMENT BY AUSTRALIA AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL
5.1 Australia did not file a written third party submission in the dispute (DS371). Australia did however make an oral
statement at the third-party session of the first substantive meeting of the Panel.
1. Introduction
5.2 Chair, Members of the Panel, parties and third parties, Australia welcomes this opportunity to
present its oral statement today. As a general re mark, Australia considers that where customs duties
are applied by WTO Members, the security and pr edictability of the multilateral trading system is
contingent upon the correct application of the WT O Customs Valuation Agreement. Central to the
Customs Valuation Agreement is the importance of transparency in determining the customs
valuation methodology used by the customs authorities of WTO Members.
5.3 In our statement, Australia will address the following issues:
• The obligation to maintain transparency in de termining the methodology used to arrive at
a customs value;
• Australia's practice in the event of doubt on declared customs valuations; and
• The Philippines claims under Article III:2 of the GATT 1994.
2. Transparency issues in customs valuation
5.4 It is apparent that the complainant and respondent in this case have divergent views on the
obligations of importers and customs authorities to communicate with each other, as provided for in
the Customs Valuation Agreement. This is nowhere more evident than in their respective positions
when grounds exist to doubt the d eclared value claimed by an importer where the buyer and seller are
'related' for the purposes of Customs Valuation Agreemen t Article 1(d). Australia recalls that it is not
contested that PM Thailand and PM Philippines ar e 'related' within the meaning of the Customs
Valuation Agreement.138
5.5 Australia considers full transparency should be provided in such cases to prove that the
relationship between the importer and the seller has not influenced the price. In Australia's view, the
importer can only effectively attempt to prove that its relationship with the seller has not influenced
the price if the customs authority fully communicates its doubts to the importer in writing. It is only
then that the importer can meaningfully 'respond' to those doubts as provided for in Article 1.2(a) of
the Customs Valuation Agreement. This response should also be provided in writing. Australia
agrees with the European Union in its written submission that it is only after the customs authority has
examined the 'relevant aspects of the transaction … in order to determine whether the relationship
influenced the price' that customs authorities can properly reject the declared value and consider

137 Thailand's second written submission, paras. 156-159.
138 Australia understands PM Thailand and PM Philippi nes are 'related' pursuant to Article 15.4(f) of
the Customs Valuation Agreement. See footnote 86 to first written submission of the Philippines.

alternative customs valuation methods.139 In order to ensure full transparency, if the importer requests
the grounds for rejecting the customs value in writing the customs authority should provide it even
though the Customs Valuation Agreement does not require it to do so.
5.6 Australia therefore considers that Article 1.2(a) of the Customs Valuation Agreement
establishes a clear obligation on the customs authority to communicate its grounds that the
relationship between the impor ter and the seller has influenced the pr ice. In addition, if an importer
requests the grounds for considering that the relationshi p influenced the price in writing, the failure to
communicate these grounds in writing would be inconsistent with this Article.
5.7 A further provision in the Customs Valuati on Agreement relevant to transparency and
communication is Article 16. Article 16 contains an obligation on the customs authorities of the
importing country to provide an explanation in writing as to how the importer's goods were valued
whenever the importer makes a request in writing fo r this information. This obligation applies
irrespective of which valuation method is used.
3. Australia's practice in case of doubt regarding declared transaction values
5.8 In the light of what I have just said, it may assi st the Panel for Australia to spend a moment to
outline its practice in the application of Austra lian law giving effect to the Customs Valuation
Agreement, in situations where the transaction value may have been influenced by the relationship
between the buyer and seller. Firstly, a written noti ce is sent to the buyer outlining the Australian
Customs' concerns. This notice will include the view that the relationship may have affected the price
rendering the Australian Customs unable to use the transaction value method. The buyer is
then invited to respond and provide sufficient ev idence to satisfy Australian Customs that the
relationship has not affected the price. A period of no less than 28 days is provided for a response.
5.9 If Australian Customs is satisfied that the information provided has established that the
relationship has not affected the price, then the d eclared transaction value is applied. However, if
Australian Customs is not satisfied with the explana tion or no reply is received, the transaction value
method is held to be inapplicable and an alternat e method is used following the requisite sequence in
the Customs Valuation Agreement.
140 Australian Customs will then convey this determination in
writing to the importer and secondly, when a new cu stoms valuation is determined, this methodology
is also provided in writing to the importer.
4. The Philippines' claims under Article III:2 of the GATT 1994
5.10 Australia will now address the Philippines' clai ms under Article III:2 of the GATT 1994. In
order for the Philippines to establish that Thailand h as acted inconsistently with Article III:2, it must
demonstrate that Thailand subjected imported cigarett es to a tax 'in excess of' that applied to 'like
domestic products.' In the present case, it appears likely that domestic and imported cigarettes are
'like products' within the meaning of Article III:2. Further, Australia notes Thailand acknowledges
that this " may' be the case. 141 However, Australia recognises the need for the Panel to undertake a
thorough analysis on this point.

139 Third party written submission of the European Communities, para. 36.
140 As noted by the Panel in Colombia – Ports of Entry , paras. 7.136-7.142, where the customs value
cannot be determined under the provisions of Article 1 of the Customs Valuation Agreement, the Customs
Valuation Agreement provides a set of procedures that are to be applied to determine this value. Under the
Customs Valuation Agreement, customs authorities are to apply sequentially Article 1 through Article 7 in order
to determine a customs valuation.
141 Australia recalls the statement of Thailand that it "does not dispute that particular pairs of imported
and domestic cigarettes may be like products ...", Thailand's first written submission, para. 221.

5.11 As established by the Appellate Body in Japan – Alcoholic Beverages II
142, the Panel must
then determine whether dissimilar taxation has been applied so as to afford protection to domestic
products. This may be done through an analysis of "the design, the architecture, and the revealing
structure of a measure".143
5.12 Australia understands that Thailand applies VAT that is proportional to the retail sales price
of goods. While VAT is normally payable on the actu al retail sale price of goods, for both domestic
and imported cigarettes, the VAT tax base is th e MRSP which is set by the Thai Government. 144 This
VAT-MRSP value is therefore fixed and is payable i ndependently of the actual sale price. Thailand
states that 'the VAT burden on the domestic and imported product is the same' (emphasis in
original).145
5.13 As this absolute VAT-MRSP value is fixed, th e effective or marginal VAT rate increases as
a percentage when imported or domestic cigarettes are sold at prices below the MRSP. The factual
question before the Panel is therefore whether the d esign, architecture or structure of the tax measure
operates so as to afford protection to domestic produ cts. That is, does the ev idence show that the tax
burden on imported cigarettes is higher because they are more often sold at prices below the MRSP.
5.14 While Australia understands that imported cigarettes are commonly sold below their
MRSP
146, the Philippines claim that the retail price for domestic cigarettes had ' never' been below the
MRSP for the three year period prior to this dispute. 147 If this factual situati on is found to be the case
by the Panel, then the marginal VAT rate may, on occasion, be higher for imported cigarettes than
that for domestic cigarettes and t hus may constitute an internal tax 'in excess of those applied … to
like domestic products.' 148 Australia notes that Thailand claims in its first written submission that
Exhibit PHL-127 shows exceptions to this assertion.149 In the view of Australia this, in itself, does not
invalidate the claims of the Philippines.
5.15 As a final point, Australia recalls that there is no prohibition that would prevent Thailand
from regulating the sale price of particular products . However, where a Member opts to set a sale
price, it must ensure that it does not apply measures to imported or domestic pr oducts so as to afford
protection to domestic production contrary to Article III of the GATT 1994.
5. Conclusion
5.16 Australia would like to thank the Panel for the opportunity to provide its views in this case.
This dispute has highlighted the importance of tr ansparency in the application of the Customs
Valuation Agreement, which, when applied correctly, is an integral part in the maintenance of security
and predictability of the multilateral trading system.
B. THIRD PARTY SUBMISSION BY CHINA
5.17 China did not file a written third party submission in the dispute (DS371). China reserved its right but did not

142 Appellate Body in Japan – Alcoholic Beverages II , p. 29, cited in the Thailand's first written
submission, paras. 206-207.
143 Ibid.
144 Thailand's first written submission, paras. 97-101.
145 Thailand's first written submission, para. 100.
146 Philippines' first written submission, see para. 459 and paras. 493-498.
148 Article III:2 of the GATT 1994.
149 Thailand's first written submission, para. 227.

make a statement at the third party hearing, nor di d it file responses to the Panel's questions following
that hearing.
C. THIRD PARTY SUBMISSION BY THE EUROPEAN UNION
1. Introduction
5.18 Whilst not taking a final position on the specific facts of this case, the European Union will
provide its views on the legal claims advanced by the parties to the dispute.
2. Claims under the Customs Valuation Agreement
5.19 The European Union understands that in its first written submission the Philippines makes a
series of substantive and procedural claims under the Customs Valuation Agr eement with respect to
the assessment of customs value by Thai Customs for a particular number of entries of Marlboro and
L&M cigarettes imported into Thailand from the Philippines and cleared between 11 August 2006 and
13 September 2007. In this respect, even if the Philippines does not expressly request a finding
against Thailand's general practice or methodology pr oviding for the systemic rejection of transaction
values and the imposition of higher pre-determined va lues "as such", in the European Union's view, a
finding that Thailand failed to comply with the Cu stoms Valuation Agreement with respect to the
assessment of customs value of the entries concerned ("as applied" claims) would also cover a finding
against Thailand's general rule or methodology to disregard declared transaction values in similar
circumstances.
5.20 The Customs Valuation Agreement is one of the multilateral agreements on trade in goods
contained in Annex 1A of the WTO Agreement. Thus, the Customs Valuation Agreement, a covered
agreement, must be interpreted in the light of the customary rules of interpretation of public
international law, as required by Article 3.2 of the DSU. The European Union observes that,
following these interpretative principles, the Custom s Valuation Agreement primarily sets out that the
basis for valuation of imported goods for customs pur poses is the transaction value of the goods being
valued.
5.21 More importantly, the Customs Valuation Agre ement also establishes a sequential order for
the application of alternative customs valuatio n methods. The text, context and purpose of the
Customs Valuation Agreement confirm that there is a hierarchy which WTO Members must respect
when applying methods of customs valuation to ot her Members' imports. The transaction value is the
first method for customs valuation which WTO Members must apply. Whenever the conditions are
such that the customs value cannot be determined under the transaction value method, Articles 2 to 7
of the Customs Valuation Agreement provide for alternative customs valuation methods which may
be applicable, but always respecting the sequential order therein.
5.22 In cases of related importers, Article 1.2 of the Customs Valuation Agreement provides for
criteria to assess customs values and contains di fferent means of establishing the acceptability of
declared transaction values ( i.e., the influence test and the referenced values test). It is only through
these criteria and means that a customs authority can accept or reject declared transaction values.
Indeed, both the relevance of transaction values as the preferred customs valuation method and the
sequencing order of other customs valuation met hods provided by the Customs Valuation Agreement
indicate that, in order to move down to the next method, the first alternative should be explored
thoroughly. In the European Union's view, this calls for a strict interpretation of the conditions
contained in Article 1 of the Customs Valuation Agreement before having recourse to other customs
valuation methods.

5.23 The key issue in examining the declared transac tion value of related importers is whether the
relationship between the seller and the relate d buyer influenced the transaction price ( i.e., influence
test) rather than the accuracy or reality of the decl ared price. This is the central inquiry on which
customs authorities should focus and the basis for rej ecting the declared transaction price of related
importers. Customs authorities do not need to examine the particularities of all transactions.
However, where the customs administration is una ble to accept the transaction value without further
inquiry, it should give the importer an opportunity to supply such further detailed information as may
be necessary to enable it to ex amine the circumstances surrounding the sale. Thus, the European
Union considers that customs authorities are entitled to request further information from the importer
to examine the circumstances surrounding the sale. This may occur as part of the normal process to
obtain customs clearance or in any other context of customs administration procedures.
5.24 If in the light of information provided by the importer following that initial inquiry or
"otherwise" the customs administration has "grounds" for considering that the relationship influenced
the transaction price, such information or "grounds " must be communicated to the related importer,
which should be given reasonable opportunity to res pond and demonstrate that such a relationship has
not affected the transaction price. In the Europ ean Union's view, Article 1.2(a) of the Customs
Valuation Agreement does not limit the source or t ype of information which may trigger a further
inquiry by the customs authorities as to whether th e relationship between the seller and the related
importer influenced the transaction price. The te rm "otherwise" is general enough to support the
conclusion that customs authorities may proceed to a further inquiry in cases of higher declared
transaction values by unrelated importers with respect to the same product from the same seller.
5.25 The purpose of the exchange between the custom s authorities and the related importer in the
context of that inquiry is to examine the circumstances surrounding the sale and clarify whether the
transaction price has, or has not, been influenced by the relationship with the seller. In this exercise,
the customs authorities communicate its reasons for c onsidering that the relationship has influenced
the transaction price, whereas the related importer has to show that such a relationship has not
affected the transaction price. Only if followi ng an inquiry into the circumstances surrounding the
sale it results that the relationship between the bu yer and the related importer has influenced the
transaction price, customs authorities can reject th e declared value and move on to other customs
valuation methods. However, where it can be show n that the buyer and seller, although related under
the provisions of Article 15 of the Customs Valua tion Agreement, buy from and sell to each other as
if they were not related, this would demonstrat e that the price had not been influenced by the
relationship.
5.26 As an alternative to examinin g whether the relationship between the seller and the related
buyer influenced the declared transaction price, Article 1.2(b) of the Customs Valuation Agreement
states that the related importer may show that the declared transaction value is acceptable if such a
value "closely approximates" to othe r referenced values at or about the same time. In comparing the
declared transaction value with the other values, due account shall be taken of demonstrated
differences in commercial levels, quantity levels, the elements enumerated in Article 8. If the
declared transaction value closely approximates to t hose values, then the declared transaction price
should be considered as acceptable, and the influen ce test cannot serve as the basis for rejecting the
declared transaction value.
5.27 Consequently, without entering into the facts of this case, the European Union agrees with the
Philippines that the rejection by the customs aut horities of a WTO Member of declared transaction
values of related importers must respect the cond itions warranting such a rejection as provided in
Articles 1.1 and 1.2 of the Customs Valuation Agreement.
5.28 Finally, the European Union considers that the relevance of transaction values as the preferred
customs valuation method and the sequencing order of the other customs valuation methods provided

by the Customs Valuation Agreement once more impl y that, when the custom s authorities reject the
transaction value and determine the customs value on another basis, such explanation should include:
the reasons for rejecting the transaction value; the reasons for using a particular valuation method;
how the value has been calculated pursuant to that method; and the reasons for not using any other
valuation method prior to the one effectively used following the sequencing order of Articles 2 to 7 of
the Customs Valuation Agreement.
3. Claims under Articles III:2 and III:4 of the GATT 1994
5.29 As regards the claims made under Article III of the GATT 1994, Thailand raises a
preliminary issue concerning the references made by the Philippines to MRSP's notices for imported
cigarettes for 2006 and 2007 to support its claim against the MRSP's calculation methodology. On
this point, the European Union observes that th e Panel Request contains a reference to "any
amendments (…) or other measures related to [the MRSP Notices expressly mentioned therein]",
which related to the years 2007 and 2008. Conseque ntly, the broad scope of the Panel Request would
suggest that the Philippines intended to cover other notices and used them, at least, as evidence of the
methodology used in this case. Furtherm ore, as the Appellate Body found in US – Upland Cotton ,
measures which expired before the request for esta blishment of the panel can also be measures at
issue in the sense of Article 6.2 of the DSU and, thus , form part of the terms of reference of a panel.
In this respect, it should not be excluded that an expired measure could be the subject of an
appropriately worded recommendation or suggestion.
5.30 On the substance of the claims concerning Article III:2 of the GATT 1994, the European
Union understands that the core of the Philippines' claims under Article III:2 relates to the calculation
of the MRSP under Article 23 of the Tobacco Act of Thailand. This calculation is also one of the
subject matters of the Philippines' claims under Ar ticle X:1 of the GATT 1994 for the alleged failure
to publish promptly trade regulations of general application. In the absence of the precise published
basis for the calculation of the MRSP at least with regard to the entries subject to this case, the
Philippines has attempted to provide evidence that the basis of calcula tion is discriminatory at least in
relation to the imports of PM Thailand and at le ast during a given period. However, the European
Union points out that the Panel's examination of the claims made under Article X:1 of the
GATT 1994 may reveal facts that may be relevant for its analysis of the claims made under
Article III:2. Therefore, the Panel may consider it appropriate to examine the claims made under
Article X:1 before those made under Article III:2 of the GATT 1994.
5.31 In the present case, it would appear that importe d cigarettes can generally be considered as
like products to Thai cigarettes within the meani ng of the first sentence of Article III:2 of the
GATT 1994. Provided that this is the case, the ke y issue would be to determine whether the taxes
applied on imported cigarettes are "in excess of" those applied to domestic cigarettes. It would appear
to the European Union that th e Philippines has limited its clai ms under Article III:2 of the
GATT 1994 to certain specific imports by PM Thaila nd. Indeed, the situation would seem to be
analogous to the situation examined by the Panel in Dominican Republic – Import and Sale of
Cigarettes where, after the examination of detailed evidence, it was concluded that there was evidence
to indicate that during a given period imported a nd domestic cigarettes were not taxed on the same
basis with the result that certain imported cigare ttes were taxed in excess to the rates applied to
domestic cigarettes. To what extent this has been the case in the present challenge requires a careful
analysis by the Panel taking into account all the facts and evidence presented.
5.32 In addition, the Philippines claims that Th ailand violated Articles III:2 and III:4 of the
GATT 1994 by exempting resellers of domestic ciga rettes from VAT liability, whereas resellers of
imported cigarettes continue to be subject to VAT and related administrative requirements. In
contrast, Thailand maintains that, in practice, im ported cigarettes are treated exactly the same since
wholesalers and retailers do not have to pay any VAT on sales of imported cigarettes. While not

entering into the facts of this case, the European Union considers that an exemption to pay VAT
exclusively granted to resellers and resales of domestic cigarettes would imply that imported
cigarettes are "subject to an internal tax ... of any kind in excess of those a pplied ... to like domestic
products" contrary to the first sentence of Article III: 2 of the GATT 1994. On this point, our analysis
does not extend to Article III:4 of the GATT 1994 b ecause in the view of the European Union the
latter is purely consequential to the alleged violation of Article III:2.
5.33 Finally, the European Union would also like to draw the Panel's attention to the recent panel
report in Colombia – Ports of Entry . On the basis of the analysis by the Panel in that case, the
European Union considers that, insofar as the MRSP for imposing VAT, the Excise tax, the Health tax
and the Television tax are calculated on the basis of customs values determined contrary to the
provisions of the Customs Valuation Agreement, th e basis for taxing imported products would not be
compatible with Thailand's obligations under Article III:2 of the GATT 1994 to the extent such basis
would be higher than the declared transaction value.
5.34 Finally, as regards Thailand's claim that any differences in the treatment of imported and
domestic cigarettes can be justified under Artic le XX(d) of the GATT 1994, the European Union
points the Panel towards the analysis of the "necessity " of the measure as carried out by the Appellate
Body in Brazil – Retreaded Tyres and invites the Panel to apply that analysis to the facts of this case
in order to examine whether the measure adopted by Thailand is justified according to Article XX(d)
of the GATT 1994.
4. Claims under Article X of the GATT 1994
5.35 As regards the claims concerning the publicati on of trade regulations under Article X:1 of the
GATT 1994, without entering into the specific fact s of the case, the Europ ean Union emphasises the
importance of the obligations contained in Article X:1 of the GATT 1994. In the European Union's
view, the Panel's analysis should concentrate on exam ining whether the relevant rules in question are
indeed "laws, regulations, judicial decisions and administrative rulings of general application"
(emphasis added). If that is the case and if Thaila nd has failed to publish them promptly, there would
necessarily be a violation of Article X:1 of the GATT 1994.
5.36 As regards the Philippines' claims under Artic le X:3(a) of the GATT 1994, the European
Communities notes that the Panel in Argentina – Hides and Leather observed that the three
requirements in Article X:3(a) – namely "uniformity", "reasonableness" and "impartiality" – are
legally independent in that "[c] ustoms laws regulations and rules must satisfy each of the three
standards". The European Union agrees with this interpretation. Thus, a claim under Article X:3(a)
and its legal assessment by a panel must identify which of the three requirements is at stake in relation
to the facts that are presented as evid ence of a breach thereof. It may well be that in a given situation
the same or interrelated facts are relevant in relati on to one or more of three requirements. In this
respect, the European Union would like to point to the established case law according to which the
covered agreements that are more specific to the ma tter before the Panel should be considered first.
In the European Union's view, the same logic applies between legally independent requirements
contained within the same provision of the same c overed agreement. The European Union invites the
Panel to carefully distinguish between the requirements and their analysis under the facts of the case.
5.37 On the Philippines' claims concerning Article X:3(b) of the GATT 1994 dealing with the
prompt review and correction of administrativ e action, the European Union agrees with the
Philippines that the length of time that an appeal ta kes in a given case is an important factor to be
taken into account for the purposes of examining that appeal in the light of the word "prompt" in
Article X:3(b) of the GATT 1994. Although the Eur opean Union cautions the Panel to impose a clear
cut numerical limit for what could be consider ed as "prompt review and correction" under the
provision, an appeal in the first instance that rema ins to be decided after six-seven years since being

lodged would appear not to fulfil the requirements of the Article X:3(b), absent very good reasons
justifying the length of time. However, in addition to the mere time an appeal takes, the European
Union observes that the term "prompt review" is followed by "and correction". In the European
Union's view, this appears to allow also consider ation relating to the intensity of the review and
correction process. In other words, in case the fact s and evidence demonstrate that a given appeal is
actively examined, the mere overall length of time ta ken should not be exhaustive of what is covered
by the requirement of "prompt review and correction" under Article X:3(b) of the GATT 1994.
5.38 Moreover, the European Union agrees with the Philippines that decisions on the imposition of
guarantee values comes within the scope of the no tion "administrative action relating to customs
matters".
5. Request pursuant to Article 13 of the DSU
5.39 The European Union observes th at the Philippines has requested that the Panel seeks certain
documents in the possession of Thailand pursuant to Article 13 of the DSU. With respect to each
document, the Philippines has explained in detail the relevance for the Panel to obtain such documents
to carry out a proper examination of all claims. In this respect, the Euro pean Union would like to
make the following comments.
5.40 The discretion granted to panels under Article 13 of the DSU is modulated by the obligation
to make "an objective assessment of the matter" pursu ant to Article 11 of the DSU. Thus, the Panel
should request the information it deems necessary to fully examine the matter before it. In the
European Union's view, where there is a refusal to reply to any request for information made by the
panel, such a panel may draw inferences from this behaviour. More generally, where assertions of a
complaining party could be confirmed or refuted by the defending party providing information that is
available to it, but the defending party declines to do so, a panel can legitimately presume these
assertions to be true. In other words, an invitation to draw such inferences can be part of the making
of a prima facie case by a complaining party.
D. THIRD PARTY SUBMISSION BY INDIA
5.41 India did not file a written third party submission in the dispute (DS371). India reserved its right but did not
make a statement at the third party hearing, nor di d it file responses to the Panel's questions following
that hearing.
E. ORAL STATEMENT BY CHINESE TAIPEI AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL
5.42 Chinese Taipei did not file a written third party submission in the dispute (DS371). Chinese Taipei did however make
an oral statement at the third-party session of the first substantive meeting of the Panel.
1. Introduction
5.43 The Separate Customs Territory of Taiwan, Pe nghu, Kinmen and Matsu (hereinafter referred
to as "Chinese Taipei"), as a third party in this proceeding, would like to thank the Panel for the
opportunity to present its views in this dispute. Chinese Taipei makes this oral statement because of
its systemic interests in the interpretation of rele vant provisions in the GATT 1994, in particular, its
Article III:2.
5.44 While not taking a final position on specific factual issues in this dispute, Chinese Taipei
would like to provide its views on the issue of whet her an internal tax applied on imported products is

in excess of those on like domestic products calculate d on certain tax bases is subject to interpretation
within the wording of Article III:2 of the GATT 1994. Chinese Taipei hopes that this submission will
help determine whether, in the present dispute, the internal duty, or the inte rnal charges, are being
imposed in excess of those on like domestic products.
2. Legal standard under the first sentence of Article III:2 of the GATT 1994
(a) The structure and the limits of the first sentence of Article III:2 of the GATT 1994
5.45 The first sentence of Article III:2 of the GATT 1994 provides that: "[t]he products of the
territory of any contracting party imported into the te rritory of any other contracting party shall not be
subject, directly or indirectly, to internal taxes or other internal ch arges of any kind in excess of those
applied, directly or indirectly, to like domestic products". To examine whether a contested measure is
consistent with this requirement, well-established WTO jurisprudence requires the application of a
two-tier test.
5.46 In the first tier, one must examine whether the imported and domestic products at issue are
like products. In the second tier, it must be dete rmined whether the imported products are taxed in
excess of like domestic products. If, and only if, bot h questions are answered in the affirmative, has
there been a violation of the first sentence of Article III:2.
150 Compared with the second sentence of
Article III:2, the first sentence of Article III:2 can be satisfied by applying the two-tier test
aforementioned. As such, this passage does not require the claimant to demonstrate that the measures
at issue aim at affording protection for domestic production.151
(b) Like products
5.47 According to the Appellate Body in Japan – Alcoholic Beverage II , the criteria for
determining "likeness" between an imported and a domestic product may incl ude the product's end
use, consumer tastes and habits (which vary from c ountry to country), the product's properties, nature
and quality (including the actual price of the product), and tariff classification. 152 Appropriate criteria
are selected on a case-by-case basis and such cr iterion would eventually determine whether the
measure at issue constitutes a violation.153
(c) In excess of those applied
5.48 In the same dispute, the Appellate Body also ru led that even the smallest amount of excess is
too much. The Appellate Body specifically ruled that "the prohibition of discriminatory taxes in
Article III:2, first sentence, is [n either] conditional on a 'trade eff ect test' nor is it qualified by a de
minimis standard".154
5.49 Moreover, on the judgment of whether other inte rnal taxes or charges are applied in excess of
those applied to like domestic products, first sente nce of the Article III:2 requires a comparison of
actual tax burdens rather than merely nominal tax burdens. Even in situations where imported and

150 Appellate Body Report, Canada – Periodicals, p. 20; see also Appellate Body Report, Japan –
Alcoholic Beverage II, p. 18-19.
151 Thailand asserts that the Philippines shall demonstrate that the measures involved afford protection
for domestic industries, see Thailand's first written submission, para. 205.
152 Appellate Body Report, Japan – Alcoholic Beverages II, p. 20.
153 Appellate Body Report, Japan – Alcoholic Beverages II, p. 20.
154 Appellate Body Report, Japan – Alcoholic Beverages II, p. 23.

like domestic products are subject to identical tax ra tes, it is possible that actual tax burdens are
heavier on imported products.155
3. Examining the operation of Thai VAT under the first sentence of Article III:2 of the
GATT 1994
(a) Whether imported cigarettes and domestic cigarettes are like products
5.50 In this dispute, all imported and domestic cigarettes comprise a paper tube containing a mix
of tobacco and additives and a filter: a physical lik eness. In addition, since the opening of the Thai
tobacco market in 1991, imported cigarettes have gr adually built up their market share. The market
share of domestically produced Thai cigarettes has simultaneously eroded. The fact that the market
share has transferred from one product to the othe r demonstrates the interchangeability or "likeness"
between the products insofar as consumer tastes and habits are concerned. 156 It also follows that all
imported and domestic cigarettes share identical e nd-uses on the Thai market. Moreover, imported
and domestic cigarettes are both classified under th e same heading within the Customs Tariff of
Thailand.157 Thus, in this dispute, imported and domestic cigarettes are like products when interpreted
through the lens of the GATT 1994 Article III:2, first sentence.
(b) Whether imported cigarettes are taxed in excess of domestic cigarettes under Thai VAT
5.51 We now turn towards examining whether the Thai government taxes imported cigarettes in
excess of like domestic products. To begin with, an internal tax has two major components: a tax rate
and a tax base. When determining whether importe d products are taxed in excess of like domestic
products, it is necessary to examine both the tax rate and the tax base.
5.52 Secondly, Chinese Taipei is of the view that the primary object and purpose of Article III:2 is
to prohibit discrimination against imported products. An investigati on of discrimination first requires
a comparison of actual tax burdens. Even if im ported and like domestic products are subject to
identical tax rates, actual tax burdens on imported pro ducts can still be heavier if a different method is
used to compute the tax base.
5.53 In this dispute, it must be determined wh ether the VAT that Thailand imposes on imported
cigarettes is in excess of the tax imposed on domestic cigarettes. Whereas the MRSP serves as a
standard of determining the tax base for the Thai VAT, it is necessary to go a step further and
examine how Thailand determines MRSPs for individual brands themselves.
5.54 In the present case, Thailand has not published the methodologies, formulae, price surveys, or
the data used to calculate MRSPs for domestic a nd imported cigarettes. Given that MRSPs are used
in calculating VAT tax bases, one would assume that Thailand uses the same methodologies to
compute MRSPs of both imported and domestic cigarettes. Otherwise, Thailand would have to justify
its compliance with Article III:2, first sentence.
5.55 Having stated the above, we wish to note that Article III:2, first sentence, does not dictate
how Members impose internal taxes on products, so l ong as the applications of the internal taxes does
not afford less favourable treatment to imported cigarettes. Members are free to prescribe the kinds of
taxes, elements and parameters used to com pute the tax base, as well as whatever methodologies
employed to determine tax rates and to levy tax es, as long as such differentiated taxation methods do
not result in discriminatory taxation inconsistent with the relevant WTO rules.

155 Panel Report, Argentina – Hide and Leather, paras. 11.182-11.183.
157 Heading 2402.20.90, see Harmonized Tariff Schedule of Thailand, Chapter 24.

5.56 It is difficult to prove the existence of discrimination against imported cigarettes by merely
comparing tax bases of imported and domestic cigarettes since the tax bases are not always the same.
5.57 For example, the Thai MRSPs for imported cigarettes are based on the customs value
(including maritime transportation cost), customs duti es, health taxes, excise taxes, television taxes,
and marketing costs (including selling expenses and profits). The Thai MRSPs for domestic
cigarettes, by contrast, involve neither maritime tr ansportation costs, nor customs duties. Domestic
MRSPs reflect only the ex factory price before calcu lation of marketing costs and other taxes. Thus,
the MRSPs for imported and domestic cigarettes are subject to different parameters.
5.58 Given the fact that Thai MRSPs are unilate rally and artificially determined by Thai
government, it seems reasonable that Thailand bears the burden to prove that the Thai VAT does not
impose an internal tax burden on imported cigarettes heavier than that imposed on like domestic ones.
Thailand has to explain the value gap between MR SPs and retail prices on imported cigarettes, and
prove that this gap is not the result of a discriminat ory application of MRSPs. In particular, Thailand
must clarify how it determines the marketing cost s, including selling expenses and profits, imbedded
in MRSPs.
4. Conclusion
5.59 In conclusion, Chinese Taipei would like to hi ghlight the relevant aspects of the scope and
certain limits under the first sentence of Article III:2 of the GATT 1994. As an internal tax is
generated from two components: a tax rate and a ta x base, it follows that the comparison of tax bases
falls within the scope of Article III:2, first sentence. In addition, Article III:2 is limited to prohibiting
Members from treating imported products less favour ably than like domestic products. It does not
aim at intervening in Member's internal fiscal matters. Members are free to pursue their own
domestic policy through the imposition of internal taxes or charges, so long as they do not do so in a
manner inconsistent with relevant provisions of the WTO covered agreements, in particular, the first
sentence of Article III:2 of the GATT 1994.
5.60 Mr. Chairman and distinguished Members of the Panel, we thank you again for the
opportunity to present our view in this dispute.
F. O
RAL STATEMENT BY THE UNITED STATES AT THE FIRST SUBSTANTIVE MEETING OF THE
PANEL
5.61 The United States did not file a written third party submission in the dispute (DS371). The United States did
however make an oral statement at the third-party session of the first substantive meeting of the Panel
1. Introduction
5.62 The United States appreciates the opportunity to present this oral statement as a third party in
these proceedings. We recognize that a number of issu es in this dispute are factual in nature, and the
United States takes no position on the measures at issue. The United States does, however, have a
substantial interest in the interpretation of provision s in the covered agreements raised in this dispute
and would like to comment in particular on certain issues regarding the Customs Valuation
Agreement and Article X of the GATT 1994.
5.63 The United States would first like to address four specific issues relating to the Customs
Valuation Agreement: (1) the approach to related- party transactions under Article 1.2 of the Customs
Valuation Agreement; (2) the application of the deductive value method under Article 5; (3) the
importance of the obligations to protect confiden tial information under Article 10; and, (4) the

references made by the parties to a letter from th e World Customs Organization Secretariat. The
United States would then like to address whether Article X:3(b) of the GATT 1994 requires a
Member to maintain tribunals or procedures for the review and correction of guarantees. Finally, the
United States would like to comment briefly on the scope of the Panel's term s of reference in this
dispute.
2. Article 1.2 of the Customs Valuation Agreement
5.64 The United States is concerned by certain stat ements in Thailand's first written submission
regarding the responsibilities of a customs authority examining a related party transaction. By way of
background, the United States notes that the determin ation of customs value is a transaction-specific
process.
5.65 The Customs Valuation Agreement sets forth a specific sequence of methods of valuation that
customs authorities must follow. The Custom s Valuation Agreement clearly establishes the
transaction value as the primary basis for valuation. Article 1 of the Customs Valuation Agreement
provides, "The customs value of imported goods shall be the transaction value, that is the price
actually paid or payable ..." (emphasis added), except under certain specified circumstances.
5.66 Article 1 provides further that, even where the buyer and seller are related, the customs value
shall be the transaction value, provided that the transaction value is acceptable under Article 1.2.
Article 1.2(a) explicitly states: "the fact that the buyer and the seller are related ... shall not in itself be
grounds for regarding the transaction value as unacceptable. In such case the circumstances
surrounding the sale shall be examined and the trans action value shall be accepted provided that the
relationship did not influence the price".
5.67 Article 1.2(a) must be "read a nd applied in conjunction with"
158 the Interpretive Notes to
Article 1. Those notes make clear that a customs authority need not examine the relationship between
the buyer and seller in every case. 159 The customs valuation pro cess typically begins when the
importer presents a declaration. In most cases, the customs authority accepts the value submitted in
the declaration. In other cases, where the buyer an d seller are related and the customs authority has
"doubts" about the acceptability of the price, the cu stoms authority may conduct an examination into
the relationship between the buyer and the seller.160
5.68 Where the buyer and seller are related and the customs authority considers that further inquiry
is necessary, as just noted, Article 1.2(a) provid es that the customs aut hority shall examine the
circumstances of the sale. Article 1.2(a) provides further th at if the customs authority "has grounds
for considering that the relationship influenced the price, it shall communicate its grounds to the
importer and the importer shall be given a reasonabl e opportunity to respond". These "grounds" must
be communicated in writing if the importer so requests.
5.69 In the light of this background, the Unite d States generally agrees with Thailand 161 that the
"doubts" that give rise to further inquiry by the customs authority, and the "grounds" on which the
customs authority bases its conclusion that the rela tionship between the buyer and seller influenced
the price, are distinct concepts. However, the United States is concerned by certain statements in
Thailand's first written submission – such as that the "importer [must] establish that the relationship
did not influence the price"
162 – and in the April 12, 2007, response of Thailand's customs authority to

158 Customs Valuation Agreement, Article 14.
159 Customs Valuation Agreement, Annex I, Note to Article 1, para. 2.
160 Customs Valuation Agreement, Annex I, Note to Article 1, para. 2.
161 Thailand's first written submission, paras. 146, 165.
162 Thailand's first written submission, para. 142 (emphasis added).

the importer that "it cannot be proven whether the relationship has an influence on the determination
of customs value or not".
163 The United States wishes to emphasize that the relevant inquiry for the
Panel under Article 1.2(a) is whether "the custom s administration ha[d] grounds for considering that
the relationship influenced the price".
5.70 Bearing in mind that Article 1.2(a) provides that "the transaction value shall be accepted
provided that the relationship did not influence the pr ice," and that "the fact that the buyer and the
seller are related ... shall not in itself be grounds for regarding the transaction value as unacceptable,"
a customs authority is obligated to accept the tr ansaction value unless it has "grounds" – in other
words, a sufficient reason or reasons 164 – for concluding that the relationship influenced the price.
While the United States takes no position on whethe r all of the facts before Thailand's customs
authority constituted "grounds" for rejecting transac tion value, the United States would note that the
language in the customs authority's 12 April 2007, response 165 calls into question of whether the
authority identified any grounds to reach its conclusi on or in fact applied the correct standard. The
failure by an importer to prove a negative, specifical ly to prove that the relationship did not influence
the price, does not relieve the customs authority of its obligation to accept the transaction value unless
it has grounds for considering that the relationship in fluenced the price. As noted in Article 1.2(a),
after considering the information provided by th e importer or otherwise, it is incumbent on the
customs authority to have grounds for not accep ting transaction value and to communicate those
grounds to the importer.
3. Article 5 of the Customs Valuation Agreement
5.71 If, after undertaking all of the necessary steps, the customs authority determines that the
transaction value is not acceptable, the customs au thority must follow the sequence of valuation
methods set forth in the Customs Valuation Agreement in determining the final customs value.
5.72 Where valuation is not possible under Article 2 or 3, the Customs Valuation Agreement
dictates that the customs authority next proceed to the deductive value method set forth in Article 5
(unless the importer requests that the valuation met hod of Article 6 be applied). Article 5 provides
that the value of imported goods shall be based on the unit price of identical or similar imported goods
sold in the country of importation in the condition as imported in the greatest aggregate quantity, or
the unit price at which the imported goods, after furt her processing, are sold in the greatest aggregate
quantity in the country of importation, subject to certain specified deductions, including "the additions
usually made for profit and general expenses".
5.73 If valuation is not possible under Article 5 of the Customs Valuation Agreement, the customs
authority must proceed to the computed value method set forth in Article 6 (unless the importer has
requested that the order of Articles 5 and 6 be reve rsed). If valuation is not possible under Article 6,
then the customs authority may use the last valua tion method in the sequence set forth in the Customs
Valuation Agreement, found in Article 7.
5.74 Paragraphs 184 through 187 of Thailand's first written submission indicate that Thailand's
customs authority applied the deductive method under the method corresponding to Article 7 in its
domestic law, rather than Article 5, because the importer had not provided audited financial
statements for the year of importation. However, the United States agrees with the Philippines (as set
forth in paragraph 338 of the Philippines' first wr itten submission) that Article 5 of the Customs

163 Exhibit PHL 70-B; Thailand's first written submission, paras. 168-69.
164 See New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon Press, 1993, 4 th ed.),
Volume 1, p. 1150, meaning 6b; (Exhibit US-1).
165 Exhibit PHL 70-B; Thailand's first written submission, paras. 168-69.

Valuation Agreement does not permit a WTO Member to make the use of the method set out in that
article contingent on the submission of audited financial statements from the year of importation.
4. Article 10 of the Customs Valuation Agreement
5.75 With respect to the claims brought by th e Philippines under Article 10 of the Customs
Valuation Agreement, the United States does not expr ess a view as to whether officials in Thailand in
fact provided information to the press that was by its nature confidential or provided on a confidential
basis. However, the United States considers that the obligations of Article 10 are an important
element supporting the entire customs valuation sy stem, as a failure to protect confidential
information may prevent customs authorities from obtain ing proprietary information that is critical to
making the valuation decision, particularly in related party transactions.
5. Letter from the WCO Secretariat
5.76 The United States notes that both the Philippines and Thailand have cited a letter from the
World Customs Organization Secretariat in presen ting their respective positions. Specifically, the
Philippines argues that this letter contradicted what the Philippines characterizes as one of Thailand's
justifications for rejecting transaction value.166 Thailand explains, in contrast, that Thailand's customs
authority determined that it would be appropriate to make further inquiries into the relationship
between the buyer and the seller "in the li ght of" the letter from the WCO Secretariat. 167 The United
States appreciates the work of the WCO, including its cooperation with the WTO. However, the
United States submits that the rele vant inquiry in this dispute is whether Thailand complied with the
obligations of the Customs Valuation Agreement, not to what extent Thailand acted consistently with
a letter from the WCO Secretariat.
6. Article X of the GATT 1994
5.77 The United States would now like to turn to an issue relating to the GATT 1994. In
particular, we would like to comment on the ques tion of whether Article X:3(b) of the GATT 1994
requires a Member to maintain tribunals or proce dures for the review and correction of guarantees
imposed in accordance with Article 13 of the Customs Valuation Agreement.
5.78 Article X:3(b) requires each contracting party to maintain "judicial, arbitral or administrative
tribunals or procedures for the purpose, inter alia , of the prompt review and correction of
administrative action relating to customs matters".
5.79 The United States is aware that the parties dis pute, as a factual matter, whether Thailand in
fact provides for an appeal of guarantee values, a nd, again, the United States does not take a position
with respect to the facts in disput e. However, Thailand's suggestion 168 that the lack of any reference
to an appeal in Article 13 of the Customs Valua tion Agreement with respect to guarantees means that
Members have no obligation to provide such an appeal merits comment.
5.80 The United States does not agree th at the absence of a reference to an appeal in Article 13 of
the Customs Valuation Agreement resolves the question of whether Article X:3(b) of the GATT 1994
requires such appeals. The relevant inquiry under Ar ticle X:3(b) is whether the determination of the
amount of the guarantee is within the scope of th e term "administrative action related to customs
matters," and, if so, whether a Member has provide d tribunals or procedures for the prompt review
and correction of that action.

166 Philippines' first written submission, paras. 247-51.
167 Thailand's first written submission, para. 39.
168 Thailand's first written submission, paras. 299-300.

5.81 In support of its argument that Article X:3(b) of the GATT 1994 does not apply to the
determination of guarantee values, Thailand contrast s the lack of any reference to an appeal in
Article 13 in the Customs Valuation Agreement with the explicit obligation in Article 11 to provide
for an appeal of the "determination of customs value".
169 It is true that the only decision as to which
the Customs Valuation Agreement explicitly requires Members to provide the right to appeal is the
determination of customs value. The language of Article X:3(b) of the GATT 1994 is not so limited,
however. The meaning of "administrative actions related to customs matters " should not be equated
with "a determination of customs value".
7. Terms of reference
5.82 Finally, the United States notes that the request by the Philippines for the establishment of a
Panel in this dispute identifies one of the measures at issue as "the general rule and/or methodology
providing for the systematic rejection of transaction value, and the imposition of a higher pre-
determined value, including any calculation met hodology underpinning the pre-determined value,
applicable at the time of entry as well as at the time of final assessment".
170 The United States notes
that when bringing a challenge against an unwr itten measure, a complaining party must clearly
establish, through arguments and supporting evidence, both the existence of the alleged measure, and
its precise content. 171 The United States does not express a view as to whether, in either its first
written submission or its first oral statement to the Panel (which, of course, the United States has not
seen), the Philippines has done so. However, such a methodology would appear to be within the
Panel's terms of reference.
5.83 Mr. Chairman, members of the Panel, this concl udes the oral statement of the United States.
Thank you for your attention, and we hope that the comments provided by the United States will
prove to be useful to the Panel.
VI. INTERIM REVIEW
6.1 On 30 June 2010, the Panel submitted its In terim Panel Report to the parties. On
14 July 2010, the Philippines and Thailand submitted written requests for review of precise aspects of
the Interim Panel Report. The Philippines requested, on the same day, an interim review meeting with
the Panel regarding its decision not to make a recommendation on the September 2006 MRSP, the
March 2007 MRSP and the August 2007 MRSP Notices. The Philippines' written comments of
14 July 2010 also included its specific views on the Pane l's decision in this regard. The Panel granted
the Philippines' request for an interim review meeting and provided Thailand an opportunity to
provide its written comments on this specific issue prior to the interim review meeting. On
19 July 2010, Thailand submitted its written comme nts on the Philippines' comments on the Panel's
decision not to make a recommendation with respect to the concerned MRSP Notices. The Panel held
an interim review meeting on 20 July 2010 to ex clusively address the question whether the Panel
should make a recommendation with respect to these MRSP Notices. On 21 July 2010, the
Philippines and Thailand submitted written comments on each others' requests for interim review on
the issues other than the question addressed at the interim review meeting.
6.2 In accordance with Article 15.3 of the DSU, this section of the Panel's report sets out the
Panel's response to the arguments made at the inte rim review stage, providing explanations where
necessary. The Panel has modified aspects of its report in the light of the parties' comments where it
considered these appropriate, as explained below. The Panel has also made certain technical and
editorial corrections and revisions to the Inte rim Panel Report for the purposes of clarity and

169 Thailand's first written submission, paras. 299-300.
170 Request for the Establishment of a panel by the Philippines, WT/DS371/3, para. 13.
171 Appellate Body Report, US – Zeroing (EC), paras. 196-198.

accuracy. References to sections, paragraph numbers a nd footnotes in this section relate to the Interim
Panel Report, except as otherwise noted.
A. THE PANEL'S FINDINGS AND RECOMMENDATIONS
1. Paragraph 8.8 of the Interim Panel Report – the Philippines' comments
6.3 Regarding the September 2006, Ma rch 2007 and August 2007 MRSP Notices, although
agreeing with the Panel's finding that these MRSP Notices have been superseded by subsequent
Notices, the Philippines disagrees with the Panel's conclusion th at these measures thus have expired
and ceased to exist for purposes of Article 19.1 of the DSU. 172 It also contests th at it agreed to this
understanding during the proceedings. 173 On the contrary, the Phili ppines argues that these MRSPs
continue to exist and therefore requests that th e Panel recommend Thailand to bring them into
conformity.174
6.4 The Philippines contends that "for purposes of Article 19.1 of the DSU, the case-law shows
that a measure that is no longer in force, for example, because it has been superseded or replaced, may
continue to 'exist' ... , if the respondent Member will take further action in relation to the measure or if
the measure will otherwise continue to have effects in domestic law". 175 The Philippines refers to the
panel rulings in EC – Commercial Vessels and India – Autos to underline its position that only when
measures have "ceased to have an effect", there is no obligation to bring them into conformity.176
6.5 First, the Philippines argues that the three MRSP Notices at issue are still in existence because
they are being challenged in domestic legal proceedi ngs. To explain its stance, the Philippines refers
to the Appellate Body report in US – Zeroing (Article 21.5 – Japan), which concerned "administrative
reviews that superseded each other, similar to the way in which the MRSP Notices do" and these
reviews had been "challenged in domestic lega l proceedings, which effectively prolonged the
existence of the reviews". 177 In that case, the Appellate Body clarified that any WTO-inconsistent
action taken in relation to a measu re found to be WTO-inconsistent "must cease by the end of the
reasonable period of time". 178 Subsequently, the Philippines explains that the August 2007 MRSP
Notice first continues to exist through Thai administrative proceedings in which DG Excise "must still
take action to decide whether to insist upon enforcem ent of the discriminatory Notice or to correct the
discrimination" and that second, the Notice also conti nues to exist because Thai courts "may also be
called upon to take action in relation to the measure". 179 In addition, the September 2006 and March
2007 MRSP Notices continue to exist through Thai judicial proceedings in which "Thailand's
judiciary must rule whether the two WTO-inconsis tent measures may be enforced given that they
involve, inter alia, unlawful discrimination against cigarettes imported from the Philippines".180
6.6 Hence, according to the Philippi nes, since Thailand still has to decide on the final tax base of
the WTO-inconsistent measures, " the tax base continues to have effects on the financial burden to be
imposed [and] [s]o long as the final tax base is undecide d, the measure still exists". Therefore, the
Philippines wants the Panel to make a recommend ation regarding the three MRSP Notices, since a
recommendation would ensure that "if the final tax base is decided after the end of the [reasonable

172 Philippines' comments on the Interim Panel Report, paras. 94-97.
173 Philippines' comments on the Interim Panel Report, paras. 96.
174 Philippines' comments on the Interim Panel Report, para. 98.
175 Philippines' comments on the Interim Panel Report, para. 99.
176 Philippines' comments on the Interim Panel Report, paras. 100-101.
177 Philippines' comments on the Interim Panel Report, paras. 102-104.
178 Philippines' comments on the Interim Panel Report , para. 103, referencing Appellate Body Report,
US – Zeroing (Japan) (Article 21.5 – Japan), para. 160.
179 Philippines' comments on the Interim Panel Report, para. 106.
180 Philippines' comments on the Interim Panel Report, paras. 106 and 109 and Annex C.

period of time], [Thailand] cannot con tinue violating WTO law by giving continued effect to a
WTO-inconsistent tax base".
181
6.7 Second, the Philippines contends that the Pa nel should make a recommendation regarding the
three MRSP Notices, because MRSP Notices are "replacement measures": they are replaced by a
subsequent measure that has "very similar substan tive characteristics". According to panels and the
Appellate Body in some of the zeroing cases it was stated that such replacement measures can be
regarded as forming part of the same dispute.
182 In addition, in its opening statement at the interim
review meeting, the Philippines explained that the MRSP Notices form a "chain of inter-connected
measures" that are part of a single dispute, and that therefore implementation obligations assumed in
relation to one measure in the chain impose similar obligations in relation to subsequent measures.
183
6.8 Consequently, the Philippines requests the Pa nel to make a recommendation regarding the
three MRSP Notices at issue, to ensure that if, af ter the reasonable period of time, Thailand has not
terminated its WTO-inconsistent measures, the Ph ilippines can resort to compliance procedures under
Articles 21 and 22 of the DSU.184
6.9 Thailand argues that the September 2006, March 2007 and August 2007 MRSP Notices have
been superseded and are no longer used to assess or collect VAT on sales of imported cigarettes,
hence they ceased to exist. 185 Consequently, under Article 19.1 of the DSU, the Panel cannot make
recommendations in relation to measures that no longer exist.186 The right to make a recommendation
under Article 19.1 of the DSU should not be used to create a retrospective remedy that is not
otherwise available under the DSU.187
6.10 Regarding the domestic legal/administrative pr oceedings, Thailand first states that these
proceedings are not within the Panel's terms of re ference and, therefore, cannot themselves be the
subject of recommendations by the Panel. 188 Second, Thailand claims that the Philippines
misinterprets the zeroing jurisprudence and explains that the main issue in those cases was whether
the implementation obligation also applied to impor ts that had entered the United States before the
end of the reasonable period of time ("RPT"), but for which duties had not been finally assessed
("liquidated") by the end of the RPT. The Unite d States claimed that challenges of the duties in
domestic proceedings delayed the liquidation of these duties, and that therefore these should not be
taken into account in checking whether the impl ementation obligation had been fulfilled. The
Appellate Body found that the implementation obliga tion applied to entries for which liquidation took
place after the end of the RPT, regardless of when the calculation of the dumping margin took place.
According to Thailand, therefore, "continuing effects" were found in that case because "liquidation of
entries at WTO-inconsistent rates would continue after the end of the RPT, not because the measure
had been challenged in domestic proceedings " (italics in original). This can be contrasted to the case

181 Philippines' opening statement at the interim revi ew meeting, para. 5; comments on the Interim
Panel Report, paras. 107 and 110; answer to Panel ques tion No. 9 at the interim review meeting; concluding
remarks at the interim review meeting.
182 Philippines' comments on the Interim Panel Report, paras. 114-115, referring to Appellate Body
report on US – Zeroing (Japan) (Article 21.5 – Japan) , para 160; Panel Report, US – Zeroing (Japan)
(Article 21.5 – Japan), paras. 7.148-7.149 and 7.154; Panel Report, US – Continued Zeroing, para. 7.28, upheld
by the Appellate Body report, para. 236.
183 Philippines' opening statement at the interim review meeting, para. 13; answer to Panel question
Nos. 3 and 4 at the interim review meeting.
184 Philippines' answer to Panel ques tion Nos. 1, 4 and 9 at the interim review meeting; concluding
remarks at the interim review meeting.
185 Thailand's comments on issues for the interim review meeting, para. 8.
186 Thailand's comments on issues for the interim review meeting, para. 6.
187 Thailand's comments on issues for the interim review meeting, para. 25.
188 Thailand's comments on issues for the interim review meeting, para. 8.

at hand in which the three MRSPs will never be used again to collect VAT and hence there is no such
continuing effect.189
6.11 Moreover, Thailand explains that the scope of the administrative proceeding regarding the
August 2007 MRSP Notice was limited to a request from PM Thailand to DG Excise to amend the
August 2007 MRSP and to provide details on its calculation. Since the August 2007 MRSP Notice
has been superseded by the August 2008 MRSP Notice, the remedy sought by PM Thailand was
granted and there is no remaining action to be take n by Thailand regarding this measure. The mere
possibility that importers may have recourse to do mestic court proceedings "at some indeterminate
point in the future" cannot change Thailand's implem entation obligations with respect to this MRSP
Notice.190 Regarding the September 2006 and March 2007 MRSP Notices, Thailand states that the
Philippines has failed to show that the existence of these domestic court proceedings gives rise to
"anything like the situation in the zeroing cases". To the contrary, the remedies sought in these
appeals were originally limited to a request for revocation of the Notices. The Philippines' new and
untimely evidence regarding th e appeal of these proceedings 191 before the Thai Supreme Court does
not explain how these proceedings could serve to delay the application of these MRSP Notices until
after the Panel's ruling or the end of the reasonable period of time in this case. Moreover, if the
Supreme Court would rule that these MRSP Notices should indeed be revoked, PM Thailand will
have to start a different procedure before DG Revenue to seek a refund. Thailand believes it is
unlikely that PM Thailand will be able to obtain this refund.192
6.12 In relation to the Philippines' argument th at the MRSP Notices form a chain of inter-
connected measures, Thailand puts forward that in the zeroing cases there was one single anti-
dumping order under which several administrative re views took place that were thus interconnected,
while in this case there is no connection between the collection of VAT on particular sales from
MRSP Notice to MRSP Notice: they do not form part of the same proceeding, they are not subject to
collective review, and they do not form part of th e same continuum of events. If the Philippines'
reasoning was followed, all VAT and classification decisions would form a chain.193
6.13 As indicated in paragraph 7.563 of the Interim Panel Report, the Panel found that the
September 2006, the March 2007, and the August 2007 MRSP Notices were inconsistent with
Thailand's obligations under Article III:2, first sentence of the GATT 1994. We decided, however,
not to make a recommendation with respect to these MRSP Notices as they had already ceased to
exist at the time of the establishment of the Panel. This decision is set out in paragraph 8.8 of the
Interim Panel Report.194
6.14 The Philippines requests in its interim review comments that, pursuant to Article 19.1 of the
DSU, the Panel recommend that these Notices be br ought into conformity with the obligations under
the first sentence of Article III:2 of the GATT 1994. In making this request, the Philippines argues

189 Thailand's comments on issues for the interim review meeting, paras. 9-11.
190 Thailand's comments on issues for the interim review meeting, paras. 36-39.
191 In paras. 48-51 of its written comments of 19 July 2010, Thailand refers to para. 15 of the Panel's
working procedures in which it is provided that all evidence other than rebuttal evidence, was to be provided "to
the Panel no later than the first substantive meeting, expect with respect to f actual evidence necessary for
purposes of rebuttals, answers to questions or comments on answers provided by each other". Subsequently,
Thailand explains that Annex C of the Philippines' comments on the Interim Panel Report contains new
evidence, which the Panel therefore should not take into account at this stage of the proceedings.
192 Thailand's comments on issues for the interim review meeting, para. 46; answer to Panel question
No. 6 at the interim review meeting.
193 Thailand's comments on issues for the interim review meeting, para. 17; answer to Panel question
No. 4 at the interim review meeting.
194 The Philippines does not dispute that the December 2005 MRSP No tice has expired and ceased to
exist for the purposes of Article 19.1 of the DSU.

that a measure that is no longer in force because, for example, it has been superseded or replaced, may
still continue to exist for purposes of Article 19.1 of the DSU if the respondent Member takes further
action in relation to the measure later on, or if the measure will otherwise continue to have effects in
domestic law. Thailand also does not argue, in our understanding, that a pa nel should never make a
recommendation with respect to a measure that wa s superseded or replaced. Thailand appears to
agree that in determining whether a panel must make a recommendation with respect to such a
measure, the legal standard to be applied is whet her the measure continues to exist after it has been
superseded or replaced. The parties' disagreement th erefore lies in the application of that principle to
the factual circumstances of this case, namely whet her the concerned MRSPs must be considered as
continuing to exist for purposes of Article 19.1 of the DSU.
6.15 In paragraphs 7.42-7.43, 7.46-7.47, 7.62-7.66 of the Interim Panel Report, we addressed
issues relating to the panels' examination of the measures which had been completed before or have
expired at the time of the establishment of a pane l. Although the parties do not take issue with the
Panel's conclusion that the so-called expired and/or completed measures may still be subject to panels'
examination and rulings depending on the factual circumstances in each case, they have differing
views on whether panels also must make a recomme ndation pursuant to Article 19.1 of the DSU with
respect to such expired measures. Although a meas ure can normally be considered to have ceased to
exist if it has been superseded or replaced by a s ubsequent measure or reaching the end of the period
of effect, we consider that the measure's expirati on in such circumstances would not in itself make it
automatically fall outside the scope of pane ls' obligation to make a recommendation under
Article 19.1. As the Philippines submits, there may be situations where despite the expiry nature of a
measure, it must still be brought into compliance to the extent that the measure continues to exist by
being subject to a further action by the responding Member or by continuing to have effects on the
concerned imported goods.
6.16 Before turning to the specific factual s ituation presented in this case based on our
understanding of the nature of the panels' obliga tion under Article 19.1 as set out in the previous
paragraph, we will first address the premise of the Philippines' position. The Philippines' request for
the Panel's recommendation with respect to the three MRSP Notices found inconsistent with
Article III:2 of the GATT 1994, appears to be based on the premise that the Philippines needs
recommendations to pursue compliance proceedings, if necessary, under, inter alia, Articles 21.5 and
22.6 of the DSU as, in the absence of a recommendation under Article 19.1 of the DSU, the
Philippines' right to pursue compliance proceedings under Articles 21.5 and 22 would be undermined.
The Philippines submits that only recommendations by the DSB would impose positive obligations in
relation to the subject measures.
195
6.17 We do not however find any language in the rele vant provisions of Articles 21 and 22 of the
DSU indicating that an implementing Member's compliance obligation arises only from panels'
recommendations. Rather, most of the provisions relating to compliance obligations under Articles 21
and 22 of the DSU refer to both recommendations and rulings.196 For example, Article 21.1 provides,
"prompt compliance with recommendations or rulings of the DSB is essential in order to ensure
effective resolution of disputes to the benefit of all Members". In our view, the scope of the
compliance requirement under these provisions is ther efore broader than just "recommendations". In
any event, it is difficult to envision a situation where the Philippines will a priori be precluded from
resorting to the compliance proceedings with respec t to any future action taken by Thailand if it can
be shown that such action is re lated to the Panel's findings on th e inconsistency of the concerned
MRSP Notices with Thailand's obligations under Ar ticle III:2 of the GATT 1994. As noted in
paragraphs 7.42 and 7.43 of the In terim Panel Report, previous pane ls considered it necessary and
important to make findings even with respect to measures that have expired at the time of making

195 Philippines' response at the interim review meeting.
196 See also Articles 21.3, 21.5, 21.6, and 22.2 of the DSU.

such findings in certain situations. Among those are situations where a measure was still impairing
benefits accruing to a complaining Member or s ituations where there remained the prospect of
reintroduction of the measure, and thus making fi ndings with respect to expired measures would
contribute to resolving a particular dispute. If only recommendations were to guarantee the
complaining Member's right, as granted under the DSU, to seek compliance proceedings, there would
be no meaning in even making findings for expired measures, which has not been the view of the
Appellate Body and previous panels. 197 We also do not believe that such an understanding would
serve the spirit and purpose of the WTO dispute settlement mechanism.
6.18 Specifically in the factual context of the current dispute, the Philippines' position that these
MRSPs continue to exist even though they have been superseded by subsequent MRSP Notices rests
on two lines of arguments: first, the concerned MRSP Notices are all subject to ongoing domestic
proceedings in which Thai executive and judicial au thorities will take action in relation to them; and,
second, to the extent that existing MRSPs continue to be replaced by new MRSPs under Thai law,
which according to the Philippines are a chain of closely connected, succeeding MRSP measures,
Thailand's obligation under Article III:2 of the GATT 199 4, as clarified by the Panel with respect to
the September 2006 and the March and August 2007 MRSPs, should equally extend to those future
MRSPs through the Panel's recommendation. 198 We will evaluate these two lines of arguments in
turn.
6.19 First, we examine whether the domestic pro ceedings in which the three MRSP Notices at
issue are being reviewed can be considered as the Thai government action affecting these Notices. 199
The factual aspect of the current proceedings pe nding before both DG Excise and the Thai Supreme
Court are described in paragraph 6.5 above. Th e Philippines submits that the concerned MRSP
Notices continue to exist because they are subj ect to these ongoing domestic proceedings in which
Thai executive and judicial authorities will take action in relation to them. 200 In its oral statement at
the interim review meeting, the Philippines explained th at the types of actions to be taken by different
branches of the Thai government in cluded the following actions: (i) deciding whether to continue
enforcing the discriminatory tax base and, possibly, (ii) establishing a new tax base, and (iii) granting
a refund.201
6.20 We do not consider that the Philippines' descrip tion of the so-called future actions yet to be
taken by the Thai government, however, correctly reflects the exact status of the concerned MRSP
Notices. For example, the Philippines stat es that Thailand still has to decide the final tax base, which
we understand refers to the concerned MRSPs, beca use of the domestic proceedings in which the
concerned MRSPs are being challenged. As the Phi lippines confirmed at the interim review meeting,
however, Thai Excise had completed the collecti on of the VAT amount for imported cigarettes,
calculated based on the concerned MRSPs, until new MRSPs came into effect in August 2008. The
September 2006 and the March and August 2007 MRSP Notices therefore no longer form the tax base
for the imported cigarettes at issue. Further, even if these MRSPs were found inconsistent by
domestic review authorities, it is not clearly shown to us that such findings will necessarily lead to a
revocation of the concerned MRSPs and/or a ref und of any excess VAT paid based on those MRSPs.

197 Appellate Body Report, EC – Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III
(Article 21.5 – US), paras. 261-273; Panel Report, EC – Commercial Vessels, para. 8.4; Panel Report, Columbia
– Ports of Entry, paras. 7.45-7.54.
198 Philippines' interim comments of 14 July 2010, para. 105; response to Panel question at the interim
review meeting.
199 In framing the issue before us as above, we are not questioning the understanding, as clarified by the
Appellate Body, that government actions also cover those of domestic judicial bodies. Our question pertains to
whether the subject government actions, the domestic executiv e as well as judicial proceedings in this case, are
making the measures at issue continue to have effects.
200 Philippines' interim comments of 14 July 2010, paras. 105, 106 and 109.
201 Philippines' oral statement at the interim review meeting, paras. 2 and 10.

In these circumstances, we cannot agree with the Philippines' description that the MRSPs at issues are
not enforced yet and did not form the final tax base for the VAT for the imported cigarettes at issue.
6.21 In this connection, the Philippines heavily relies on the Appellate Body's statements in US –
Zeroing (Article 21.5 – Japan) to support its position. We co nsider, however, that the factual
circumstances of that dispute must be distinguished from those in the present dispute. As Thailand
explains, in US – Zeroing (Article 21.5 – Japan), the issue was whether the implementation obligation
also applied to imports that had entered the Unite d States before the end of the reasonable period of
time, but for which the anti-dumping duties had not been finally assessed and collected ("liquidated")
by the end of the reasonable period of time due to the injunction imposed by the domestic court on the
liquidation of the anti-dumping duties. The Appellate Body in that dispute found that the
implementation obligation did apply to those imports because their liquidation (final assessment) took
place after the end of the reasonable period of time. The Appellate Body's finding in that case,
therefore, provides guidance that an important f actor in determining the point in time when a
government action can be considered as completed is the final assessment and collection of the anti-
dumping duties, which include the original determin ation of the dumping margin and the rulings by a
domestic review body, if such a review is warrante d under the domestic law, on the adequacy of the
original determination.
6.22 In contrast to such factual circumstances, in the present dispute, Thai Excise had completed
not only the calculation, but also the collection of VAT based on the MRSPs at issue. To that extent,
we do not consider that the Appellate Body's reasoning in US – Zeroing (Article 21.5 – Japan) , as
relied upon by the Philippines, can be equally applied to the situation in our case.
202 Furthermore, as
noted earlier, it is not clear to us whether the MR SPs, once determined, can be re-determined in the
same sense as the anti-dumping duties or customs va luation determinations ma y be re-determined.
We understand that once MRSP Notices are issued, cigarette importers and TTM may request for new
MRSPs.203 In our view, however, a request for new MRSPs cannot be equated to a proceeding in
which duties or customs values are challenged for re -determination. The main difference, in our
view, can be found in that as for anti-dumping duties and customs values, a concerned Member
government must take action, be it re-determination and/or refund, with respect to such duties and
customs values if they were found by domestic revi ew bodies to have been incorrectly determined.
This feature is also related to the nature of ob ligations under the relevant WTO Agreements such as
the Anti-dumping Agreement and the Customs Valuation Agreement. 204 With respect to the MRSPs
at issue, however, it seems uncertain at best whethe r an importer would be able to have the expired
MRSPs re-determined and/or to recover a refund for any excess tax paid because of an incorrectly
determined tax base (MRSPs). Thailand submits that even if the Thai Supreme Court were to rule
that these MRSP Notices should be revoked, PM Tha iland will have to start a different procedure
before DG Revenue to seek a refund. In any event, Thailand believes it is unlikely that PM Thailand
will be able to obtain this refund. In these circ umstances, we are not convinced by the Philippines'
argument that the concerned MRSP Notices are subject to further actions by the Thai government.
6.23 The Philippines further submits that MRSP Noti ces form a chain of inter-connected measures
that are part of a single dispute, under which im plementation obligations assumed in relation to one
measure in the chain impose similar obligations in rela tion to subsequent measures. As we laid out in
paragraphs 7.459-7.468 of the In terim Panel Report, DG Excise determines MRSPs based on its so-
called general methodology, as described by Thaila nd in this proceeding. We understand that the
expired MRSPs may be considered to be connected to the current and subsequent MRSPs to the

202 Philippines' comments on the Interim Panel Report , para. 103, referencing Appellate Body Report,
US – Zeroing (Japan) (Article 21.5 – Japan), para. 160.
203 See para. 7.469.
204 See Article 11.2 of the Anti-Dumping Agreement and Article 11 of the Customs Valuation
Agreement.

extent that the same methodology continues to be applied to the determination of MRSPs for the
imported cigarettes at issue. We also note the Philippines' argument that the Appellate Body's
guidance in the zeroing cases that replacement measur es with similar substantive characteristics can
be regarded as forming part of the same dispute ca n equally apply to this case. In the Philippines'
view, MRSP Notices are replaced by a subsequent measure that has "very similar substantive
characteristics".
6.24 We do not agree, however, that MRSP Notices are necessarily comparable to anti-dumping
orders in the context of the zeroing cases. As Th ailand points out, the subject measure in the zeroing
cases was one single anti-dumping order pursuant to which several inter-connected administrative
reviews took place. In the case of MRSP determinations, DG Excise replaces existing MRSPs by new
ones either when there is a change to any of th e components of the MRSP (including tax rates) or
upon request from an importer. We therefore consider that the link between successive MRSP
determinations is not similar to the link observed between a series of anti-dumping duties which stem
from one single anti-dumping order.
6.25 Having said this, however, we are mindful of the particular nature of the general methodology
used in determining MRSPs. Specifically, we not e that, in its calculation of new MRSPs, DG Excise
generally refers back to the amount of "marketing co sts" included in the latest MRSP or in the MRSP
previously requested by the domestic manufacturer or the importer.
205 Thus, we cannot eliminate the
possibility that specific aspects of the MRSPs at is sue in this dispute, which were found to render
these MRSPs inconsistent with Thailand's obligati on under Article III:2, would continue to have
effects on future determinations of MRSPs for imported cigarettes. We note the panel's observation in
EC – Commercial Vessels that "the notion of a measure that no longer 'exists' is not always
straightforward". That panel then concluded that as it could not determine with certainty whether and
to what extent it would be possible for subsidies to continue to be provided pursuant to applications
made before the expiry of those schemes, its r ecommendation did not apply to the subsidy schemes
that have expired, except to the extent that those schemes continued to be operational. Following the
guidance by the panel in EC – Commercial Vessels and in the light of the particular circumstances in
this dispute, we have modified the conclusion in paragraph 8.8 to reflect our considerations above.
2. Customs valuation determinations as "c ompleted acts" (paragraphs 7.40-7.51) –
Thailand's comments
6.26 Thailand requests review of certain aspects of paragraphs 7.40-7.51 of the Interim Panel
Report, because (i) it does not accurately reflect Thailand's arguments and (ii) it does not fully address
the arguments with respect to whether, or in what circumstances, the Panel should make
recommendations with respect to completed customs valuation determinations.206
6.27 With respect to the first reason, Thailand s ubmits that the Panel incorrectly states in
paragraph 7.41 that Thailand argue d that it should not "rule" with respect to the [[xx.xxx.xx]] entries
listed in the Philippines' request. Thailand only requ ests that the Panel revise the final sentence of
paragraph 7.41 to state that "Thailand tak es the position that the Panel should not make
recommendations with respect to the claims relating to these entries".
6.28 Regarding the second reason, Thailand states that in paragraphs 7.40-7.51 the Panel focuses
on the issue of whether it may make findings regarding the [[xx.xxx.xx]] entries at issue, but does not
separately address whether it would be appropriate to also make recommendations. In
paragraph 7.51, however, the Panel concludes, wit hout any further explanation, that it will make
recommendations regarding these entries. Therefore, Thailand requests the Panel to revise these

205 Interim Panel Report, paras. 7.465 and 7.494-7.499.
206 Thailand's comments on the Interim Panel Report, para. 3.

paragraphs and to explain whether and why it c onsiders it appropriate to make recommendations
regarding customs valuation determinations (in general).
207
6.29 Regarding the issue whether or not the Pane l should make a recommendation, Thailand puts
forward an argument that there is a difference between "completed acts" that give rise to ongoing
"measures" within the meaning of Articles 3.3 and 6.2 of the DSU (such as the measures at issue in
Chile – Price Band System), and "completed acts" that do not give rise to an ongoing measure, such as
the valuation and assessment of customs duties in th is case. The customs duties and other internal
taxes have been finally assessed and paid with resp ect to the [[xx.xxx.xx]] entries at issue before the
establishment of the Panel. Hence the Panel has not specified a factual basis on which these entries
can be characterised as having continuing effects that may be relevant for the Panel to make
recommendations with respect to them.
208
6.30 The Panel's failure to explain why it consider s it appropriate to make recommendations could
be interpreted to mean that the Panel considers that all customs valuation dete rminations that have
been completed could be subject to recommendations in dispute settlement proceedings. In that case,
Members could be retrospectively required to revi se these determinations with respect to which all
domestic legal proceedings had been completed long before the establishment of a panel. Therefore,
Thailand requests the Panel to explain why it cons idered it appropriate to make recommendations
with respect to the customs valuation determinations for the [[xx.xxx.xx]] entries at issue.209
6.31 The Philippines points out that this issue is linked to its request on revision of the Panel's
analysis of findings and recommendations on the MRSP Notices. It states, as the Panel noted in
paragraph 7.46 of its Interim Panel Report, that the issue is not whether an act is "completed", but
whether a measure found to be inconsistent continues to exist.
210 The Philippines then explains that
one way in which a measure can continue to exist is where it is subject to domestic legal proceedings.
The Philippines subsequently provides the same e xplanation as it gave for its arguments on domestic
proceedings in respect of the MRSP Notices.
6.32 In addition, the Philippines discusses Thaila nd's assertion that it would be subject to a
retrospective remedy if it had to revise measures that were applied to transactions that occurred before
the end of the reasonable period of time. The Philippi nes refers to the Appellate Body statements in
US – Upland Cotton and US – Zeroing (Japan) (Article 21.5 – Japan) to explain that after the end of
the reasonable period of time, WTO-inconsistent conduct must cease completely.211
6.33 The Philippines agrees with Thailand's request th at the Panel clarify the factual circumstances
that support its decision to make a recommendati on regarding the [[xx.xxx.xx]] entries at issue.
However, the Philippines also contests some argume nts put forward by Thailand. Specifically, it
disagrees with the idea that "all domestic legal proceedings had been completed long before the
establishment of a panel".212 The Philippines points at the fact that it appealed the transaction value of
the [[xx.xxx.xx]] entries and that these appeals are still pending before the BoA, a fact that has been
recognized by the Panel in its Interim Panel Report. 213 The BoA is reviewing Thai Custom's
assessment of the customs value of the [[xx.xxx.xx ]] entries and may revise that value. If the BoA

207 Thailand's comments on the Interim Panel Report, para. 3.
208 Thailand's comments on the Interim Panel Report, para. 7.
209 Thailand's comments on the Interim Panel Report, para. 8.
210 Philippines' comments on the Interim Panel Report, para. 3.
211 Philippines' comments on the Interim Panel Report, paras. 11-15.
212 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 19.
213 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 19-20, referring
to para. 7.92, footnote 281 of the Interim Panel Report.

reduces Thai Custom's valuation, DG Customs gr ants a refund of excess customs duties and excess
payments of excise, health, and television taxes.214
6.34 Hence, domestic legal proceedings regardi ng the [[xx.xxx.xx]] valuation decisions are
ongoing and in those proceedings, Thailand is still to take action to determine the final assessed
customs value, and to determine " whether to enforce the WTO-inc onsistent measures at issue" (italics
in original). The Philippines cont ends that these actions in the domestic proceedings will determine
the legal effects of the measures at issue, including the customs duties and internal taxes to be paid
under the measures, and in these circumstances, the [[xx.xxx.xx]] customs valuation measures have
not ceased to exist. Therefore, the Panel must make a recommendation under Article 19.1 of the DSU
regarding these measures.215
6.35 First, in the light of Thailand's request that Thailand's arguments be revised because they are
not correctly reflected in paragraph 7.41, the Panel has slightly modified the last sentence of
paragraph 7.41 as it deemed appropriate.
6.36 We now address Thailand's second request that the Panel explain why it considered it
appropriate to make recommendations, as stated in paragraph 7.51, with respect to the customs
valuation determinations for the [[xx.xxx.xx]] entries at issue.
6.37 As the Philippines notes, we find this issue to be closely related to the question we addressed
in the previous section regarding whether we mu st make a recommendation with respect to certain
MRSP Notices. First, we agree th at in determining whether pane ls should make a recommendation
for expired measures, the applicable legal standard should be the same regardless of the measure at
issue. The nature and characteristics of the meas ure being assessed, however, may lead panels to a
different conclusion as to whether to make a recommendation.
6.38 We recall our discussion above that the legal st andard in this regard should be whether a
measure, despite its expiry nature , continues to exist. There may indeed be different circumstances
under which the continuing effect of an expired meas ure can be found. To that extent, it is not our
task here to draw up an exhaustive list of such circumstances. However, as indicated above, we agree,
and the parties do not appear to dispute, that an expired measure may be considered as having a
continuing existence if that measure is still subject to a government action(s) and/or if it still has an
effect(s) on imported goods or on measures currently in force.
6.39 Regarding Thai Customs valuation determinati ons in respect of the [[xx.xxx.xx]] entries at
issue, Thailand underlines the fact that the customs duties and other internal taxes, calculated based on
these customs valuation determinations, have been finally assessed and paid prior to the establishment
of the Panel. As such, according to Thailand, these determinations constitute completed acts and do
not give rise to ongoing measures, which is a f act distinguishable from other measures such as the
ones at issue in Chile – Price Band System.
6.40 In respect of Thailand's arguments relating to the concerned customs valuation determinations
as "completed acts", we consider our discussion in paragraphs 7.40-7.51 of the Interim Panel Report
to be sufficient. We agree with Thailand that these customs valuation determinations have been
finally assessed and collected by Thai Customs. To such an extent and given that the WTO dispute

214 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 22.23, in its
explanation the Philippines' points at in [[xx.xxx.xx]] appeals regarding entries in 2000-2003, the BoA reduced
the customs value and accordingly DG Customs refunded customs duties. The Philippines also refers to
Thailand's answers to Panel question No. 145 and Philip pines' question No. 3 in which Thailand acknowledges
that excess customs duties and excise, health and television taxes will be refunded after determination of a lower
customs value by the BoA.
215 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 25-26.

settlement system does not generally provide for a retrospective remedy, they are completed acts
which cannot practically be brought into compliance.
6.41 However, the Philippines has shown that the pending domestic review proceedings may result
in an obligation for the Thai government to revise or re-determine the con cerned customs valuation
determinations. As described in paragraph 7.92 of the Interim Pa nel Report, Thai law provides for the
right to appeal the customs valuation determinations , first before the BoA an d then before the Thai
Tax Court. Thus, those determinations must be distinguished from the MRSP Notices that were the
subject of our considerations above. As for the MRSP Notices, we were not presented with evidence
establishing that a domestic review of a given MRSP determination, either before DG Excise or
before the Thai Supreme Court, could result in a revision or re-determination as in the case of customs
valuation determinations. In other words, cust oms valuation determina tions challenged by an
importer will be subject to specific government actions if they are found to be incorrect by domestic
review bodies. We also find support for our unders tanding in the nature of the obligations under the
Customs Valuation Agreement, particularly those in Article 11 of this agreement, which requires
Member governments to provide for the right to appeal determinations of the customs value. Hence,
this agreement specifically envisages situations wh ere the adequacy of a given customs valuation
determination is reviewed by the Member's administrative and judicial authorities. We therefore
agree that the ongoing domestic proceedings in rela tion to the [[xx.xxx.xx]] valuation determinations
will determine the legal effects of the measures at issue. This, in our view, renders the customs
valuation determinations at issue subject to furthe r actions by the Thai government and consequently
to continue to exist for the purposes of Article 19.1 of the DSU.
6.42 In the light of our considerations above, we ha ve decided to maintain our conclusion to make
recommendations for Thai Customs' customs valu ation determinations with respect to the
[[xx.xxx.xx]] entries at issue. We have modified th e text of paragraph 7.51 and added a footnote to
explain our decision in this regard.
B. C
USTOMS VALUATION AGREEMENT
1. The Panel's analysis of the "substantive asp ects" of Thai Customs' application of the
deductive value method (paragraphs 7.332-7.382) – Thailand's comments
(a) Standard of review for the Panel's evaluation of the Philippines' claim under Article 7 of the
Customs Valuation Agreement
6.43 Thailand claims that in this section of its analysis, the Panel improperly conducted a de novo
review of Thai Customs' determination of the de ductive value for [[xx.xxx.xx]] entries at issue. By
referring to several parts of the Interim Panel Repor t, Thailand explains that the Panel adopted a
standard of review whereby its review was limite d to whether Thai Customs provided a reasoned and
adequate explanation to support its determination. 216 However, it contends that the Panel did not
follow this standard consistently in the Interim Panel Report and that the Panel should have stopped
its analysis after its conclusion in paragraph 7.336 of the Interim Panel Report that Thailand "failed to
apply the deductive valuation method consistently with Article 7.1". Instead, the Panel continued "for
the sake of completeness" to examine de novo the information and evidence on the record to
determine whether these deductions were warranted. Therefore, Thailand requests that the Panel
delete this analysis regarding the "substantive aspect" of the deductive value from the report.217
6.44 The Philippines does not share Thailand's point of view. Instead, it argues that if the Panel
had only examined the procedural aspect of the Ph ilippines' claim on this issue, it would not have

216 Thailand's comments on the Interim Panel Report, para. 19.
217 Thailand's comments on the Interim Panel Report, paras. 15-25.

resolved the dispute. 218 Moreover, the Philippines does not read the Panel's statements as implying
that it conducted a de novo review. Rather, in the Philippines' vi ew, the Panel properly stated that its
role was "limited to determining whether there was an evidentiary basis for Thai Custom's decision –
not the Panel's – not to deduct certain items". 219 The analysis put forward by the Panel is an
interpretative framework on the substantive aspects of the deduction of sales allowances, provincial
taxes, and transportation costs, which does not involve any review of Thailand's valuation
decisions.220
6.45 However, to avoid confusion, the Panel coul d consider incorporating this interpretative
framework into an earlier part of its reasoning. In paragraphs 7.332 to 7. 336 of its Interim Panel
Report, the Panel provides an introductory section to the claims on the deduction of the three items.
After drawing a conclusion at the end of the introduc tory section, the Panel continues with its analysis
of the substantive aspects. The Philippines notes that it is unusual for a Panel to reach a conclusion in
an introduction and that by moving this conclusion to the end of the section, Thailand's standard of
review objection will be taken away. Furthermore, in its analysis of the deduction of the three items,
the Panel could make clear that it is reviewing the authority's decision consiste ntly with the standard
of review, by adding a phrase "in light of the explana tion given by the authority and of the evidence
before the authority".221
6.46 Finally, the Philippines notes that to make cl ear that it did hear and examine Thailand's
arguments, the Panel might consider addressing Thailand's explanations before the Panel to show that
they are without merit. The Philippines su ggests that if the Panel's reasoning following
paragraph 7.336 is intended to achie ve these ends, it expressly state so at the beginning of the section
instead of at the end.222
6.47 The Panel notes that Thailand is correct in stating that the standard of review of this Panel is
limited to whether Thai Customs provided a r easoned and adequate explanation to support its
determination. We also confirm that no de novo review has been conducted. As stated by the
Philippines, our analysis consisted of an interpreta tion of the substantive aspects of the deduction of
the three items at issue and not of a review of the evidence to determine ourselves whether these items
should have been deducted. Therefore, the Panel declines to delete the paragraphs as requested by
Thailand. However, as the Philippines suggests, we ha ve changed the order of the paragraphs at issue
and added sentences to clarify the standard of review applied to our relevant analysis contained in
paragraphs 7.332-7.382.
(b) Other issues regarding the Panel's analysis of the Philippines' claim under Article 7 of the
Customs Valuation Agreement
6.48 Thailand argues that if the Panel declines to dele te paragraphs 7.332-7.382, it should make
several revisions to it.223 Regarding the Panel's analysis on the deduction of sales allowances, it states
that it is unclear what the Panel means with th e statement "we are not presented with any evidence
that can guide us on the question of whether the amount of sales allowances claimed for a brand of
imported cigarettes must match the amount of sales allowances provided in each month to the relevant
company at issue" in paragraph 7.370. Thailand clai ms that the Panel's suggestion that Thai Customs
should have been able to adjust the amounts illustrat es the dangers inherent in the Panel attempting to

218 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 33.
219 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 35-38, referring
to para. 7.313 of the Interim Panel Report.
220 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 40.
221 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 42-45.
222 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 54-56.
223 Thailand's comments on the Interim Panel Report, para. 26.

conduct a de novo review. Second, Thailand does not unde rstand what claim the Panel thinks
Thailand put forward when it states: "Thailand, as th e party who puts forward this claim, had the
burden of proving it with supporting evidence" in the same paragraph.
224
6.49 Regarding the deduction of provincial taxes, Tha iland requests the Panel to clarify to which
finding it refers in paragraph 7.376 of the Interim Panel Report. In addition, Thailand notes that a
"finding that provincial taxes payable, and not merely paid", must be deducted does not resolve the
factual issues arising in this case. It explains that the evidence in the case did not indicate whether the
GAQ price was based on sales for Bangkok or sales to ot her provinces, or a mix of the two; it did not
indicate whether sales to this customer usually incl uded payments for provincial taxes; and it did not
allow for a calculation of a precise adjustment fo r provincial taxes in the event that the GAQ price
consisted of a mix of sales on which provincial taxes were and were not payable or usually paid.225
6.50 In relation to the transportation costs, Tha iland maintains that paragraphs 7.377-7.382 are
"simply duplicative" of paragra phs 7.329-7.331 of the Interim Pa nel Report and should therefore be
deleted.226
6.51 With respect to the deduction of sales allowances, the Philippines notes that in
paragraph 7.370 of the Interim Panel Repor t the Panel expressly states that it is " unable to examine
evidence, because there is none " (italics in original), and that it is therefore hard to see how the Panel
could have conducted a de novo review. Instead, the Panel concluded that the authority's
determination was WTO-inconsistent because there was " no basis in the evidence before the
authority" (italics in original) for a re fusal to deduct any sales allowa nces. The Philippines states that
the Panel may wish to clarify that its conclusions are based on such an approach.227
6.52 Regarding the deduction of provincial taxes, the Philippines states that the Panel does not
appear to provide any review of the facts surround ing the authority's decisi ons. In its comments,
Thailand appears to re-argue the substance of the interpretative point. The Philippines urges the Panel
to maintain its position, despite Thailand's repetition of its failed arguments.228
6.53 The Philippines disagrees with Thailand that paragraphs 7.377-7.382 on the deduction of
transportation costs are a duplication of paragraphs 7.329-7.331, as they answer a different legal
question.
6.54 Regarding the deduction of sales allowances, the Panel has made changes to paragraph 7.370
to clarify the issues put forward by Thailand.
6.55 In respect of provincial taxes, we have modifi ed paragraph 7.376 to further clarify our point
in light of Thailand's comments.
6.56 In paragraph 31 of its comments on the Interim Panel Report, Thailand repeats its arguments
without making a specific request that for the deduc tion of provincial taxes, the evidence available,
did not provide clear information as to whether the GAQ price was based on sales for Bangkok, which
are excluded from provincial taxes; or on sales to provinces; or a mix of the two. First, we observe
that these arguments have been reflected in paragr aph 7.351 of the Interim Panel Report. We recall
that in our analysis of the procedural aspects of the deductive valuation method we concluded that
Thai Customs should have requested further inform ation on provincial taxes if it considered the

224 Thailand's comments on the Interim Panel Report, paras. 28-29.
225 Thailand's comments on the Interim Panel Report, paras. 30-31.
226 Thailand's comments on the Interim Panel Report, paras. 32-33.
227 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 48-49.
228 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 50-51.

available information to be insufficient in deci ding whether to deduct pr ovincial taxes (and sales
allowances).229 Furthermore, in our analysis of the substantive aspects of the deductive valuation
method, we concluded that "provincial taxes payable must be deducted if the information shows usual
payments made for local taxes even if they are not included in the sales price based on which the
deductive valuation method will be applied under Article 5". 230 We therefore confirm that it is not
necessary to determine whether or not provincial taxes were included in the GAQ price.
6.57 Finally, the Panel does not consider paragr aphs 7.377-7.382 on transportation costs to be
"simply duplicative" of paragra phs 7.329-7.331, since they answer different legal questions, as
pointed out by the Philippines. Paragraphs 7.32 9-7.331 focus on the procedural aspect of the
deductions and answer the question whether Thai Customs properly consulted the importer; while
paragraphs. 7.377-7.382 address the substantive aspect of the deductions in relation to transportation
costs. Therefore, the Panel declines to accept Thailand's request to delete paragraphs 7.377-7.382, but
made a slight modification to paragraph 7.384 of the Final Report to clarify this point.
2. Aspects of the Panel's analysis of the Philippines' claim under Articles 1.1 and 1.2
(paragraph 7.194) – Thailand's comments
6.58 Thailand disagrees with the Panel's analysis in pa ragraph 7.194 of the Interim Panel Report
and requests that the Panel review the content and th e conclusions contained in the paragraph. First,
Thailand states that the Panel's analysis is incorrect to the extent that it gives the impression that Thai
Customs determined that the transaction value was not acceptable after it received the
5 February 2007 letter. To the c ontrary, Thailand has argued that rejecting the transaction value and
using the deductive value instead was "part of a si ngle process" that included all contacts between the
importer and Thai Customs between the date of the 5 February letter and the 6 March letter and
meeting.231 At the end of this process Thai Customs compared the transaction value to the deductive
test value and at that point it rejected the transaction value, and not before that time.
6.59 Second, Thailand contends that the Panel's stat ement reads as if PM Thailand never requested
Thai Customs to use a deductive testing methodolog y. Even if the 5 February letter does not
explicitly request the use of this methodology, it must be read in the context of the subsequent
exchanges between the importer and Thai Customs. Specifically PM Thailand's 6 March 2007 letter
should be taken into account as in this letter "P M Thailand clearly and unambiguously asked Thai
Customs to use a deductive testing methodology".232
6.60 The Philippines does not subscribe to Thailand's point of view. First, it states that the Panel's
statement on the 5 February letter is literally q uoted from Thailand's answer to Panel question
No. 99(3), and thus the Philippines sees no reason to revise passages that have been directly taken
from Thailand's response to a specific question. 233 Second, the Philippines disagrees with Thailand's
reading of the 6 March 2007 letter. In the letter, PM Thailand states that it is providing information in
response to a request by Thai Customs to allow the authority to determine the customs value
"correctly", following the "hierarchical order" of the sequential valuation methods set forth in Thai
law and indicates that deductive testing may be a ppropriate in certain circumstances. However,
PM Thailand nowhere "requests" that the acceptability of the transaction value be tested exclusively

229 Interim Panel Report, para. 7.328.
230 Interim Panel Report, para. 7.374.
231 Thailand's comments on the Interim Panel Report, paras. 10-11.
232 Thailand's comments on the Interim Panel Report, para. 12; Exhibit THA-92.
233 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 29.

by such testing or that Thailand abandon any e ffort to conduct a proper examination of the
circumstances of sale.
234
6.61 First, the Panel notes that its reproduction of Thailand's statement on the 5 February 2007
letter was not quoted verbatim from Thailand's answer to Panel question No. 99(3). In its answer to
that question, Thailand described a process at the e nd of which Thai Customs decided to reject the
transaction value after having compared it to the de ductive test value subsequent to the letter and
meeting of 6 March 2007. We have revised paragraph 7.194 to correctly reflect Thailand's arguments
in this regard.
6.62 Second, regarding the content of the 6 March letter, we understand that in this letter,
PM Thailand pointed to the fact that Thai Custom s was asking PM Thailand to provide information to
be used to calculate the computed value, while the hierarchical order of Ministerial Regulation
No. 132/2000 (and of the Customs Valuation Agre ement) prescribes that the calculation of a
deductive value predates the calculation of a computed value. Hence, we do not consider this as
amounting to be a request specifically to use the de ductive value instead of the transaction value.
Rather, this is a general request to follow the hierarchical order according to which the valuation
method to be used should be chosen. While we disagree with Thailand's reading of the letter, we have
modified and made additions to paragraph 7.194 to provide a more accurate/complete explanation on
the issue.
3. The Philippines' comments
(a) Footnote 272, paragraph 7.91
6.63 The Philippines requests that the Panel use the name [[xx.xxx.xx]] instead of "Importer A" in
footnote 272 of the Interim Panel Report to reflect the Philippines' arguments that [[xx.xxx.xx]] is not
technically an importer because its goods transit th rough duty free areas, and have not formally
entered Thailand or been cleared through Thai Customs. 235 Thailand is of the opinion that the Panel
should "refer to the duty-free importer by name the first time it uses it, following by the notation
("Importer A") and then use the designation 'Impor ter A' on every following occasions". This would
make the reading of the non-BCI version easier according to Thailand.
6.64 The Panel has modified footnote 272 as commented by the Philippines because the reference
in the footnote to "Importer A" is not entirely corr ect and also included the Philippines' arguments on
[[xx.xxx.xx]] (Importer A) in the footnote. We have changed the other references to [[xx.xxx.xx]] as
suggested by Thailand.
(b) Paragraph 7.91
6.65 The Philippines requests the Panel to modify its statem ent in paragraph 7.91 of the Interim
Panel Report, as this statement is factually incorre ct. It clarifies that on 28 March 2008, Thai
Customs started accepting the transaction values as customs values for all new entries. Concerning the
[[xx.xxx.xx]] entries made between 13 September 2007 and 19 March 2008 on the other hand, Thai
Customs only began accepting the transaction values as the correct customs values on or after 14 July
2008. For these entries however, transaction values ha d not been accepted at the time of clearance,
and guarantee values had been collected in resp ect of potential customs and fiscal liabilities.

234 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 30-31.
235 Philippines' comments on the Interim Panel Report, paras. 7-10.

Concerning the three entries that cleared on 10 a nd 13 September 2007, Thai Customs also accepted
the transaction values as the correct customs values on or after 14 July 2008.236
6.66 Thailand proposes that the statement by the Panel in paragraph 7.91 be kept, and that the
words "subject to guarantee" be added to explai n that, while Thai Customs began accepting the
transaction values as the correct customs values for the entries at issue, guarantees had already been
collected in relation to these entries.
6.67 As the information provided by the Philippines in its comments on the Interim Panel Report is
accurate, the Panel has modified paragraph 7.91 of the Interim Panel Report accordingly.
(c) Paragraph 7.158
6.68 The Philippines takes issue with the wording of para graph 7.158 of the Interim Panel Report
in which its is stated that "[w]hile not dispu ting the overall sequence of the procedural steps as
described above ...". It states that it agrees with the order of steps set forth in paragraph 7.156, but it
"does not agree that a customs authority need not request information from an importer if the
authority is unable to accept the transaction value without further enquiry". 237 The Philippines
therefore requests that the Panel avoid suggesting that the Philippines agrees with the procedural steps
described in paragraphs 7.152-7.156 of the Interim Panel Report.
6.69 Thailand does not read paragraph 7.158 or 7.152 as suggesting that "a customs authority
need not request information from an importer if the authority is unable to accept the transaction value
without further enquiry", and states that no change appears to be warranted.
6.70 The Panel considers that, on the contrary to the Philippines' statement, paragraph 7.152 of the
report does not state that a customs authority need not request additional information. Instead, it
states that the customs authority may "choose to ask the importer to provide information". The third
sentence of paragraph 7.158 then reflects the Philippi nes' view on this issue by stating that "the
Philippines' position is that a customs authority is obliged to undertake an active investigative role ...".
We have therefore decided to maintain the current paragraphs at issue.
(d) Footnote 390, paragraph 7.184
6.71 The Philippines requests the Panel to revise footnote 390 of the Interim Panel Report where
the Panel pointed to an inaccurate reference by th e Philippines to Thailand's submissions. Seeking to
show that Thai Customs had acknowledged a letter by PM Thailand asking Thai Customs to (i) accept
the declared values; or (ii) explain in writing why it was not clearing the goods at the declared values,
the Philippines referred to paragraph 24 of Th ailand's second written submission. The correct
reference was paragraph 24 of Thailand's second opening statement. As Thailand did not present any
objection to this request, the Panel has modified footnote 390 of the Interim Panel Report
accordingly.
(e) Paragraph 7.193
6.72 The Philippines takes issue with the second to last sen tence in paragraph 7.193, which states
"[t]here may ... between the same parties turn out to be the same". In its first oral statement, the
Philippines has noted that the circumstances surrounding transactions in 2002-2003 were very

236 Philippines' comments on the Interim Panel Report, paras. 11-16, referring to its first written
submission, para, 187.
237 Philippines' comments on the Interim Panel Report, para. 17, referring to para. 7.152 of the Interim
Panel Report.

different from those surrounding transactions in 2 006-2007. The Philippines requests the Panel to
include a footnote referencing this assertion. Thailand did not comment on this issue. The Panel has
modified the paragraph at issue and included a reference to the Philippines' statement.
(f) Paragraph 7.265
6.73 The Philippines ' contends that in paragraph 7.265 of the Interim Panel Report, the Panel
misinterpreted paragraph 50, footnote 80 of the Philippines' second oral statement. From this
footnote, the Panel understood that "the revised mi nutes were submitted to the Thai Tax Court for the
first time in the context of PM Thailand's app eal before the court concerning the September 2006
MRSPs". According to the Philippines, however, in the footnote at issue, it referred to the original
version of the minutes and notes that DG Customs sent this version of the Minutes to PWC ABAS.
According to the Philippines, Thailand has not provi ded any documentary evidence to show that the
revised version of the Minutes was provided to the Thai Tax Court. Therefore, the Philippines
requests that the Panel modify paragraph 7.265 accordingly.
238 Thailand did not provide comments
on this issue.
6.74 The Panel has modified paragraph 7.265 of the Interim Panel Report to correct its mistaken
statement about paragraph 50, footnote 80 of the Phil ippines' second oral statement as pointed out by
the Philippines.
(g) Paragraph 7.267
6.75 The Philippines requests that the Panel modify the first sentence of paragraph 7.267 to record
that the evolution of its arguments occurred as a response to Thailand's changing description of its
customs valuation decisions in the revised Minut es that were submitted at the first substantive
meeting with the Panel.239
6.76 Thailand does not object to a change of this senten ce. It nonetheless notes that even before
the revised minutes were provided to the Panel, Thailand had already argued in its first written
submission that regardless of what provision of do mestic law was cited, Thai Customs had used a
deductive value method within the meaning of Article 5 of the Customs Valuation Agreement.
6.77 The Panel agrees that the Philippines changed its arguments because of a change in
Thailand's description of its cu stoms valuation decisions, and changed the first sentence of
paragraph 7.267 of the Interim Panel Report accordingly.
(h) Paragraph 7.298
6.78 The Philippines' states that in regard to Article 7.1 of the CVA, it put forward two claims,
only one of which was discussed by the Panel. Ther efore, the Philippines requests the Panel to also
examine its claim that Thailand acted inconsiste ntly with Article 7.1 of the CVA "by deducting
incorrect amounts for VAT and excise tax for certain transactions".240
6.79 Thailand does not object to this request, but it di sagrees with the Philippines assertion that
"Thailand 'had not previously disclosed' the calcula tions of the deductive value for entries in the

238 Philippines' comments on the Interim Panel Report, paras. 27-31.
239 Philippines' comments on the Interim Panel Report, paras. 32-35.
240 Philippines' comments on the Interim Panel Report, paras. 36-42.

period 1 January 2007 -13 September 2007 prio r to its submission of 4 September 2009". 241 Thailand
claims that it already put forward those calculations in Exhibit THA-13.
6.80 The Panel added a paragraph in Section VII.C.7( c)(iii) of the Report to clarify the
Philippines' position in this regard. Regarding Th ailand's statement that it already disclosed the
calculations for the entries in the period 1 Ja nuary 2007-13 September 2007 in Exhibit THA-13, the
Panel notes that this exhibit covers the calculations for the year 2006 and that Exhibit THA-71, which
was submitted on 4 September 2009, covers the calculati ons for the first half of the year 2007. A
factual description to this effect has been added in a footnote to the newly added paragraph 7.304.
(i) Paragraph 7.314
6.81 The Philippines requests the Panel to add to the paragraph the argument that Thai Customs
knew that PM Thailand had included a deduction for inte rnal transport costs in its annual filings for
the years 2003 to 2005, as the Panel also included in paragraph 7.353 of its Interim Panel Report.
Moreover, the Philippines' invites the Panel to consid er whether a reference to this factor should be
included in the Panel's reasoning on this issue in paragraph 7.329. Thailand does not comment on this
issue.
6.82 The Panel has included the argument, as requested by the Philippines, in paragraphs 7.314
and 7.329 and made the necessary modifications.
(j) Paragraph 7.406
6.83 The Philippines notes that the Panel has not included a conclusion expressing its findings at
the end of its findings under Article 10 of the CVA as in other sections. It requests that the Panel add
its conclusion in this regard. Thailand has not commented on this issue. The Panel has modified the
paragraph by adding its conclusion.
C. ARTICLE III:2, FIRST SENTENCE OF THE GATT 1994
1. MRSPs – The Philippines' comments
(a) Paragraph 7.413
6.84 The Philippines submits that in its analysis of the August 2008 Notice, the Panel made two
mistakes. First, the Panel misinterpreted the Philip pines' statement in its comments of 9 November
2009, in which the Philippines stated that in listi ng the MRSP Notices that form part of these
proceedings, the Philippines omitted to include th e MRSP Notice of August 2008. As also becomes
clear from the text of its comments of 9 November, the Philippines specifically made this statement in
connection to its opening statement at the second pane l meeting, and hence it only wanted to correct a
clerical error and it did not refer to a genera l omission of the MRSP Notice in its previous
submissions.
242
6.85 Secondly, the Philippines disagrees with the Panel that it "never put forward a claim, not to
mention specific arguments, in this proceedi ng that the 19 August 2008 Notice itself violates
Article III:2 until its comments of 9 November 2009". 243 The Philippines contends that during the
proceedings, it put forward several arguments and pi eces of evidence that underline its claim that the

241 Thailand's comments on the Philippines comments on the Interim Panel Report, para. 26. referring
to para. 37 of the Philippines' comments on the Interim Panel Report.
242 Philippines' comments on the Interim Panel Report, paras. 49-55.
243 Philippines' comments on the Interim Panel Report, para. 57, referring to para. 7.413 of the Interim
Panel Report.

Notice is violating Article III:2. In Annexes A and B to its comments, the Philippines has included an
overview of all arguments and evidence relate d to the August 2008 MRSP Notice submitted during
the proceedings. In its comments, the Philippines points at the fact that the Notice was expressly
identified in its Panel request and subsequently it puts forward the instances in which it made
arguments regarding the Notice during the proceedings by referring to its Annexes A and B.
244
6.86 Based on this information, the Philippines urg es the Panel to rule on the Notice, as required
by Article 11 of the DSU. Further, it demands that if the Panel denies to rule on the Notice, it
includes a reference to all of the paragraphs of the Philippines' submissions and exhibits addressing
the August 2008 MRSP Notice as part of its clai ms under Article III:2 of the GATT 1994. If the
Panel does decide to rule on the Notice, the Ph ilippines asks it to make a recommendation for the
same reasons as it re quests a recommendation on the Sept ember 2006, March 2007 and August 2007
MRSP Notices.245
6.87 Thailand does not respond to the Philippines' first comment that the Panel misinterpreted its
statement of 9 November 2009. Regarding the Philippines' second statement that it did provided
arguments and evidence regarding the August 2008 MR SP Notice, it puts forward that in its Interim
Panel Report, the Panel did not state that th e Philippines did not refer to the August 2008 MRSP
Notice, instead the Panel concluded that it did not ma ke "specific" arguments or a claim with respect
to this Notice.
246 Thailand notes that the examples the Philippines provides appear to be general
examples of how Thailand calculated MRSPs, instea d of a specific argument on the 2008 one; and
secondly all of the arguments referred to by the Ph ilippines seem to relate to the difference between
the MRSP and RRSP for this Notice. 247 Therefore, Thailand sees no reason for the Panel to change
this paragraph.
6.88 If, nonetheless, the Panel decides to examine th e Philippines' claim and arguments regarding
the Notice, the Panel should find that the Philippin es has failed to establish that Thai Excise acted
inconsistently with Article III:2 with respect to that Notice, unless the Panel finds that the evidence
establishes that "DG Excise determined the mark eting cost component of the MRSP for imported
cigarettes in a manner different from th e general methodology" for that Notice. 248 Regarding the
Philippines' request for a recommendation on the Notice, Thailand requests the Panel to deny to make
recommendations for the same reasons as it reque sted the Panel to not make recommendations
regarding the September 2006, March 2007 and August 2007 MRSP Notices.249
6.89 Regarding the Philippines' first comment, that the Panel misinterpreted its statement of 9
November 2009, the Panel agrees that the Philippines specifically made this statement in connection
with its opening statement at the second panel meetin g, and not with regard to the panel proceedings
as a whole. The Panel has revised the first sentence of paragraph accordingly.
6.90 Second, the Panel disagrees with the Philippines' comment that it did put forward arguments
and evidence regarding the August 2008 MRSP Notice. The Panel agrees with Thailand that the
examples the Philippines provides appear to be ge neral examples of how Thailand calculated MRSPs,
instead of a specific argument on the 2008 one; and secondly all of the arguments referred to by the
Philippines seem to relate to the difference between the MRSP and RRSP for this Notice.
Consequently, the Panel denies to rule on this MR SP Notice. However, the Panel has modified the

244 Philippines' comments on the Interim Panel Report, paras. 57-74.
245 Philippines' comments on the Interim Panel Report, paras. 75-79.
246 Thailand's comments on the Philippines' comments on the Interim Panel Report, para. 12, referring
to para. 7.413 of the Interim Panel Report.
247 Thailand's comments on the Philippines' comments on the Interim Panel Report, para. 13.
248 Thailand's comments on the Philippines' comments on the Interim Panel Report, para. 13.
249 Thailand's comments on the Philippines' comments on the Interim Panel Report, paras. 15-20.

second sentence of paragraph 7.413 to clarify why it deems the Philippines' references to the 2008
MRSP Notice to be insufficient to make a ruling on this Notice. The information provided by the
Philippines in Annexes A and B to its interim revi ew comments has been specifically used in this
clarification.
(b) The May 2009 MRSP Notice
6.91 The Philippines explains that during the proceedings, it requested that the Panel not make
findings regarding this measure "because it did not wi sh to litigate against a moving target", since at
that stage "it was not clear how many more re placement MRSP Notices Thailand would adopt during
the dispute". 250 The Philippines states that during the pr oceedings, it submitted expressly that this
Notice violates Article III:2. Moreover, the Philippi nes notes that in its analysis, the Panel has
focused on situations where Thailand has been unable to provide an explanation for a gap between the
MRSP and RRSP for imported cigarettes, and that su ch a gap also exists for the May 2009 MRSP for
Marlboro, and Thailand has been unable to explain this gap.251
6.92 In its report, the Panel does not address the pa rties' arguments regarding the May 2009 MRSP
Notice, and the Philippines therefore requ ests that the Panel does address the Notice. 252 In addition,
the Philippines urges the Panel to take into account whether a ruling on this measure is necessary to
resolve the dispute, and enable the DSB to make sufficiently precise recommendations and rulings.
The Philippines states that the dispute has not been resolved, because th e May 2009 MRSP Notice,
which is currently in force, violates Article III:2 of the GATT 1994. If the Panel finds that this Notice
is indeed inconsistent with Article III:2, the Philippines requests that it makes a recommendation
under Article 19.1 of the DSU.253
6.93 Thailand notes that the request by the Philippine s for the Panel to make findings and
recommendation regarding the May 2009 MRSP is an extr aordinary one. In addition to the parts of
the second written submission quoted by the Philippin es in its comments, Thailand refers to the parts
in which the Philippines states that it " objects to a ruling" on the May 2009 MRSP Notice and that
"ruling on the 'new' [May 2009] MRSP Notices would not resolve the dispute that properly forms part
of the Panel's term of reference". 254 Thailand points at the fact that during the proceedings, the
Philippines did not change its point of view until its comments on the Interim Panel Report, and
therefore Thailand "fails to see any possible con ception of the due process requirements for a panel
proceeding that would permit the Panel, at the interim review stage, to rule on a measure with respect
to which the complainant never once, ..., requested the Panel to rule on and, ... to which the
complainant expressly objected the Panel making a ruling".
255 Furthermore, it argues that at this point
in the proceedings, the Panel cannot know what ar guments or evidence would have been put forward
by either party. Consequently, Thailand urges the Pa nel to deny the Philippines' request that it makes
findings or recommendations regarding the May 2009 MRSP Notice.256
6.94 Moreover, Thailand wants to correct the assertion by the Philippines that the Panel focused its
analysis on "situations where Thailand has been una ble to provide adequate explanation for a gap
between the MRSP and RRSP for imported cigarettes". To the contrary, according to the Panel "the

250 Philippines' comments on the Interim Panel Report, para. 80.
251 Philippines' comments on the Interim Panel Report, para. 81.
252 Philippines' comments on the Interim Panel Report, para. 82.
253 Philippines' comments on the Interim Panel Report, paras. 83-84.
254 Thailand's comments on the Philippines' comments on the Interim Panel Report, para. 4.
255 Thailand's comments on the Philippines' comments on the Interim Panel Report, para. 7.
256 Thailand's comments on the Philippines' comments on the Interim Panel Report, paras. 7-8.

mere existence" of such a gap was not automatic pr oof of an inconsistency with the obligation under
Article III:2.
257
6.95 First, the Panel notes that the May 2009 MRSP Notice w as issued during the course of these
proceedings, so after the establishment of this Pa nel. As the Philippines and Thailand note, during the
proceedings, the Philippines specifically requested the Panel not to rule on this MRSP Notice, and it
did not change its stance until its comments on the Interim Panel Report. 258 The Panel agrees with
Thailand that the due process rights of Thailand would not be respected if the Panel were to decide to
rule on the May 2009 MRSP Notice only at this stage, since the parties have not been able to put
forward substantive arguments and/or evidence regard ing this Notice. In particular, given that the
May 2009 MRSP Notice did not exist at the time of the establishment of the Panel and came into
existence only during the course of this proceedi ng, the Philippines should have put forward robust
arguments if it intended to make a claim with respect to this Notice.
6.96 Further, the Philippines argues that in its anal ysis, the Panel has focused on situations where
Thailand has been unable to provide an explan ation for a gap between the MRSP and RRSP for
imported cigarettes, and that such a gap also exists for the May 2009 MRSP for Marlboro, and
Thailand has been unable to explain this gap. 259 As Thailand points out, however, the Philippines'
understanding of the Panel's analysis of the Philippines' claim with respect to the concerned MRSPs in
this dispute is not correct. As stated in paragr aphs 7.488 and 7.489 of the Interim Panel Report, we
rather found that "the mere existence" of a gap between the MRSP and RRSP was not automatic proof
of an inconsistency with the obligation under Article III:2.260
6.97 Therefore, the Panel rejects the request by the Philippines to rule on the May 2009 MRSP
Notice. However, we agree that our decision not to examine the May 2009 MRSP Notice still needs
to be explained. We have added paragraph 7.420 to reflect our decision in this regard.
2. VAT exemption for re-sales of domestic cigarettes (paragraphs 7.629 to 7.634) –
Thailand's comments
6.98 In paragraphs 7.629-7.634 of the Interim Pane l Report, the Panel considered whether "input
tax credits under the Thai regulations are gran ted automatically and simultaneously with the
obligation to pay output taxes in every case so as not to create even the potential risk of an excess tax
for imported cigarettes".261 The Panel concluded that Thailand's input tax/output tax VAT system for
resale of imported cigarettes gave rise to a "pot ential liability [that] does not exist for domestic
cigarette resellers under the Thai law [and] le ads to excess taxation for imported cigarettes and
consequently a de jure violation of the first sentence of Article III:2". 262 Thailand requests review of
this section of the Interim Panel Report, for the reasons provided below.
6.99 First, Thailand states that while in paragraph 7.631 the Panel notes that resellers must submit
a form Por.Por.30 in order to receive an input tax credit 263, it fails to point out that resellers do not
incur the liability for output tax until they file the same form Por.Por.30. Thus, no liability for output
tax collected can arise before th e time at which the importer applies for and obtains its input tax

257 Thailand's comments on the Philippines' comments on the Interim Panel Report, paras. 9-10.
258 Philippines' second written submission, paras. 431 and 434.
259 Philippines' comments on the Interim Panel Report, para. 81.
260 Interim Panel Report, para. 7.488.
261 Interim Panel Report, para. 7.629.
262 Interim Panel Report, para. 7.634.
263 Interim Panel Report, para. 7.631.

credit.264 Thailand requests that the Panel clarify its description of the system to reflect this factual
point correctly.
6.100 Second, Thailand takes issue with the assertion th at a "potential risk of excess taxation" as
identified by the Panel can give rise to excess taxation on the resale of imported cigarettes. The Panel
describes this potential risk as stemming both from the f act that a form has to be filed by resellers of
imported cigarettes to apply for VAT credits, and that there are circumstances in which this credit
may not be granted. Thailand argues that this risk either does not exist or, alternatively, cannot give
rise to a violation of Article III:2.
265 Thailand then puts forward several arguments to support this
statement:
6.101 Thailand first asserts that once resellers submit the form Por.Por.30, they have a "right" and
are "entitled" to an input tax credit. 266 Consequently, Thailand argues that there can be neither a
"risk" of excess taxation compared to the VAT imposed for resale of domestic cigarettes nor a
corollary violation of Article III:2, first sentence. Instead, there is, at most, a difference in reporting
requirements that ought to be addressed under Article III:4, rather than Article III:2, first sentence.
267
6.102 Moreover, the essential element of the Panel's finding of a "risk of excess taxation" appears to
be the circumstance in which a reseller does not receive a tax credit that it claimed on form
Por.Por.30. In its analysis, however, the Panel omit s to include Thailand's explanation that this can
only happen in circumstances in which the reseller is not able to show that the claimed input tax credit
relates to an actual purchase of imported cigarettes. 268 Hence, the evidence regarding the availability
of input tax credits for legitimate, documente d purchases of imported cigarettes does not support a
finding that there is a "risk" that resellers may not obtain a credit with respect to these transactions,
and Thailand requests the Panel to revise the Inte rim Panel Report to reflect Thailand's arguments on
this issue.
6.103 Thailand further notes that the Panel seems to suggest that the requirement to file form
Por.Por.30 can, in itself, give rise to a violation of Article III:2, first sentence. 269 Since, as explained
above, there is no actual risk of losing the tax cr edit, Thailand sees no basis on which a requirement
to file a VAT tax report can, in itself, constitute a violation of Article III:2, first sentence. Instead,
this is an issue to be addressed under Article III:4.270
6.104 In this context, Thailand notes that the requireme nt of a private action in the form of filing
input/output VAT tax reports to obtain input tax cr edits against output tax VAT liability is a common
feature of many WTO Members' VAT systems. Under these systems, importers risk losing credits if
they do not file their input tax credit claims. In it s final report, the Panel may wish to clarify whether
these VAT systems are consistent with Article III:2, first sentence, under its ruling.
6.105 Finally, Thailand notes that once the Panel finds the reporting requirements to be inconsistent
with Article III:4, there appears to be little fu rther purpose to be served by considering these
requirements under Article III:2. In these circumstances, it may be appropriate for the Panel to

264 Thailand's comments on the Interim Panel Report, para. 38.
265 Interim Panel Report, para. 7.629.
267 Thailand's comments on the Interim Panel Report, para. 39.
268 Thailand's comments on the Interim Panel Report, para. 40, referring to its comments of 8
December 2009, paras. 77-83.
269 Thailand's comments on the Interim Panel Report, para. 42, referring to para. 7.633 of the Interim
Panel Report: "... the failure to comp ly with these obligations will in turn deprive importers of tax credits
necessary to offset their VAT liability...".
270 Thailand's comments on the Interim Panel Report, para. 42.

exercise judicial economy in its final report with respect to the Philippines' claim under Article III:2,
first sentence.
271
6.106 In response to Thailand's request that the Pa nel clarify in paragraph 7.631 that no VAT
liability arises for the resale of imported ci garettes until form Por.Por.30 is filed, the Philippines
presents two arguments. First, the Philippines under lines that this assertion is contrary to Thai law
which states that tax liability for the sale of goods arises as a results of acts such as: "the delivery of
goods"; "when payment of price becomes due for each payment period"; "when the agent delivers
goods to the purchaser"; and so on. 272 Moreover, Section 82/4, para. 1 of the Thai Revenue Code
provides that a "registrant shall collect value a dded tax from a purchaser of goods or a recipient of
services at the time the liability to value added tax arises". 273 In other words, under Thai law, VAT
liability does not arise when filing a form but at an earlier point in a sales transaction ( e.g., upon
delivery, payment, or transfer of ownership). 274 Second, Thailand appears to imply that a failure to
file form Por.Por.30 would enable the reseller to avoid taxation altogether. The Philippines however
notes that such evasion would constitute a breach of Section 83 of the Thai Revenue Code and thereby
be sanctioned pursuant to Section 89(2) of the Code with a "penalty ... twice the amount of tax
payable or remittable in the tax month".275 However, the Philippines does not object to a minor change
in the wording of paragraph 7.631 to clarify that form Por.Por.30 is also used to request a tax credit.
6.107 Furthermore, concerning Thailand's assertion that a potential risk of excess taxation as
identified by the Panel, does not exist or cannot give rise to a violation of Article III:2, first sentence
of the GATT 1994 276, the Philippines contends that the Panel correctly relied on previous Appellate
Body and GATT interpretations to the effect that the mere possibility or risk of discriminatory
treatment is sufficient to violate Article III:2, first sentence. 277 The Philippines argues that the Panel
may support its findings furthe r by citing the panel in US – Exports Restraints, which made clear that
for a violation of Article III:2, it suffices to show that discrimination will arise in certain defined
circumstances.278
6.108 Subsequently, the Philippines argues that a pot ential risk of excess taxation for imported
cigarettes does exist.279 To rebut Thailand's argument that there is no excess taxation because resellers
of imported cigarettes are "entitled" 280 to a refund, the Philippines argu es that the Panel has correctly
examined and rejected Thailand's arguments, deciding that a reseller would be taxed in excess if it
failed to file the form, or subsequently failed to prove that the purchase took place.281

271 Thailand's comments on the Interim Panel Report, para. 44.
272 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 88, referring to
several sections of the Thai Revenue Code in Exhibit PHL-94.
273 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 88, referring to
the Thai Revenue Code, Chapter IV, Division 2, Section 82/4, para. 1, Exhibit PHL-94.
274 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 88.
275 Philippines' comments on Thailand's comments on the Interim Panel Report para. 89, referring to
Exhibit PHL-94.
276 Philippines' comments on Thailand's comments on the Interim Panel Report paras. 74-76.
277 Philippines' comments on Thailand's comments on the Interim Panel Report para. 75, referring to
paras. 7.622-7.624 of the Interim Panel Report, citing Appellate Body Report, US – Section 211 Appropriations
Act, Panel Report, US – Tobacco, and Panel Report, US – Section 337 Tariff Act.
278 Philippines' comments on Thailand's comments on the Interim Panel Report para. 76, referring to
Panel Report, US – Exports Restraints, para. 8.78.
279 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 61.
280 Interim Panel Report, para. 7.613.
281 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 62, referring to

6.109 Likewise, according to the Philippines, the Pane l correctly rejected Thailand's argument that
only the failure of a reseller – a private party – to secure a tax credit can trigger excess taxation. The
Panel indeed explained that Thai laws and regulations at issue, rather than so lely the action of private
parties, gave rise to obligations for resellers of imported cigarettes only. In particular, the Philippines
contends that the Panel correctly relied on the Appellate Body's statement in Korea – Various
Measures on Beef that "the intervention of some element of private choice does not relieve [a WTO
Member] of responsibility under the GATT 1994 fo r the resulting establishment of competitive
conditions less favourable for the imported product than for the domestic product". 282 In this vein, the
Philippines agrees with the Panel's approach rejecting Thailand's argument that VAT liability imposed
on resale of imported cigarettes may be offset by a tax credit so as to be in compliance with
Article III:2, first sentence. 283 In addition, the Philippines states that the Panel may want to consider
to modify the text of paragraphs 7.633-7.634 to clarify its point even more.
6.110 Moreover, the Philippines states that in para graph 7.633, the Panel has also answered
Thailand's concern that Thailand's VAT exemption system, not the simple requirement to file
Por.Por.30, establishes an additional tax liability c ontrary to Article III:2, first sentence of the
GATT 1994.284
6.111 Finally, the Philippines states that other WTO Members' VAT systems have no bearing on the
WTO-inconsistency of Thailand's de jure discriminatory treatment of the resale of imported
cigarettes.
6.112 First, regarding Thailand's argument that the Pa nel failed to point out that resellers do not
incur the liability for output tax until they file (the same) form Por.Por.30, the Panel notes that its
factual description of the imposition of VAT on ciga rettes resellers in Tha iland is provided in
paragraphs 7.573-7.580 and 7.584-7.589 of the Interim Panel Report. 285 Under Thai law, specifically
Section 82/7 of Division 6 of the Thai Revenue C ode, every VAT registrant cigarette reseller is
required to collect VAT from the purchaser in resp ect of every stage of sale. Accordingly, all
cigarette resellers in the distribution chain incu r VAT liabilities. Further, when considering the
applicable provisions of the Thai Revenue Code, 286 it appears that VAT liability does not arise when
filing a form but at an earlier point in a sales transaction.
6.113 We also observed the manner in which a fina l VAT liability is determined based on the
difference between output tax (sale to purchaser) a nd input tax credit (purchase from reseller) in the
paragraphs cited above. In our view, Thailand's argument that resellers do not incur the liability for
output tax until they file form Por.Por.30 pertains more to the administrative steps linked to the
imposition of VAT for imported cigare tte resellers than to the tax lia bility itself that arises upon the
sale of imported cigarettes. To that extent, the Pa nel agrees with the Philippines that Thailand's
argument would appear to imply that no tax liability arises so long as no form is filed. Hence, the
Panel does not find that Thai law supports the statemen t that no liability for output tax collected arises
before the importer applies for and obtains its input tax credit by filing form Por.Por.30. However,

282 Philippines' comments on Thailand's comments on the Interim Panel Report paras. 66 and 67,
referring to para. 7.734 of the Interim Panel Report, and citing Appellate Body Report, Korea – Various
Measures on Beef, para. 146.
283 Philippines comments on Thailand's comments on the Interim Panel Report para. 68.
284 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 64-65, referring
to para. 7.633 of the Interim Panel Report.
285 We note that neither party has provided any comments on the Panel's description of the Thai VAT
system as set forth in these paragraphs.
286 Thai Revenue Code, Chapter IV, Division 2, Sections 78 and Division 6, Sections 82/4 and 82/7,
Exhibit PHL-94. For example, Section 78(1) of the Revenue Code states that tax liability on the sale of goods
arises upon the delivery of the goods.

the Panel accepts that with the sa me form Por.Por.30, the importer can request for a tax credit. The
Panel has changed the text of paragraph 7.631 to clarify this point.
6.114 Second, regarding Thailand's comment that the "potential risk of excess taxation" identified
by the Panel either does not exist or, alternatively, cannot give rise to a violation of Article III:2, the
Panel is of the opinion that this potential risk does exist and that a potential risk can give rise to a
violation of Article III:2.
6.115 In relation to "potential risks", as was stated in paragraphs 7.622-7.624 of the Interim Panel
Report, the Appellate Body in US – Section 211 Appropriations Act and the GATT Panels in US –
Tobacco and US – Section 337 Tariff Act explained that the national treatment obligation assumed
under Article III:4 also applies to the mere possibility of risk of discriminatory treatment of imported
goods, and we considered this finding to be of e qual relevance for the national treatment obligation
under Article III:2. We therefore confirm our opinion that a potential risk of excess taxation can give
rise to excess taxation under Article III:2.
287
6.116 Regarding the existence of a potential "risk" of excess taxation, Thailand puts forward, that
resellers have a "right" or "entitlement" to an input tax credit and therefore no such "risk" exists. The
Panel confirms that it did address this specific asp ect of Thailand's arguments in its Interim Panel
Report. First, in paragraphs 7.61 3, 7.621 and 7.627 of the Interim Panel Report, the Panel refers to
Thailand's argument that when filing form Por.Por.30, a reseller is "entitled" to an input tax refund,
however in paragraph 7.631 it makes clear that from the information available, it concludes that the
reseller of imported cigarettes is indeed entitled to receive a tax credit, but it will not receive this
credit, if it does not submit form Por.Por.30 or if it is not able to prove that the purchase took place
despite the submission of the form. Therefore, alt hough a reseller has a "right" to obtain a tax refund,
in our view, the reseller will not be able to obtain that refund automatically, without taking any further
procedural steps.288 Second, Thailand claims that in discussing the fact that in certain circumstances
the reseller will not receive a tax credit although he submitted form Por.Por.30, the Panel did not
address Thailand's explanation that this only happens in cases in which the reseller is not able to prove
that the claimed input tax credit relates to an actual purchase of imported cigarettes. The Panel
considers that it did specifically address Thailand' s explanation in paragraphs 7.633-7.634 of the
Interim Panel Report. However, the Panel has clar ified the content of these paragraphs by slightly
modifying their text.
6.117 Thailand also noted that in paragraph 7.633, the Panel appears to state that the requirement to
file the form Por.Por.30 can, in itsel f, give rise to a violation of Article III:2, first sentence, as it states
that "the failure to comply with these obligations will in turn deprive importers of tax credits
necessary to offset their VAT liability".289 We do not agree with Thailand's reading of this paragraph,
as the sentence that follows states that this potential liability does not exist for resellers of domestic
cigarettes, and it is this difference that establishe s the additional liability for resellers of imported
cigarettes. Hence, we consider that this issu e was correctly addressed under Article III:2, but to
clarify our point, we made the necessary amendments to paragraph 7.633.

287 Moreover, we agree with the Philippines that our conclusion is also supported by the panel's
reasoning in US – Export Restraint that a measure is inconsistent with WTO obligations if it "mandates action
inconsistent with WTO rules in particular circumstances, even in other circumstances the action might not be
inconsistent with WTO rules". In other words, to es tablish a violation of Article III:2, it suffices if
discrimination will arise in defined circumstances. In this dispute, discrimination arises in defined
circumstances, namely, whenever a reseller of imported ciga rettes is unable to secure a tax credit to offset its
discriminatory tax liability (Panel report on US – Export Restraints, para. 8.78).
288 See also para. 7.632 of the Interim Panel Report.
289 Thailand's comments on the Interim Panel Report, para. 42, referring to para. 7.633 of the Panel
Report.

6.118 Further, the Panel does not agree with Thaila nd's statement that the Panel has to clarify
whether other WTO Members' VAT systems in which impor ters risk losing credits if they do not file
their input tax credit claims are consistent with Artic le III:2, first sentence, under its ruling. First, as
we explained in paragraph 7.604, we are not stating th at the existence of a tax credit system as such is
inconsistent with Article III:2 of the GATT, in stead what "distinguished the VAT-related measures
maintained by Thailand from other so-called normal VAT measures is ... the VAT exemption accorded
to domestic cigarettes only " (emphasis added). Second, there is no need for the Panel to clarify
whether its ruling with respect to Article III:2 of the GATT 1994 in this dispute concerning Thailand's
de jure discriminatory VAT system applies to other WTO Members' VAT systems for two reasons:
first, as a matter of law, the Panel's terms of refe rence are limited to the measures specified in the
Panel Request and the Panel's report is solely bind ing upon the parties to this dispute. Second, as a
matter of fact, the examples of other WTO Member 's VAT system have no bearing on the Panel's
analysis of Thailand's de jure tax exemption, because there is no evidence that any of these Members
exempts resale of domestic cigarettes from VAT, while not providing the same exemption for resale
of imported cigarettes.
290
6.119 For these reasons, we consider that a potential risk of excess taxation exists under the Thai
VAT system, which can give rise to a violation of Article III:2, first sentence.
6.120 Finally, we consider Thailand's statement that if the Panel finds the reporting requirements to
be inconsistent with Article III:4, it might consider exercising judicial economy with respect to the
Philippines' claim under Article III:2, first sentence. We note in this respect the statement by the
Appellate Body in Australia – Salmon that: "[t]he principle of judicial economy has to be applied
keeping in mind the aim of the dispute settlement sy stem. This aim is to r esolve the matter at issue
and "to secure a positive solution to a dispute. ... A panel has to address those claims on which a
finding is necessary in order to enable the DS B to make sufficiently precise recommendations and
rulings so as to allow for prompt compliance by a Member with those recommendations and rulings in
order to ensure effective resolution of disputes to the benefit of all Members". 291 In the light of the
Appellate Body's guidance, we must consider wh ether separate findings on the Philippines' claims
under Article III:2, first sentence and Article III:4 are necessary for the DSB to make sufficiently
precise recommendations and rulings, or whether only findings on Article III:4 would be enough. We
are of the view that the Philippines' claim unde r Article III:2 addresses an obligation that is
distinguished from that under Article III:4. It also pertains to different aspects of the Thai measures at
issue. For example, under Article III:2, what is at issue is whether the VAT exemption on the resale
of domestic cigarettes leads to an excess VAT liability for the resale of imported cigarettes; while the
Philippines' claim under Article III:4 goes to the question of whether the Thai administrative
requirements lead to an additional administrative burden on resellers of imported cigarettes and
consequently less favourable treatment for importe d cigarettes. Therefore, we decline to accept
Thailand's request that the Panel exercise judicial economy with respect to the Philippines' claim
under Article III:2, first sentence.
D. ARTICLE III:4, FIRST SENTENCE OF THE GATT 1994 – THAILAND'S COMMENTS
6.121 In paragraph 7.698 of the Interim Panel Report, the Panel concluded that resellers of imported
cigarettes are subject to a heavier administrative bur den in respect of the obligation to complete and
submit form Por.Por.30 in part because "a suppl ier who is a VAT registrant need not include

290 This argument was made by the Philippines in its comments on Thailand's comments on the Interim
Panel Report paras. 77-84, referring to Interim Panel Report, paras. 7.604 and 7.629-7.634, also referring to
Section 81(1)(v) of the Thai Revenue Code, Exhibit PHL-94.
291 Appellate Body Report, Australia – Salmon, para. 223.

information on sales of domestic cigarettes in comp leting form Por.Por.30". Thailand provided its
comments on certain aspects of the Panel's analysis and conclusion in this regard. We address them in
turn.
(a) The Panel's reliance on the expert testimony provided in Exhibit PHL-289 for the purpose of
its conclusion in paragraph 7.698 of the Interim Panel Report.
6.122 Thailand submits that the Panel cannot make an objective and impartial assessment of the
facts within the meaning of Article 11 of the DSU based on evidence provided by the Philippines only
"at the last opportunity afforded to the parties to submit their views".
292 Thailand therefore requests
the Panel not to take into account this evidence. Paragraph 15 of the Panel's working procedures
provided that all evidence, other than rebuttal eviden ce, was to be provided "to the Panel no later than
the first substantive meeting, except with resp ect to factual evidence necessary for purposes of
rebuttals, answers to questions or comments on an swers provided by each other". Thailand points to
the Panel's understanding that the expert testimony submitted by the Philippines is the only evidence
relating to the alleged change in DG Excise's prac tice regarding the recording of VAT exempt sales in
line 3 of form Por.Por.30. Given also that the Philippines had numerous oppo rtunities to submit this
expert testimony293 earlier in the proceedings, which would have allowed Thailand to timely respond,
Thailand argues that its due process rights would be denied if the Panel used this evidence for its
determination.294
6.123 The Philippines does not deny that it has submitted its expert opinion in Exhibit PHL-289 at
the latest stage of the proceedings such that Th ailand had no further opportuni ty to respond in this
regard. Nonetheless, the Philippines offers a histor y of Thailand's position rega rding form Por.Por.30
throughout the panel proceedings to show two thi ngs: first, Thailand's position shifted, as it first
considered in its first written submission that "r etailers that deal exclusively in VAT-exempt
cigarettes are not required to submit and maintain [form Por.Por.30]" 295, while it later contended that
"sales exempted from VAT are reported in line 3 [of Por.Por.30], including sales of domestic
cigarettes"
296; second, the Philippines contends that the Philippines submitted its expert opinion only
at the latest stage of the proceeding in orde r to rebut the 1995 DG Revenue ruling which Thailand
submitted only in its written responses to the Panel ques tions after the second substantive meeting. In
this regard the Philippines underlines that Thailand had many opportunities to submit this evidence
earlier on, which would have allowed the Philippines to present its rebuttal evidence at an earlier stage
too. Thus, Thailand, not the Philippines, is respons ible for the late submis sion of the Philippines'
expert opinion. This evidence can therefore be fully taken into account by the Panel.
297
6.124 The Panel notes Thailand's position that the expert opinion provided by the Philippines as
Exhibit PHL-289 was submitted at the latest stage of the proceedings (i.e. comments on each other's
written responses to the Panel questions after th e second substantive meeting), which deprived
Thailand of an opportunity to respond. Thailand is th us of the view that this evidence is inadmissible
and should not be taken into account by the Panel for the purpose of its analysis and conclusions.
6.125 However, there are no provisions in the DS U or the Panel's Working Procedures that
unconditionally preclude the Panel from accepting evidence submitted by a party at the latest stage of
the proceedings. Article 11 of the DSU requires th e Panel to make an objective assessment of the

292 Thailand's comments on the Interim Panel Report, para. 48.
293 Exhibit PHL-289.
294 Thailand's comments on the Interim Panel Report, para. 48, referring to Appellate Body Report,
Australia – Salmon, para. 272.
295 Thailand's first written submission, para. 258.
296 Thailand's response to Panel question No. 51.
297 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 93-95.

matter before it, including an objective assessment of the facts of the case. In this context, the
Appellate Body in Argentina – Textiles and Apparel stated that "Article 11 of the DSU does not
establish time limits for the submission of evidence to a panel." 298 Further, the Appellate Body noted
that "the Working Procedures in their present form do not constrain panels with hard and fast rules on
deadlines for submitting evidence".299
6.126 For the purpose of the current Panel proceedi ngs, paragraph 15 of the Panel's Working
Procedures establishes that all evid ence, other than rebuttal evidence, was to be provided to the Panel
no later than the first substantive meeting, except with respect to factual evidence for purposes of
rebuttals, answers to questions or comments on an swers provided by each other". Thailand submitted
a new piece of evidence, namely the 1995 DG Revenue Ruling as part of its response to the Panel's
questions after the second substantive meeting. E ach party was subsequently granted the possibility
to submit comments on each other's responses pursu ant to paragraph 9 of the Panel's Working
Procedures. In an attempt to rebut Thaila nd's argument on the 1995 DG Revenue ruling, the
Philippines then submitted the concerned expert opinion.
6.127 We note that the first sentence of this opinion reads "I have been asked to provide an opinion
on [the 1995 DG Revenue Ruling]", suggesting that the intended purpose of this evidence was to
rebut Thailand's arguments in relation to this ruling. Therefore, to the extent that the Panel's Working
Procedures envisaged the submission of evidence at a later stage than the first substantive meeting
when it could be characterized as rebuttal evidence, or comments on answers provided by parties, we
are of the view that the concerned expert opinion submitted by the Philippines falls within the scope
of such evidence.
6.128 In the light of this, and notwithstanding a gene ral preference to receive evidence at an early
stage of the panel proceeding rather than at a later or the last stage of the proceeding, we confirm our
view that accepting the Philippines' evidence that was provided as part of its comments on Thailand's
response to Panel question No. 142 was in accordance with paragraph 15 of the Working Procedures.
The Panel therefore declines to accept Thailand's request.
(b) The Panel's assessment of all the evidence su bmitted by Thailand for the purpose of its
analysis and conclusion in paragraphs 7.694-7.698 of the Interim Panel Report
6.129 Thailand submits that the Panel is incorrect in suggesting that Thailand adduced only two
pieces of evidence (namely the Textbook on the Revenue Code ,300 and a 1995 DG Revenue Ruling 301)
to support its position that exempted sales must be reported in line 3 ("exempted sales") of form
Por.Por.30. In addition to these two pieces of ev idence referred to by the Panel, Thailand provided
the instructions for form Por.Por.30, which ma ke unambiguously clear that in completing line 3
("exempted sales") in the form, "a taxpayer shall f ill [in] the amount of exempted sales that [are]
reported in [its] revenue account". Those instructi ons clearly state that the amounts corresponding to
the sale of VAT exempt products must be reported in line 3 of form Por.Por.30. Nonetheless, the
Panel has not provided any analysis for its choice not to interpret those official instructions to mean
what they plainly state on their face.
it provided 303 – forms filled out by TTM and a convenience store that sells both imported and
domestic products, as well as other products – indicate that sales exempted of VAT must be reported

298 Appellate Body Report, Argentina – Textiles and Apparel, para. 79.
299 Appellate Body Report, Argentina – Textiles and Apparel, para. 80.
300 Exhibit THA-95.
301 Exhibit THA-96.
302 Thailand's comments on the Interim Panel Report, para. 49.
303 Exhibit THA-89.

in line 3 of form Por.Por.30, even though the form does not require a breakdown of these amounts.
304
Accordingly, Thailand requests the Pa nel to revise paragraphs 7.694 et seq. of the Interim Panel
Report to refer to and to address these additional pieces of evidence.
6.130 The Philippines contends that the Panel has duly taken into account all the evidence before it
in relation to form Por.Por.30. In particular, the Philippines stresses that the instructions for form
Por.Por.30 were addressed by the Panel at para graph 7.690 of the Interim Panel Report where the
Panel found that "[t]he introductory statement containe d in the instructions for filling in and the filing
file [this] form hinges on the supplier's status as a VAT registrant, not the specific type of goods". 305
Similarly, the Philippines states that the Panel pr operly took into account the form filled in by TTM
and a convenience store submitted as Exhibit THA-89. In particular, at footnote 1033 to
paragraph 7.694, the Panel noted that sample fo rms Por.Por.30 had been submitted by Thailand,
including those in Exhibit THA-89, but that those pieces did not inform it on which exempted sales
must be recorded in line 3 of the form. 306 Overall therefore, the Panel has taken into account all the
evidence before it to decide that resellers of both domestic and imported cigarettes would not have to
report the sale of domestic cigarettes under line 3 of Form Por.Por.30 which the Philippines had
explained to be reserved to amounts that are exem pted from the VAT tax base pursuant to Section 79,
third paragraph of the Revenue Code 307 (PHL-94) and Notification No.40. 308 In this vein, the Panel
considered all of (i) the text of form Por.Por.30, (ii) the Thai Revenue Code, (iii) the excerpt of the
Textbook on the Revenue Code, (iv) the 1995 DG ru ling, (v) the 2000 DG Ruling and (vi) expert
statements about the meaning of the phrase "less ex empted if any" in line 3 of Form Por.Por.30. 309
The Philippines suggests that the Panel slightly modify the current text of the relevant sections in this
regard to clarify that it considered all the evidence before it.310
6.131 Thailand submits that the Panel failed to cons ider the sample Por.Por.30 forms produced by
Thailand as Exhibit THA-89 and the instructions to fill Form Por.Por.30 provided as Exhibit THA-42.
The Panel, however, concluded, based on its examination of all the relevant evidence, that they do not
clearly establish that the amount corresponding to the retail sale of domestic cigarettes must be
reported in line 3 of the form.
6.132 Specifically, regarding the instructions to fill out Form Por.Por.30, based on the text of the
instructions and having considered the parties' argu ments, we could not find any clear indication that
the sale of domestic cigarettes falls within the scope of the category of sales that must be reported in
and a convenience store selling domestic cigarettes as well as other goods did not clarify whether
VAT-exempt sales reported in line 3 specifically correspond to the sale of domestic cigarettes.
6.133 In light of the above considerations, the Panel h as decided to maintain its current analysis and
conclusions. We have nonetheless revised the relevant paragraphs to further clarify our reasoning in
this regard.

304 Thailand's comments on the Interim Panel Report, paras. 49 and 50.
305 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 124.
306 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 133.
307 Exhibit PHL-94.
308 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 128, referring to
Exhibit PHL-283.
309 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 130.
310 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 132 and 135.

(c) The Panel's analysis of certain evidence submitted by Thailand for the purpose of
paragraphs 7.694-7.698 of the Interim Panel Report.
6.134 Thailand argues that the Panel's analysis of some evidence regarding the alleged change in
reporting practice does not fully or accurately reflec t the content of that ev idence. Specifically, the
Panel misinterpreted the evidence related to the 2000 DG Revenue ruling submitted by the
Philippines311, and failed to substantiate its rejection of arguments based on an excerpt from a
Textbook submitted by Thailand.312
6.135 First, Thailand considers that the Panel fa iled to adequately discuss the 2000 DG Revenue
ruling submitted by the Philippines as Exhibit PHL-253 because a careful analysis of this evidence
does not support the Philippines' explanations. 313 Thailand submits that the 2000 DG Revenue ruling
presented two questions: (i) whether income from legal advocacy services was exempt from VAT
under Section 81(1)(i) of the Revenue Code, and (ii) whether "in submitting and paying VAT the
company does not have to include the income fro m advocacy or defending the case in courts for
calculation in order to pay for value added tax". 314 These questions only relate to whether income
from legal services was exempt from the VAT and, therefore, not included in the calculation of the
VAT. Contrary to the Philippines' expert's statem ent therefore, these questions do not refer to what
must be reported in lines 1 and 3 of form Por.Por.30 and the ruling does not make any direct reference
to that issue.
6.136 Thailand also notes that the calculation of VAT, to which the 2000 ruling actually relates,
does not change depending on whether exempt sales are reported in lines 1 and 3 of Form Por.Por.30.
This is because, as the Panel's summary of form Por.Por.30 at paragraph 7.693 of the Interim Panel
Report makes clear, the taxable sales amount is the amount reported in line 4 of sales net of exempted
sales and sales at the 0% rate. This amount will be the same regardless of whether exempt sales are
reported in lines 1 and 3.
315
6.137 The Panel therefore mistakenly concluded that this evidence supported the view that the sale
of VAT exempt cigarettes need not be reported in li ne 3 of form Por.Por.30. In particular, the Panel
based its conclusion that "DG Revenue, how ever, subsequently changed the rule ..." 316 regarding the
recording of VAT exempt sales from its past practise as evidenced by the 1995 ruling 317 on both the
2000 ruling and the statement of the Philippines’ expe rt that the banks have "never been required" to
include income from activities that are not subj ect to VAT such as th e income "from non-VAT
banking services" in their VAT reporting. Given that the 2000 ruling makes no direct reference to
form Por.Por.30, and that, in contrast, the 199 5 ruling on which Thailand relied expressly addressed
the issue of what must be reported on lines 1 and 3 of form Por.Por.30 and expressly stated that "the
company is required to include income arising fro m the transport of goods, which is a VAT-exempted
activity, in the gross sales to be shown in item 1 of form Por.Por.30 and this income is to be listed as
318, Thailand requests the Panel to reconsider its
conclusion that the amounts for the sales of VAT exempt cigarettes do not have to be recorded in lines

311 Exhibit PHL-253.
312 Exhibit THA-95.
313 Thailand's comments on the Interim Panel Report, para. 51.
314 Exhibit PHL-253.
315 Thailand's comments on the Interim Panel Report, para. 53.
316 Interim Panel Report, para. 7.696.
317 Exhibit THA-96.
318 Thailand's comments on the Interim Panel Report, para. 55.
319 Thailand's comments on the Interim Panel Report, para. 57.

6.138 Further, Thailand argues that both the Panel and the Philippines’ expert appear to be
confusing two types of income in their combined readings of Section 77/2 and 79 of the Revenue
Code and the 2000 ruling discussed above. The first type is income that is not within the scope of the
Thai VAT system because it is subject to another Thai tax, the Specific Business Tax, rather than
VAT. This income is not subject to any kind of VAT reporting and, therefore, has never been required
to be reported on form Por.Por.30. This is clear from Section 77/3 of the Revenue Code.
320 I n
contrast, income that is within the scope of the VAT system, including sales of cigarettes pursuant to
Section 77/2 of the Revenue Code , is required to be reported on the appropriate line of form
Por.Por.30. Contrary to the Panel’s discussion and the Philippines' expert's statement, as explained
above, nothing in the 2000 ruling changed this. Mo reover, the Panel and the Philippines’ expert are
incorrect to refer to "Section 79 income" as a categor y of income which would need to be reported in
form Por.Por.30, because Section 79 only deals with the tax b ase for VAT, not the VAT exempt
income.321
6.139 Accordingly, the Panel's statement in paragra ph 7.696 that (i) so-called "Section 79 income
must be reported" and (ii) this re presents a change in practice with respect to the reporting of income
that is within the scope of the VAT system but "exempt" on lines 1 and 3 of form Por.Por.30 is
incorrect in both respects. Thailand requests the pa nel to reconsider its conclusion that the amounts
for the sales of VAT-exempt cigarettes do not have to be recorded in line 1 and 3 of form
Por.Por.30.322
6.140 Second, Thailand states that, even though the Pa nel referred to the excerpt from the leading
textbook on the Thai Revenue Code, it did not ad equately discuss the content of this excerpt. 323 This
excerpt strongly supports Thailand's position as it mak es unequivocally clear that the "VAT registrant
must report all sales occurring in a tax month in Form Por.Por.30, consisting of gross sales or services
subject to the standard rate, sales and the zero rate, and sales exempted from VAT". 324 The Panel
chose not to rely on the excerpt arguing that, wh ile the textbook post-dated the 2000 Ruling submitted
by the Philippines, it did not mention the change of practice alleged by the Philippines' expert. The
Panel failed to provide any other objective assessme nt of why the textbook would be inaccurate. In
particular, the Panel failed to consider that the ch ange alleged by the Philippines may not have taken
place, which would of course be a good reason why it is not discussed in the concerned textbook.
6.141 The Philippines understands Thailand's comments to include two types of arguments: (i) old
and new arguments concerning the interpretation of evidence related to the 2000 DG Revenue ruling
and (ii) new arguments regarding the type of income to be reported in form Por.Por.30.
6.142 Concerning the 2000 DG Revenue Ruling, the Philippines first replies to old arguments which
it rebutted earlier in the proceedings.325 Thailand refers back to its arguments provided in its response
to Panel question No. 142(2) that the 2000 DG Re venue Ruling does not directly address the issue
whether sales of exempted cigarettes must be reported in line 3 of form Por.Por.30. The Philippines
cites an excerpt from the ruling st ating that the "operator providing such [VAT-exempt service] does
not have to include the income received from such provision of service for calculation in order to pay
the value added tax".
326 The Philippines explains that the word "calculation" must be understood to
mean that the VAT-exempt amounts do not have to be reported under line 3 of form Por.Por.30
because (i) the DG ruling answered the question "whe ther or not it is correct that submitting and

320 Exhibit PHL-94.
321 Thailand's comments on the Interim Panel Report, para. 60.
322 Thailand's comments on the Interim Panel Report, para. 57.
323 Thailand's comments on the Interim Panel Report, para. 56.
324 Exhibit THA-95.
325 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 130.
326 Philippines comments on Thailand's response to Panel's question No. 142, paras. 277 and 288.

paying value added tax under form Por.Por.30 in respect of each tax month, the company does not
have to include the income from [the sale of the VAT exempt service in question] for calculation in
order to pay for value added tax", which shows that inclusion in the calculation and reporting in line 3
form sets forth the registrant's calculation for payment of the monthly VAT.327
6.143 The Philippines is of the view therefore that the Panel should reject Thailand's objection to the
Panel's assessment that the 2000 DG Revenue ruling shows that the sale of products exempted from
VAT do not have to be recorded in line 3 of form Por.Por.30. The Philippi nes considers in addition
that the terms of the 2000 DG Revenue ruling are suff icient in themselves, without the clarifications
from the expert opinion in Exhibit PHL-254, to sup port the Panel's findings. However, the Philippines
would not object to the inclusion of "further discu ssion of the text of this ruling" as requested by
Thailand.328
6.144 The Philippines also addresses Thailand's new argument in relation to the 2000 DG Revenue
ruling that, irrespective of whether the exempt sales are reported in form Por.Por.30, "the taxable sales
amount ... will be the same". 329 Through this argument Thailand seems to suggest that the more
onerous administrative requirement of reporting th e sale of domestic cigarette would be acceptable
because it does not affect the tax base. Thailand how ever confuses the obligations under Article III:4
and Article III:2.
6.145 Finally, the Philippines answers Thailand's new argument that the Panel and the Philippines
confuse two types of income: income from non-VAT (i.e. banking services exempted from VAT)
banking services and income from the sale of domestic cigarettes. Thailand seems to make a
particular reference to the Panel's finding that "VAT registrants need not include income from
VAT-exempt sales under Section 81, but must include income from VAT-liable sales that is exempt
from the tax base under Section 79 in line 3 of form Por.Por.30".330 The Philippines argues that, in any
case, income from "non-VAT banking services" and income from the resale of domestic cigarettes are
both exempt from VAT, and, for that reason, need not be reported in lines 1 and 3 of form Por.Por.30.
The Philippines contends that the fact that income from "non-VAT banking services" is subject to a
specific business tax does not alter the fact that this is VAT-exempt income ,
331 and, thus, it needs not
6.146 Regarding Thailand's request that the Panel's analysis and conclusion in paragraphs 7.694-
7.698 of the Interim Panel Report be modified because, in its view, the Panel has failed to adequately
examine both the evidence related to the 2000 DG Revenue ruling submitted by the Philippines and
the excerpt from a textbook on the Revenue Code submitted by Thailand, the Panel first notes that the
evidence and explanations before it suggest that not all sales exempted from VAT should be reported
on form Por.Por.30.
6.147 In the Interim Report, we found that a 2000 DG Revenue ruling suggests that certain
VAT-exempt amounts do not have to be "included for calculation in order to pay the value added tax"
so that they do not have to be reported on Form Por.Por.30.

327 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 140.
328 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 143.
329 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 144, referring to
Thailand's comments on the Interim Panel Report, para. 53.
330 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 147.
331 Exhibit PHL-94: Thai Revenue Code, Chapter IV, Division 1, Section 77/3.
332 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 148.

6.148 We note Thailand's argument that the 2000 DG Revenue ruling that VAT exempt amounts
should not be included in the calculation only means that they should not be counted towards line 4 of
the form, but must otherwise be reported in lines 1 and 3. Form Por.Por.30 includes line 1 ("sales
amounts this month") and line 3 ("exempted sales"). Logically, an amount that would be included in
line 1 in order to calculate VAT will be subject to th e subtraction of an amount included in line 3. In
other words, when an amount is added and then s ubtracted for the purpose of a VAT calculation, it
has been included in the mathematical calculation of the VAT liability. A contrario, if an amount
need not be included for calculation in principle, it is neither added nor subtracted for the purpose of
the calculation process. Thus, we understand that in requiring that transactions exempted from VAT
by virtue of Section 81(1)(i) of the Revenue Code be excluded from the calculation of the VAT
payable, DG Revenue indicated that the amounts corresponding to those transaction need not be
added in line 1, which consequently eliminates the need for it to be incl uded in line 3 of form
Por.Por.30. We therefore understand the 2000 DG Reve nue ruling to mean that the sale of domestic
cigarettes, which is exempted from VAT under Section 81(1)(v) of the Revenue Code
333, need not be
reported either in line 1 or in line 3 of Form Por.Por.30.
6.149 Thailand further argues that the Panel 334 and the Philippines 335 confuse two different types of
income (i.e. income exempted by virtue of Article 81 and income exempted by virtue of Article 77/3)
and are both incorrect in considering that income exempted from VAT under Section 79 of the Thai
Revenue Code should be reported in Form Por. Por.30. Specifically, Thailand points out that
"Section 79 income" is a category of income that n eed not be reported in Form Por.Por.30, because
Section 79 only deals with the tax base for VAT, not the VAT exempt income.
6.150 Based on our understanding of the 2000 DG Re venue ruling as discussed above, however, we
are not persuaded by Thailand's position that operations exempted from VAT under Section 77/3 need
not be reported on form Por.Por.30 while operati ons exempted from VAT under Section 81 must be
reported. Furthermore, we are of the view, that even if Thailand's arguments were to be accepted,
they relate to the identification of other cate gories of VAT-exempted products the sales for which
need not be reported on form Por.Por.30. In other wo rds, whether this other type of income must be
reported or not does not answer the question whether the income from the sales of domestic cigarettes,
which is exempted from VAT by virtue of Article 81(1)(v) of the Revenue Code, has to be reported in
Form Por.Por.30. For the same reason, we do not consider that Thailand's arguments relating to
Section 77/3 of the Thai Revenue Code are relevant to the question before us. 336
6.151 Regarding Thailand' comments that the Panel in correctly refers to "Section 79" income, the
main point by the Panel's analysis in paragraph 7.696 is that its reading of an expert opinion submitted
by the Philippines supported the understanding of the 2000 DG Revenue ruling as changing its past
practice of requiring VAT-exempt income under Secti on 81 of the Revenue Code to be reported in
Form Por.Por.30.337 Although we did refer to the expert's vi ew that this change in practice also had

333 Philippines' first written submission, para. 534, referring to Exhibit PHL-95.
334 Interim Panel Report, para. 7.696.
335 Philippines' comments on Thailand's answer to Panel question No. 142.
336 Thailand's comments on the Interim Panel Report, paras. 57 and 58. An expert opinion presented by
the Philippines (Exhibit PHL-254) explains that income from non-VAT banking services does not have to be
reported in form Por.Por.30, even when the operator al so carries banking activities subject to VAT. The expert
then establishes an analogy between non-VAT banking services and the sale of domestic cigarettes, and
concludes that the amounts corresponding to the sale of domestic cigarettes never have to be reported on Form
Por.Por.30, even when the operator also carries busi ness subject to VAT. Thailand replies that this reasoning
must fail because non-VAT banking services are exempt from VAT reporting requirements by virtue of
Section 77/3 of the code, not Section 81.
337 Philippines' comments on Thailand's answer to Panel question No. 142; Expert Statements by Mr.
Piphob Veraphong, Exhibits PHL-207, PHL-254, and PHL-289, stating that "income from VAT-liable sales that
is exempt from the tax base under Section 79 must be reported [in form Por.Por.30]".

the implication of requiring that any income exem pt from the tax base under Section 79 be reported
[in Form Por.Por.30], we consider that issues relating to the existence or non-existence of a
"Section 79" category of income are irrelevant to the question whether the sales of domestic cigarettes
need to be reported in Form Por.Por.30. As the Philippines submits, our reading of the 2000 DG
Revenue ruling as submitted by the Philippines suffici ently shows that income exempted by virtue of
Section 81 need not be calculated for the purpose of deriving at VAT liability and thus consequently
6.152 Finally, Thailand takes the position that the Panel failed to provide an objective assessment of
the excerpt from a textbook submitted by Thailand as Exhibit THA-95. This excerpt describes the
obligation to file Form Por.Por.30 as one to "r eport all sales occurring in a tax month" and then
"subtracting [...] sales exempted from VAT." It also explains that "sales which are not within the
scope of VAT" (for example, the sale of goods or th e provision of services outside Thailand) need not
be reported on the Form Por.Por.30. We consider sufficient our examination of Thailand's arguments
in this regard in paragraphs 7.694 to 7.698, and footnote 1038 of the Interim Panel Report.
6.153 For the foregoing reasons, we decline to accept Thailand's request. We have, however, made
modifications to relevant paragraphs to clarify the basis for our conclusion in this regard.
(d) The Panel's weighing of the evidence relating to the interpretation of Thailand's domestic law
in reaching the conclusion in paragraph 7.698.
6.154 Thailand claims that the Panel incorrectly wei ghed the evidence before it concerning the
requirements to file form Por.Por.30. Thailand poi nts to the Panel's statement in paragraph 7.901 of
the Interim Panel Report relating to an Article X:3(a) claim, to the effect that " in the absence of
convincing evidence to prove that the said Act also applies to a public company such as TTM, we do
not have the authority to interpret a Member governm ent's law in a manner contrary to Thailand's
explanation of its own law " (emphasis added). Given this sta ndard, Thailand requests the Panel to
clarify how, in the context of the Philippines' clai m regarding the requirements to fill Por.Por.30, the
expert's testimony provided by the Philippines as Exhibit PHL-283, which is unsupported by any
other evidence, constitutes "convincing evidence" that would confer on the Panel authority to interpret
the Por.Por.30 reporting requirements in a manner contrary to Thailand's explanation of its own law in
this instance.338
6.155 The Philippines relies on the Appellate Body US – Carbon Steel decision to argue that the
meaning of municipal law has to be determined by panels as a question of fact, taking into account not
only the assertions of the regulating country, but also, necessarily, evidence provided as grounds for
those assertions (typically including judicial rulings, opinions of legal experts, writings of recognized
scholars). In other words, the assertions of the regulating country do not enjoy a presumption of
correctness unless they are supported by convincing evidence.
339 The Philippines contends that panels
therefore have a margin of discretion in assessing th e evidence before them, which the Panel correctly
6.156 The Philippines therefore considers that the Pa nel's statement in paragraph 7.901 of the
Interim Panel Report may not be fully in keeping with the requirements of Article 11 of the DSU, as
clarified by the Appellate Body statement in US – Carbon Steel . Also, the Philippines argues that
there is no reason of principle under Article 11 of the DSU why a Panel should necessarily prefer the
meaning of municipal law advanced by the regulati ng country to the meaning advanced by an expert

338 Thailand's comments on the Interim Panel Report, para. 62.
339 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 117.

in municipal law. Furthermore, an expert's statemen t prepared on a specific legal question is before a
panel may also be preferred by a panel to general statements made in a textbook.
340
6.157 The Panel recalls that the Appellate Body has clarif ied the appropriate approach that panels
must adopt in their analysis of municipal law. The cases cited in paragraph 7.681 of the Interim Panel
Report and the Appellate Body statements in US – Carbon Steel confirm that, while deference may
be given to a Member's interpretation of its own la ws, this interpretation mu st be substantiated by
adequate evidence. As the Appellate Body stated in US – Carbon Steel , "the nature and extent of the
evidence required to satisfy the burden of proof will vary from case to case".341 The Appellate Body in
that case also acknowledged the relevance of expe rt opinions as supporting evidence to clarify the
meaning of municipal law. 342 We have accordingly modified our statement in paragraph 7.901 to
clarify this interpretative principle as clarified by the Appellate Body. We ha ve also made additional
statements following paragraph 7.697 of the Interim Pa nel Report to clarify that we have fully and
appropriately weighed the evidence before us.343
2. Record-keeping requirements – paragraphs 7.702-7.715 of the Interim Panel Report
6.158 Thailand argues that the Panel has mistakenly es tablished a link between the income tax
exemption for individuals reselling domestic cigarettes and VAT-related record keeping requirements.
In paragraph 7.702 of the Interim Panel Report, the Panel refers to the Philippines' argument that an
individual that resells domestic cigarettes is exempt from personal income tax by virtue of
Article 2(19) of Ministerial Regulation No. 126, Section 17(1) of the Revenue Code and Director
General's Notification No. 161 on income tax. As a consequence, the Panel concludes that they need
not prepare and maintain revenue and expense reports while resell ers of imported cigarettes on the
other hand must prepare input/output tax reports and goods/raw material reports because of VAT
liability. However, as the Panel noted in paragraph 7.703 of the In terim Panel Report, there is no
evidence to show "the link between the income tax legislation and the VAT measures at issue". As
such, the Philippines failed to provide prima facie ev idence of this link. Thailand argues that there
was nothing for it to rebut.344
6.159 In any event, Thailand considers that, contrary to what the Panel stated in paragraph 7.703 of
the Interim Panel Report, it has adduced sufficient evidence to rebut the Philippines' expert opinion
allegedly showing that additional reports have to be prepared by resellers of imported cigarettes. 345
Thailand explained that resellers of domestic ciga rettes must maintain revenue and expense reports
under Section 17(1) of the Revenue Code 346, provided a copy of a reselle r's output tax report showing
that sales of cigarettes were reported 347, and explained that corporate resellers of domestic cigarettes
are required to maintain sales accounting record s under the Accounting Act (BE 2543). Thailand
notes that the Panel has failed to discuss those sal es records in the context of the obligation to
maintain revenue and expense records. Thailand sees no evidence to support the conclusion drawn by
the Panel that VAT registrants do not have to maintain revenue and expense reports.
6.160 In addition, Thailand requests the Panel to make two clarifications. First, Thailand requests
the Panel to make clear that the reason why resellers of domestic cigarettes are exempt from income
tax is because TTM is responsible for income ta xes incurred with respect to resales of domestic

340 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 116-119.
341 Appellate Body Report, US – Carbon Steel, para. 157.
342 Appellate Body Report, US – Carbon Steel, para. 157.
343 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 110.
344 Thailand's comments on the Interim Panel Report, para. 65.
345 Thailand's comments on the Interim Panel Report, para. 67.
346 Thailand's comments on the Interim Panel Report, para. 67, referring to Thailand's first written
submission, para. 252.
347 Thailand's comments on the Interim Panel Report, para. 67, referring to Exhibit THA-30.

cigarettes. Specifically, Thailand suggests that th e Panel modify paragraphs 7.703-7.705 of the
Interim Panel Report accordingly. 348 Second, Thailand considers that the Panel's conclusions in
paragraphs 7.702-7.715 regarding the record-keepi ng requirements for VAT fail to properly explain
that many of the reporting requirements apply to all VAT registrants and that only resellers of
exclusively domestic cigarettes that were not VAT re gistrants would not be subject to these
requirements.349
6.161 The Philippines recalls that Thailand, not the Philippines, tried to establish a link between the
income tax legislation and VAT measures at issue. 350 Since Thailand adduced this argument first in
support of its position, the Philippines considers that it did not bear the burden of showing the link
between the income tax legislation and the VAT me asures at issue. Thus, the Philippines requests the
Panel to revise paragraph 7.703 of the Interim Pa nel Report accordingly. In addition, and in any
event, the Philippines submits that it has sufficiently substantiated the only important link between the
income tax legislation and the VAT measures at issue: resellers of domestic cigarettes are exempt
from both, and are spared the corollary record keep ing efforts, while resellers of imported cigarettes
are subject to both, and must therefore comply with the related administrative requirements.
351
6.162 Moreover, the Philippines contends that the argum ents put forward by Thailand to show that
it has adduced sufficient evidence to rebut the Philippines' expert testimony have no relevance
because, as Thailand accepts
352, the Philippines has established that resellers of domestic cigarettes are
not liable to income tax. In any event, the Ph ilippines had stressed in its comments of 8 December
2009 that the issue was that only resellers of domestic cigarettes were exempt from VAT-related
administrative requirements, a " discrimination [which] cannot be cured or offset by the respective
regulatory treatment afforded to the two categories of goods in other areas."353
6.163 Regarding Thailand's comments that the Panel h as mistakenly established a link between the
income tax exemption for individuals reselling dom estic cigarettes and VAT-related record keeping
requirements, the Panel first notes the Appellate Body's clarification that a party who asserts a fact
bears the burden of showing its existence. 354 In the course of the proceedings, Thailand first argued
that, as resellers of domestic cigarettes are subject to income tax, they are subject to administrative
requirements that are similar to those imposed on resellers of imported cigarettes. 355 In response, the
Philippines subsequently relied on an expert opinion to establish that individual resellers of domestic
cigarettes are exempt not only from VAT, but also from income tax and hence any administrative
requirements linked to income tax. As provided in paragraph 7.702 of the Interim Panel Report,
based on our consideration of the relevant parti es' arguments and evidence in this regard, we

348 Thailand's comments on the Interim Panel Report, para. 66.
349 Thailand's comments on the Interim Panel Report, para. 69.
350 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 152, referring to
Thailand's second written submission, para. 175 where Th ailand argued that resellers of domestic cigarettes
were required to file income tax revenue and expense reports that are "virtually identical" to the input/output tax
reports that need be filed in connection with resales of imported cigarettes.
351 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 153.
352 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 156, referring to
Thailand's comments on the Interim Panel Report, para.66.
353 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 156, referring to
Philippines' comment of 8 December 2009, para. 297, third bullet point.
354 Appellate Body Report, US — Wool Shirts and Blouses , para. 335: "[V]arious international
tribunals, including the International Court of Justice, have gene rally and consistently accepted and applied the
rule that the party who asserts a fact, whether the claimant or the respondent, is responsible for providing proof
thereof."
355 Thailand's second written submission, para. 175. It is also Thailand that pointed to the fact that
being subject to income tax triggered the obligation to fill the revenue and expense reports (Thailand's first
written submission, para. 252).

concluded that resellers of exclusively domestic cigarettes are exempt from income tax. Nonetheless,
even if we were to accept that resellers of domestic cigarettes are subject to income tax, we are not
presented with any evidence establishing that the administrative requirements attached to the
obligation to pay income tax can be equated to the administrative requirements relating to goods and
raw material reports and VAT-related reports. The Pa nel has modified its analysis in paragraph 7.703
of the Interim Panel Report to clarify this point.
6.164 Thailand also argues, in any event, that it h as produced sufficient evidence and explanations
to rebut the Philippines' expert opinion which affirmed (i) that resellers of domestic cigarettes are not
subject to income tax and (ii) that the resellers of imported cigarettes therefore bear an additional
administrative burden linked to their VAT liability. Th ailand first contends that resellers of domestic
cigarettes must maintain revenue and expense re ports under Section 17(1) of the Revenue Code.
356 As
indicated in paragraph 7.708, we considered th at the Philippines rebutted Thailand's argument by
putting forward an expert opinion as provided in Exhibit PHL-254: "I ... can confirm that an
individual who resells domestic cigarettes is ex empt from personal income tax by virtue of
Article 2(19) of the Ministerial Regulation No.126, [as this] is not assessable income".357
6.165 We also note Thailand's argument that it has provided a copy of an output tax report in
Exhibit THA-30 which shows that resellers of domes tic cigarettes also have to complete output tax
reports. We note, however, that this evidence in cludes three columns: "cigarettes, other products,
VAT exempt product". From the fact that a figure is shown in the "cigarettes" column of this report,
we can assume that this output tax report comes from a business reselling at least some imported
cigarettes because any figure corresponding to the sal e of domestic cigarettes would logically appear
in the "VAT exempt product" category. Thus, in our view, this evidence does not establish that
resellers of exclusively domestic cigarettes face the same administrative burden as resellers of
imported cigarettes only or resellers of both domestic and importe d cigarettes. We have made an
additional statement in paragraph 7.709 to address our consideration of this evidence as put forward
by Thailand.
6.166 Finally, Thailand contends that corporate re sellers of domestic ciga rettes are required to
maintain sales accounting records under the Accounting Act (BE 2543).
358 We note that the
Philippines does not contest that corporate resellers must maintain those accounts. 359 Nevertheless, the
Panel is unable to compare the accounts to be maintained under the Accounting Act with the
VAT-related administrative requirements imposed on resellers of imported cigarettes because no
evidence has been produced to inform the content of the accounts to be maintained. We only know
from Exhibit PHL-182 that the content of the acc ounts to be maintained under the Accounting Act
differs from that of the input/output reports and the goods and raw materials reports that resellers of
imported cigarettes must fill out. We are therefore not in a position to accept Thailand's position that
the administrative burden linked to the VAT-related record keeping requirements can be equated to
that related to the sales accounting records. We ha ve added a sentence in paragraph 7.709 to reflect
our view in this regard.
6.167 Overall, we are not convinced by the evidence pr oduced by Thailand to show that resellers of
exclusively domestic cigarettes bear an administrative burden that is similar to the one for resellers of
imported cigarettes. We have added a concluding statement to this effect in paragraph 7.715.

356 Thailand's first written submission, para. 251.
357 Exhibit PHL-254, para. 11.
358 We note that the Philippines did not dispute that resellers of domestic cigarettes may have a
corporate status. In its second written submission, at fo otnote 467 under para.494, the Philippines stated: "Even
if resellers of domestic cigarettes cannot use some or a ll of their utilities-related VAT as an input tax, they may
nevertheless claim this VAT as a deductible expense for corporate income tax purposes".
359 Exhibit PHL-182, table under para. 15.2, p. 9.

E. ARTICLE X:3(B) OF THE GATT 1994: CUSTOMS VALUATION DETERMINATIONS – THAILAND'S
COMMENTS
1. Factual aspects
6.168 Thailand requests that the Panel delete the italics, the underlining and the prefix "THA" in
the table under paragraph 7.946 of the Interim Panel Report. Thailand explains that the use of italics
and the prefix "THA" to emphasize the facts alleged by Thailand is not adequate because those facts
are non-controversial, and no similar emphasis is used in relation to the facts alleged by the
Philippines. Concerning the underlining, it is not clear to Thailand why the Panel has used them.360
6.169 The Philippines finds it useful to italicize and use the prefix "THA" in front of facts alleged
by Thailand. It is not clear to the Philippines why the Panel underlined some dates. The Philippines
suggests that the Panel include a key or narrative to explain the different features of the chart.361
6.170 The Panel agrees with Thailand that the absence of italics, underlining and prefix would
make the chart under paragraph 7.946 of the Inte rim Panel Report clearer, and has modified it
accordingly.
2. Legal aspects
6.171 Thailand requests the Panel to review its conclusion that the Thai system for the purpose of
reviewing customs value determinations runs foul of Article X:3(b) of the GATT 1994.
6.172 First, Thailand notes that the Panel established that a violation of Article X:3(b) requires "the
process that a Member maintains for review of ad ministrative actions relating to customs matters,
when viewed in its entirety, presents a systemic fl aw that prevents such actions from being reviewed
by an independent tribunal without delay". 362 Thailand is of the view that the Philippines has not
produced sufficient evidence to show such a sy stemic flaw. In particular, the Philippines only
established that [[xx.xxx.xx]] appeals lodged by a single importer (PM Thailand) and presenting
similar legal issues have been delayed. In th e meantime, however, [[xx.xxx.xx]] of the [[xx.xxx.xx]]
appeals lodged by this importer between 2000 and 2002 had been completed in a prompt manner. 363
Thailand requests the Panel to clarify how in thos e circumstances the BoA appeals process can be
considered as presenting "in its entirety, ... a systemic flaw that prevent actions from" prompt review
by the Tax Court.364
6.173 Specifically, Thailand requests the Panel to clarify the meaning of its statement in
paragraph 7.1009 that "the interposing process lead ing to the review by the Thai Tax Court has the
capacity to impede a prompt review by an independent tribunal of administrative actions".365 Thailand
argues that every administrative proceeding indeed has the capacity to delay individual cases. Hence,
the Panel's statement could be read to mean th at the mere existence of administrative review
proceedings constitutes a "systemic flaw that pr events actions from review." Thailand therefore
requests the Panel to clarify (i) that it does not s uggest that the mere existence of administrative
reviews as intermediate steps before judicial review violates Article X:3(b) and (ii) whether it is the

360 Thailand's comments on the Interim Panel Report, paras. 71-73.
361 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 167.
362 Interim Panel Report, para. 7.1005.
363 Thailand's second written submission, para. 219; Exhibit THA-97.
364 Thailand's comments on the Interim Panel Report, para. 77, citing Interim Panel Report,
para. 7.1005.
365 Thailand's comments on the Interim Panel Report, para. 78.

mere capacity for delays, or rather actual delays, that give rise to a "systemic flaw" in the Thai
system.
366
6.174 The Philippines does not object to further clarifications on paragraph 7.1005. The Philippines
contends that in assessing a systemic failure to pr ovide for prompt appeals within the meaning of
Article X:3(b), the Panel must take into account both the nature and the extent of the delays. Here, the
evidence at issue does not involve isolated appeals but several hundreds, the delays are considerable
as they sometimes reach 7 years, and they are due to a series of actions by the BoA, which proved
dilatory both in seeking information, and in hold ing meetings with PM Thailand. The Philippines
considers that such delays would not have been possible in a system of review that would be
consistent with Article X:3(b) of the GATT 1994.367
6.175 Concerning paragraph 7.1009, the Philippines does not share Thailand's reading of the Interim
Panel Report, and rather understands that unchecked delays in interposing steps, not the mere
existence of administrative review procedures as interposing steps, constitute a breach of
Article X:3(b) of the GATT 1994.
6.176 First, the Panel does not consider that the mere existe nce of an intermediate administrative
review of the customs value decisions can violate X:3(b). The Panel recalls its statement in
paragraph 7.1009 of the Interim Panel Report that:
"Members may have a system under which an initial appeal of an administrative
action must be made to an authority with in the agency entrusted with enforcement
prior to an independent body. We do not therefore consider that the existence of
interposing steps prior to an independent review in itself is a systemic flaw that
prevents Thailand from maintaining procedures for the prompt review of
administrative actions under Article X:3(b)."
6.177 In our view, this statement clearly reflects our consideration that the existence of interposing
steps prior to an independent review in itself is not a systemic flaw that prevents Thailand from
maintaining procedures for the prompt review of administrative ac tions consistently with the
obligations under Article X:3(b).
6.178 Second, the Panel confirms its view that a viola tion of Article X:3(b) occurs when a systemic
flaw in the procedures and institutions established a nd/or maintained for the purpose of the review of
administrative decisions impede prompt review thereof. Under the factual circumstances of this case,
we considered that the number of appeals subject to the concerned delays ([[xx.xxx.xx]] appeals) and
the duration of such delays (to the maximum of 7 years) warranted the conclusion that the system
maintained by Thailand for the review as set forth in Article X:3(b) was flawed. Therefore, our
finding of a violation of Article X:3(b) in respect of Thailand's review process maintained for such
purpose lies in the fact that the extent of the de lays caused in the BoA a ppeal process was excessive
and significant enough to show a certain systemic flaw in that very review process. In other words,
the mere fact that the actual delays were found in the appeal process was not conducive to our
conclusion.
6.179 Thailand also contends that [[xx.xxx.xx]] a ppeals by the same importer have been duly
reviewed. However, this does not affect our c onclusion because the fact that those [[xx.xxx.xx]]
appeals were promptly reviewed cannot negate the fact that under the same system, excessive delays
have been caused in a significant number of other appeals.

366 Thailand's comments on the Interim Panel Report, para. 79.
367 Philippines' comments on Thailand's comments on the Interim Panel Report, paras. 162-164.

6.180 In the light of the foregoing considerations, we have modified para graphs 7.1005 and 7.1009
of the Interim Report to further clarify our reasoning as requested by Thailand.
F. OTHER REQUESTS FOR REVIEW
1. Paragraph 7.39 – Thailand's comments
6.181 Thailand requested the panel to correct paragraph 7.39 of the Interim Panel Report as it
summarizes the Philippines' arguments regarding the Panel's terms of reference with respect to
superseded or expired MRSP measures instead of those on the August 2006-September 2007 MRSP
Notices. The Philippines submits that the Panel should not acc ept Thailand's request to make this
change.
6.182 The Panel observes that paragraph 7.39 reflects th e submissions by the Philippines on the
August 2006-September 2007 MRSP Notices and therefore has not modified this paragraph.
2. [[xx.xxx.xx]] import entries as business confidential information – Thailand's comments
6.183 Thailand requested the Panel not to treat as business confidential the number of import
entries at issue, i.e. [[xx.xxx.xx]], as business confidential information. Thailand sees no ground for
treating the number of entries, already publicly disclosed in the Philippines' panel request, as
"financially or commercially sensitive information" that is "not otherwise available in the public
domain" within the meaning of paragraph 1 of the Panel's Additional Working Procedures Concerning
BCI. Thailand is also concerned that deleting the references to the [[xx.xxx.xx]] entries from the non-
BCI version of the final report may cause confus ion as to whether the Panel was ruling on the
measures actually identified in the Philippines' panel request.368
6.184 The Philippines considers that the specific number of entries that occurred during a defined
period of time is BCI, and it states that although the panel request lists the [[xx.xxx.xx]] entries, it
does not specify the precise number of entries that occurred in a defined period, because the request
does not exclude the possibility that other entries occurred in the period mentioned.369
6.185 The Panel considers that paragraph 1 of the Pa nel's Additional Working Procedures
Concerning BCI states: "BCI is defined as fina ncially or commercially sensitive information
submitted to the Panel in the course of these proceedi ngs that is (i) not otherwise available in the
public domain, and (ii) clearly designated as BCI by the Philippines or Thailand in their submissions
to the Panel". First, we note that in all its submissions the Philippines treated the [[xx.xxx.xx]] entries
as BCI. Second, we recognize that, as Thailand puts forward, this number of entries was disclosed in
the Philippines' Panel request. However, we note that in that request, the Ph ilippines referred to these
entries as being "included" into "individual determ inations made by Thai Customs for entries of
cigarettes exported from the Philippines ...", hence the Panel request does not make clear whether
these were all the entries made during the period at i ssue or whether more entries existed. Hence, the
Panel agrees with the Philippines that although the panel request listed the [[xx.xxx.xx]] entries, it did
not state that these were the only entries in a sp ecific period and therefore the information is not
available in the public domain. Regarding Thaila nd's fear that deleting the references to the
[[xx.xxx.xx]] entries from the non-BCI version of the final report may cause confusion as to whether
the Panel was ruling on the measures actually identified in the Philippines' panel request, we note that
in our report and in our findings we refer to the [[xx.xxx.xx]] entries at issue and that therefore, it is
clear that we are dealing with the entries listed in the Philippines' panel request and not to any other

368 Thailand's comments on the Interim Panel Report, para. 90-91.
369 Philippines' comments on Thailand's comments on the Interim Panel Report, para. 167.

entries. Consequently, the Panel decides to not make changes to its fi nal report and treat the
[[xx.xxx.xx]] entries as confidential.
3. Paragraph 7.436 – The Philippines comments
6.186 The Philippines argues that, in examining the TNS study provided by the Philippines as
Exhibit PHL-111a, the Panel has mixed the numbers th e switch in and switch out rates applicable to
Marlboro and L&M. The Philippines requests the Panel to modify paragraph 7.436 of the Interim
Panel Report to reflect the correct number applicab le to each brand respectively, and to add the
relevant reference to the page numbers of the study.
370 In the absence of any comment by Thailand,
the Panel has modified paragraph 7.436 of its Interim Panel Report accordingly.
4. Paragraph 7.467 – The Philippines comments
6.187 The Philippines contests the statement in paragraph 7.467 of the Interim Panel Report that
"the Philippines does not appear to take issue with the methodology to be applied to establish
MRSPs". The Philippines underlines that Thailand ha d not published a methodology to be applied, it
has only described an overall methodology, but as th e Philippines has shown, it departed from it to
determine MRSPs at issue in this dispute. As a result, the Philippines is unaware of the overall
methodology to be applied by Thailand. 371 The Philippines therefore requests the Panel to modify
paragraph 7.467 of its Interim Panel Report, and suggests some language in this regard. In the absence
of objection by Thailand, the Panel has modified paragraph 7.467 accordingly.
5. Typographical errors and clerical observations
6.188 The Philippines requested modifications to footnote 428 to paragraph 7.916,
paragraphs 7.444, 7.445 and 7.446 of the Interim Pane l Report, and made some clerical observations,
which it made in track changes to the Interim Panel Report.
6.189 Thailand did not object to any of these requests and observations, although it noted that some
of the Philippines' comments appear to involve stylistic changes instead of mere typos and it
requested the Panel not to work from the Philippines' track changed version.
6.190 Thailand also requested modifications to para graphs 7.51, 7.60, 7.61, 7.999, 8.3(a), and
heading VII.E of the Interim Panel Report and made some clerical observations.
6.191 The Panel has worked from the original version of the Interim Panel Report, not from the
Philippines' track changed version. Further, as noted above, the Panel has incorporated all other
comments by the parties on typographical errors in the Interim Panel Report and has modified the
Report to the extent it deemed necessary.
VII. FINDINGS
A. OVERVIEW OF THE MATTERS BEFORE THE PANEL
7.1 In this dispute, the Philippines advances clai ms against certain Thai customs and fiscal
measures affecting cigarettes imported from the Ph ilippines. The Philippines claims that these
measures violate Thailand's obligations under various provisions of the Customs Valuation
Agreement and Articles III:2, III:4 and X of the GATT 1994.

370 Philippines' comments on the Interim Panel Report, paras. 85-87.
371 Philippines' comments on the Interim Panel Report, paras. 88-93.

7.2 Under the Customs Valuation Agreement, th e Philippines submits that Thai Customs
improperly rejected the transaction values of the cigarette entries that were cleared between 11 August
2006 and 13 September 2007 in violation of Articles 1.1 and 1.2(a). The Philippines further claims
that Thai Customs applied the deductive valuation method inconsistently with the obligations under
Articles 5 and 7 in determining the customs value of the subject cigarettes. The Philippines also takes
the position that Thailand violated procedural obligations under both Article 10 not to disclose
confidential information and Article 16 to provide an explanation for the determination of the final
customs value.
7.3 The Philippines also challenges a number of measures imposed on imported cigarettes under
the Thai VAT regime. It argues that Thailand determines the tax base for VAT imposed imported
cigarettes in the manner in which imported cigarettes are subject to a VAT in excess of that imposed
on like domestic cigarettes in violation of the fi rst sentence of Article III:2 of the GATT 1994. The
Philippines further claims that imported cigarettes are also subject to the VAT liability in excess of
that applied to like domestic cigarettes in viola tion of the first sentence of Article III:2 through the
VAT exemption afforded only to domestic cigarett e resellers. The excessive tax liability imposed on
the imported cigarette resellers also allegedly en tail additional administrative requirements for those
selling imported cigarettes. This results in l ess favourable treatment for imported cigarettes in
violation of Article III:4.
7.4 Finally, the Philippines asserts that Thailand vi olates various obligations under Article X of
the GATT 1994 in connection with its customs and fiscal measures. The Philippines claims that
Thailand violates Article X:1 by failing to pub lish laws and regulations pertaining to the
determination of a VAT for cigarettes and the release of a guarantee imposed in the customs valuation
process. The Philippines also challenges the Thai government system under which certain
government officials simultaneously serve on the boa rd of TTM, a state-owned domestic cigarette
manufacturer, which, according to the Philippines, is inconsistent with the obligations under
Article X:3(a) to administer customs matters in a reasonable and impartial manner. It is also claimed
that Thailand violates Article X:3(a) through the alleged unreasonable delays caused in the BoA
review process for appeals against customs determin ations. Thai Excise's determinations of the tax
base for VAT as well as its use of a guarantee value in calculating the excise, health and television
taxes, the Philippines argues, are non-uniform, unreas onable and partial, and therefore in violation of
Article X:3(a). The Philippines further claims that Thailand failed to maintain an independent
tribunal or process for the prompt review of ad ministrative actions relating to customs matters,
particularly customs value decisions and guarantee d ecisions inconsistently with the obligations under
Article X:3(b).
B. P
RELIMINARY MATTERS
1. Terms of reference
(a) The Philippines' claim under Article X:3(a) of the GATT 1994 with respect to Thailand's
administration of the VAT system
(i) Main arguments of the parties
7.5 Thailand submits that the Philippines' claim that Th ailand fails to administer its VAT system
consistently with Article X:3(a) is outside the Pane l's terms of reference because it is not made in the
Philippines' panel request. 372 Thailand argues that the Philippi nes' claims under Articles X:3(a)
and X:3(b) of the GATT 1994 were set out in S ection II, paragraphs 3- 11 of its panel request 373, in

372 Thailand's first written submission, paras. 304-305.
373 See WT/DS371/3, 6 October 2008, paras. 3-11.

which the only reference to the Thai VAT system is made in paragraph 5. According to Thailand, this
section of the Philippines' panel request, however, refers to a measure different from the VAT system,
namely the allegedly improper "links" between TTM and other Thai government agencies.
374 In other
words, this claim has nothing to do with the qu estion of whether Thailand's establishment of the
MRSPs (VAT system) was consistent with Article X:3(a).
7.6 While the Philippines sets out its claims relating to Thailand's VAT system in Section V,
paragraphs 25-30 of the panel request, none of these paragraphs contains any reference to
Article X:3(a) of the GATT 1994. Thus, there is nothing in the Philippines' panel request to suggest
that it intended to make a claim under Article X: 3(a) regarding how Thailand calculated the MRSPs.
Thailand submits that the Philippines has not "p lainly connect[ed]" the absence of generally
applicable criteria and the use of guarantee values to calculate MRSPs with the obligations under
Article X:3(a) of the GATT 1994 in a manner that "presents the problem clearly". 375 Specifically, the
panel request does not contain any reference to clai ms that Thailand administers the VAT measures in
a non-uniform manner. 376 While Article X:3(a) sets out th ree distinct and legally independent
obligations – an obligation to admi nister laws and regulations in a uniform, impartial and reasonable
manner377, the Philippines' panel request fails to set ou t that Thailand has violated its obligation to
administer laws and regulations in a "non-uniform" manner. 378 From a reading of the Philippines'
panel request, Thailand could not have been expected to be aware that the Philippines would advance
these specific requests.
7.7 Thailand further submits that the factual basis for this claim consists entirely of the September
2006 and March 2007 MRSP Notices, which are not themselves within the Pa nel's terms of reference
because they are not listed in the Philippines' panel re quest and were not in effect as of the date of
establishment of the Panel.379
7.8 The Philippines asserts that its panel request compli es with Article 6.2 of the DSU as it
plainly connected the administration of the listed VAT measures with Article X:3(a), which is " an
identified provision of a particular agreement ".380 According to the Philippines, Article 6.2
establishes two requirements for a panel request: it must "identify the specific measures at issue"; and
"provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly".
The Philippines submits that Thailand does not argue that the Philippines has failed to "identify the
specific [VAT] measures". These measures are listed in paragraph 26 of the panel request, and cross-
referenced in paragraph 5.

374 Thailand's first written submission, para. 305.
375 Thailand's first written submission, para. 305; second written submission, para. 311. Thailand refers
to the Appellate Body's statement in US – Oil Country Tubular Goods Sunset Reviews:
"It follows, therefore, that in order for a panel request to 'present the problem clearly', it must
plainly connect the challenged measure(s) with the provision(s) of the covered agreements
claim to have been infringed, so that the respondent party is aw are of the basis of the alleged
nullification and impairment of the complaining party's benefits. Only by such connection
between the measure(s) and the relevant provision(s) can a respondent know what case it has
to answer, and … begin preparing its defence." (para. 162).
376 Thailand's second written submission, para. 312.
377 Thailand refers to the Panel Report, Dominican Republic – Import and Sale of Cigarettes ,
para. 7.383.
378 Thailand's second written submission, para. 312.
379 Thailand's first written submission, para. 306, referring to paras. 194-202 of the same submission.
380 Philippines' first oral statement, para. 232 (italics in original). The Philippines also refers to the
Appellate Body statement in US – Oil Country Tubular Goods Sunset Reviews that a panel request must plainly
connect the challenged measure(s) with the provisions(s) of the covered agreements claimed to have been
infringed.

7.9 The Philippines argues that Thailand conf uses the Philippines' Article X:3(a) claim against
the Thai VAT system with arguments substantiating that, and other, claims. 381 Therefore, according
to the Philippines, Thailand incorrect ly asserts that the Philippines' pa nel request fails to satisfy the
requirements under Article 6.2 because the panel re quest does not "suggest" that the Philippines
"intended to make a claim under Article X:3(a) regarding how Thailand calculated the MRSPs".382 In
the Philippines' view, such a statement is not re quired by Article 6.2 of the DSU as it is an argument,
and not a measure or claim .383 Referring to a finding by the Appellate Body in EC – Selected
Customs Matters , the Philippines argues that Article 6.2 does not require an explanation to be
provided in a panel request concerning why the legal instruments listed in a panel request are
administered in a manner that is inconsistent with Article X:3(a).
(ii) Analysis by the Panel
7.10 In this Panel proceeding, the Philippines has advanced four claims under Article X:3(a),
including its claim that Thailand violates Article X:3(a) by administering the VAT system in a non-
uniform, unreasonable and partial manner. 384 Thailand claims that the Philippines' Article X:3(a)
claim with respect to Thailand's administration of the VAT system is outside the Panel's terms of
reference because it is inconsistent with the obli gations set forth in Article 6.2 of the DSU.
Specifically, Thailand argues that the Philippines fa iled to plainly connect the absence of generally
applicable criteria and the use of guarantee values to calculate MRSPs with the obligations under
Article X:3(a) of the GATT 1994 in a manner that "presents the problem clearly". 385 The Philippines
asserts that its panel request complies with Article 6.2 of the DSU as it plainly connected the
administration of the listed VAT measures with Article X:3(a), which is "an identified provision of a
particular agreement".
386
7.11 Article 7.1 of the DSU defines panels' terms of reference as follows:
"Panels shall have the following terms of reference unless the parties to the dispute
agree otherwise within 20 days from the establishment of the panel:
To examine, in the light of the relevant provisions in (name of the
covered agreement(s) cited by the parties to the dispute), the matter
referred to the DSB by (name of party) in document ... and to make
such findings as will assist the DSB in making the recommendations
or in giving the rulings provided for in that/those agreement(s)."
7.12 The document on the constitution of the panel estab lished at the request of the Philippines in
this case provides:

382 Philippines' first oral statement, paras. 230-231.
383 Philippines' first oral statement, para. 233, referring to Appellate Body Report, EC – Selected
Customs Matters, para. 153.
384 Philippines' first written submission, heading V.C.(iv); Philippines' first oral statement,
heading VII.D.2; Philippines' second written submission , heading V.F; Philippines' second oral statement,
heading V.F. Section V of the Philippines' first written submission covers its claims pertaining to the Customs
Valuation Agreement. The Philippines designates a separa te section (Section III) in its first written submission
for its claims under Article X of the GATT 1994 with respect to the dual role of Thai senior government
officials, undue delays in the BoA process, and Thailand's alleged failure to provide for an appeal against the
imposition of guarantees.

"At its meeting on 17 November 2008, the Dispute Settlement Body (DSB)
established a panel in accordance with Article 6 of the DSU (WT/DSB/M/259), with
standard terms of reference, to examin e the matter referred to the DSB by the
Philippines in document WT/DS371/3."
387
7.13 Therefore, the Panel in the present dispute has the standard terms of reference, which are
governed by the Philippines' request for the establishment of a panel. As Article 6.2 of the DSU is the
provision governing the standards for a panel request, we will first examine the text of Article 6.2.
7.14 Article 6.2 of the DSU provides:
"The request for the establishment of a pa nel shall be made in writing. It shall
indicate whether consultations were held, identify the specific measures at issue and
provide a brief summary of the legal basis of the complaint sufficient to present the
problem clearly. In case the applicant re quests the establishment of a panel with
other than standard terms of reference, th e written request shall include the proposed
text of special terms of reference."
7.15 In Korea – Dairy, the Appellate Body clarified that Article 6.2 contains four distinct elements
with respect to the panel request:
"The request must: (i) be in writing; (ii) indicate whether consultations were held;
(iii) identify the specific measu res at issue; and (iv) provide a brief summary of the
legal basis of the complaint sufficient to present the problem clearly."388
7.16 The Appellate Body further clarified that in the fourth requirement above, Article 6.2
demands only a summary – and it may be a brief one – of the legal basis of the complaint, but the
summary must, in any event, be one that is "sufficient to present the problem clearly". 389 In order for
a panel request to "present the problem clearly", the complainant must plainly connect the challenged
measure(s) with the provision(s) of the covered agreements claimed to have been infringed, so that the
respondent party is aware of the basis for the alle ged nullification or impair ment of the complaining
party's benefits.390
7.17 We will examine the Philippines' request for the establishment of a panel to determine
whether its claim under Article X:3(a) in respect of the administration of the Thai VAT system is
properly made in accordance with the standard u nder Article 6.2 of the DSU. The Philippines
identifies its claims pertaining to the Thai VAT system in Section V of its panel request as follows:
"V. CLAIMS PERTAINING TO THAILAND'S VALUE-ADDED TAX
("VAT") REGIME
26. The Philippines understands that Th ailand operates the VAT regime for
cigarettes through measures including:

27. The MRSPs for imported brands of ci garette, including those exported by the
Philippines, are set at significantly higher levels than the MRSPs for like and/or

387 WT/DS371/4 (circulated on 17 February 2009).
388 Appellate Body Report, Korea – Dairy, para. 120.
389 Appellate Body Report, Korea – Dairy, para. 120.
390 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews, para. 162.

directly competitive or substitutable domes tic brands. Moreover, the MRSPs for
imported cigarettes are set significantly above the actual retail selling price of those
cigarettes, whereas the MRSPs for domestic cigarettes are set at the level of the actual
retail selling price of those cigarettes. The higher MRSPs for imported products
result in a higher fiscal burden for these products than for like and/or directly
competitive or substitutable domestic products , and thereby afford protection to the
domestic products. Therefore, the Philippi nes considers that the VAT imposed on
imported products as a result of these measures is inconsistent with Article III:2, first
and second sentence, of the GATT 1994.
28. Thailand also has not published the regulations pertaining to the
determinations of the MRSPs, which constitutes the tax base for Thailand's
imposition of VAT on domestic and imported cigarettes. This failure is a violation of
Article X:1 of the GATT 1994. Moreover, Thailand has not published any rules
governing VAT refunds in the event of a revision of the MRSP or of an element
thereof, giving rise to another violation of Article X:1 of the GATT 1994. Finally,
Thailand's failure to grant refunds in these circumstances for overpaid amounts of
VAT is contrary to Article III:2 of the GATT 1994."
7.18 After setting out in paragraph 26 the Thai measures through which Thailand operates the Thai
VAT regime, the Philippines identifies, in paragr aphs 27 and 28 of the request, Article X:1 and
Article III:2 of the GATT 1994 as the legal provisions that it alleges Thailand violates with respect to
various aspects of the Thai VAT regime. Article X:3(a) is therefore not listed in Section V of its
panel request, the specific section in which Thailand identifies the relevant VAT measures.
7.19 The Philippines argues that it plainly connect ed the administration of the listed VAT
measures with Article X:3(a).
391 We recognize that the Philippines did identify the specific VAT
measures at issue in Section V of its panel requ est as noted above. In respect of the alleged
connection between these VAT measures and the provisi on of a particular agreement with which the
Philippines argues Thailand is acting inconsistently, Ar ticle X:3(a) in this instance, we understand the
Philippines to be referring to Article X:3(a) that is listed in Section II of the panel request.
7.20 Section II, as cited in paragraph 7.24 below, how ever indicates that the Philippines' claims
under Articles X:3(a) and X:3(b) therein concern, inter alia , the following three Thai government
actions: (i) the pervasive instituti onal and personal links between TTM and the Thai government; (ii)
undue delays in the BoA process, and (iii) Thailand's failure to provide for an appeal against the
imposition of guarantees. Therefore, the objects of the Philippines' challenges under Articles X:3(a)
and X:3(b) in Section II of the Philippines' request do not include the VAT measures as identified in
Section V of the Philippines' panel request.
7.21 In this regard, the Appellate Body in EC – Selected Customs Matters further clarified the two
distinct requirements under Article 6.2 of the DSU, namely identification of the specific measures at
issue and the provision of a brief summary of the legal basis of the complaint (or the claims).
According to the Appellate Body, the measure at issue is what is being challenged by the complaining
Member, whereas, in contrast, the legal basis of the complaint, namely, the 'claim', pertains to the
specific provision of the covered agreement that cont ains the obligation alleged to be violated. The
Appellate Body explains that a brief summary of the legal basis of the complaint required by
Article 6.2 of the DSU aims to explain succinctly how or why the measure at issue is considered by

the complaining Member to be violating the WTO ob ligation in question and that this brief summary
must be sufficient to present the problem clearly.
392
7.22 In paragraph 5 of Section II in particular, th e Philippines claims that the alleged pervasive
institutional and personal links between TTM and the Thai government 393 lead to conflicts of interest,
and partial and unreasonable administration of Thai fi scal and customs measures. It further states in
the same paragraph that "in particular, Thailand administers in a partial and unreasonable manner …
the value added tax ("VAT") measures in paragraph 26". Read together, the Thai government action
being challenged by the Philippines in paragraph 5 of Section II of the panel request is the alleged
institutional and personal links be tween TTM and the Thai government, which allegedly lead to a
partial and unreasonable administration of the VAT measures identified in paragraph 26. In our view,
this reference to the VAT measures is what qualifie s as a brief summary of the legal basis of the
Philippines' claim under Article X:3(a): the Philippines is explaining how the concerned link between
TTM and the Thai government, the object of its challenge, leads to a violation of Thailand's
obligations under Article X:3(a). On the other hand, the Thai VAT measures, as one of the objects of
the Philippines' challenges in this dispute, are identified in Section V of the panel request.
7.23 In this light, we do not consider that the Philippines explained succinctly how or why
Thailand must be considered to be violating Article X:3(a) through its VAT measures as identified in
a different section of the panel request. In other words, the problem relating to the VAT system or
Thailand's administration of such a system in the cont ext of Article X:3(a) is not clearly presented to
satisfy the requirements under Article 6.2 of the DSU.
7.24 This disconnection between the identification of what is being challenged (the Thai VAT
system) and how or why the Philippines considers such sp ecific measures to be violating
Article X:3(a) is all the more obvious when we compare the way the Philippines presented this claim
against the overall structure of the Philippines' panel request and the Philippines' other claim under
Article X:3(a) with respect to other internal taxes.
394 For instance, the Philippines divided its panel
request into five sections mainly according to the type of the Thai measures it challenges in this panel
proceeding.395 Apart from the introductory section, the only section deviating from this structure is
Section II in which the Philippines presents its general claims under Article X:3(a) as follows:

392 Appellate Body Report, EC – Selected Customs Matters, paras. 129-130.
393 We recall the Appellate Body's statement in EC – Selected Customs Matters that "a complainant is
entitled to include in its panel request an allegation of inconsistency with a covered agreement of any measure
that may be submitted to WTO dispute settlement". Also referring back to guidance provided in this regard by
the Appellate Body in US – Corrosion Resistant Steel Sunset Review that "in principle, any act or omission
attributable to a WTO Member can be a measure of that Member for purposes of dispute settlement
proceedings", the Appellate Body underlined that "as long as the specificity requirements of Article 6.2 are met,
we see no reason why a Member should be precluded from setting out in a panel request 'any act or omission'
attributable to another Member as the m easure at issue". (Appellate Body Report, EC – Selected Customs
Matters, para. 133, referring to Appellate Body Report, US – Corrosion Resistant Steel Sunset Review, para. 81).
394 The Appellate Body in EC – Selected Customs Matters confirmed its previous clarification that
"determining the scope of the claims that are set out in a panel request requires that the panel request be
construed as a whole". (Appellate Body Report, EC – Selected Customs Matters , para. 168, referring to the
Appellate Body Reports on US – FSC (Article 21.5 – EC II ), paras. 66-68; US – Carbon Steel, para. 127). The
Appellate Body therefore stated that it would be able to conclude that the panel request included a challenge to
the European Communities' system of customs administration as a whole or overall only if it was convinced that
the panel request, read as a whole, states this claim in a way that is "sufficient to present the problem clearly".
395 The Philippines' panel request (WT/DS371/3) is structured as follows: Section I (introduction);
Section II (claims under Articles X:3(a) and X:3(b) of the GATT 1994); Section III (claims pertaining to
customs valuation); Section IV (claims pertaining to the excise tax, health tax and television tax regimes); and
Section V (claims pertaining to Thailand's value-added tax ("VAT") regime).

"II. CLAIMS UNDER ARTICLES X:3(A) AND X:3(B) OF THE GATT 1994

5. These pervasive institutional and pers onal links between TTM and the Thai
government lead to conflicts of interest , and partial and unreasonable administration
of Thai fiscal and customs measures. In particular, Thailand administers in a partial
and unreasonable manner:
• the customs valuation measures in paragraph 13;
• the excise tax measures in paragraph 19;
• the health tax measures in paragraph 20;
• the television tax measures in paragraph 21; and
• the value added tax ("VAT") measures in paragraph 26.
396

8. Furthermore, Thailand does not administer the customs valuation measures
and the VAT measures in a reasonable manner because of undue delays in its
administrative decision making. For inst ance, the Board of Appeals (BoA), an
administrative tribunal within the Ministry of Finance, which operates under
Section 112 sexies to Section 112 undevicies of the Customs Act, to which an appeal
against a customs valuation decision is in itially made, has a substantial backlog of
appeals filed by the importer dating as far b ack as March 2003. The excessive delays
violate Articles X:3(a) and also X:3(b), which requires WTO Members to maintain
tribunals for the purpose of the "prompt review and correction of administrative
action relating to customs matters.

10. Finally, Thailand does not provide for judicial or administrative review of the
customs authorities' decisions relating to the imposition and collection of guarantees,
pending the issuance of a notice of asse ssment, covering the customs duties and
excise, health and television taxes that may become payable. Given that Thailand has
taken 16 months to issue Notices of Assessment, and that guarantees are collected as
either bank guarantees or in cash for the full amount of duties potentially payable, it
is not reasonable administration under Article X:3(a) to deny recourse to judicial or
administrative review. Equally, this failure is contrary to the duty in Article X:3(b) to
provide for "prompt review" of administrative actions relating to customs matters."
7.25 In Section II of its panel request, therefore, the Philippines has clearly presented its other
Article X:3(a) claims that it pursues in this proceed ing by connecting them to the particular measures
at issue that are allegedly violating the obligations under the provision.
7.26 Moreover, unlike in the case of the VAT system as a measure, we observe that the Philippines
presented an Article X:3(a) claim with respect to th e Thai excise, health and television tax regimes in
section IV of the panel request. Specifically, in paragraph 23 of the panel request, the Philippines

states that "the failure of Thailand to provide for such procedures, as well as Thailand's failure to grant
refunds for amounts of these taxes that have b een overpaid, ... also constitutes partial and
unreasonable administration of the measures referred to in paragraph 19, 20, and 21, contrary to
Article X:3(a) of the GATT 1994". This illustrate s that when the Philippines intended to make a
specific claim concerning a certain measure, it did so with clarity under the relevant section of the
panel request. As for the Thai VAT measures, the Philippines did not clearly present the problem that
the VAT measures present in the light of the oblig ations under Article X:3(a). We do not consider
that on the basis of the Philippines' panel request , Thailand could have been made aware of the
Philippines' claim under Article X:3(a) with respect to the Thai VAT measures, specifically how or
why the Thai VAT measures identified in paragraph 26 must be considered to be violating
Article X:3(a).
397 Therefore, we find that the Philippines' claim under Article X:3(a) with respect to
the Thai VAT system is outside the Panel's terms of reference.
(b) The Philippines' claim under Article X:3(a) of the GATT 1994 with respect to Thailand's
administration of the excise, health and television taxes
(i) Main arguments of the parties
7.27 In its second written submission, Thailand claims that the Philippines fails to "plainly
connect" the utilization of unlawful tax bases to assess excise, television and health taxes with
Thailand's obligations under Article X:3(a) of the GATT 1994. 398 Thailand argues that these matters
are not even mentioned in the Philippines panel re quest. By omitting any reference to these matters,
the Philippines has failed to describe its claims in a manner that suffices to present the relevant
problems clearly. From a reading of the panel requ est, Thailand could not have been expected to be
aware that the Philippines would advance these specific claims.
7.28 Specifically, the panel request does not contai n any reference to claims that Thailand
administers the excise, television and health tax measures in a non-uniform manner. 399 While
Article X:3(a) sets out three distinct and legally i ndependent obligations – an obligation to administer
laws and regulations in a uniform, impartial and reasonable manner400, the Philippines' panel request
fails to set out that Thailand has violated its oblig ation to administer laws and regulations in a "non-
uniform" manner.401 On a reading of the panel request, Tha iland could not be able to discern that it
would have to respond to two cl aims regarding the "non-uniform" administration of the excise,
television and health taxes. Thailand asserts that in this case, the "mere listing" of Article X:3(a) does
not provide a description of the legal basis of th e Philippines' claims in a manner that suffices to

397 The Appellate Body stated that "the fundamental i ssue in assessing claims of prejudice is whether a
defending party was made aware of the claims presented by the complaining party, sufficient to allow it to
defend itself" (Appellate Body Report, Thailand – H-Beams , para. 95). The Appellate Body in that dispute
found:
"In assessing Thailand's claims of prejudice, we consider it relevant that, although Thailand
asked the Panel for a preliminary ruling on the sufficiency of Poland's panel request with
respect to Articles 5 and 6 of the Anti-Dumping Agreement at the time of filing of its first
written submission, it did not do so at that time with respect to Poland's claims under
Articles 2 and 3 of that Agreement. We must, therefore, conclude that Thailand did not feel at
that time that it required additional clarity with respect to these claims, particularly as we note
that Poland had further clarified its claims in its first written submission. This is a strong
indication to us that Thailand did not suffer any prejudice on account of any lack of clarity in
the panel request."
398 Thailand's second written submission, paras. 309-314.
399 Thailand's second written submission, para. 312.
400 Thailand refers to the Panel Report, Dominican Republic – Import and Sale of Cigarettes ,
para. 7.383.
401 Thailand's second written submission, para. 312.

"present the problem clearly" and for Thailand to understand the case it had to answer. Thailand
points out that in similar circumstances, prior WT O panels have ruled that the mere listing of a
provision containing multiple obligations is insufficien t to meet the requirements of Article 6.2 of the
DSU.402
(ii) Analysis by the Panel
7.29 For the reasons explained in paragraph 7.25 abov e, we are of the view that the Philippines
identified the specific measures relating to the Thai excise, health and television tax regimes and
plainly connected these measures to its claim under Article X:3(a) within the standard of Article 6.2
of the DSU.
7.30 Thailand further argues, however, that the Philippines' claim under Article X:3(a) with respect
to the Thai internal tax regime falls outside the Panel's terms of reference because, while
Article X:3(a) sets out three distinct and legally i ndependent obligations – an obligation to administer
laws and regulations in a uniform, impartial and reasonable manner – the Philippines' panel request
fails to set out that Thailand has violated its oblig ation to administer laws and regulations in a "non-
uniform" manner.
7.31 We recall the Appellate Body's statement in Korea – Dairy that the mere listing of an article,
in and of itself, may fail to satisfy the standard of clarity. Rather, the sufficiency of the Panel request
in terms of a particular claim must be considered on a case-by-case basis, taking into account whether
"the ability of the respondent was prejudiced" by the fact that only the Article was listed. 403 We are
not convinced, however, that the standard set by the Appellate Body with respect to a claim is equally
applicable to specific elements and/or obligations within an Article of a WTO covered agreement.
While the uniformity, impartiality and reasonableness are the three distinct and legally independent
obligations within Article X:3(a), in our view, each obligation does not constitute an independent
claim that needs to be identified in the panel request to satisfy the requirements of Article 6.2 of the
DSU. Although it would be desirable for the comp lainant to present as precise and clear a claim as
possible, we do not consider that its failure to sp ecify a particular obligation under Article X:3(a)
renders the panel request inconsistent with Article 6.2 of the DSU.404
(c) Thai Customs' valuation determinations for the cigarettes at issue that were cleared between
11 August 2006 and 13 September 2007
(i) Main arguments of the parties
7.32 Thailand claims that many of the Philippines' claims relate to expired measures and
completed acts. 405 Thailand is of the view that to the extent that the Philippines had concerns

402 Thailand's second written submission, para. 312, referring to the Panel Report, US – Countervailing
Measures on Certain EC Products (Article 21.5 – EC), para. 7.50.
403 Appellate Body Report, Korea – Dairy, paras. 124 and 127.
404 Previous panels that were presented with claims under Article X:3(a) appear to have taken a similar
approach. For example, the Panel in Dominican Republic – Import and Sale of Cigarettes analyzed the
framework of Article X:3(a) claim with regard to a ll three obligations, despite the omission of an explicit
reference to the uniformity and impartiality obligations (Panel Report, Dominican Republic – Import and Sale of
Cigarettes, paras. 7.375 and 7.383). In Argentina – Hides and Leather , the panel request listed Article X:3(a)
and referred to the uniformity and impartiality obliga tions. Nonetheless, the complainant and the Panel
proceeded to address all three obligations (Panel Report, Argentina – Hides and Leather, para. 11.86).
405 Thailand's first oral statement, para. 23; second written submission, para. 308. In its first oral
statement, Thailand states that the expired measures and past acts include the valuation and assessment of duties
with respect to the [[xx.xxx.xx]] entries listed in the panel request, the setting of MRSPs for 2006, and the

regarding actions taken in the past by Thailand, those concerns had been resolved by the time the
Philippines requested the establishment of a panel.
406 For example, Thai Customs has used
PM Thailand's declared transaction values as the customs value since September 2007, well over a
year before the request for the establishment of a panel.
7.33 Thailand submits that in these circumstances, it questions the extent to which dispute
settlement proceedings may be fruitful to address issu es that, in effect, have already been resolved.
407
Thailand argues that as a practical matter, had Tha iland intended to protect its domestic cigarette
industry from competition from imports, there were – and still are – perfectly legitimate means by
which it could do so, such as by raising its applied tariff rate for cigarettes or by renegotiating its tariff
bindings. Thailand has not done so and, as the Philippines' own evidence indicates, cigarettes are
currently being imported freely and in increasing quantities into Thailand. Thailand therefore
questions the utility of these proceedings.
7.34 Thailand urges the Panel to consider carefully: (i) whether each of the Philippines' claims
identified in Exhibit THA-36 are properly within its terms of reference such that the Panel can rule on
those claims; (ii) if the claims are within the Panel' s terms of reference, whether and to what extent it
is appropriate or useful for the Panel to rule on claims that relate either to expired measures or
completed acts; and (iii) whether the Panel is permitted under Article 19.1 of the DSU to make
recommendations with respect to such claims.408
7.35 Particularly with respect to panels' recomme ndations under Article 19.1 of the DSU in WTO
dispute settlement proceedings, Thailand submits th at under Article 19.1 of the DSU, where a panel
concludes that a measure "is" inconsistent with a covered agreement, it shall recommend that the
Member concerned bring the measure into conformity with that agreement. Thailand submits that the
Panel cannot issue recommendations pursuant to Artic le 19.1 that Thailand bring expired measures or
completed acts into conformity with the covered agreements because it amounts to legal error for a
panel to make an Article 19.1 recommendation w ith respect to measures that no longer exist. 409
Thailand states that following the Appellate Body's guidance, numerous panels have refrained from
making Article 19.1 recommendations regardi ng measures that are no longer in force. 410 T h i s r u l e
applies with equal force to "measures" that consisted of individual, completed governmental acts.
7.36 Thailand argues that there are good reasons for th is rule. By adopting Articles 19.1 and 21.3
of the DSU, WTO Members accepted that they would not have to undo past actions in response to a
finding of violation of the cove red agreements. Instead, Members are required only to cease the
WTO-inconsistent conduct by the end of the re asonable period of time for implementation.
According to Thailand, for this reason, remedi es under the DSU are generally described as being
"prospective", rather than retrospective, in nature.
411 Given this feature of the DSU, it would serve no
purpose to allow a WTO Member to obtain recommenda tions from panels with respect to past and
consummated actions.

alleged violation of Article 10 of the Customs Valuation Agreement. Thailand also refers to a list of the
relevant claims as set out in Exhibit THA-36.
406 Thailand's first oral statement, para. 3.
407 Thailand's first oral statement, para. 4.
408 Thailand's first oral statement, paras. 23-27; second written submission, para. 308.
409 Thailand's first oral statement, para. 24. Thailand refers to Appellate Body Report, US – Certain EC
Products, para. 81 and Appellate Body Report, EC – Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III
(Article 21.5 – US), para. 479.
410 Thailand refers to the Panel Report, Chile – Price Band , para. 8.3; Panel Report, Dominican
Republic – Import and Sale of Cigarettes , para. 8.3; Panel Report, Turkey – Rice , para. 8.4; and Panel Report,
411 Thailand refers to the Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) ,
footnote 494 and the Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 299.

7.37 Because the conduct on which the relevant clai ms of the Philippines are based, as listed in
Exhibit THA-36, took place entirely in the past a nd has ceased or been completed, Thailand submits
that were the Panel to find violations with respect to these claims, there would be nothing further that
Thailand could do in order to achieve compliance with its WT O obligations. In these circumstances,
the Panel should not issue recommendations under Ar ticle 19.1 of the DSU that Thailand bring itself
"into conformity" with its WTO obligations with respect to any of the claims listed in
Exhibit THA-36.
7.38 Further, in Thailand's view, because the Panel cannot make any recommendations with
respect to the claims listed in Exhibit THA-36, it is not clear whether any purpose at all is served by
making findings regarding these claims. Even assuming, for the sake of argument, that the Panel may
make findings with respect to measures that no longer exist on the date of its establishment 412, the
Panel should exercise its discretion and decline to ma ke such findings. Thailand submits, panels have
a responsibility to prevent the WTO's dispute settle ment procedures from being used to obtain purely
declaratory judgments or to address matters that are completely moot by the time the Panel is
established. In these circumstances, Thailand submit s that the Panel should decline to make findings
with respect to the claims listed in Exhibit T HA-36 that would serve no clear purpose and would not
contribute to the resolution of any current and conc rete dispute between the Philippines and Thailand
regarding these matters.
7.39 The Philippines submits that in previous cases, the Appellate Body accepted that expired
measure may be subject to dispute settlement proceedings 413, "in particular where a risk of
reintroduction exists".414 According to the Philippines, such a risk of reintroduction exists in this case
as there are no published generally applicable rules on how MRSPs are calculated, and the
methodology can change any time at the discretion of DG Excise. 415 In fact, the methodology was
suddenly changed in September 2006 and March 2007 for no apparent re ason and without notice. In
the light of these facts, according to the Philippin es, the Panel should rule on the September 2006 and
March 2007 MRSP Notices.
(ii) Analysis by the Panel
7.40 In the current dispute, we are presented with the Philippines' claims pertaining to various
customs and fiscal measures. Among the measures at issue are Thai Customs' valuation
determinations for the [[xx.xxx.xx]] entries of im ported cigarettes as well as certain MRSP Notices
for the imported cigarettes, as identified in Exhibit THA-36. Thailand characterizes these particular
measures as "completed acts" and "expired measures" that had been resolved by the time the
Philippines requested the establishment of a panel. In this light, Thailand urges the Panel to consider:
(i) whether each of the Philippines' claims identifie d in Exhibit THA-36 are pr operly within its terms
of reference such that the Panel can rule on those clai ms; (ii) if the claims are within the Panel's terms
of reference, whether and to what extent it is appropr iate or useful for the Panel to rule on claims that
relate either to expired measures or completed act s; and (iii) whether the Panel is permitted under
Article 19.1 of the DSU to make recommendations with respect to such claims.
416

412 Thailand's first written submission, paras. 194-203; first oral statement, para. 27.
413 Philippines' first oral statement, para. 219, referring to Appellate Body Report, US – Upland Cotton,
paras. 263 and 268ff, and Panel Report, Argentina – Textiles and Apparel , para. 6.14; Philippines' second oral
statement, para. 76, referring to Appellate Body Report, EC – Bananas (21.5 – US) , paras. 267-269, and
Appellate Body Report, US – Zeroing (21.5), paras. 182 and 194.
414 Philippines' first oral statement, para. 219, referring to Panel Report, Argentina – Textiles and
Apparel, para. 6.14.
416 Thailand's first oral statement, paras. 23-27; second written submission, para. 308.

7.41 We will first consider Thailand's proposition w ith respect to Thai Customs' individual
valuation determinations for the entries at issue. Thailand does not dispute that these determinations
are specifically identified in the Ph ilippines' panel request within the meaning of Article 6.2 of the
DSU and thus fall within the scope of the Panel's terms of reference.
417 Thailand nonetheless takes
the position that the Panel should not and cannot make recommendations with respect to the
concerned customs valuation determinations. Consequently, according to Thailand, because the Panel
cannot make any recommendations with respect to these claims, it is not clear whether any purpose at
all is served by making findings regarding these claims. .
7.42 In US – Upland Cotton , the Appellate Body addressed the question of whether measures
whose legislative basis had expired at the time of establishment of a panel could nonetheless fall
within the scope of the panel's te rms of reference under Article 6.2 of the DSU. The Appellate Body
reasoned that the text of Article 6.2, considered in the light of the relevant context (i.e. Articles 3.3
and 4.2 of the DSU), does not preclude a Member from making representations with respect to
measures whose legislative basis has expired, if that Member considers, with reason, that benefits
accruing to it under the covered agreements ar e still being impaired by those measures.
418
Furthermore, according to the Appellate Body, a lthough the fact that a measure has expired may
affect what recommendation a panel makes, it is not dispositive of the preliminary question of
whether a panel can address claims in respect of th at measure. In reaching this conclusion, the
Appellate Body noted that GATT and WTO panels in previous disputes have frequently made
findings with respect to measures withdrawn after the establishment of the panel. The Appellate
Body observed therefore that its conclusion was consis tent with the approach taken by those panels to
questions relating to the expiry of measures "after the initiation of dispute settlement proceedings, but
before those proceedings were completed". 419 In none of those cases, the Appellate Body points out,
had a panel or the Appellate Body premised its decision on the view that, a priori, an expired measure
could not be within a panel's terms of reference.
7.43 The Appellate Body's guidance above therefore suggests that the mere fact that a certain
measure was no longer in force at the time of establi shment of a panel would not in itself provide a
basis for excluding such a measure from the scope of the Panel's terms of reference and consequently
from the Panel's examination of the measure. At the same time, we are mindful that the expired
measure at issue in US – Upland Cotton concerned payments under a subsidy programme. The
Appellate Body considered it important to recognize the particular characteristics of subsidies and the
nature of the complainant's claims against the particular payments under the subsidies concerned.
Particularly, in the light of the language of Artic le 7.8 of the SCM Agreement, the Appellate Body
considered that there could be a time-lag between the payment of a subsidy and any consequential
adverse effects. As a consequence, the Appellate Body found that if expired measures underlying past
payments could not be challenged in WTO disput e settlement proceedings, it would be difficult to
seek a remedy for such adverse effects.
7.44 Thai Customs' valuation process leading to the issuance of the Notices of Assessment for the
subject cigarette imports took place between 11 A ugust 2006 and 13 September 2007. The last
Notices of Assessment for the concerned entries of cigarettes were issued on 10 October 2007, which
precedes 17 November 2008 – the date of establishment of this Panel. Given the Appellate Body's
guidance, we do not consider that just because thes e valuation determinations had been completed at

417 These measures are identified in para. 13 of the Philippines' panel request (WT/DS371/3).
418 Appellate Body Report, US – Upland Cotton, para. 270.
419 Appellate Body Report, US – Upland Cotton , footnote 214. In this footnote the Appellate Body
cites to: GATT Panel Report, EEC – Apples I (Chile) , paras. 2.4 and 4.1 ff; Panel Report, India – Autos ,
para. 7.29; GATT Panel Report, EEC – Animal Feed Proteins , para. 2.4; GATT Panel Report, US – Canadian
Tuna, para. 4.3; Panel Report, US – Wool Shirts and Blouses , para. 6.2; and Panel Report, Indonesia – Autos ,
para. 14.9.

the time of establishment of the panel in itself pr ecludes them from falling within the scope of our
terms of reference. We therefore turn to the qu estion of whether it is then for any other reasons
inappropriate for us to examine the Philippines' claims under the Customs Va luation Agreement with
respect to Thai Customs valuation determinations.
7.45 Thai Customs' valuation determinations at issue are, as Thailand describes it, "individual,
completed governmental acts" in the sense that they reflect Thai Customs' final decisions on the
customs values of the concerned imported cigarettes. The concerned determ inations consequently
formed the basis for the calculation of customs du ties and other various tax liabilities for the imported
cigarettes. The Philippines' claims in this relati on cover both substantive and procedural obligations
imposed on customs authorities under the Customs Va luation Agreement. The Philippines' main
contention is that Thai Customs failed to comply with certain procedural requirements under the
Customs Valuation Agreement, which led to the final valuation determinations being also inconsistent
with Thailand's obligations under the Customs Valuation Agreement.
7.46 The Customs Valuation Agreement sets out the principles to be observed by WTO Members
in assessing the customs value of imported goods as well as the procedural requirements relating to
the assessment process. In the light of the natu re of the obligations under the Customs Valuation
Agreement, we consider that in the context of the WTO dispute settlement proceedings, claims under
the Customs Valuation Agreement would inevitably encompass individual valuation determinations
and the assessment processes, which would have normally been completed by the time such claims
are brought before a WTO panel. To that exte nt, customs valuation determinations can be
distinguished from other types of measures, be it legislation or specific government acts, which can be
described as having expired or ceased to exist at the time of establishment of a panel or during the
panel proceedings. Customs valua tion determinations, once complete d and finalized, will be applied
to a specific entry of imported goods as the basis fo r the customs duties as well as other internal taxes
for which the importer is held liable. In that sense, customs valuation determinations cannot be
characterized as having expired or ceased to exist just for the reason that they are completed and final.
We underline this distinction because it addresses the question of whether it is appropriate for the
Panel to rule on claims that relate to completed acts. 420 The procedural requirements linked to the
process of the relevant determinations may also affect the operation of the Customs Valuation
Agreement.
7.47 In this connection, although the measure con cerned was a provisional safeguard measure, we
agree with the Panel's observation in Chile – Price Band System : "if a Member cannot have the
conformity of valuation determinations made under the auspices of the Customs Valuation Agreement
[provisional safeguard measures in that dispute] re viewed solely because they are completed before
the establishment of a panel, then customs value determinations generally will escape panel scrutiny
as they are generally completed before the matter reaches the panel stage". 421 Panels would then
never be allowed to examine the WTO-consistency of such customs determinations. We also share
the view of the Panel in Chile – Price Band System that the drafters of the DSU cannot have meant to

420 The Panel in EC – Trademarks and Geographical Indications (Australia) also noted that distinction
between provisions of the Regulation which established procedures, but are no longer in force, and individual
registrations effected u nder them (Panel Report, EC – Trademarks and Geographical Indications (Australia) ,
para. 7.14). The Panel considered that because individual GI registrations effected under prior versions of the
Regulation remained in force, there was, in principle, no reason why it should not be possible to challenge them
under the TRIPs Agreement. According to the Panel, they were measures which may affect the operation of that
agreement. The Appellate Body's analysis in US – Upland Cotton also supports this reasoning: "the relevant
context for Article 6.2 in this regard includes Artic les 3.3 and 4.2 of the DSU. ... those provisions do not
preclude a Member from making representations with respect to measures whose legislative basis has expired, if
that Member considers, with reason , that benefits accruing to it under the covered agreements are still being
impaired by those measures".
421 Panel Report, Chile – Price Band System, para. 7.114.

exclude, in such a manner, governmental acts such as customs determinations from its scope. The
absence of such intention is manifested in, fo r example, Article 16 of the Customs Valuation
Agreement, a provision requiring customs authorities to provide an explanation of their customs
valuation determinations. As bot h parties acknowledged in the context of the Philippines' claims
under the Customs Valuation Agreement, the obliga tions imposed under Article 16 is to serve the
principles of transparency and due process, including the need to provide a basis for a domestic court
and/or a WTO panel to review the customs authority 's determination. As we address in detail in
Section VII.C.6 below, a request for explanations pursuant to Article 16 can be made only once the
valuation process is completed. This means that va luation determinations will by definition be final
and completed acts by the time they are subject to a review process.
7.48 We note that the United States, a third party pa rticipant in these proceedings, also shares this
view. In its response to a question from the Panel, it states:
"An 'act' would appear by its nature to be time limited. The argument that a panel is
unable to make a recommendation with respect to a 'complete act' would therefore
raise significant issues. In particular, it is difficult to see how an 'a ct' that is within a
panel's terms of refe rence would not be 'completed' prior to the end of the panel
proceedings. Accordingly, the argumen t that a panel is unable to make a
recommendation with respect to a 'completed act' would appear to mean that no
 panel
could ever make a recommendation with respect to an 'act'. There is nothing in the
DSU or the covered agreements that would support such an approach."422
7.49 Further, we observe that the right of WTO Me mbers to resort to the WTO dispute settlement
proceeding pertaining to customs matters is cont ained in Article 19 of the Customs Valuation
Agreement. Article 19.2 in particular provides:
"If any Member considers that any benefit accruing to it, directly or indirectly, under
this Agreement is being nullified or impa ired, or that the achievement of any
objective of this Agreement is being impeded, as a result of the actions of another
Member or of other Members, it may, with a view to reaching a mutually satisfactory
solution of this matter, request consulta tions with the Member or Members in
question. ..." (emphasis added)423
7.50 In this case, the Philippines considers that Thailand's customs determinations and the
valuation process leading to such de terminations led to a nullification or impairment of the benefits
accruing to it. The Philippines also asserts that the concerned Thai Customs' acts impede the
objectives of the Customs Valuation Agreement, particularly the objective to respect transaction value
as the primary basis for customs value. Article 3. 8 of the DSU provides further contextual basis for
the understanding that "in cases where there is an infringement of the obligations assumed under a
covered agreement, the action is considered prim a facie to constitute a case of nullification or
impairment".
7.51 In the light of the foregoing considerations, we find it necessary to examine the individual
valuation determinations and the processes leading to the determinations as part of the matter before
us.
 424

422 United States' response to Panel question No. 1 to all third parties.
423 This is a provision equivalent to Article XXIII of the GATT 1994.
424 As for the Panel's decision to make a reco mmendation for the concerned customs valuation
determinations, see Section VI.A.2 and para. 8.7 of this Report for its reasoning and conclusion. In contrast to
our decision with respect to the MRSP Notices at issu e, in the Interim Panel Report (paras. 8.2 and 8.8

(d) The September 2006 and March 2007 MRSP Notices issued by Thai Excise to PM Thailand
(i) Main arguments of the parties
7.52 Thailand claims that the 2006 and 2007 MRSP Notices for imported cigarettes are outside
the Panel's terms of reference because they were neith er listed in the panel request nor in existence as
of the date of establishment of the Panel.425
7.53 Thailand argues that the Panel's terms of reference are limited to the MRSP Notices actually
listed in paragraph 26 of th e Philippines' panel request 426 and that the MRSP Notices for imported
cigarettes for 2006 and 2007 are not listed in the panel request and t hus are not within the Panel's
terms of reference.427
7.54 Further, Thailand asserts that the 2006 and 2007 MRSP Notices were superseded and ceased
to have any legal effect once Thai Excise published the 2008 MRSP Notice for imported products that
was listed in the Philippines' panel request as "Notice B.E. 2551 (2008) of 19 August 2008". 428 Thus,
the 2006 and 2007 Notices did not exist as of the date of the establishment of the Panel. According to
Thailand, it is well established that, in general, panels cannot consider measures that have ceased to
exist as of the date of the establishment of th e panel. Thailand submits that it would greatly
undermine the security and predictability of the disp ute settlement system were this Panel to permit
the Philippines to pursue such claims.429
7.55 In support of its position, Thailand refers to the Appellate Body's statement in EC – Selected
Customs Matters that "the term 'specific measures at issue' in Article 6.2 suggests that, as a general
rule, the measures included in a pane l's terms of reference must be measures that are in existence at
the time of establishment of the panel". 430 The Appellate Body went on to identify two exceptions
from this general rule: (i) amendments enacted af ter the establishment of the panel which do not
change the essence of the measures identified in the panel request; and (ii) a measure whose
legislative basis has expired but whose effects conti nue to impair benefits accruing to the complainant
under the covered agreements. Thailand argues that the 2006 and 2007 MRSP Notices pre-date the
establishment of the Panel (i.e. 17 November 2008) a nd thus do not fall within the scope of the two
exceptions identified by the Appellate Body. Thaila nd further submits that a number of panels have
refused to rule on measures which expired before th e establishment of the panel. It refers to the
Panel's decision in Argentina – Textiles and Apparel in which the Panel declined to consider a
measure on the ground that "the Argentine measure under consideration was revoked before the Panel

combined), we decided to make a recommendation for these customs valuation determinations even if they were
final decisions that had been completed prior to the time of the panel establishment. Having considered the
parties' arguments at the interim review stage on the question of whether the Panel should make a
recommendation with respect to these determinations, we decided to maintain our decision in this relation. We
have clarified our reasoning for the decision to make a recommendation for these customs determinations as
provided in Section VI.A.2 and para. 8.7 of this Report.
425 Thailand's first written submission, paras. 202-203.
426 Thailand's first written submission, para. 197.
427 Thailand's first written submission, para. 197; Exhibits PHL-61 and PHL-100.
428 Thailand's first written submission, paras. 198-203.
429 Thailand refers to the Panel Report, EC – Approval and Marketing of Biotech Products Products ,
para. 7.1652 (in determining whether to make findings on a measure no longer in existence on the date of
establishment of a panel, panels should take into account the object and purpose of the dispute settlement system
"to secure a positive solution to a dispute", as stated in Article 3.7 of the DSU).
430 Thailand's first written submission, para. 199, referring to the Appellate Body Report, EC – Selected
Customs Matters, para. 184.

was established and its terms of reference set, i.e. before the Panel started its adjudicative process",
even though the measure had been listed in the panel request.
431
7.56 Thailand does not contest, however, the use of the MRSP Notices as evidence because the use
of evidence does not raise any temporal lim itations as opposed to the measures at issue. 432 Thailand
argues, however, that even if the Panel were to consider these Notices as evidence regarding the
WTO-consistency of the MRSP Notices that are within the Panel's terms of reference, these Notices
would be of very limited probative value because the methodology used to arrive at the MRSPs in the
2006-2007 Notices was very different from the methodol ogy used before and after that period, on
which the Panel must rule.433 Thailand therefore urges the Panel to take care to ensure that its rulings
with respect to the MRSP methodology before it are not based on evidence relating to a different
MRSP methodology that is not within the Panel's terms of reference.
7.57 The Philippines argues that the measures identified in the panel request are the "MRSP
Notices issued by the Dire ctor-General for Excise". 434 Moreover, paragraph 26 of the panel request
further clarifies the measures at issue by re ferring to the August 2007 and August 2008 MRSP and
separately noting the inclusion of "any amendments, implementing measures or other measures
related to the measures listed in this paragraph".
7.58 In response to Thailand's argument that th e 2006 and 2007 MRSP Notices are outside the
Panel's terms of reference because they expired at the time of the establishment of the panel, the
Philippines submits that in previous cases, the Appellate Body accepted that expired measures may be
subject to dispute settlement proceedings 435, "in particular where a risk of reintroduction exists". 436
According to the Philippines, such a risk of reintr oduction exists in this case as there are no published
generally applicable rules on how MRSPs are calculated, and the methodology can change any time at
the discretion of DG Excise. 437 In fact, the methodology was suddenly changed in September 2006
and March 2007 for no apparent reaso n and without notice. In the light of these facts, according to
the Philippines, the Panel should rule on the September 2006 and March 2007 MRSP Notices. The
Philippines submits that in any even t, they are evidence that supports the view that the MRSP system
is discriminatory.
(ii) Analysis by the Panel
7.59 Thailand claims that the September 2 006 and March 2007 MRSP Notices for imported
cigarettes are outside the Panel's terms of reference fo r two reasons: first, they were not listed in the

431 Thailand's first written submission, para . 199, referring to the Panel Report, Argentina – Textiles
and Apparel, para. 6.13. Thailand also refers to the Panel Report, US – Gasoline (para. 6.19) in which the Panel
states that "it had not been the usual practice of a panel established under the General Agreement to rule on
measures that, at the time the panel's terms of reference were fixed, were not and would not become effective".
432 Thailand's response to Panel question No. 90.
433 Thailand's second written submission, paras. 144-145.
435 Philippines' first oral statement, para. 219, referring to Appellate Body Report, US – Upland Cotton,
paras. 263 and 268, and Panel Report, Argentina – Textiles and Apparel , para. 6.14; Philippines' second oral
statement, para. 76, referring to Appellate Body Report, EC – Bananas (Article 21.5 – US) , paras. 267-269, and
Appellate Body Report, US – Zeroing (Article 21.5 – EC), paras. 182 and 194.
436 Philippines' first oral statement, para. 219, referring to Panel Report, Argentina – Textiles and
Apparel, para. 6.14.

panel request; and, second, they expired as of the date of establishment of the Panel. 438 W e w i l l
address these arguments in turn.
7.60 As explained above, in order to comply with Article 6.2 of the DSU, it is necessary for the
complaining party to identify the specific measures at issue. While identifying a measure by the
name, number, date and place of promulgation of a law, regulation may be sufficient, identification
through other means may also satisfy the identifi cation obligation within Article 6.2 of the DSU. 439
For instance, a measure may be identified through substance 440, by providing a narrative description
of the nature of the measure so that what is re ferred to adjudication by a panel may be discerned from
the panel request.441 We also note the clarification by the Panel in Japan – Film in this regard:
"To fall within the terms of Article 6.2, it seems clear that a 'measure' not explicitly
described in a panel request must have a clear relationship to a 'measure' that is
specifically described therein, so that it can be said to be 'included' in the specified
'measure'. In our view, the requirements of Article 6.2 would be met in the case of a
'measure' that is subsidiary or so closely re lated to a 'measure' sp ecifically identified,
that the responding party can reasonably be found to have received adequate notice of
the scope of the claims asserted by the complaining party. The two key elements –
close relationship and notice – are inter-relate d: only if a 'measure' is subsidiary or
closely related to a specifically identified 'measure' will notice be adequate."
 442
7.61 With respect to the administration of the VAT system, the Philippines' panel request provides:
"25. In the last two and a half years, the MRSPs for imported cigarettes have been
changed more frequently than those for domestic cigarettes.
26. The Philippines understands that Th ailand operates the VAT regime for
cigarettes through measures including:

• MRSP Notices issued by the Director-Gen eral for Excise. The currently
applicable MRSPs are set out in the Notice B.E. 2550 (2007) of 29 August
2007 (for domestic products) and in the Notice B.E. 2551 (2008) of 19
August 2008 (for imported products); and
• any amendments, implementing measures or other measures related to the
measures listed in this paragraph."
In our view, the phrase "MRSP Notices issued by th e Director-General for Excise", considered
together with "in the last two and a half year s", is broad enough to encompass the MRSP 2006 and
2007 Notices in the scope of the Philippines' panel re quest. We do not find any factual circumstances
that make us question whether Thailand, as the res ponding party in this dispute, could not reasonably

438 Thailand's first written submission, paras. 202-203. We note that Thailand did not include the
December 2005 MRSP Notice and the Augu st 2007 MRSP Notice in its claims relating to the Panel's terms of
reference. To the extent that the December 2005 MRSP were also not in force at the time of the establishment
of the Panel, however, our analysis in this section as regards the September 2006 and the March 2007 MRSP
Notices will equally apply to the December 2005 MRSP Notice and the August 2007 MRSP Notice.
439 Panel Report, Canada – Wheat Exports and Grain Imports, para. 6.10, point 36.
440 Panel Report, Argentina – Footwear (EC), para. 8.40; Panel Report, EC – Approval and Marketing
of Biotech Products, para. 7.47.
441 Appellate Body Report, US – Continued Zeroing, para. 168.

be found to have received adequate notice of the scope of the claims asserted by the Philippines in this
regard.

7.62 Furthermore, we are not convinced by Thailand's argument that the September 2006 and the
March 2007 MRSP Notices are outside the Panel's terms of reference because they expired at the time
of the establishment of the panel. We recall th at in addressing the issue of whether an expired
measure can be a "measure at issue" within the meaning of Article 6.2 of the DSU, the Appellate
Body in US – Upland Cotton rejected the United States' argument that because an expired measure is
not susceptible to a recommendation under Article 19.1 of the DSU, it cannot be a "measure at issue"
under Article 6.2.
443 The Appellate Body considered that the text of Article 6.2 of the DSU,
considered in its relevant context (Articles 3.3 a nd 4.2 of the DSU), does not suggest that measures
whose legislative basis has expired could not be the subject of a panel request as "specific measures at
issue".444 As such, the Appellate Body in that dispute ru led that the fact that a measure has expired is
not dispositive of the preliminary question of whether a panel can address claims in respect to that
measure, although it may affect what recommendation a panel may make.
7.63 As the Appellate Body noted in US – Upland Cotton , GATT and WTO panels have
frequently made findings with respect to measures withdrawn after the establishment of the panel.
The Appellate Body in US – Upland Cotton states:
"We find contextual support for this interpretation in Article 3.3 of the DSU, which
underscores the importance of the prompt settle ment of certain situations that, in the
absence of settlement, could undermine the effective functioning of the WTO and the
maintenance of a proper balance between th e rights and obligations of Members. We
note, first, that Article 3.3 focuses not upon existing measures, or measures that are
currently in force but, rather, upon "measu res taken" by a Member, which includes
measures taken in the past. We also observe that Article 3.3 envisages that disputes
arise when a Member "considers" that benefits accruing to it are being impaired by
measures taken by another Member. By using the word considers, Article 3.3 focuses
on the perception or understanding of an a ggrieved Member. This does not exclude
the possibility that a Member requesting c onsultations may have reason to believe
that a measure is still impairing benefits even though its legislative basis has
expired."445
7.64 The panel on Argentina – Textiles and Apparel observes certain common factors that can be
found in those cases where panels made findings in respect of the measures that were no longer in
force.446 These factors include the following: (i) whether either party raised an objection to the panel's

443 Appellate Body Report, US – Upland Cotton , paras. 271-272. Further following up on the
Appellate Body's reasoning in US – Upland Cotton , the Appellate Body in EC – Selected Customs Matters
stated:
"... In [ US – Upland Cotton ], the Appellate Body had to address the issue of whether an
expired measure can be a 'measure at issue' with in the meaning of Article 6.2 of the DSU.
The Appellate Body rejected the United States' argument that, because an expired measure is
not susceptible to a recommendation under Article 19.1 of the DSU, it cannot be a 'measure at
issue' under Article 6.2. For the Appellate Body, the question of whether a panel can address
claims in respect of an expired measure is to be distinguished from the question of whether
that measure is susceptible to a recommendation under Article 19.1. ...the Appellate Body's
reasoning in US – Upland Cotton supports our position that Article 19.1 of the DSU does not
place restrictions on the type of measure that can be identified in a panel request under
Article 6.2 of the DSU" (paras. 134-135).
444 Appellate Body Report, US – Upland Cotton, para. 270.
445 Appellate Body Report, US – Upland Cotton, para. 264.
446 Panel Report, Argentina – Textiles and Apparel, para. 6.12.

consideration of the expired measure; (ii) if th ere was an objection, whether there remained the
prospect of the reintroduction of the measure; an d (iii) whether making findings with respect to
expired measures would contribute to resolving a particular dispute.
7.65 In Argentina – Textiles and Apparel , Argentina objected to the Panel's examination of the
Argentine measure – Argentina's specific duties on f ootwear – that used to be imposed on footwear
and were revoked before the Panel was established. 447 Despite the United States' argument that there
was a serious threat of recurrence of the measure, the Panel decided that in the absence of clear
evidence that Argentina would reintroduce the specific duties, it would not review the WTO
compatibility of the duties.448
7.66 The factual circumstances presented in the curre nt dispute must be distinguished from those
in Argentina – Textiles and Apparel . We do recognize that the MRSP Notices at issue had been
replaced by the August 2008 MRSP Notice and thus were no longer in force at the time of
establishment of the Panel. Despite the expiry nature of the subject MRSP Notices, however, we
consider our review of these Notices to prove usef ul. For one, as the Philippines points out, Thailand
does not maintain the general methodology, which Thailand claims it normally uses in determining
MRSPs, in a written form. To the extent that this could provide a certain degree of uncertainty to
importers regarding how the tax base for VAT on their products is determined, we find it important to
review the conformity of the specific MRSP Noti ces and the methodology allegedly used by Thai
Excise to determine those MRSPs with Thailand's obligations under the GATT 1994.
7.67 We find further support for our decision on the need for the examination of these Notices in
Thailand's explanation that in revising existing MRSPs, under the general methodology, Thai Excise
could choose to rely on the same marketi ng cost component of the current MRSPs. 449 Therefore, the
assessment of the marketing costs comprising the current MRSPs may have implications on the
marketing cost component to be used for the determination of the new MRSPs.
450
2. Standard of review
7.68 As the Appellate Body has observed, there are two aspects of panels' standard of review:
panels' formulation of the legal standard to be used in revi ewing the parties' legal and factual claims,
and panels' application of the formulated standard of review. 451 Regarding the formulation of the
proper standard for the Panel's review of the matter before it, we recall the Appellate Body's finding in

447 Panel Report, Argentina – Textiles and Apparel, paras. 6.13-6.15.
448 The Panel stated that it must assume that WTO Members would perform their treaty obligations in
good faith, as they were required to do by WTO Agreement and by international law pursuant to Article 3.10 of
the DSU and Article 26 of the Vienna Convention on the Law of Treaties (Pacta Sunt Servanda) (Panel Report,
Argentina – Textiles and Apparel, paras. 6.14).
449 We also note that although not as common as m easures withdrawn after the establishment of a
panel, panels have also made findings with respect to measures that had expired before the establishment of the
panel (Panel Report US – Upland Cotton , paras. 7.128, 7.529 and 8.1, upheld in Appellate Body Report, US –
Upland Cotton, para. 272; Panel Report EC – Trademarks and Geographical Indications, paras. 7.12-7.17).
450 In the Interim Panel Report (para. 8.8), we decided not to make a recommendation with respect to
these Notices as they had ceased to ex ist at the time of the panel establishment. Having considered the parties'
arguments at the interim review stage on the question of whether the Panel should make a recommendation with
respect to these MRSP Notices, we modified our decision in this relation so as to make a recommendation to the
extent that the concerned MRSP Notices will continue to have effects on the subsequent MRSP Notices that are
currently in force. See Section VI.A.1 and para. 8.8 of this Report for the detailed reasoning and our conclusion
in this regard.
451 Appellate Body Report, US – Lamb, para. 99.

Argentina – Footwear (EC) that "[f]or all but one of the covered agreements (Anti-Dumping
Agreement), Article 11 of the DSU sets forth the appropriate standard of review for panels".
452
7.69 Article 11 of the DSU provides:
"Function of Panels
The function of panels is to assist the DSB in discharging its responsibilities under
this Understanding and the covered agreement. Accordingly, a panel should make an
objective assessment of the matter before it, including an objective assessment of the
facts of the case and the applicability of a nd conformity with th e relevant covered
agreements, and make such other findi ngs as will assist the DSB in making the
recommendations or in giving the rulings provided for in the covered agreements ..."
7.70 The Philippines' claims in this dispute c oncern certain obligations under the Customs
Valuation Agreement and the GATT 1994. Article 11 of the DSU therefore sets forth the standard of
review for this Panel, namely to "make an obj ective assessment of the facts of the case and the
applicability of and conformity with the relevant covered agreements". A ccording to the Appellate
Body, this means "neither de novo review as such, nor 'total deference'".
453
7.71 In this connection, we also recall the Appellate Body's statement in US – Countervailing Duty
Investigation on DRAMS:
"An objective assessment under Article 11 of the DSU must be understood in the
light of the obligations of the particular c overed agreement at issue in order to derive
the more specific contours of the appropriate standard of review."454
7.72 Following this guidance, we will make an objectiv e assessment of the matter before us in the
light of the relevant obligations of the Customs Valuation Agreement and the GATT 1994.
C. CUSTOMS VALUATION AGREEMENT
1. Overview of the Customs Valuation Agreement
7.73 The Customs Valuation Agreement comprises a "General Introductory Commentary"; Part I
(Rules on Customs Valuation (Articles 1 through 17 )); Part II (Administration, Consultations and
Dispute Settlement (Articles 18 and 19)); Part III (Sp ecial and Different Treatment (Article 20)); Part
IV (Final Provisions (Articles 21-24)); Annex I (Inte rpretative Notes [to certain provisions of Part I]);
Annex II (Technical Committee on Customs Valuation); and Annex III.
7.74 The General Introductory Commentary section provides for general principles of customs
valuation of goods. Paragraph 1 states, inter alia, that "the primary basis for customs value under [the
Customs Valuation Agreement] is 'transaction value' as defined in Article 1" and that "Articles 2
through 7 provide methods of determining the cust oms value whenever it cannot be determined under
the provisions of Article 1". The methods of valu ation under Articles 1 through 7 are set out in a

452 Appellate Body Report, Argentina – Footwear (EC), para. 118.
453 Appellate Body Report, EC – Hormones, para. 117; Appellate Body Report, US – Lamb, para. 1.
454 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 184. The
Appellate Body states that the standard of review developed under the Agreement on Safeguards was instructive
for cases under the SCM Agreement.

sequential order of application. General prin ciples underlying the Customs Valuation Agreement are
further elaborated in the subsequent recitals.455
7.75 We also note that Annex I to the Customs Valuation Agreement contains the interpretative
notes to certain provisions of the Customs Valuation Agreement. In this regard, Article 14 of the
Customs Valuation Agreement reads:
"The notes at Annex I to this Agreement form an integral part of this Agreement and
the Articles of this Agreement are to be read and applied in conjunction with their
respective notes. Annexes II and III also form an integral part of this Agreement."
7.76 Therefore, in considering the complainant's claims under the Customs Valuation Agreement,
we will clarify the obligations under the releva nt provisions, read in conjunction with the
Interpretative Notes corresponding to those provisions.
2. Products at issue
7.77 The Philippines claims that the products at i ssue for its claims under the Customs Valuation
Agreement are Marlboro and L&M cigarettes manufactured in the Philippines by PM Philippines and
imported into Thailand by PM Thailand 456 in [[xx.xxx.xx]] separate customs entries (the "subject
entries") that were cleared 457 between 11 August 2006 and 13 September 2007. These cigarettes are
classifiable under Thailand's tariff nomenclature, the "Customs Tariff of Thailand" under heading
2402.20.90. "[c]igars, cheroots, cigarillos and ciga rettes, of tobacco or of tobacco substitutes ...
cigarettes containing tobacco ... other". 458 Thai Customs determined the final customs value of these
entries between 15 March 2007 and 10 October 2007.459
7.78 The Philippines describes that both PM Tha iland and PM Philippines are wholly owned
subsidiaries of Philip Morris International Inc. (" PM International"), a corporation organized under
the laws of the Commonwealth of Virginia in the United States. The Philippines accepts that
PM Thailand and PM Philippines are related for purposes of the Customs Valuation Agreement.460

455 The WTO Members recognize, inter alia , "the importance of the provisions of Article VII of
GATT 1994" and desire "to elaborate rules for their application in order to provide greater uniformity and
certainty in their implementation". The Members also recognize that "the basis for valuation of goods for
customs purposes should, to the greatest extent possible, be the transaction value of the goods being valued".
456 Philippines' first written submission, para. 128. PM Thailand is the Thailand branch of Philip Morris
(Thailand) Ltd., a corporation organized under the laws of the U.S. State of Delaware, and was established in
[[xx.xxx.xx]] and began distributing cigarettes in Thailand in [[xx.xxx.xx]].
457 The New Shorter Oxford English Dictionary, (Fifth Edition) Oxford University Press, Vol. I, p. 423
(2002). "Clear" is defined as "9. Settle , discharge (a debt, a bill, etc) ... 14 . Pass through the formalities of (a
customs office etc.)".
458 Philippines' first written submission, para. 130, footnote 87; Exhibit PHL-29 (Harmonized Tariff
Schedule of Thailand, Chapter 24). The Philippines explains that the bound tariff rate for the cigarettes at issue
is 80 baht/kilogram (volume) or 60 per cent ad valorem, i.e. Thailand applies a MFN duty of 80 baht/kilogram,
provided that this is no less than 60 per cent of the va lue of the cigarettes (Philippines' first written submission,
footnote 88). However, under the Association of South-East Asian Nations ("ASEAN") Free Trade Agreement,
to which both Thailand and the Philippines are parties, imports under subheading 2402.20.90 qualify for the
preferential rate of five per cent ad valorem (Philippines' first written submission, para. 130).
459 Philippines' first written submission, paras. 128 an d 167. See also Table 2 (History of Values)
(Philippines' first written submission, p. 61). The Phili ppines explains that "[u]nder Thai law, Notices of
Assessment constitute the definitive determination of customs value for a particular shipment, subject to
administrative and judicial appeal." (Philippines' first written submission, footnote 146).
460 The Philippines agrees that PM Thailand and PM Philippines are related within the meaning of
Article 15.4(f) of the Customs Valuation Agreement, because they are both directly or indirectly controlled by a

3. Measures at issue
7.79 In its request for establishment of a Panel, the Philippines identified the following as the
measures pertaining to customs valuation:
• "the general rule and/or methodology providing for the systematic rejection of transaction
value and the systematic use of a deductive valuation method;
• individual determinations made by Thai Cust oms for entries of cigarettes exported from
the Philippines and entered between 4 August 2006 and 19 March 2008, including:
o the Notices of Assessment for the entries lis ted in Annex I to the Philippines' request
for the establishment of a panel; and
o the assessment of value for purposes of setting the guarantee or cash deposit at the
time of entry for the entries listed in Annex II to the Philippines' request for the
establishment of a panel;
• Customs Act, B.E. 2469
461 (1926), including all amendments;
• Ministerial Regulation No. 132 B.E. 2543 (19 90) issued under authority of the Customs
Act B.E. 2469 (1926) and the amending Mini sterial Regulation No. 145 B.E. 2547 (2004)
and Ministerial Regulation No. 146 B.E. 2550 (2007);
• Notification No. 23/2549 (2006) of Thai Customs, containing guidelines on customs
valuation;
• Customs Regulation No. 2/2550 (2007) Re: amendment of the Customs Formalities and
Guidelines Code B.E. 2544 (2001) re: Customs formalities to prevent Customs value duty
evasion, and amendment of Customs Department Regulation No. 14/2549 (2006) re:
Guideline for Fixing of Customs Value;
• Customs Regulation No. 14/2549 (2006), re Guideline for Fixing of Customs Value, as
amended by Customs Regulation No. 2/2550 (2007);
• Customs Notification No. 29/2549 (2006) Pr ocedure in requesting duty fee assessment;
and
• any amendments, implementing measures, or other related measures."
7.80 In the course of the Panel proceedings, th e Philippines claimed that Thailand's customs
valuation of Marlboro and L&M cigarettes, imported by PM Thailand from the Philippines in the
subject entries and cleared between 11 August 20 06 and 13 September 2007, w as inconsistent with
Articles 1.1, 1.2(a), 5, 7, 10, and 16 of the Customs Valuation Agreement. 462 The Philippines also
claims that Thailand acts inconsistently with Artic le 1.1 and 1.2(a) by maintaining an unpublished

third person, PM International (Philippines' first written submission, para. 129, footnote 86). See
Section VII.C.5.
461 The "B.E." year number designates the year in the Buddhist calendar. The year number in
parentheses designates the corresponding year A.D.

general rule requiring the rejection of transacti on value and the use of the deductive valuation
method.463
7.81 In the light of the Philippines' claims presen ted in the Panel proceedings, the measures at
issue with respect to the Philippines' cl aims under the Customs Valuation Agreement are Thai
customs valuation determinations of the subject entr ies of cigarettes imported by PM Thailand and an
alleged general rule requiring th e rejection of the transaction va lue and the use of the deductive
valuation method. It is therefore our understandi ng that the Philippines is not challenging Thailand's
customs laws and regulations as such.
4. Overview of the factual even ts surrounding the rejection of PM Thailand's declared
transaction values of the [[xx.xxx.xx]] entries at issue
7.82 The Philippines states that, on 4 August 2006, Thai Customs refused to clear the cigarettes at
issue at the declared transaction valu es of ([[xx.xxx.xx]] baht/pack for Marlboro cigarettes and
[[xx.xxx.xx]] baht/pack for L&M cigarettes).464 The parties appear to agr ee that, prior to that date,
Thai Customs had been accepting the declared transaction values without any further inquiry. 465
PM Thailand was orally informed on 4 August 20 06 that, pursuant to the memorandum by Thai
Customs of 3 August 2006 466, the acceptable transaction values would be [[xx.xxx.xx]] baht/pack for
Marlboro cigarettes and [[xx.xxx.xx]] baht/pack for L&M cigarettes.467
7.83 On 7 August 2006, Thai Customs orally advised PM Thailand to submit further information
confirming its declared transaction values of the cigarettes at issue.468
7.84 On 11 August 2006, Thai Customs informed PM Thailand in writing that the guarantee
values469 for Marlboro cigarettes and L&M cigarettes were set at [[xx.xxx.xx]] baht/pack and
[[xx.xxx.xx]] baht/pack respectively. 470 Upon receiving this letter, PM Thailand began clearing the
concerned cigarettes at these guarantee values. For the cigarettes subsequently imported in new
shipments, PM Thailand continued declaring the transaction values of [[xx.xxx.xx]] baht/pack for
Marlboro cigarettes and [[xx.xxx.xx]] baht/pack for L&M cigarettes, which were not accepted by
Thai Customs.
471 In order to clear the cigarettes at issue, PM Thailand paid the relevant taxes on the
declared transaction values and posted bank or cash gua rantees for the relevant taxes in respect of the
difference between the declared transaction values and the guarantee values as set by Thai Customs,
pending the definitive assessment of the customs value.472

463 Philippines' response to Panel question No. 16.
465 Philippines' first written submission, paras. 131-13 6; Thailand's first written submission, para. 32.
According to the Philippines, Thailand relied on "indicative" prices for customs valuation of imported cigarettes
between January 2000 and March 2003. The Philippines explains that in March 2003, Thailand began accepting
PM Thailand's declared transaction values and abandon ed the use of minimum/indicative prices for cigarettes
(Exhibit PHL-33). Thailand submits that betwee n 2003-2006, Thai Customs has consistently accepted
PM Thailand's declared transaction values as the basis for the customs value.
466 Exhibit PHL-38. See also para. 7.183 for the sequence of events in this regard.
467 Philippines' first written submission, paras. 143-150. We note that the Philippines refers to these
figures as both the new customs values and the guarantees.
468 Exhibit PHL-56, p. 1.
469 For a definition of the term guarantee see Section VII.I.2, para. 7.1039.
470 Philippines' first written submission, paras. 151-152; Exhibit PHL-59. Thailand submits that "these
[guarantee] values were derived by the deductive values for certain PM Thailand imports covered by the Board
of Appeals ruling of June 2006." Exhibit PHL-36.
472 Philippines' first written submission, para. 155, footnotes 131 and 132. We note that PM Thailand
was also required to post bank or cas h guarantees for the relevant internal taxes that are calculated on the basis

7.85 In the meantime, by letters to Thai Customs, PM Thailand requested Thai Customs to provide
its reasons for questioning the acceptability of the declared transaction values in writing.
473 O n
9 December 2006, Thai Customs sent PM Thailand a letter communicating its reasons for considering
that the acceptability of the declared transaction values was questionable.474
7.86 On 16 February 2007, Thai Customs decreas ed the guarantee values to [[xx.xxx.xx]]
baht/pack for Marlboro cigarettes and [[xx.xxx.xx]] baht/pack for L&M cigarettes.475 PM Thailand
continued to clear the cigarettes from PM Philippines by paying the relevant taxes on the declared
transaction values and by posting bank or cash guarantees.
7.87 On 16 March 2007, Thai Customs further decreased the guarantee values to [[xx.xxx.xx]]
baht/pack for Marlboro cigarettes and [[xx.xxx.xx]] baht/pack for L&M cigarettes.
476
7.88 Between 16 March 2007 and 10 Oct ober 2007, Thai Customs issued Notices of Assessment
for the [[xx.xxx.xx]] entries of the PM Thailand ci garettes at issue. Thai Customs assessed the
[[xx.xxx.xx]] entries cleared between 11 August 2006 and 22 September 2006 at [[xx.xxx.xx]]
baht/pack for Marlboro and [[xx.xxx.xx]] baht/pack for L&M.
477 For the rest of the [[xx.xxx.xx]]
entries cleared between 27 September 2006 and 13 September 2007, the final assessed customs values
were [[xx.xxx.xx]] baht/pack for Marlboro and [[xx.xxx.xx]] baht/pack for L&M.
7.89 On 5 April 2007, PM Thailand sent a letter to Thai Customs requesting that Thai Customs
provide, inter alia, the reason for the rejection of the declar ed transaction values, the method used to
determine the customs value and how the final customs values were derived. 478 Thai Customs
responded to this request in a letter dated 12 April 2007.479
7.90 On 28 March 2008, Thai Customs began to accept transaction values declared by
PM Thailand as the customs value for entries made on or after that date. 480 Hence, for these new
entries, no guarantees were collected, and the trans action values were accepted on clearance. On or
after 14 July 2008, Thailand assessed the customs value of [[xx.xxx.xx]] entries that cleared between

of the duty-paid landed cost of imported products in respect of the difference between the declared transaction
values and the guarantee, pending the definitive assessment of customs value. The relevant internal taxes are
customs duties, excise, health and television taxes.
473 Philippines' first written submission, para. 157, footnote 134 (Exhibits PHL-56, PHL-60, PHL-268,
and PHL-65). Thailand does not contest this either.
474 Philippines' first written submission, para. 161; Thailand's first written submission, para. 49;
Exhibit PHL-66. The parties do not appear to dispute that the doubts of Thai Customs about the acceptability of
the declared transaction values were in relation to the c. i.f. Bangkok prices of Philip Morris cigarettes, imported
by "Importer A" (imports destined for duty free shops), that were over 300 per cent of the c.i.f. Bangkok values
declared by PM Thailand (Thailand first written submission, paras. 33-39; Exhibit THA-7). The Philippines
also does not contest that PM Thailand was aware of the nature of doubts of Thai Customs doubts. It should be
noted though, that the Philippines' is of the opinion that Importer A is not technically an importer because its
goods transit through duty free areas, and have not formally entered Thailand or been cleared through Thai
Customs (Philippines' first written submission, paras. 234-235).
477 Philippines' first written submission, para. 168; Exhibits PHL-27 and PHL-129. The Philippines
points out that four entries of the PM Thailand cigarettes at issue that cleared in the sa me period (i.e. 11 August
2006-13 September 2007) as the [[xx.xxx.xx]] entries at issue were assessed by Thai Customs on 16 July 2008
and 3 October 2008, later than the dates of assessments for the [[xx.xxx.xx]] entries. Furthermore, Thai
Customs accepted the declared transac tion values for these four entries, namely [[xx.xxx. xx]] baht/pack for
Marlboro and [[xx.xxx.xx]] baht/pack for L&M.
478 Philippines' first written submission, para. 182; Exhibit PHL-69.
479 Philippines' first written submission, para. 183; Exhibit PHL-70.

13 September 2007 and 19 March 20 08, accepting the transaction values. 481 For these entries,
transaction values were not accepted at the time of cl earance, and guarantees were collected in respect
of potential customs and fiscal liabilities. These [[xx. xxx.xx]] entries include one entry that cleared
on 13 September 2007, and that was assessed on or after 14 July 2008. 482 On or after 14 July 2008,
Thailand also assessed the customs value of [[xx.xx x.xx]] entries that cleared, respectively, on
28 March 2007 ([[xx.xxx.xx]] entry) and 10 Sept ember 2007 ([[xx.xxx.xx]] entries), accepting the
transaction values. 483 For these entries, the transaction valu es were not accepted at the time of
clearance, and guarantees were collected in respect of potential customs and fiscal liabilities. Finally,
on or before 10 October 2007, Thailand assessed the customs value of [[xx.xxx.xx]] entries that
cleared between 11 August 2006 and 13 Septem ber 2007, rejecting the transaction values. 484 F o r
these entries also, the transaction values were not accepted at the time of clearance, and guarantees
were collected in respect of potential custom s and fiscal liabilities. These [[xx.xxx.xx]] entries
include [[xx.xxx.xx]] entries that cleared on, respectively, 28 March 2007 ([[xx.xxx.xx]] entry) and 13
September 2007 ([[xx.xxx.xx]] entry), and that were assessed on or before 10 October 2007.
485
7.91 An importer can appeal final customs duties to the Thai Board of Appeals ("BoA") pursuant
to Section 112sexies of the Customs Act. 486 An importer can then appeal the decision of the BoA to
the Thai Tax Court pursuant to Section 7(1) of the Tax Court Act.487
5. Article 1.1 and 1.2 of the Customs Valuation Agreement
(a) Introduction
7.92 With respect to Article 1.1 and 1.2 of the Customs Valuation Agreement, the Philippines
claims that Thailand violates: (i) Article 1.1 a nd 1.2 by maintaining and applying a general rule
requiring the rejection of the transaction value and th e application of the deductive valuation method;
(ii) Article 1.1 and 1.2 by imprope rly rejecting PM Thailand's declared the transaction values for the
[[xx.xxx.xx]] entries; and (iii) Article 1.2(a) by fa iling to communicate "grounds" before rejecting the
transaction values for these entries.
7.93 Before we examine the Philippines' claims in turn, we first clarify the standard appropriate for
our review of the claims under Article 1.1 and 1.2(a) of the Customs Valuation Agreement.

481 Philippines’ first written submission, para. 195, Table 2; second written submission, paras. 120-137.
482 Philippines’ first written submission, para. 195, Table 2, Row 4; second written submission, paras.
120-137.
483 Philippines’ first written submission, para. 195, Table 2, Row 4; second written submission, paras.
120-137.
484 Philippines’ first written submission, para. 195, Table 2, Rows 1-4.
485 Philippines’ first written submission, para. 195, Table 2, Row 4; second written submission, paras.
120-137.
486 Thailand's first written submission, para. 74. Between 2000 and 2003, PM Thailand appealed
[[xx.xxx.xx]] customs valuation decisions by Thai Custom s, [[xx.xxx.xx]] of which ar e still pending today. In
addition, between August 2006 and September 2007, Thai Customs rejected the transaction value of
[[xx.xxx.xx]] imports of cigarettes from the Philippines im ported by PM Thailand. PM Thailand appealed these
rejections at the BoA, these appeals are still pending as well. (Philippines' first written submission, paras. 90-
91; response to Panel question No. 80; Thailand's response to Panel question No. 82).
487 Thailand's response to Panel question No. 145 citing Exhibit THA-88; Exhibit PHL-281.

(b) Standard of review for the claims under Article 1.1 and 1.2(a)
(i) Main arguments of the parties
7.94 The Philippines submits that the WTO standard of re view requires a panel to "objectively
assess" under Article 11 of the DSU whether the aut hority's explanation demonstrates that it complied
with its obligation to examine the circumstances of sale by critically examining the evidence.
488 As
with other covered agreements, the explanation must show, among other things, how the authority
treated the evidence and how the evidence supporte d its conclusion. The Panel cannot assess the
WTO-consistency of Thai Customs' decision on the basis of reasons developed by Thailand in these
proceedings, which may or may not reflect the view of Thai Customs at the time.489
7.95 Further, in deciding whether an authority has properly examined the circumstances of sale, a
panel must also objectively assess other relevant evidence that addresses the legitimacy of the
authority's conclusion, in particular where th at conclusion does not explain the factual grounds
supporting it. Given that Thai Customs never men tioned the evidence at the time of its rejections,
Thailand has failed to demonstrate that it w as entitled to reject the transaction values under
Articles 1.1 and 1.2 of the Customs Valuation Agreement.490
7.96 Thailand generally agrees with the Philippines that th e appropriate standard with respect to
the claims under the Customs Valuation Agreement is whether the valuation decision by Thai
Customs valuation was reasonable given the facts and evidence before Thai Customs at the time of its
determination.491 Thailand also agrees that the Panel must not conduct a de novo review.492
7.97 Thailand disagrees, however, with the Philippines on how to apply this standard to the current
dispute. Thailand argues that the Ph ilippines has failed to show that any of Thailand's arguments
before the Panel are ex post in that they differ from the grounds on which Thai Customs acted. In
Thailand's view, while the explanations provided to the Panel are much more detailed than those
provided to PM Thailand at the time of determination, the explanations before the Panel are consistent
with the grounds on which Thai Customs acted and th e explanations provided to PM Thailand at the
time.493
7.98 Furthermore, Thailand cont ests that the theory of ex post justifications can be applied to the
current dispute dealing with the customs valuati on measures, since it has been largely derived from
disputes relating to trade remedy measures. 494 Unlike the Anti-Dumping Agreement or the SCM
Agreement, the Customs Valuation Agreement does not require the customs administration to disclose
"all issues of fact and law considered material" at the time it makes a customs value determination.
Nor does it require the customs administration to in form all interested parties of the essential facts
under consideration which form the basis for the decision, as do Article 6.9 of the Anti-Dumping
Agreement and Article 12.8 of the SCM Agreement. In these circumstances, Thailand argues, there is
no logical or legal basis for a reviewing panel to decline to consider arguments by a defending
Member on the ground that they were not among the "issues of fact and law" or "essential facts"
disclosed at the time of the customs valuation. A ccording to Thailand, were the Panel to decline to
consider arguments put forth by Thailand in this dispute on ex post grounds, the Panel would, in
effect, be reading the disclosure provisions of the Anti-Dumping and the SCM Agreements into the

488 Philippines' response to Panel questions Nos. 4 and 6.
489 Philippines' response to Panel question No. 108.
490 Philippines' response to Panel question No. 16.
491 Thailand's second written submission, para. 15; second oral statement, paras. 3-8.
492 Thailand's combined response to Panel questions Nos. 4 and 6.
493 Thailand's response to Panel question No. 93(1).
494 Thailand's response to Panel question No. 93(2).

Customs Valuation Agreement, thereby improperly adding to or diminishing the rights and
obligations provided in the covered agreements.495
(ii) Analysis by the Panel
7.99 We recall our consideration in Section VII. B.2 above that an objective assessment under
Article 11 of the DSU, the proper standard of review for this Panel, must be understood in the light of
the relevant obligations of the s ubstantive agreement at issue, the Customs Valuation Agreement. In
this connection, the Appellate Body in US – Upland Cotton stated:
"Unlike in certain other instances under the WTO agreements, a panel conducting an
analysis under Article 6.3(c) of the SCM Agre ement is the first trier of facts, rather
than a review of factual determinations ma de by a domestic investigating authority.
Bearing this in mind, we underline the r esponsibility of panels in gathering and
analyzing relevant factual data and information in assessing claims under
Article 6.3(c) in order to arrive at reasoned conclusions."496
7.100 This statement suggests that the precise standard applicable to a panel's review of a claim, and
in particular to the factual aspects of a claim, de pends on whether the panel must conduct an analysis
of the facts as the first trier of facts or as a reviewer of factual determinations made by domestic
authorities. We understand this distinction to be ba sed on the nature of the specific obligations under
the particular provision of a given WTO-covered agre ement. We are also mindful of the Appellate
Body's view that the principles of the standard of review based on Article 11 of the DSU with respect
to one WTO-covered agreement can equally be applied to other WTO-covered agreements. 497 W e
will therefore be guided by the Appellate Body's cl arification of the standard of review under other
WTO-covered agreements in previous disputes.
7.101 The Philippines' claim under Articles 1.1 and 1.2(a) of the Customs Valuation Agreement that
Thai Customs improperly rejected the declared trans action values of the subject entries of cigarettes,
requires us to make an objective assessment of wh ether Thai Customs examined the circumstances of
the sale between PM Thailand and PM Philippines within the meaning of Article 1.2(a). As
summarized in Section VII.C.5(d) below, the parties' arguments in this regard are focused on whether
Thai Customs examined the evidence submitted by PM Thailand at the time of determination and
whether the Thai Customs' determination not to accep t the transaction value of the cigarettes at issue
can be justified by such evidence. Our mandate in examining the claims under Article 1.1 and 1.2(a)
is therefore to assess whether the Thai Customs determination under Article 1.2(a) is supported by the
factual evidence before it, but not to determine as the first trier of facts whether the relationship
between PM Thailand and PM Philippines influenced the price based on the information submitted by
PM Thailand at the time of the valuation determination.

495 Thailand further notes that the practice of declining to consider arguments or evidence on ex post
grounds is not as clear cut as the Philippines might suggest, even in disputes under the Anti-Dumping
Agreement (Thailand's response to Panel question No. 93(2)). Thailand cites to the Appellate Body Report, US
– Countervailing Duty Investigation on DRAMS , paras. 162 and 164. The Appellate Body stated at para. 162:
"The panel itself did not explain what it understood by a prohibition on " ex post rationalization", nor on what
basis such a prohibition would limit a Member's right to present evidence—as opposed to reasoning—in dispute
settlement proceedings" and at para. 164 "we are of the view that Article 22.5 does not require the agency to cite
or discuss every piece of supporting record evidence for each fact in the final determination").
496 Appellate Body Report, US – Upland Cotton, para. 458.
497 Specifically, the Appellate Body st ated that the standard of review principles with respect to the
Safeguards Agreement "apply equally to a panel's review of a Member's determination under Article 6 of the
ATC" (Appellate Body Report, US – Cotton Yarn, para. 75) and are "instructiv e for cases under the SCM
Agreement that also involve agency determinations" (Appellate Body Report, US – DRAMs CVD Investigation,
para. 184).

7.102 The substantive obligation under th e Customs Valuation Agreement that is relevant to the
formulation of the applicable standard of review of the Philippines' claims under Articles 1.1 and
1.2(a), is the obligation imposed on a customs admi nistration under Article 1.2(a) to communicate its
grounds for considering that, in the light of the in formation provided by the importer, the relationship
influenced the price. Further, under Article 16, upon request from the importer, the customs
administration must provide a written explanation as to how the customs value was determined, as
addressed in Section VII.C.6 below.
7.103 Consequently, an objective assessment of wh ether Thai Customs properly rejected the
transaction value by examining the circumstances of sale within the meaning of Article 1.2(a) must be
based on the grounds as well as on the explanation provided by Thai Customs under Articles 1.2(a)
and 16 respectively.
498 We find support for our view in the Appellate Body's statement in US – Lamb:
"It follows that the precise nature of the examination to be conducted by a panel, in
reviewing a claim under Article 4.2 of the Agreement on Safeguards , stems, in part,
from the panel's obligation to make an 'objective assessment of the matter' under
Article 11 of the DSU, and, in part, from th e obligations imposed by Article 4.2, to
the extent that those obligations are part of the claim. Thus, as with any claim under
the provisions of a covered agreement, pane ls are required to examine, in accordance
with Article 11 of the DSU, whether the Member has complied with the obligations
imposed by the particular provisions identif ied in the claim. By examining whether
the explanation given by the competent authorities in their published report is
reasoned and adequate, panels can determine whether those authorities have acted
consistently with the obligations imposed by Article 4.2 of the Agreement of
Safeguards."
499
7.104 The Appellate Body also emphasized that a panel must critically examine a domestic
authority's explanation "in depth, and in the light of the facts before the panel". 500 Although the
concerned provision in that dispute (Article 4. 2(a)) was under the Agreement on Safeguards, which
has a more detailed obligation to provide a "reasone d and adequate" explanation, we do not see the

498 We recognize that there may be a situation where the importer does not request a written
explanation under Article 16. We do not consider it necessary for the purpose of resolving this dispute to
determine the proper standard of review in such a situation.
499 Appellate Body Reports on US – Lamb , para. 105; US – Countervailing Duty Investigation on
DRAMs, para. 184. The Appellate Body in US – Steel Safeguards further states:
"[A] panel must not be left to wonder why a safeguard measure has been applied. ... As we
have said before, a panel may not conduct a de novo review of the evidence or substitute its
judgment for that of the competent authorities. Therefore, the "reasoned conclusions" and
"detailed analysis" as well as "a demonstration of the relevance of the factors examined" that
are contained in the report of a competent auth ority, are the only bases on which a panel may
assess whether a competent authority has complied with its obligations under the Agreement
on Safeguards and Article XIX:1(a) of the GATT 1994. This is all the more reason why they
must be made explicit by a competent authority. (paras. 298-299)

.... However, where a competent authority ha s not provided a reasoned and adequate
explanation to support its determination, the panel is not in a position to conclude that the
relevant requirement for applyi ng a safeguard measure has been fulfilled by that competent
authority...." (para. 303).

500 Appellate Body Report, US – Lamb, para. 106.

reason why the same principle would not apply to a panel reviewing the provisions under the Customs
Valuation Agreement that contains obligations of a similar nature.501
7.105 In this connection, we further recall the Appe llate Body's reasoning that panels need not
necessarily confine their review of a domestic aut hority's determination to an examination of that
determination in terms of the fact ual and legal arguments put forward by the interested parties during
the domestic investigation. 502 The Appellate Body in US – Countervailing Duty Investigation on
DRAMS also stated, "this is not to say that a panel is prohibited from examining whether the agency
has given a reasoned and adequate explanation for it s determination, in particular, by considering
other inferences that could reasonably be drawn fr om – and explanations th at could reasonably be
given to – the evidence on record. Indeed, a panel must undertake such an inquiry".503
7.106 We therefore conclude that in the light of th e nature of obligations under Articles 1.2(a) and
16 the Customs Valuation Agreement, the standard appropriate for our review of the Philippines'
claims under Articles 1.1 and 1.2(a) of the Custom s Valuation Agreement is to assess, based on the
grounds as well as the explanation provided by Thai Customs, whether Thai Customs' decision to
reject the transaction value of the imported cigare ttes at issue was consistent with the Customs
Valuation Agreement.
7.107 We will now commence our review of the parties' claims under the Customs Valuation
Agreement by applying the standard of review as set above.
(c) Whether Thailand maintained and applied a gene ral rule requiring the rejection of transaction
values and the use of the deductive valuation method in violation of Articles 1.1 and 1.2
(i) Main arguments of the parties
7.108 The Philippines submits that "[a] WTO Member is entitled to bring claims against any
general rules of prospective application that are attributable to another WTO Member, whether the
rule is formally published or not".504 The Philippines argues that Thailand's general rule, applied from
4 August 2006 until 19 March 2008, incl uded the following two elements: (i) the systematic refusal,
at the time of importation, to accept the transaction values for all entries of imported cigarettes, with
the collection of guarantees as a condition for allowing customs clearance 505; and (ii) the systematic
valuation of imported cigarettes using the deductive valuation method, instead of the transaction
value, at the time of final assessment.506 All entries that have been assessed after 19 March 2008 have

501 The Appellate Body further stated that "panel s must, therefore, review whether the competent
authorities' explanation fully addresses the nature, and, especially, the complexities, of the data, and responds to
other plausible interpretations of that data. A panel must find, in particular, that an explanation is not reasoned,
or is not adequate, if some alternative explanation of the facts is plausible, and if the competent authorities'
explanation does not seem adequate in the light of that alternative explanation. ..." (Appellate Body Report, US
– Lamb, para. 106).
502 Appellate Body Report, US – Lamb, paras. 110-116, referring to its report on Thailand – H-Beams,
para. 94.
503 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, footnote 278.
504 Philippines' response to Panel question No. 1, citing the Appellate Body Report, US – Zeroing (EC),
para. 198.
505 The Philippines submits that "with respect to aspect (1) (systematic refusal of transaction valuation)
of the general rule, Thailand refuse d to accept transaction value at the time of importation, and collected
guarantees for all [[xx.xxx.xx]] entries that were imported between 4 August 2006 until 19 March 2008, without
exception." (Philippines' response to Panel question No. 1) (emphasis added).
506 Philippines' response to Panel question Nos. 1 and 96(1). The Philippines submits that "with respect
to aspect (2) (systematic use of deductive valuation) of the general rule, Thailand valued imported cigarettes
using the deductive valuation methodology, instead of transaction value for all [[xx.xxx.xx]] entries for which
Thailand issued a notice of assessment for these entries between 11 August 2006 and 19 March 2008, again

been valued using the transaction value, even if th eir date of entry was during the same period as the
[[xx.xxx.xx]] entries for which transaction values were rejected.
7.109 The Philippines requests the Panel to find that Th ailand's general rule is inconsistent with
Articles 1.1 and 1.2 of the Customs Valuation Agr eement because it involves the systematic rejection
of the transaction value in related party sales both at the time of importation and at the time of
assessment, without examination of the circumstances of sale.
507 The Philippines asserts that various
Thai government documents demonstrate the existence or establishment of the general rule 508,
whereas Thailand's rejection of the transaction va lue and valuation using the deductive valuation
method in the [[xx.xxx.xx]] entries at issue is evidence of the application of the general rule. 509
Although Thailand is not appl ying its general rule today, it is unclear to the Philippines whether the
rule has been fully repealed or whether Thailand h as simply decided not to apply the rule for the time
being. Therefore, the Philippines requests that the Panel recommends th at, to the extent that the rule
continues to exist, Thailand brings it into conformity with its obligations under the Customs Valuation
Agreement.510
7.110 Thailand submits that the Philippines failed to est ablish that a "general rule and/or
methodology" existed as that term is understood in WT O jurisprudence, in particular according to the
threshold, as set by the Appellate Body in US – Zeroing (EC) , to be met to establish a general rule.
Thailand objects to the classification of the Thai customs valuation determinations at issue as a
general rule/methodology because the determinations challenged are not general and prospective in
nature: they only apply to a specific corporati on (i.e. PM Thailand), and the Philippines itself has
argued that such calculations are actually random and unpredictable in nature under different claims.
Thailand therefore submits that it does not have any practice of systematically rejecting the
transaction value for cigarettes.511
7.111 Thailand further argues that there is no need fo r the Panel to rule on this claim in order to
resolve the dispute before it. Th is is because the Philippines' claims with respect to the [[xx.xxx.xx]]
entries listed in the Philippines' panel request are with in the terms of reference. As long as the entries
listed in the Philippines' panel requ est constitute the measures at issue, there is no need for the Panel
to consider the general rule because no purpose woul d be served by also ruling on the revised claim
regarding a general methodology. 512 Finally, Thailand asserts that the Philippines misinterprets the
Thai Customs' memorandum dated 3 August 2006 in or der to prove the existence of the general rule.
This memorandum, which the Philippines alleges dictates general rules for the collection of
guarantees, clearly explains that the guarantees to be collected on PM Thailand's imports will be
based on the deductive valuation method used in the June 2006 Board of Appeals decision from
which the guarantee values were derived. 513 This memorandum therefore re lates directly to a specific
instance, and does not show the existence of a general rule.514

without exception" (emphasis added). These [[xx.xxx.xx]] entries are a sub-set of the [[xx.xxx.xx]] entries,
cleared between 11 August 2006 and 19 March 2008.
507 Philippines' response to Panel question No. 1.
508 Philippines' response to Panel question No. 96(1) (emphasis added).
509 Philippines' response to Panel question No. 96(1).
510 The Philippines refers to the Panel Report, EC – Approval and Marketing of Biotech Products ,
paras. 8.16 and 8.36.
511 Thailand's first written submission, para. 126.
512 Thailand's second written submission, para. 305.
513 Exhibit THA-38 includes a Thai Customs memo dated 9 August 2006, in which it states that the
customs valuation of cigarettes "needs to be valued by Method 4" and that PM Thailand is "facing the question
of how much guarantee should be imposed on such products". The memo goes on to explain that the
"maximum customs valuation" is the "deductive price" in accordance with the Bo A's "Decision No. Gor.Or.
19/2549". This refers to the BoA decision of June 2006, provided as Exhibit PHL-36, from which the values

(ii) Analysis by the Panel
7.112 The Philippines claims that Thailand maintains a general rule or norm of systematically
rejecting transaction values for certain imported goods and using the deductive valuation method for
customs valuation inconsistently with Article 1.1 and 1.2(a) of the Customs Valuation Agreement.
We will begin our analysis of the Philippines' claim by recalling the Appellate Body's consideration in
previous disputes of whether "general rules" can constitute a "measure" for the purpose of a WTO
dispute settlement proceeding.
7.113 The Appellate Body stated that measures that may be subject to WTO dispute settlement
include acts applying a written law in a specific cont ext and "acts setting forth rules or norms that are
intended to have general and prospective application".515 Regarding whether unwritten rules or norms
can also constitute a measure, the Appellate Body clarified in US – Zeroing (EC) that there is "no
basis to conclude that 'rules or norms' can be challenged, as such, only if they are expressed in the
form of a written instrument".516
7.114 In this connection, the Appellate Body has not ed that "a panel must not lightly assume the
existence of a 'rule or norm' constituting a measure of general and prospective application, especially
when it is not expressed in the form of a written document. If a panel were to do so, it would act
inconsistently with its obligati ons under Article 11 of the DSU to 'make an objective assessment of
the matter' before it". 517 The Appellate Body thus emphasized the need for clearly distinguishing
"between the issue of ascertaining the existence of the challenged measure, which is especially
important when unwritten measures are at issue; and the separate examination of its consistency with
the relevant provisions of the covered agreement".518
7.115 In particular, the Appellate Body states:
"When an 'as such' challenge is brought against a 'rule or norm' that is expressed in
the form of a written document – such as la w or regulation – there would, in most
cases, be no uncertainty as to the existence or content of the measure that has been
challenged. The situation is different, however, when a challenge is brought against a
'rule or norm' that is not expressed in the form of a written document. In such cases,
the very existence of the challenged 'rule or norm' may be uncertain."519
7.116 The Appellate Body stated that to support a finding of the existence of an unwritten rule or
norm, a complaining party must therefore show: (i) the rule or norm attributable to the responding
Member; (ii) its precise content; and (iii) its general and prospective application. 520 F u r t h e r , t o
determine whether the complaining party has proved the existence of an unwritten rule or norm, a
panel must examine the concrete instrumentalities that evidence the existence of the purported rule or

used as the guarantees required on PM Thailand's imports from August 2006 were derived. Thus, it is clear that
this memo refers to the issue of the establishment of the guarantee values, which were based on a previous
deductive value and were required as of the date of the memo, and not to the final valuation of the [[xx.xxx.xx]]
entries at issue, which did not take place until March 2007, after extensive further contact between PM Thailand
and Thai Customs.
514 Thailand's second written submission, para. 306.
515 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews, para. 187.
516 Appellate Body Report, US – Zeroing (EC), para. 193.
517 Appellate Body Report, US – Zeroing (EC), para. 196.
518 Appellate Body Report, US – Zeroing (EC), para. 203.
519 Appellate Body Report, US – Zeroing (EC), para. 197.
520 Appellate Body Report, US – Zeroing (EC), para. 198.

norm to conclude that such rule or norm can be challenged as such.
521 This evidence may include
proof of the systematic application of the challenged rule or norm.522
7.117 Given that the general rule allegedly maintained by Thailand is not in the form of a written
document523, our analysis of the Philippines' claim will be guided by the criteria, set out by the
Appellate Body as above, to be applied in examining an as such challenge against an unwritten rule or
norm as a measure. We will therefore first exam ine whether the Philippines has established the
existence of the unwritten rule or norm, namely the syst ematic rejection of the declared transaction
value and the systematic use of the deductive valu ation method. Only if we find, based on the
evidence before us, that the Phili ppines established the existence of the unwritten rule or norm, will
we continue with an examination of the consistency of such an unwritten rule or norm.
7.118 The Philippines claims that the existence or establishment of the alleged general rule is
demonstrated by the following eight categories of evidence:524
• A Thai Customs memorandum of 3 August 2006, a day before Thai Customs started
doubting declared transaction values of imported cigarettes, that states that Prime
Minister Thaksin instructed Thai Custom s to take action with respect to "very
unusually low declared values" for certain categories of imported goods, including
cigarettes
525;

• A Thai Customs memorandum of 9 August 200 6 that instructs Thai customs officers
to value all imported cigarettes using th e deductive valuation method 526, which
allegedly shows that Thailand adopted a policy of systematically rejecting the
transaction value, and using the deduc tive valuation method to value imported
cigarettes;

• The minutes of the 6 March 2007 meeting, stating that Thailand did not examine the
circumstances of sale, which is consistent with the fact that Thailand adopted a
general rule involving the systematic rejec tion of transaction value irrespective of the
circumstances of sale527;

521 Appellate Body Report, US – Zeroing (EC), paras. 197-198.
522 Further, the Appellate Body in US – Zeroing (EC) recognized the following factors as relevant to
determining the existence of an unwritten rule/norm: (i) the United States (the responding party) did not contest
that a certain instrument proved the application of the concerned rule for an extended period of time; (ii) the
United States had been unable to identify any instance where the rule was not applied; and (iii) the United States
had not contested in that proceeding that the rule reflects a deliberate policy. The Appellate Body noted that the
Panel concluded, based on its assessment of the evidence mentioned above, that "the zeroing methodology
manifested in the 'Standard Zeroing Procedures' [an instrumentality] represents a well-established and well-
defined norm followed by the USDOC and that it is possible based on this evidence to identify with precision
the specific content of that norm and the future conduct that it will entail." (Appellate Body Report, US –
Zeroing (EC) , paras. 199-200, citing the Panel Report, paras. 7.103-7.104). The Appellate Body further
observed that the evidence before the Panel consisted of the following: (i) USDOC determinations in the "as
applied" cases challenged by the European Communities; (ii) the standard programs used by the USDOC to
calculate margins of dumping; (iii) expert opinions regarding the use and the content of the rule; (iv) the United
States' indication at the Appellate Body oral hearing that it will soon be publicly announcing that it no longer
will engage in the rule at issue in certain circumst ances; and (v) the Anti-Dumping Manual as evidence of the
standard character of the rule.
523 Philippines' response to Panel question Nos. 96(2)(iii) and (iv).
524 Philippines' response to Panel question Nos. 1, 4, 6 and 96(1).
525 Exhibit THA-38. The Philippines states that this memorandum was the source of the events within
the Thai government that led to this dispute (its response to Panel question No. 1).
526 See supra footnote 513
527 Exhibit PHL-74.

• An analysis of Thai Customs' deductive testing, which indicates that the motivation of
Thai Customs' decisions was not the gap between the transaction values and the
deductive test values
528 and hence suggests the existence of a general rule involving
the systematic rejection of transaction value irrespective of the circumstances of sale;

• Thailand's acceptance of the transaction values fo r four entries that were cleared at or
around the same time as the [[xx.xxx.xx]] entries at issue (i.e. 11 August 2006 and 13
September 2007), but assessed after 19 March 2008, which shows that the basis for
accepting or rejecting transaction value was not the circumstances of sale, but the
Thai government policy prevailing at the time of assessment
529;

• A Thai Customs memorandum of 23 August 2006, entitled "guide price consideration
of liquor and beer products"530;

• A Thai Customs memorandum of 27 Sept ember 2006, entitled "Guideline on the
Customs Valuation of Alcoholic Beverages and Beer"531; and

• A Thai Customs meeting report of 24 Oct ober 2006 regarding the customs valuation
of "cigarettes, liquor, beer and wine products".532

7.119 In examining the Philippines' claim, we will assess whether these exhibits individually and/or
as a whole demonstrate the existence of the alleged general rule or norm.
7.120 The first element that needs to be established to prove the existence of an unpublished rule or
norm is that the alleged rule or norm is attributable to the responding Member. The alleged Thai
Customs' systematic refusal of transaction value and use of the deductive valuation method at issue is
attributable to Thailand as Thai Customs and Thai Excise both consist of appointed government
officials who are accountable to the Thai government . WTO Members are responsible for the actions
of their government officials, where their action is inconsistent with the WTO covered agreements.
533
7.121 Next, regarding the precise content of the alle ged general rule, the Philippines submits that
the Thai government's internal documents as listed above, show the applicability of the rule to
imported cigarettes, liquor, beer, and wine.534 We also understand from the Philippines' claim that the
general rule includes two elements: first, the syst ematic rejection of importers' declared transaction
value without properly examining the circumstances of the sale in related-party transactions; and,
second, the systematic use of the deductive valua tion method in determining the customs value of
imported goods.

528 The Philippines puts forward that this argument is based on its analysis that "when the gap between
the value was at its largest, Thailand accepted the declared transaction values; and, when the gap was at its
smallest, Thailand rejected the declar ed transaction values" (Philippines' combined response to Panel question
Nos. 4 and 6).
529 Philippines' second written submission, paras. 126-129; Exhibits PH L-200, PHL-201, PHL-202,
PHL-203, and PHL-219.
530 Exhibit THA-69.
531 Exhibit THA-70.
532 Exhibit THA-72.
533 Article 4(1) of the Articles on Responsibility of States for Internationally Wrongful Acts, annexed to
UN GA Resolution 56/83 (12 December 2001); Appellate Body Report, U.S. – Gasoline, p. 28.
534 Philippines' response to Panel question No. 96(2)(i).

7.122 As regards whether the alleged rule or norm has general and prospective application, the
Philippines refers to the following Thai government documents: (i) four Thai Customs memoranda
concerning customs valuation of cigarettes and alco holic beverages; (ii) the 24 October 2006 meeting
report; and (iii) the minutes of the 6 March 2007 meeting.
7.123 The Thai Customs memorandum of 3 August 2006 instructs, according to the order of the
Prime Minister, Thai Customs "to act carefully in making a customs valuation for imported products"
with "very unusually low declared values", including wine and cigarettes.
535 The language and
content of the memorandum, however, appears too broa d and vague to be considered as constituting a
rule or norm systematically rejecting declared transaction values or using the deductive valuation
method.
7.124 Further, the Thai Customs' memorandum of 9 August 2006 instructs Thai Customs officers to
value Marlboro and L&M imports by PM Thailand using the deductive valuation method. 536 T h i s
falls short of evincing a rule or norm requiring to systematically use the deductive valuation method
because the instruction in the subject memorandum appears to have been made because of the doubts
on the acceptability of PM Thailand's declared transa ction values that were triggered by the purchase
price of Importer A, not because of the existing norm or rule. In other words, the content of the
memorandum shows that Thailand was responding to a particular set of circumstances where an
importer's declared transaction value raised doubts as to its acceptability rather than systematically
applying a norm or rule. We are not presented with any evidence to understand otherwise. Similarly,
the minutes of the 6 March 2007 meeting also concer n customs valuation issues relating to cigarette
imports by PM Thailand only, not cigarettes in general.
7.125 Finally, Thailand based the customs value fo r PM Thailand's entries in the period August
2006-March 2007 on the deductive va luation method and it used these values as "test values" to
determine whether transaction values would be accepte d with respect to future entries. Thailand
states that it used these test valu es, because there was a gap between the declared transaction values
and the calculated deductive values.537 The Philippines argues that the results of this testing show that
Thailand's decision-making was arbitrary, and not based on the circumstances surrounding
PM Thailand's imports, since, when the gap between the declared transaction value and the test value
was at its largest, Thailand accepted the declared va lue; and, when the gap between the declared
transaction value and the test value was at its smallest, Thailand rejected the declared value.538
7.126 We note that all of the above mentioned memoranda, the 6 March 2007 meeting minutes and
Thailand's deductive testing concern valuation issues so lely relating to PM Thailand. The question is
therefore whether these government documents th at specifically concern PM Thailand can be
considered as showing the general and prospective application of the alleged general rule or norm.
7.127 In this connection, in previous disputes where claims under Article X:1 of the GATT 1994
were at issue, panels had an opportunity to addr ess the meaning of laws, re gulations and rulings "of
general application". In essence, a domestic agency's determination or ruling that concerns a
particular importer only was not considered per se determinative to deciding whether such a
determination or ruling should be considered as c onstituting a rule or norm of general and prospective
application. The Panel in Japan – Film , for example, found that "inasmuch as the Article X:1
requirement applies to all administrative rulings of general application, it also should extend to
administrative rulings in individual cases where such rulings establish or revise principles or criteria

535 Exhibit THA-38.
536 Exhibit THA-38.
537 Thailand's first written submission, paras. 62-63.
538 Philippines' combined response to Panel question No. 4 and 6, referring to its response to Panel
question No. 1.

applicable in future cases". 539 The Panel considered that, in such a case, it is incumbent upon the
complainant to clearly demonstrate the existence of such unpublished administrative rulings in
individual matters which establish or revise principles applicable in future cases. On the basis of the
text of the concerned official memoranda and the me eting minutes in this dispute, we do not find the
content therein to be applied generally and prospectively in future cases where similar issues arise.
7.128 The Philippines further submits that Thai Custom s' valuation of the [[xx.xxx.xx]] entries at
issue constitutes evidence of the ex istence of the general rule. Tha iland argues that "the concept of a
'general rule' applicable to all determinations cannot be extended to company-specific determinations
such as the valuation decisions under the Customs Valuation Agreement at issue in this case, even
where those determinations cover multiple entries". 540 As noted in the previous paragraph, we
consider that administrative rulings in individual cases could constitute rulings of general application
where such rulings establish or revise principles or criteria applicable in future cases. We further
consider that showing that an unwritten rule or norm has consistently been applied for an extended
period of time could also demonstrate the exis tence of the general rule. The panel in US – Zeroing
(EC) found that the evidence before it indicated that the concerned practice (zeroing) had been
invariably performed by the United States' government "for an extended period of time", as also
acknowledged by the Appellate Body. 541 In another zeroing dispute, the Appellate Body found that a
practice of zeroing was applied for approximately 20 years. 542 In the current dispute, the subject
valuation determinations were made for [[xx.xxx.xx]] entries assessed between 16 March 2007 and 10
October 2007, and cleared between 11 August 20 06 and 13 September 2007. The parties do not
dispute that Thai Customs is no longer rejecting the declared transaction values of PM Thailand's
cigarettes.543 We note that this is, for example, in contrast to the factual circumstances in US –
Zeroing (EC) where the United States could not point to any instance where the concerned practice
was not used. The Philippines is also not certain whethe r the alleged general rule may be applied to
imports in the future.544
7.129 Neither has the Philippines been able to point to a specific instance in which the alleged
general rule was in fact app lied to imported products other than the cigarettes imported by
PM Thailand. In the Philippines' view, because th e concerned general rule is challenged as such
"independently from the application" of the rule in any given case, evidence of the actual application
of a general rule is not required. 545 We do not agree with the Philippines. As set out above, an
allegation that an unwritten rule or norm violates WTO obligations requires the complaining party to
first show the existence of such a rule or norm for the very r eason that the concerned rule or norm is
unwritten. In these circumstances, the actual applica tion of an unwritten general rule will clearly
qualify as evidence of the existence of such a rule.

539 Panel Report, Japan – Film, para. 10.388. Previously, the Panel in US – Underwear considered that
an administrative order targeting a specific country did not preclude the possibility of it being a measure of
general application, whereas the same measure (general application of the initial date of calculation for a
safeguard measure, regarding silence of ATC interpreted as prohibition of practice) would not have qualified as
a measure of general application if it was addressed to a specific company or app lied to a specific shipment
540 Thailand's second written submission, para. 302.
541 Appellate Body Report, US – Zeroing (EC), para. 191.
542 Panel Report, US – Zeroing (Japan), para. 7.51-7.52.
543 Based on the fact that Thai Customs stopped reject ing the declared transaction values, the European
Communities, a third-party participant, also commen ts that "the existence of a general rule with prospective
effect would appear not to be at issue in this dispute." (emphasis added) (the European Communities' third party
oral statement, para. 3).
544 Philippines' response to Panel question No. 96(iv).
545 The Philippines refers to the Appellate Body finding in US – 1916 Act , paras. 60-61, (Philippines'
response to Panel question No. 96(2)(i), footnote 63). However, unlike in this case, in that dispute the
concerned measure was "legislation", not an unwritten rule or norm.

7.130 The Philippines refers to the meeting report of 24 October 2006, which in the Philippines'
view shows that the general rule was applied to cigarettes of two other importers because the meeting
addressed how to calculate a deductive value for im ports from these two companies for use as a test
value.
546 The meeting report indicates that the discu ssion concerned the valuation of cigarettes,
liquor, beer and wine imports and profit rates and general expenses of these products. It then provides
specific case considerations: first, the current guarantees used for Marlboro and L&M imports; and,
second, the direction according to which the proper profit rates and general expenses are applied in
calculating deductive values to test the declared transaction values of other cigarette importers such as
[[xx.xxx.xx]] company and [[xx.xxx.xx]] company. We do not find in the meeting report, however, a
government rule or policy directing Thai customs offi cers to systematically reject declared transaction
values for these imports or to use the deductive valuation method to determine – not to test – the
customs value of cigarette imports. We do not consid er that this meeting report shows the application
of the alleged general rule or norm to other cigarette imports as the Philippines submits.
7.131 The Philippines also argues that the statements by the Scotch Whisky Association and the
European Spirits Association demonstrate that the general rule has been applied to products other than
cigarettes.
547 These statements are press releases made by the above two associations. In these press
releases, using almost identical language, both associations welcome the European Union's decision in
January 2008 to request consulta tions with Thailand in the context of the WTO dispute settlement
regarding Thailand's customs valuation system 548 The associations state that Thailand has
systematically rejected product values declared by importers since September 2006 and has instead
calculated the value of imports according to an arbitrary, standard margin, breaching the WTO
Customs Valuation Agreement. We agree that certa in statements in the press releases, as pointed out
by the Philippines, echo the Philippines' position in this dispute with respect to Thai Customs
valuation determinations during the same period at issue. They also do indicate that certain alcoholic
beverage imports faced similar customs valuation issues in Thailand as the concerned cigarettes in
this dispute. Although we do not find these statements alone sufficient to prove the existence of an
unwritten general rule or norm, particularly given thei r nature as a secondary evidentiary source, we
do not eliminate the possibility that they may, cons idered together with other evidence, show the
existence of such a rule.549
7.132 Further, there is also no evidence showing a deliberate policy by the Thai Government of
maintaining a general rule. Thailand's acceptance of the transaction values for four entries that were
cleared at or around the same time as the [[xx.xxx. xx]] entries at issue (i.e. 11 August 2006 and 13
September 2007), but assessed after 19 March 2008, woul d not be sufficient to prove the existence of
a Thai government's deliberate policy of general and prospective app lication, although it might have
been a prevailing practice at the time of assessment. On the contrary, it illustrates the instances where
the alleged rule has not been applied, which goes against the Philippines' very position that Thailand
maintains a general rule or norm through the concerned valuation practice.

546 Philippines' response to Panel question No. 96(2)(ii), referring to Exhibit THA-72, pp. 2-3. We
understand based on this exhibit that Thai Customs undertakes a deductive value calculation, the result of which
is called 'test value'. If the test value is approximately the same as the declared value, then Thai Customs will
accept the declared transaction value.
547 Exhibits PHL-267 ("WTO talks on Thai customs rules welcomed" News Release by Scotch Whisky
Association, 28 January 2008), PHL-269 ("EU spirits producers welcome decision to file WTO talks on Thai
customs rules" Press Release by the European Spirits Organization (CEPS), 27 January 2008).
548 Thailand – Customs Valuation of Certain Products from the European Communities , WT/DS370,
request for consultations 30 January 2008.
549 The Philippines states that "the statements by the two associations demonstrate that the general rule
has been applied to products other than cigarettes" (Phili ppines' response to Panel question No. 96(2)(ii)). It is
our view that these statements may rather be referenced to assess the existence of the alleged general rule, not
the other way around. If the general rule were found to exist, we would not see any particular need to confirm
that the general rule applied to products other than cigarettes.

7.133 We are mindful that the burden of proving the existence of an unwritten norm or rule, as
elaborated by the Appellate Body, is rather high, sp ecifically because of the very fact that it does not
exist in the form of a written document. In th is case, we do not consider that the Philippines has
discharged its burden of proving that Thailand maintains an unwritten rule according to which Thai
Customs is required to reject the declared tran saction values and to use the deductive valuation
method. Given the high standard required to prove the existence of such an unwritten general rule, we
cannot uphold the Philippines' claim as the Philippines could not even refer to any instance in which
the alleged rule was applied to ot her concerned imports or any other cigarette brands. Nor did the
Philippines itself know whether the alleged general rule would apply in future cases. In this light, its
reference to a secondary evidentia ry source such as the press releases by other industry associations,
although raising certain doubts with respect to the circumstances surrounding the customs value
decision in Thailand during the period at issue, is no t sufficient in itself to prove the existence of the
alleged unwritten general rule.
(d) Whether Thailand improperly rejected PM Th ailand's declared transaction values of the
imported cigarettes at issue inconsistently with Articles 1.1 and 1.2
7.134 The Philippines claims that Thai Customs reject ed PM Thailand's declared transaction values
for the [[xx.xxx.xx]] entries at issue inconsistently with Article 1.1 and 1.2(a) because (i) it failed to
"examine" the circumstances of transaction betw een PM Thailand and PM Philippines within the
meaning of Article 1.2(a) and (ii) it rejected the transaction values base d on "invalid reasons".
Thailand contests the Philippines' claim. Thailand asser ts that the importer, PM Thailand in this case,
failed to establish to the satisfaction of the Thai customs authority that the relationship between the
importer and the exporter did not influence the transaction price.
7.135 We will begin our analysis by clarifying th e nature of obligations imposed on customs
authorities under Article 1.2(a) of the Customs Valuation Agreement.
(i) Obligations under Article 1.2(a)
Main arguments of the parties
7.136 The Philippines argues that in cases in which the parties are related and the customs
administration has doubts about the acceptability of the transaction value, Article 1.2(a) imposes an
obligation on the customs authority to investigate whether the relationship did have an effect on the
price.550 Pursuant to Article 1.2(a) and the Interpretative Note to Article 1.2, paragraph 3, in a related-
party transaction, an authority cannot reject the prop osed transaction value if it sits idly and does not
take active steps to establish that the relationship did, indeed, influence the price.
7.137 Specifically regarding the meaning of the phrase "shall be examined" in Article 1.2(a), the
Philippines argues that the requirement imposed on a customs authority to look into the circumstances
of sale entails two elements: (i) the requirement to seek and gather relevant information from the
importer and, if necessary, from other WTO Members; and (ii) the requirement to critically analyze
the gathered information and, upon request, explain how the facts, other than the relationship, justify
the rejection of the transaction value. 551 In the Philippines' view, the requirement to seek and gather
relevant information from the importer includes the obligation to request information from the
importer. To satisfy this requirement, customs au thorities, in accordance with Article 1.2(a), must
communicate "grounds", which should be based on facts and evidence, not legal conclusions, for
considering that the relationship influenced the pri ce, to the importer and provide the importer with a
reasonable opportunity to respond.

551 Philippines' response to Panel questions Nos. 4 and 6; second written submission, para. 76.

7.138 Thailand takes the position that once the customs administration decides to examine the
transfer price between the importer and the re lated seller, the importer, not the customs
administration, bears the burden of establishing that the relationship did not influence the price.
552
Thailand submits that the burden of proof is importa nt in understanding the responsibility of customs
administrations.553 Thailand argues that in every instan ce in which an individual or enterprise
complies with the disclosure requirements of tax, customs, and fiscal authorities of any WTO
Member, the burden is on the declarant to prove th e accuracy or reliability of the information he
provides to the authorities. 554 Thailand considers that this rule and the notion of a burden of proof
equally apply to the situation provided for in Ar ticle 1.2(a) of the Customs Valuation Agreement .
Imposing the burden of proof on the importer is consistent with the ru le that the burden of proof lies
with the party in possession of the facts. Therefore, when issues arise as to whether the negotiation of
prices between related buyers and selle rs were at arm's length, it is clearly the importer and its related
seller that are in possession of the facts and, therefor e, bear the burden of proving that the relationship
did not influence the price. In support of its position, Thailand refers to the Decision Regarding
Cases Where Customs Administrations Have Reasons to doubt the Truth or Accuracy of the Declared
Value (the "Decision"), Article 1.2(b) of the Customs Valuation Agreement, the WTO Technical
Committee Commentary, as well as a letter from the WCO Secretariat.555
7.139 Given that the importer has the burden of estab lishing that the relationship between the buyer
and the seller did not influence the price, the na ture of the examination to be conducted by the
customs administration is necessarily affected by how the importer chooses to discharge its burden
and by what evidence the importer submits. 556 Accordingly, the customs authority's requirement to
"examine" under Article 1.2(a) is satisfied by: (i ) notifying the importer that it has preliminarily
determined that there are grounds to consider that the relationship influenced the price and that
additional information is required; and (ii) review ing that information when such information is
provided.557 Thailand is of the view that its positio n is supported by Case Study 10.1 by the WTO
Technical Committee on Customs Valuation concerning the application of Article 1.2 558 and
documents by the customs authorities of the United States and Canada.559
7.140 Furthermore, Thailand points out that Article 1. 2(a) contemplates a very different type of
examination by the customs administration than that by the anti-dumping authority as envisaged under
the Anti-Dumping Agreement because, unlike the Customs Valua tion Agreement, the Anti-Dumping
Agreement imposes significant procedural obligations on investigating authorities.
560 For example,
Article 6.1 of the Anti-Dumping Agreement stipulates that parties in an anti-dumping investigation
shall be given notice of the information which the authorities require, whereas, under the Customs
Valuation Agreement, the customs administration shou ld give the importer an opportunity to provide
such additional information as may be necessary. Pu rsuant to the Customs Valuation Agreement, the
importer has the right to choose the kind of informati on and the method used. Thailand submits that
the Panel should not interpret the Customs Valuation Agreement to contain either substantive or

552 Thailand's first written submission, paras. 135, 149 and 151.
553 Thailand's response to Panel question No. 6.
554 Thailand's response to Panel question No. 5(3).
555 Thailand's first written submission, paras. 127-136; response to Panel question No. 5. The Decision
provides, in relevant part, that in such cases, "the customs administration may ask the importer to provide
further explanation, including documents or further evidence, that the declared value represents the total amount
actually paid ...".
556 Thailand's response to Panel question No. 6.
557 Thailand's response to Panel question No. 4; second written submission, paras. 37-47. In this
connection, Thailand considers that communicating doubts does not, in itself, constitute the extent of the
customs administration's responsibilities (Thailand's response to Panel question No. 6).
558 Thailand's response to Panel question No. 6; Exhibit THA-41.
559 Thailand's first written submission, para. 138; Exhibits THA-27 and THA-62.
560 Thailand's response to Panel question No. 6.

procedural obligations regarding the examination of an importer's declarati ons and the determination
of customs values that the drafters did not incl ude in that Agreement and which would make it
impossible for all but the WTO Members with the gr eater amount of resources to comply with the
Customs Valuation Agreement.561
7.141 The Philippines considers it unnecessary for the Panel in this dispute to decide whether the
Customs Valuation Agreement imposes a burden of proof in related-party situations. 562 If the Panel
were to consider it necessary to decide the issue, the Philippines questions the applicability of the
concept of "burden of proof" in the valuation settin g, particularly given that the Customs Valuation
Agreement does not use the term "burden of proof" or contains express treaty language on the legal
presumption to describe the evidentiary obligations imposed on importers. Specifically, the Customs
Valuation Agreement does not establish any legal pres umption that the transaction value is influenced
by the relationship in a related party transacti on, unless the importer proves the contrary. The
Customs Valuation Agreement provides that the fact that parties are related is not a sufficient reason
to reject the transaction value, which means that there is no legal presumption against the sales price
in a related-party transaction. A neutral "examina tion" under Article 1.2(a) of the Customs Valuation
Agreement can therefore be conducted w ithout any legal presumption. 563 The Philippines is of the
view that even if there is no burden of proof requirement, the importer's role, and the evidence it
provides, is extremely important and may even be decisive.
7.142 Thailand notes that there is a difference between the responsibility of the customs
administration to examine the facts, on the one hand, and the burden on the importer to produce
evidence that is sufficient to demons trate that the relationship did not influence the price. Thailand is
of the view that placing the burden of proof on the importer is not the same as establishing a "legal
presumption" against the transaction value. Requiring the importer to play its proper role in ensuring
that the provision in the second sentence of Article 1.2( a) is met is fully consistent with the ordinary
meaning and object and purpose of Articles 1.1 a nd 1.2(a) of the Customs Valuation Agreement and
does not amount to creating an impermissible "legal presumption" against the transaction value.
Thailand notes that this is also consistent with the second sentence of paragraph 1 of the Decision,
which states that in cases of doubt as to the truth or accuracy of declared values, "if, after receiving
further information, or in the absence of a response , the customs administration still has reasonable
doubts" it may reject the transaction value (emphasis by Thailand). Thailand submits that the
reference to "the absence of a response" makes clear that the burden of proof lies with the importer.
The textual analogy to Article 1.2(a) is to the reference in that provision to "information provided by
the importer or otherwise" because the reference to "otherwise" necessarily encompasses a failure by
the importer to provide information.
Analysis by the Panel

7.143 In this section, we address the parties' argu ments on the nature of obligations imposed on
customs authorities under Article 1.1 and 1.2(a), specifically the obligation to examine the
circumstances of sale in a related-party transaction. In this regard, we recall that the Interpretative
Notes contained in Annex I of the Customs Valuation Agreement are also an integral part of the
Customs Valuation Agreement . Accordingly, we will also refer to the Interpretative Notes in

561 Thailand also notes that the Customs Valuation Agreement does not contain any provisions
equivalent to Articles 6.9 and 12.2 of the ADA that provide for detailed substantive and procedural standards
with which a final anti-dumping determination must comply.
562 Philippines' response to Panel question No. 5.
563 Philippines' response to Panel question No. 5. The Philippines refers to examples in the WTO
covered agreements of provisions that establish legal presumptions with explicit language – Article 10.3 of the
Agreement on Agriculture, Article 6.2 of the SCM Agreemen t, Article 3.2 of the SPS Agreement, Article 2.5 of
the TBT Agreement.

interpreting the concerned provisions of the Customs Valuation Agreement with respect to the parties'
claims and arguments.
7.144 Article 1.1 of the Customs Valuation Agreement reads:
"PART I
RULES ON CUSTOMS VALUATION

Article 1

1. The customs value of imported goods shall be the transaction value, that is
the price actually paid or payable for the goods when sold for export to the country of
importation adjusted in accordance with the provisions of Article 8, provided:

(d) that the buyer and seller are not related, or where the buyer and seller
are related, that the transaction value is acceptable for customs
purposes under the provisions of paragraph 2."

7.145 Article 1 sets out the principle under the Customs Valuation Agreement that the customs
value of imported goods must be the transaction value provided that the conditions set out in
paragraphs (a) – (d) are met.
564
7.146 Sub-paragraph (d) of Article 1 stipulates, as one of the conditions for accepting the
transaction value, that the buyer and the seller should not be related.565 In a situation where they are
related within the meaning of Article 15, the cu stoms value of the concerned imported goods will be
the transaction value if that transaction value is acceptable for customs pur poses under Article 1.2.
Therefore, the obligation under Article 1.1 of the Customs Valuation Agreement to use the transaction
value as the customs value of imported goods is linked to Article 1.2(a) in a situation where the buyer
and the seller are related.566
7.147 Article 1.2(a) provides:
"2. (a) In determining whether the tr ansaction value is acceptable for the
purposes of paragraph 1, the fact that the buyer and the seller are related

564 The general principle under the Customs Valuation Agreement that the primary basis for customs
value is "transaction value", as indicated in paragraph 1 of the General Introductory Commentary of the
Agreement, is also reaffirmed in the recitals to the Customs Valuation Agreement by "recognizing that the basis
for valuation of goods for customs purpo ses should, to the greatest extent possible, be the transaction value of
the goods being valued." The preamble to the Ministerial "Decision Regarding Cases Where Customs
Administrations Have Reasons to Doubt the Truth or Accu racy of the Declared Valu e" also states that the
Ministers reaffirmed that "the trans action value is the primary basis of valuation under the [Customs Valuation
Agreement]".
565 Paragraphs (a)-(c) of Article 1.1 are not at issue in this dispute.
566 The European Union, a third party participant in this dispute, noted in its third-party submission that
the Philippines' request for a finding from the Panel in its first written submission refe rred only to Article 1.1,
and not to Article 1.2(a), with respect to Thai Customs' rejection of the declared transaction values for the
[[xx.xxx.xx]] entries at issu e. The European Union was of the view that the Panel should make a finding
pursuant to both Articles 1.1 and 1.2 of the Customs Valuation Agreement (European Communities' third party
written submission, footnote 22). The Philippines agrees with the European Union and points out that the
Philippines' panel request included claims under both Articles 1.1 and 1.2 in this relation and the Philippines
arguments set forth in its first writte n submission references both Articles 1.1 and 1.2, which are inter-related
provisions (Philippines' response to Panel question No. 18).

within the meaning of Article 15 shall not in itself be grounds for regarding
the transaction value as unacceptable. In such case, the circumstances
surrounding the sale shall be examined and the transaction value shall be
accepted provided that the relationship did not influence the price. If, in the
light of information provided by the importer or otherwise, the customs
administration has grounds for considering that the relationship influenced
the price, it shall communicate its grounds to the importer and the importer
shall be given a reasonable opportunity to respond. If the importer so
requests, the communication of the grounds shall be in writing.
..."
567
7.148 Article 1.2(a) stipulates in the first two sentences th at in a related-party situation, the fact that
the parties are related is not a sufficient basis fo r the customs authorities to reject the transaction
value. Under this circumstance, Article 1.2(a) imposes an obligation on customs authorities to
"examine" the circumstances of the sale. Based on the results of the examination, the customs
authorities must then accept the transaction value provi ded that the relationshi p did not influence the
price. We review first the procedural steps that the customs authorities' examination entails under
Article 1.2(a), and then the nature of the "examina tion" to be conducted by the customs authorities to
fulfil the obligations under Article 1.2(a).
7.149 In relevant part, the Interpretative Note to Article 1.2 provides:
"1. Paragraph 2(a) and (b) provide different means of establishing the
acceptability of a transaction value.
2. Paragraph 2(a) provides that where the buyer and the seller are related, the
circumstances surrounding the sale sha ll be examined and the transaction
value shall be accepted as the customs value provided that the relationship
did not influence the price. It is not intended that there should be an
examination of the circumstances in al l cases where the buyer and the seller
are related. Such examination will only be required where there are doubts
about the acceptability of the price. Where the customs administration has no
doubts about the acceptability of the pr ice, it should be accepted without
requiring further information from the importer. For example, the customs
administration may have previously examined the relationship, or it may

567 Article 15 provides for definitions of the terms used in the Customs Valuation Agreement.
Particularly, Article 15(4) provides:

"4. For the purposes of this Agreement, persons shall be deemed to be related only if:
(a) they are officers or director s of one another's businesses;
(b) they are legally recogni zed partners in business;
(c) they are employer and employee;
(d) any person directly or indirectly owns, controls or holds 5 per cent or more of the
outstanding voting stock or shares of both of them;
(e) one of them directly or indirectly controls the other;
(f) both of them are directly or indirectly controlled by a third person;
(g) together they directly or indirectly control a third person; or
(h) they are members of the same family.

5. Persons who are associated in business with one another in that one is the sole agent,
sole distributor or sole concessionaire, however described, of the other shall be deemed to be
related for the purposes of this Agreement if they fall within the criteria of paragraph 4."

already have detailed information concerning the buyer and the seller, and
may already be satisfied from such examination or information that the
relationship did not influence the price."
7.150 Therefore, paragraph 2 sets out that in a re lated-party situation, an examination of the
circumstances surrounding the sale is not requi red in all cases, but only when there are doubts about
the acceptability of the price. Article 1.2(a), take n together with paragra ph 2 of the Interpretative
Notes to Article 1.2, indicates that only when cu stoms authorities have doubts about the transaction
value in a related-party transaction, they will need to inquire into the accep tability of the transaction
value.
568
7.151 Paragraph 3 of the Interpretative Notes to Artic le 1.2(a) then provid es that "if the customs
administration is unable to accept the transaction value without further inquiry, it should give the
importer an opportunity to supply such further detailed information as may be necessary to enable
[the customs administration] to examine the ci rcumstances surrounding the sale". In examining the
circumstances of the sale, therefore, the customs ad ministration may, if and to the extent necessary,
choose to ask the importer to provide information re levant to the customs authorities' examination.
Paragraph 3 of the Interpretative No tes to Article 1.2(a) illustrates sp ecific examples of the aspects of
the transactions that the customs administration should be prepared to examine.569
7.152 Article 1.2(a) further requires that if the customs administration has grounds for considering
that the relationship influenced the price "in light of the information provided by the importer or
otherwise", the customs administration shall communi cate such grounds to the importer so as to "give
the importer a reasonable opportunity to respond". The phrase "in light of the information provided
by the importer or otherwise " indicates that Article 1.2(a) does not impose an obligation on the
customs administration to seek information or clarif ication from the importer when it decides to look
further into the circumstances of sale. Particularly, the term " or otherwise" in the subject sentence
and the absence of the requirement to seek informat ion from the importer in Article 1.2(a) confirms
that a customs administration may reach the deci sion on whether it has grounds for preliminarily
considering that the relationship influenced the pric e without informing the concerned importer of its
need for further inquiry or seeking information from the importer.
570 In other words, while a customs
administration may choose to inform the importer of its decision to examine the circumstances of sale,

568 We understand, and the parties do not dispute, th at customs authorities' 'doubts' on the acceptability
of the declared transaction value need not be communicated to the importer. (Thailand's first written submission,
para. 134; second written submission, para. 27. The Philippines does not contest this in its submissions).
569 The examples listed in paragraph 3 of the Interpretative Notes to Article 1.2(a) are as follows:
• the way in which the buyer and seller organize their commercial relations;
• the way in which the price in question was arrived at, in order to determine whether the relationship
influenced the price;
• where it can be shown that the buyer and seller, ..., buy from and sell to each other as if they were
not related, this would demonstrate that the price had not been influenced by the relationship. For
example:
o if the price had been settled in a manner consiste nt with the normal pricing practises of the
industry in question or with the way the seller settles prices for sales to buyers who are not
related to the seller; or
o where it is shown that the price is adequate to ensure recovery of all costs plus a profit which is
representative of the firm's overall profit realized over a representative period of time (e.g. on an
annual basis) in sales of goods of the same class or kind.
570 The European Union also appears to support this view. It states in its third party submission that
"Article 1.2(a) of the CVA does not limit the source or type of information which may trigger a further inquiry
by the customs authorities as to whether the relationship between the seller and the related importer influenced
the transaction price. The term 'oth erwise' is general enough to support the conclusion that customs authorities
may proceed to a further inquiry in cases of higher de clared transaction values by unrelated importers with
respect to the same product from the same seller." (European Union's third party submission, para. 33)

it is not required to do so in the light of the absence of language to that effect in Article 1.2(a). This is
in contrast to the phrase in Article 1.2(a) – "[the customs administration] shall communicate its
grounds to the importer" – that imposes an explicit obligation on the customs administration to
communicate its grounds regarding its consideration to the importer.
7.153 Despite the absence of the explicit obligation to inform the importer of its decision to examine
the circumstances of the sale, however, we wish to emphasize that it may still be highly desirable for
the customs administration to do so in order to facilitate the valuation process by respecting the
transparency principle underlying the process. We observe such an example in the clearance
procedures of Thai Customs according to which, if Thai Customs has grounds to question the
acceptability of the transaction value based on initia l clarification by the importer, a further
opportunity for additional clarification is provided to the importer.
571
7.154 Although Article 1.2(a) does not further ela borate on specific procedures subsequent to
customs authorities' communication of grounds, it is logical to understand that the scope of
Article 1.2(a) extends to the submission by the im porter of further information in response to the
customs authorities' communication of grounds for its consideration and the customs authorities'
subsequent determination to accept or reject the de clared transaction value. If a customs authority
decides to reject the transaction value, anothe r valuation method must be used by observing the
sequential order of the methods stipulated in Articles 2, 3, 5, 6 and 7.
7.155 Overall, therefore, the determination of whether to accept the transaction value as the customs
value in a related-party situation under Article 1.2(a) entails the following procedural steps:572
• The importer declares a transaction value for the goods imported;

• The customs authority is required to examin e the circumstances of the sale only if it
has doubts about the validity of the transaction value of the imported goods, because
the fact that the buyer and seller are re lated should not in itself be grounds for
regarding the transaction value as unacceptable
 573;

• The customs authority shall examine the circ umstances of the sale in the light of the
information provided by the importer or ot herwise and communicate to the importer
the grounds for preliminarily considering that the relationship influenced the price;

• The customs authority gives the importer a reasonable opportunity to respond. Given
the opportunity, the importer submits further information; and

• The customs authority makes a final d ecision on whether to accept the transaction
value.

571 Exhibit THA-4.
572 The parties also generally agree on the procedural steps required under Ar ticle 1.2(a). Parties'
responses to Panel questions Nos. 2 and 103; Exhibit THA-4 ("Flowchart of Thai Customs' Procedures for Entry
and Valuation"). The parties appear to agree that once importers provide initial information regarding the
acceptability of the transaction value, customs authorities must then communicate grounds based on such initial
information, which is distinguished from the information that the importers may subsequently provide in
response to the customs authorities' grounds (Parties' responses to Panel question No. 103) (emphasis added).
573 The parties appear to agree that customs authorities are not obliged under Article 1.2(a) to notify the
importer of the nature of their doubts about the acceptabi lity of the transaction value. (Thailand's first written
submission, para. 134; second written submission, para. 27. The Philippines does not contest this in its
submissions) This understanding is based on the text of Article 1.2(a) read together with paragraph 2 of the
Interpretative Note to Article 1.2.

7.156 Based on the procedural steps required in th e customs authorities' examination of the
circumstances of the sale as above, we can infer that the temporal scope of an examination under
Article 1.2(a) begins when a customs authority's doubts on the validity of the transaction value trigger
the need for an examination of th e acceptability of the transaction va lue, and ends when the customs
authority makes a final decision on the accepta bility of that transaction value. Once that
determination is made, either the transaction valu e will be accepted as declared by the importer under
Article 1.1 or another method will be used according to the sequential order of the valuation methods
to determine the value of the goods imported. Articles 2, 3, 5, 6 and 7 set out the respective method to
be used under each provision and describes how to apply such a method.
7.157 We now consider the substantive nature of the customs authorities' examination under
Article 1.2(a). While not disputing the overall se quence of the procedural steps as described above,
the parties disagree on the nature of the examination of the circumstances of the sale that the customs
administration must conduct under Article 1.2(a). In essence, the Philippines' position is that a
customs authority is obliged to undertake an activ e investigative role by requesting and gathering
information from the importer as well as other WTO Members and by analysing information
pertaining to the circumstances of the concerned transaction. On the other hand, Thailand emphasizes
that an obligation imposed on customs authoriti es to examine the circumstances of sale under
Article 1.2(a) must be considered in the light of the fact that the burden is on the importer to prove
that the relationship did not influence the price. As such, Thailand is of the view that the obligation
on the customs authority will be met as long as it notifies the importer of its preliminary determination
and reviews the information provided by the im porter before reaching a final conclusion on the
acceptability of the transaction value.
7.158 Turning first to ordinary meaning, the term "examine" can be defined as "2 verb trans.
Investigate the nature, condition, or qualities of (s omething) by close inspection or tests; inspect
closely or critically...; scrutinize; ... 3 verb trans. I nquire into, investigate, (a subject); consider or
discuss critically; try to ascertain ( whether, how, etc. )".
574 The dictionary definition of the term
"examine" therefore indicates that to examine a gi ven matter means to "inquire into, investigate or
consider critically" that matter. The dictionary m eaning of the term "examine" also suggests its link
to the word "investigate", which in turn is defined as " 1. verb trans. Search or inquire into; examine
(a matter) systematically or in detail; make an (official) inquiry into".575
7.159 The ordinary meaning of the term "examine" signifies that the customs authorities must
carefully consider, investigate and inquire into the information provided by importers concerning the
circumstances of the transaction. We also consider that the pr inciple under the Customs Valuation
Agreement that the primary basis of valuation is the tr ansaction value sheds light on the nature of
examination to be conducted concerning the circumstan ces of sale in a related-party situation. Given
that the transaction value should norm ally form the basis of a valuation, any situation giving rise to a
reason(s) for questioning the transaction value w ould naturally demand the customs authorities'
critical consideration of, inquiry into, and investigation of, the relevant situation.
7.160 At the same time, we understand that the pr incipal responsibility of providing relevant
information that may show the acceptability of th e transaction value, in accordance with the method
under either Article 1.2(a) or 1.2(b), rests upon the im porter. This is related to the fact that the
importer and, in certain situations, its related sel ler in an exporting country are in possession of the
facts relevant to the question before the customs authorities and therefore responsible for providing
customs authorities with sufficient information to enable them to assess the acceptability of the

574 The New Shorter Oxford English Dictionary, ( Fifth Edition) Oxford University Press, 2002, Vol. I,
p. 878 (2002).
575 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford University Press, 2002, Vol. I,
p. 1417 (2002).

transaction value. Specifically, for example, Article 1.2(a) refers to "in the light of information
provided by the importer". The Interpretative Note to Article 1.2(a) also stipulates in paragraph 3 that
the customs administration should "give the importer an opportunity to supply such further detailed
information as may be necessary to enable it to examine the circumstances surrounding the sale". The
text of paragraph 3 of the Interpretative Note to Article 1.2(a) therefore makes it clear that the
responsibility imposed on importers for providing sufficient informa tion is directly linked to the
objective of enabling the customs authorities to examine the circumstances of the sale.
576
7.161 In this connection, in US – Wheat Gluten , a dispute concerning certain obligations under the
Agreement on Safeguards, the Appellate Body clarified the nature of the investigation to be conducted
by the competent authorities: "[t]he focus of the investigative steps mentioned in Article 3.1 is on
'interested parties', who must be notified of the investigation, and who must be given an opportunity to
submit 'evidence', as well as their 'views', to the competent authorities. ... The Agreement on
Safeguards, therefore, envisages that the interested parties [importers , exporters and other interested
parties] play a central role in the investigation a nd that they will be a primary source of information
for the competent authorities". 577 To the extent that it is also th e importers that are responsible for
providing information to the customs authorities u nder Article 1.2(a) of the Customs Valuation
Agreement, we consider that the above observation ma de by the Appellate Body in the context of the
Agreement on Safeguards can assist us in clarifying the nature of the examination to be conducted by
customs authorities under Article 1.2(a). In our vi ew, therefore, as in the investigative process
necessary for the imposition of safeguard measures, importers "play a central role" in the customs
authorities' examination of the circumstances of sale in related-party transactions as importers are also
a primary source of information for the customs authorities.
7.162 In the same dispute, the Appellate Body also elaborated on "the scope of the obligation of
competent authorities to conduct an investigation". In essence, the Appellate Body underlined that
"competent authorities have an independent duty of investigation and that they cannot 'remain[]
passive in the face of possible short-comings in the evidence submitted, and views expressed, by the
interested parties.'"578 Specifically, the Appellate Body states in relevant part:
"[T]he ordinary meaning of the word 'i nvestigation' suggests that the competent
authorities should carry out a 'systematic inquiry ' or a 'careful study' into the matter
before them.579 The word, therefore, suggests a proper degree of activity on the part
of the competent authorities because authorities charged with conducting an inquiry
or a study – to use the treaty language, an 'investigation' – must actively seek out
pertinent information.

[T]he competent authorities must, in ever y case, carry out a full investigation to
enable them to conduct a proper evaluation of all of the relevant factors expressly
mentioned in Article 4.2(a)... Moreover, Article 4.2(a) requires the competent
authorities – and not the interested parties – to evaluate fully the relevant, if any, of
'other factors'. If the competent authorities consider that a particular 'other factor'

576 The negotiating history of the Customs Valuation Agreement also shows that certain developing
WTO Members expressed the view that in the light of the limited resources of their customs offices, the primary
responsibility of establishing the accep tability of the transaction value in a related-party situation should be
placed on importers. (T.P. Stewart, The GATT Uruguay Round: A Negotiating History (Kluwer Law
International, 1999), pp. 1128-1129).
577 Appellate Body Report, US – Wheat Gluten, para. 54.
578 Appellate Body Report, US – Lamb , para. 114 (emphasis in original), referring to Appellate Body
579 (original footnote) The New Shorter Oxford English Dictionary, supra, footnote 43, Vol. I, p. 1410.

may be relevant to the situation of the domestic industry, under Article 4.2(a), their
duties of investigation and evaluation preclude them from remaining passive in the
face of possible shortcomings in the evidence submitted, and views expressed, by the
interested parties. Ther efore, the competent author ities must undertake additional
investigative steps, when the circumstan ces so require, in order to fulfil their
obligation to evaluate all relevant factors."
580
7.163 Although the Appellate Body's statement is not directly on the customs authorities' obligation
to "examine" under the Customs Valuation Agreem ent, we find its clarification above of the
obligation to "investigate" relevant to our analysis of the nature of "examination". For one, as noted
above, the terms "examine" and "investigate" cross-re fer to each other in their dictionary meaning,
which indicates a substantive similarity, if not identic al, in their ordinary meanings. Further, both the
obligation to examine the validity of the transaction value under Article 1.2(a) of the Customs
Valuation Agreement and the obligation to carry out a full investigation to conduct a proper
evaluation of all of the relevant factors under Article 3.1 of the Agreement on Safeguards are imposed
on "domestic authorities".
7.164 As the Appellate Body inferred from the term "i nvestigate", we consider therefore the word
"examine" also suggests "a proper degree of activity on the part of the [customs authorities] because
authorities charged with conducting an inquiry or a study ... must actively seek out pertinent
information". To that extent, in order to proper ly examine the circumstances of a given transaction,
the customs authority must clearly indicate to the importer how it evaluates the information submitted
by the importer, including the insufficiency of the information submitted and, if necessary and
feasible, any further particular type of informa tion that may help them assess the validity of the
transaction value. This must, in our view, be carried out at the communication of grounds stage (the
required step under Article 1.2(a) identified in para graph 7.102 above) whereby the customs authority
will explain the grounds for consider ing preliminarily that the relationship influenced the price so as
to give a reasonable opportunity for the importer to respond.
7.165 We note Thailand's position that there is no ob ligation in the Customs Valuation Agreement
on the customs administration to communicate with the importer regarding deficiencies in the
information provided by the importer. 581 However, as explained in Section VII.C.5(e) below,
although not explicitly spelled out in the text of Article 1.2(a), we consider that the customs
authorities' obligation to communicate its evaluation of the evidence submitted as part of its "grounds"
is inherent in the meaning and the context of the term "examine". Otherwise, the importer would not
be able to effectively "enable" the customs administration to examine the circumstances of the sale.582
7.166 We underline in this regard that the oblig ations imposed on the customs authorities to
examine the circumstances of sale under the Customs Valuation Agreement at the same time need to
be understood against the succinct language of Article 1.2(a) of the Customs Valuation Agreement.

580 Appellate Body Report, US – Wheat Gluten, paras. 53-55.
581 Thailand's response to Panel question No. 100.
582 Besides, we note the Philippines' argument that, in its examination of the customs value, a customs
authority bears the obligation to seek information from other Members when the importer is unable to provide it.
The Decision relied on by the Philippines, however, does not suggest that information beyond what the importer
is able to provide must be sought by the customs authority. The Decision provides that in case of doubts as to
the accuracy of the transaction value,
"the customs administration may ask the importer to provide further explanation, including
documents or other evidence, .... If, after receiving further information, or in the absence of
a response, the customs administration still has reasonable doubts about the truth or
accuracy of the declared value, it may ... be d eemed that the customs value of the imported
goods cannot be determined under the provisions of Article 1 [of the Customs Valuation
agreement].

Particularly, for this reason, we are mindful that the extent and scope of the obligations imposed on
customs authorities to "examine" under Article 1.2(a) of the Customs Valuation Agreement cannot be
the same as that imposed on domestic investigative authorities under the WTO agreements concerning
trade remedy measures.
7.167 As Thailand submits, the procedural obligati ons imposed on investigating authorities under
the Anti-Dumping Agreement, the SCM Agreement and the Agreement on Safeguards are much more
detailed and specific than those imposed on customs authorities under Article 1.2(a) or Article 16 of
the Customs Valuation Agreement. For exampl e, Article 6.1 of the Anti-Dumping Agreement
stipulates that parties in an anti-dumping investigation "shall be given notice of the information which
the authorities require" and "ample opportunity to present in writing a ll evidence which they consider
relevant". Article 6.9 obliges the authorities to inform all interested parties of the essential facts under
consideration which form the basis for the decision whether to apply definite measures before a final
determination is made, whereas such requirements cannot be found in the text of Article 1.2(a) of the
Customs Valuation Agreement . Furthermore, Article 3.1 of the Agreement on Safeguards requires
the competent authorities to publish a report setting forth their findings and reasoned conclusions
reached on all pertinent issues of fact and law after the completion of their investigation.
7.168 Article 1.2(a) of the Customs Valuation Agreement, by contrast, uses less stringent language
in requiring that the customs administration give the importer a " reasonable opportunity to respond"
to the customs authority's consideration. The Inte rpretative Note to Article 1.2(a), in paragraph 2,
contains similar language stating that "[the cust oms administration] should give the importer an
opportunity to supply such further detailed informat ion as may be necessary to enable it to examine
the circumstances surrounding the sale".
7.169 The particular nature of the examination to be conducted by the customs authorities can
further be inferred from Case Study 10.1 on the appl ication of Article 1.2 of the Customs Valuation
Agreement by the WTO Technical Committee on Customs Valuation:
"Under Article 1.2 of the Agreement th e responsibility for demonstrating that
relationship [between buyer and seller] has not influenced price [sic] lies with the
importer. While the Agreement requires Customs to provide reasonable opportunity
to the importer to provide information that would indicate that prices are not
influenced by the relationship, it does not require the Customs administration to
conduct an exhaustive enquiry for the purpo se of justifying the price difference.
Thus, any decision in this regard must, to a significant degree, be based on the
information provided by the importer."
7.170 The WTO Technical Committee's comment supports the understanding that while customs
authorities are responsible for providing a "reasonable opportunity" to the importer to provide
information, once given this opportunity, importers are in principle liable for supplying the customs
authorities with information that would indicate that the relationship did not influence the price.
7.171 In sum, we consider that the customs authorities and importers have respective
responsibilities under Article 1.2(a). The customs aut horities must ensure that importers be given a
reasonable opportunity to provide information th at would indicate that the relationship did not
influence the price. Importers are responsible for providing information that would enable the
customs authority to examine and assess the circum stances of sale so as to determine the acceptability
of the transaction value. Provided with such in formation, the customs authorities must conduct an
"examination" of the circumstance of sale, whic h would require an active, critical review and
consideration of the information before them.

7.172 We find that the above understanding of the natu re of the respective obligations imposed on
customs authorities and importers under Article 1.2(a) is consistent with the objective of the Customs
Valuation Agreement to promote "a fair, uniform and neutral system for the valuation of goods for
customs purposes". As indicated in the Minist erial "Decision Regarding Cases Where Customs
Administrations Have Reasons to Doubt the Truth or Accuracy of the Declar ed Value", the Customs
Valuation Agreement aims at striking the balance between resp ecting the customs authorities' need to
address cases where it has reason to doubt the truth or accuracy of the particulars or of documents
produced by traders in support of a declared value and protecting the legitimate commercial interests
of traders. The process of examining the circum stances of the sale under Article 1.2(a) therefore
resembles that of consultation as both the importer and the customs administration respectively need
to make a good faith effort on the one hand to prov ide relevant information and on the other hand to
provide a reasonable opportunity to the importer to submit information and review the information
provided in reaching a final determination.
7.173 As a final observation, we note that in the course of this dispute, the parties have contested the
applicability of the principle of the burden of proof to the Customs Valuation Agreement, in particular
with respect to the examination of the circumst ances of sale in a related-party transaction. As our
analysis above illustrates, the nature of the oblig ations under Article 1.2(a) can be clarified on the
basis of the text of Article 1.2(a) considered in its context and in the light of the objective and purpose
of the Customs Valuation Agreement. Therefore, to that extent, we do not consider it necessary to
address the applicability of the notion of burden of proof in the context of the Customs Valuation
Agreement for the purpose of resolving the present dispute.
583
(ii) Thai Customs examination of the circumstances of the transaction betw een PM Thailand and
PM Philippines
Main arguments of the parties
7.174 The Philippines submits that the arguments and evidence before the Panel show that Thailand
failed to conduct an examination of the circumstances of sale within the meaning of Article 1.2(a).
To support its claim, the Philippines relies on the fo llowing five factors: (i) the minutes of the 6
March 2007 meeting, which state that Thailand did not examine the circumstances of sale; (ii)
Thailand's failure to examine the evidence submitted by PM Thailand regarding its costs and profits
(e.g. "referencing to" annual filings for FY 2003-2 005, further data on GAQ prices, a copy of 2005
Financial Statements...); (iii) Thailand's failure to seek cost information from PM Philippines; (iv) an
analysis of Thailand's deductive testing showing it is incoherent; and (v) Thailand's valuation of four
entries in March and September 2007 confirming that Thailand's valuation decisions were arbitrary.

583 In sum, Thailand has asserted before the Panel that the burden of proof is important in
understanding the responsibility of customs administrations and that importers bear the burden of proving that
the relationship did not influence the price. The Philippines questions whether the concept of burden of proof is
applicable to the valuation setting and, even if the concept were applicable, the Philippines argues that the
burden is on the customs authorities to establish that the relationship influenced the price before rejecting
transaction value.
We observe Thailand's reference to a letter from the WCO Secretariat to the Thai government [office of
customs counsellor at the Thai Embassy in Brussels] explicitly mentions the burden of proof. In relevant part, it
states that "since the acceptance of the transaction value is prima facie based on the condition that the buyer and
seller are not related, the burden of proof is generally c onsidered to be on the importer to demonstrate that the
transaction value is otherwise acceptable in spite of the fact that the buyer and seller are related."
(Exhibit THA-9, p. 2; Thailand's first written submission, para. 136). Setting aside the legal status of the letter
for the purpose of interpreting the obligations under Article 1.2(a), we do not find the WCO Secretariat's
reference to the term "burden of proof" dispositive of th e question of whether the burden of proof is applicable
to the Customs Valuation Agreement. The reference to the term in the letter appears to have been made more in
a general sense rather than as a legal concept as described above.

7.175 The Philippines argues that it is false for Th ailand to contend that PM Thailand made no
effort whatsoever and presented no evidence to est ablish that the relationship did not influence the
price.584 PM Thailand made repeated efforts to satisfy Thai Customs of that very fact.585
7.176 The Philippines also accepts that, in assessing Thailand's compliance with its substantive
obligations, the Panel may review the explanation given in the minutes of the 6 March 2007 meeting,
as a contemporaneous statement of the determination. 586 The Philippines points out that the
explanation given in the minutes, sent to PWC ABAS, for rejecting the transaction value is
substantively the same as the explanation given in th e 12 April letter: (i) PM Thailand's prices are
lower than Importer A's prices; and (ii) PM Thaila nd and PM Philippines are related. According to
the Philippines, in one respect, the minutes add to the 12 April letter because, in the minutes, Thai
Customs states that it did not examine the circumstances of sale.
587
7.177 Thailand submits that once Thai Customs informed PM Thailand that it had doubts about the
transfer price, PM Thailand took no steps and offered no supporting evidence to establish that the
relationship did not influence the price. 588 According to Thailand, the grounds for Thai Customs not
using the transaction value as the customs value were that PM Thailand failed to establish that the
relationship did not influence the transfer price.589
7.178 Thailand's position that Thai Customs did "exa mine" the circumstances of sale between PM
Philippines and PM Thailand within the meaning of Article 1.2(a) rests on the following three points:
(i) Thai Customs notified PM Thailand that furt her information was necessary; (ii) PM Thailand
failed to provide new or additional information/ev idence (other than its past [[xx.xxx.xx]] filings)
necessary to establish that the relationship between PM Philippines and PM Thailand did not
influence the price under one of the methods pr ovided in the Customs Valuation Agreement –
moreover, none of the evidence provided by PM Thailand in the course of the Thai Customs
examination of the circumstances surrounding the sal es at issue was sufficient; and (iii) Thai Customs
continued to examine the circumstances even afte r fulfilling its obligations under Article 1.2(a),
including the obligation to communicate its grounds for considering that the relationship influenced
the price by sending the 19 December 2006 letter, a nd after receiving the 5 February 2007 letter from
PM Thailand indicating that it wanted the valuation expedited.
7.179 Thailand argues that even after its 19 Decemb er 2006 letter, and in the absence of further
claims or evidence regarding the circumstances of sale by PM Thailand, Thai Customs continued to
examine the sales by regularly interacting with , and requesting information from, PM Thailand.
590 In
this connection, Thailand refers to oral co mmunications, correspondence, and meetings with
PM Thailand and its representatives (PWC) that took place during February-March 2007, including
Thai Customs' contacts with PWC. 591 Although there is no documentary record of the content of

584 Philippines' first oral statement, para. 47, citing Th ailand's statements in its first written submission,
paras. 54 (see also 48, 69 and 70) and 158.
586 Philippines' response to Panel question No. 108.
587 Philippines' second oral statement, para. 49; response to Panel question No. 108.
588 Thailand's first written submission, paras. 153-160.
589 Thailand's first written submission, para. 162. Thai Customs did not rely on a comparison between
PM Thailand's c.i.f. prices and the c. i.f. prices for duty-free purchases as a ground for rejecting the transaction
value.
590 Thailand's second written submission, paras. 77-84.
591 Thailand submitted a new piece of evidence in this connectio n – statement of Mrs. Natina
Santiyanont (Exhibits THA-64 and TH A-65) regarding the circumstances of Thai Customs' interaction with
PWC and its attendance at the 6 March 2007 meeting on behalf of PM Thailand. Thailand argues that this
evidence proves that the minutes of the 6 March 2007 meeting were mailed to PWC on behalf of PM Thailand
(Thailand's second written submission, para 79, footnote 57).

some of the telephone conversati ons and meetings between Thai Customs and PM Thailand, it does
not appear to be contested that these extensive c ontacts between Thai Customs and the importer took
place. Therefore, unless the Philippines proves that these contacts were not an examination of the
circumstances surrounding these sales within the meaning of Article 1.2(a), Thai Customs must be
presumed to have acted in accordance with its obligations under that provision.
7.180 Regarding the fact that Thai Customs is now accepting PM Thailand's declared values using
the deductive values at which the [[xx.xxx.xx]] entrie s were valued as "test" values, Thailand rejects
entirely the implication that Thai Customs' d ecision to accept transaction values is in any way
evidence that prior non-acceptance was inconsistent with Thailand's WTO obligations.
592
Analysis by the Panel
7.181 Based on the nature of the obligations impos ed on customs authorities to "examine" the
circumstances of the sale under Article 1.2(a) as clarified in the previous section, we will now
evaluate the Philippines' claim that Thai Customs failed to examine the circumstances of the
transaction between PM Thailand and PM Philippines within the meaning of Article 1.2(a).
7.182 In this connection, we recall our discussion in Section VII.B.2 above that the standard
appropriate for our review of the Philippines' cl aims under Articles 1.1 and 1.2(a) was an objective
assessment of the matter before us in the light of the substantive obligations under Articles 1.1 and
1.2(a). We further clarified that customs author ities are obliged under Article 1.2(a) to communicate
their grounds for their consideration before making a final decision on whether to reject the
transaction value and under Article 16 to explain their final valuation determination after the valuation
process is complete.
593 Given these obligations, which are also pa rt of the Philippines' claims in this
dispute, our objective assessment whether Thai Cu stoms properly examined the circumstances of sale
must be based on Thai Customs' grounds and explanations provided. In other words, we must
evaluate, based on Thai Customs' communication of grounds and explanations, whether Thai Customs
properly examined the circumstances of sale between PM Thailand and PM Philippines in the light of
the information before it at the time of the determination. If Thai Customs is found to have conducted
a proper examination under Article 1.2(a), its dete rmination to reject the transaction values of the
entries at issue will also be considered consistent with its obligations under Article 1.1 and 1.2(a).
7.183 We start our analysis with a description of th e main interactions between Thai Customs and
PM Thailand for the period of August 2006-April 2007. In so doing, we will bear in mind the
procedural steps to be taken under Article 1.2(a) as discussed in the previous section.
CORRESPONDENCE SURROUNDING THE VALUATION OF THE ENTRIES AT ISSUE
(AUGUST 2006–APRIL 2007)

DATE PM THAILAND THAI CUSTOMS
4 August 2006 Sent a letter to Thai Customs replying to Thai
Customs doubts on the transaction value of
the same day referencing to its annual data
filings for FY 03, 04, 05 and [[xx.xxx.xx]].
594
Started questioning the acceptability of the
transaction value of the cigarettes at issue

592 Thailand's second written submission, para. 92.
593 An analysis of the differen ce between the obligations under Article 1.2(a) and Article 16
respectively is at para. 7.213
594 Exhibit PHL-55.

DATE PM THAILAND THAI CUSTOMS
7 August 2006

Sent a letter to Thai Customs advising that
Thai Customs could examine the cost
structure of PM Thailand through the
supporting documentation for Form D.
595
Orally advised PM Thailand that further
information was required.
8 August 2006

Sent a letter to Thai Customs
− referencing [[xx.xxx.xx]]
− asking Thai Customs to (i) accept the
declared values; or (ii) explain in writing
why it was not clearing the goods at the
declared values
596;
− providing a copy of PM Thailand's most
recent annual filing to Thai Customs (FY
05), showing PG&E of [[xx.xxx.xx]] and
deductive value calculation.
597

11 August 2006 Sent a "written notice" of the guarantee
amounts to PM Thailand.598
15 Sept. 2006 Thai Customs Audit Bureau sent a letter to
PM Thailand requesting additional
financial info.599
25 Oct. 2006 Sent a letter to Thai Customs
− requesting a "written confirmation" of the
reasons for Thai Customs' rejection of
PM Thailand's declared invoice prices600;
− asserting that Thai Customs' deductive
testing methodology demonstrated the
acceptability of its d eclared transaction
value; - referencing to annual filings.

8 Nov. 2006 Sent a letter to Thai Customs
− requesting to accept the declared
transaction values;
− if not, requesting to notify the assessed
value and to clarify how the values were
assessed.601

20 Nov. 2006 Sent a letter to Thai Customs
− complaining about the guarantees being
required to clear its goods;
− requesting for "an explanation" for
rejecting the declared transaction
values602;
− requesting to notify the assessed value
and to clarify how the values were
assessed.

595 Exhibits PHL-57 and PHL-76.
596 The Philippines submits that by this letter, it made a first request for Thai Customs' "grounds" for its
consideration under 1.2(a) (Philippines' response to Panel question No. 114; Exhibit PHL-56). The Philippines
also refers to Thailand's second oral statement, para. 24.
597 Exhibit PHL-56.
598 Exhibit PHL-59.
599 Exhibits PHL-19 and PHL-138.
600 Exhibit PHL-60. The Philippines submits that this was the second request for Thai Customs'
grounds under 1.2(a).
601 Exhibit PHL-268. The Philippines submits that this was the first request for an explanation under
Article 16 (Philippines' response to Panel question No. 114).
602 Exhibit PHL-65. The Philippines submits that this was the second request for an explanation under
Article 16.

DATE PM THAILAND THAI CUSTOMS
19 Dec. 2006 Sent a letter "communicating its grounds"
under Article 16 that "the importer has yet
to prove if the said relationship influenced
the customs value determination or not".
603
5 Feb. 2007 Sent a letter to Thai Customs asking Thai
Customs to expedite its examination and
valuation of the entries at issue and to use a
testing methodology.604

15 Feb. 2007 Orally advised PM Thailand to provide its
2006 financial statements to assist in the
valuation process.
605
16 Feb. 2007 Sent a letter to Thai Customs606
− confirming that the 2006 statements were
not yet ready, and instead indicated that it
was pleased to submit 2005 statements;
− submitting financial statements for FY 05
and PG&E.

21 Feb. 2007 Sent a letter to Thai Customs with new
information on the sales price of its GAQ sale
and certain adjustments, which was ultimately
used in the calculation of the deductive values
for the cigarettes at issue.607

26 Feb. 2007 Sent an invitation letter to PWC (ABAS) to
meetings on 2 and 6 March.608
27 Feb. 2007 Sent a letter to managing director of
PM Thailand requesting information
relevant to the determination of the customs
value of the company's imports.609
2 March 2007 Sent a letter to PWC (ABAS) requesting
additional info;610 and
Held a meeting with two PWC entities.
6 March 2007 Sent a letter to Thai Customs requesting the
use of a "deductive method".611
Held a meeting, and invited PWC (ABAS)
to discuss the financial data that had been
provided and Thai Customs' subsequent
calculations of deductive values.
7 March 2007 Following a request from Thai Customs, sent
a letter Thai Customs providing further
information supporting the information
provided in the 21 Feb. 07 letter.
612

603 Exhibit PHL-66.
604 Exhibit PHL-68.
605 Thailand's response to Panel question No. 10; Tha iland's first oral statement, para. 31. Thailand
submits that the sentence "we wish to confirm our advice yesterday" in the 16 February letter (Exhibit PHL-137)
by PM Thailand confirms the fact that on 15 February oral communications took place, the Philippines does not
rebut this.
606 Exhibit PHL-137.
607 Exhibit THA-39.
608 Exhibit THA-10.
609 Exhibit THA-11.
610 Exhibit THA-12.
611 Exhibit THA-92.
612 Philippines' response to Panel question No. 29; Exhibit PHL-169.

DATE PM THAILAND THAI CUSTOMS
14 March 2007 In response to a further request from Thai
Customs, sent a letter to Thai Customs
providing further info, including information
relating to PM Thailand's payments to PM
Philippines.
613

15 March 2007 Started issuing the notices of assessment
for the entries at issue
5 April 2007

Sent a letter to Thai Customs.614
12 April 2007

 Sent a letter to PM Thailand - providing an
explanation as to how the customs value
was determined.
615

7.184 Regarding the above sequence of events, the Ph ilippines does not appear to take issue with
whether Thai Customs had formally taken the overall procedural steps envisaged under
Article 1.2(a).616 In other words, the Philippines does not c ontest the fact that Thai Customs sent the
letters of 19 December 2006 and of 12 April 2007 to PM Thailand, which respectively form the
communication of grounds and the explanation of its determination in the formalistic sense. Rather,
the Philippines' claims are focused on the substantive aspect of the requirements under Article 1.2(a).
Particularly, the Philippines alleges that Thai Cust oms failed to "examine" the circumstances of sale
within the meaning of Article 1.2(b) because it i gnored the evidence submitted by PM Thailand at the
time of determination. According to the Philippine s, Thai Customs' explanations in its letter of
12 April 2007 and the minutes of the 6 March 2007, allegedly invalid and insufficient, show the
inadequate examination of the circumstances of the sale.
7.185 Thailand argues that Thai Customs properly examin ed the circumstances of sale. Contrary to
the Philippines' argument, once Thai Customs informed PM Thailand that it had doubts about the
transfer price, PM Thailand took no steps and o ffered no supporting evidence to establish that the
relationship did not influence the price. 617 According to Thailand, the grounds for Thai Customs not
using the transaction value as the customs value were that PM Thailand failed to establish that the
relationship did not influence the transfer price.618
7.186 First, it is not disputed that PM Thailand presented Thai Customs with information that, in the
Philippines' view, was sufficient to establish that its relationship with PM Philippines did not
influence the price. The table above shows that PM Thailand submitted a numb er of letters, together
with financial data and information, to Thai Cu stoms during the period at issue. In sum, the
Philippines appears to have largely relied on the documents and financial data relating to Thai
Customs' deductive testing method that were memorialized in the [[xx.xxx.xx]]. 619 Specifically, the

613 Philippines' response to Panel question No. 29; Exhibit PHL-170.
614 Exhibit PHL-69. The Philippines submits that this was a further request for an explanation under
Article 16 and a request for an explanation under Article 7.3 (Philippines' response to Panel question No. 114).
615 Exhibit PHL-70.
616 We note Thailand's argument that Thai Customs properly examined the circumstances of transaction
at issue by notifying the importer of its grounds for considering that the relationship influenced the price and of
the need for additional information and by reviewing the additional information provided by PM Thailand.
However, what is contested by the Philippines is whether Thai Customs examined all the relevant evidence
provided by PM Thailand at the time of determination.
617 Thailand's first written submission, paras. 153-160, referring to Exhibit THA-28.
618 Thailand's first written submission, para. 162. Thai Customs did not rely on a comparison between
PM Thailand's c.i.f. prices and the c. i.f. prices for duty-free purchases as a ground for rejecting the transaction
value.
619 The Philippines' response to the Panel question No . 16, also referring to its first oral statement
(paras. 36-56). Exhibit PHL-39. Regarding the [[xx.xxx.xx]], the Philippines states that [[xx.xxx.xx]]

information provided by PM Thailand up un til 19 December 2009, when Thai Customs
communicated its grounds, includes the following: (i) annual data filing for FY 2003, 2004, and 2005;
(ii) annual filings to Thai Customs for FY 2005, which contains the company's PG&E [gross
margin]
620 of [[xx.xxx.xx]] and a deductive calculation showing the sales prices to the first
independent buyer in the GAQ 621 price as well as certain deductions to be made from this price
(including sales allowances, the costs of transporta tion in Thailand, and the provincial tax); (iii) a
copy of the [[xx.xxx.xx]] together with informati on on gross margin calculations which had already
been submitted to Thai Customs on 17 July 2006 622; (iv) evidence that the company has ordered and
made payments according to invoice prices without any additional payment either directly or
indirectly (import tickets for the three most re cent shipments, remittance document for the same) 623;
(v) a table comparing the declared import price (invoice c.i.f. value) to the new import price (Customs
imposed new reference c.i.f. value) orally re ported to PM Thailand ( no written confirmation). 624 To
the extent that PM Thailand provided in good faith the above-mentioned evidence to establish that the
relationship did not influence the price, we cons ider that PM Thailand did fulfil its procedural
responsibility under Article 1.2(a) to provide information to the customs administration.
7.187 Whether the information actually submitted by PM Thailand pertained to the acceptability of
the transaction value and, if so, whether it was su fficient to establish the acceptability is of course
another matter. Thailand asserted before this Pane l that the information provided by PM Thailand as
above did not prove that the rela tionship did not influence the pric e because information showing the
accuracy of the declared value was neither at issue at that time nor probative of whether that price was
at arm's length. Thailand argues that Articles 1.2( a) and 1.2(b) and the Interpretative Notes describe
several methodologies whereby the importer can establis h that its relationship with the foreign seller
did not influence the price between the tw o within the meaning of Article 1.2(a). 625 According to
Thailand, however, PM Thailand did not provide evidence relating to any of these methods, or any
other method, that was sufficient to establish th at the relationship between PM Philippines and
PM Thailand did not influence the price within the meaning of Article 1.2(a). 626 The financial data
and information of the kind provided by PM Tha iland, according to Thailand, does not establish the
"costs plus" approach listed in pa ragraph 3 of the Interpretative Notes to Article 1.2(a). Nor is the
information appropriate to c onduct the deductive value calculation within the meaning of
Article 1.2(b) and 5.

(Exhibit PHL-34, point 5) and that [[xx.xxx.xx]] Thailand contests this and states that the [[xx.xxx.xx]] has not
formal status and that Thai Custom s never accepted or agreed to be bound by the [[xx.xxx.xx]]. Moreover,
Thailand holds that Thai Customs never used the methodology allegedly contained in the [[xx.xxx.xx]] as the
basis either for the customs value for any of PM Thailand's imports or even as test values for PM Thailand's
imports during the period 2003-2006. (Philippines' response to Panel question Nos. 8, 11 and 17; Thailand's
response to Panel question No. 11).

620 The parties appear to use these two terms interchangeably. Exhibit PHL-42.
621 Article 5.1 of the Customs Valuation Agreement refe rs to the "unit price at which ... goods are sold
in the greatest aggregate quantity", the GAQ price. In the Note to this Article it is explained that this GAQ price
means "the price at which the greatest number of units is sold in sales to persons who are not related to the
persons from whom they buy such goods at the first commercial level after importation at which such sales take
place".
622 The Philippines' response to the Panel question No . 16, also referring to its first oral statement
(paras. 36-56).
623 Exhibit PHL-57.
624 Exhibit PHL-58.
625 Thailand's second written submission, para. 49.
626 Thailand's second written submission, paras. 50-51. Thailand refers to the evidence provided by
PM Thailand that the Philippines summarized in para. 45 of its first oral statement and in its response to Panel
question No. 16.

7.188 In the light of the nature of the obligation to "examine" under Article 1.2(a), as clarified in
paragraphs 7.158-7.159 above, upon receiving information and data from PM Thailand, Thai Customs
was required to inquire into, investigate and criti cally consider such information and data and
communicate its grounds and explain th e final determination. In this regard, we wish to emphasize
that this question should be distinguished from the question of whether the content of the information
provided by PM Thailand did not establish the va lidity of the transaction value as explained by
Thailand [before the Panel]. Addressing the latte r would amount to acting outside our mandate to
make an objective assessment of the matter at issue.627
7.189 Turning back to the question before us, we re cognize that it may well be that Thai Customs
critically considered the information and data s ubmitted based on the reasons it has provided to the
Panel in this proceeding. However, we would not be in the position to find that Thai Customs did in
fact examine such information unless such reasoni ng is provided in its communication of grounds and
its explanations to the importer in accordance w ith the obligations under the Customs Valuation
Agreement. In its explanation given in the 12 April 2007 letter, Thai Customs does not elucidate the
reason why it reached the conclusion that the relati onship influenced the price with respect to the
entries at issue. We therefore do not have the evidence confirming that Thai Customs did in fact
examine the circumstances of the sale by critically considering all information and data before it at the
time of determination, as it claims in this proceeding.
628 We do not find any other explanation in the
subject letter than that the importer and the exporte r are related and that the importer failed to meet
the burden of proof. As explicitly stipulated in Artic le 1.2(a), however, the mere fact that an importer
is related to an exporter is not sufficient in itself for a customs administration to reject the transaction
value. Article 1.2(a) requires the customs administration to examine the circumstances of the sale in a
related-party transaction. Consequently, it follows that Thai Customs was under an obligation to
explain why it decided to reject the transaction va lue, including the basis fo r considering that the
relationship influenced the price, after it had examined the circumstances of the sale.
7.190 Thailand further submits that the grounds for Thai Customs not using the transaction value as
the customs value were communicated in its lette r of 19 December 2006, namely that PM Thailand
failed to establish that the relationship did not influence the transfer price. 629 Other than this
statement, the concerned letter does not include any of the other explanations that Thailand provided
in this proceeding, as noted in the previous paragr aph. Without informing the importer of the basis for
its consideration that the information provided up until that stage of the process did not establish the
validity of the transaction value, the importer would not have been able to effectively, if at all,
respond to the authority's consideration. This would further hinder the ability of the customs
authorities to properly examine the circumstances of sale under Article 1.2(a).
7.191 Furthermore, Thai Customs' explanation for the final determination of the final customs value
for the entries at issue is contained in its lette r dated 12 April 2007 and the minutes of the 6 March

627 See Section VII.B.2.
628 We recall the Appellate Body's statement in US – Steel Safeguards:

"[A]s stated above, because a panel may not conduct a de novo review of the evidence before
the competent authority, it is the explanation given by the competent authority for its
determination that alone enables panels to determine whether there has been compliance with
the requirements of Article XIX of the GATT 1994 and of Articles 2 and 4 of the Agreement
on Safeguards. It may well be that, as the United States argues, the competent authorities
have performed the appropriate analysis correctly. However, where a competent authority has
not provided a reasoned and adequate explanation to support its determination, the panel is not
in a position to conclude that the relevant requirement for applying a safeguard measure has
been fulfilled by that competent authority...." (para. 303)

629 Thailand's first written submission, para. 162.

2007 meeting. We address the consistency of Thai Customs' explanations in these instruments with
the obligation under Article 16 in Section VII.C.6 belo w. Thai Customs indicates in the letter as the
reason for its decision to reject the transaction valu e the following statement: "[t]he company and the
overseas seller are related parties, and it cannot be proven whether the relationship has an influence on
the determination of customs values or not". Ho wever, none of the explanations provided by
Thailand in this Panel proceeding were set out in the Thai Customs' letter of 12 April 2007. In
response to the Panel question of whether Thai Cu stoms ever communicated the same explanations
that were given in this Panel proceeding to PM Thailand during the domestic proceedings, Thailand
submits that although its explanati ons before the Panel are much more detailed, they are fully
consistent with the grounds on which Thai Cust oms acted and the explanations provided to
PM Thailand at the time.
630 As already addressed above, however, in the light of the nature of the
obligation to "examine" the circumstances of the sa le, considered in the due process objective of
Article 1.2(a) as well as the Customs Valuation Agreement in its entirety, the absence of any
explanations on why the information provided was c onsidered insufficient and consequently led Thai
Customs to reject the transaction value renders Thai Customs' examination inconsistent with
Article 1.2(a).
7.192 We address next the minutes of the 6 March 2007 meeting. The minutes include the
description of Thai Customs' examination of the circ umstances of the sale; its determination to reject
the transaction value; and the alternative valuation me thods considered to be used for valuation of the
cigarettes at issue.631 For the purpose of our analysis here, we will assess whether the minutes explain
the basis for Thai Customs' determination to reject the transaction value in the light of the information
and evidence provided by PM Thailand. In the rele vant part, the minutes provide that "Regarding the
relationship, it is found that the Company has a re lationship with the seller abroad ([i]t is found that
the relationship had an effect on the prices in 2003) ... It is a case where the Customs Department has
already had the information and there is no need to examine other circumstances ... ". This therefore
shows that Thai Customs considered it unnecessary to examine the circumstances of the sale in
respect of the cigarettes at issue imported in Au gust 2006 based on its examination and consequent
determination in 2003 that the relationship between PM Thailand a nd PM Philippines influenced the
price of the cigarettes imported at that time. As the Philippines points out, we do not consider that the
requirement to examine the circumstances of the sal e under Article 1.2(a) can be satisfied by simply
referring back to the examination conducted and de termination reached in respect of the transaction
that took place three years before the current transac tion at issue. There may indeed be a situation
where despite the gap in time, the circumstances of both transactions between the same parties turn
out to be the same.
632 Even in such a case, however, in our view, the customs authorities are obliged
under Article 1.2(a) to explain the basis for findi ng the current transaction to be the same as the
previous transaction which it had already examined.
7.193 Finally, we note Thailand's argument that it continued to examine the circumstances of the
sale even after sending out the 19 December 2006 letter in which it communicated its grounds.
Specifically, Thailand refers to oral communi cations, correspondence, and meetings with
PM Thailand and its representatives (PWC) that took place during February-March 2007, including
Thai Customs' contacts with PWC.633 Evidence relating to the correspondence between Thai Customs

630 Thailand's response to Panel question No. 93(1).
631 Exhibits THA-37 (revised minutes), PHL-74 (original minutes) and PHL-173.
632 We note that in its first oral statement, the Phili ppines stated that in the case at issue, "the BoA’s
conclusions regarding the 2000-2002 sales provide no basis for conclusions regarding the 2006 sales. The
circumstances surrounding the 2000-2002 sales were very different, because the goods came from Malaysia, and
involved a different seller. Thus, the relationship was between different parties. Moreover, for some of the
2000-2002 entries, the BoA found that the price was not influenced by the relationship" (Philippines' first oral
statement, para. 82).
633 Thailand submitted a new piece of evidence in this connectio n – statement of Mrs. Natina
Santiyanont (Exhibits THA-64 and TH A-65) regarding the circumstances of Thai Customs' interaction with

and PM Thailand, as summarized in the table abov e, indicates that after 19 December 2009, Thai
Customs focused on considering an alternative valua tion method to be used for the entries at issue,
rather than continuing to examine the circumstanc es of the sale to determine whether the relationship
influenced the price or not. In response to our question concerning the point in the examination
process at which Thai Customs determined that the transaction value was not acceptable, Thailand
stated that it was a process starting with the Ph ilippines' request to use a testing methodology to
determine whether the transaction value was affected by the relationship between PM Philippines and
PM Thailand in its 5 February 2007 letter. After some consultations between the parties in between,
this process ended when Thai Customs, usi ng the deductive testing method as requested by
PM Thailand in its letter of 6 March 2007, found that the transaction value w as lower than the test
deductive value.
7.194 Contrary to Thailand's position, however, our examination of the letter of 5 February 2007
from PM Thailand does not reveal that PM Tha iland expressly requested Thai Customs to use a
testing methodology to determine whether the transaction value was affected by the relationship,
while it pointed out that Thai Customs rejected the transaction value without proper examination of
the circumstances of sale.
634 PM Thailand ends the letter with f our specific requests: (i) revocation of
the guarantees notified by the letter of 11 A ugust 2006; (ii) expeditious assessment process and
issuance of an assessment notice; (iii) establishmen t of a common understanding going forward; and
(iv) formation of an inter-ministerial co mmittee comprising representatives from different
governmental departments. Regarding the est ablishment of a common understanding of going
forward, PM Thailand indicated that it 'also would lik e to explore the possibility of an agreement with
Customs for a correct, unambiguous and definitive pr ocedure and method to test and reconcile the
import value of goods for further transactions'. We do not read this sentence to be a request for Thai
Customs to decide on a testing method to be u sed without any further consultations with the
Philippines. In addition, we do not read the 6 March 2007 letter to be a request by PM Thailand to use
the deductive value method as a testing method either. Instead, the Panel understands that in this
letter, PM Thailand pointed at the fact that Thai Customs was asking PM Thailand to provide
information to be used to calculate the computed value, while the hierarchical order of Ministerial
Regulation No. 132/2000 (and of the Customs Valu ation Agreement), prescribes that the calculation
of a deductive value predates the calculation of a computed value.
7.195 In conclusion, we find that Thai Customs failed to examine the circumstances of the sale with
respect of the entries at issue w ithin the meaning of Article 1.2(a). Consequently, Thailand acted
inconsistently with Articles 1.1 and 1.2(a) in rejecting the transaction value of the concerned entries.
(iii) Thai Customs' reasons for rejecting the transaction values of PM Thailand's cigarettes
Main argument of the parties
7.196 The Philippines submits that Thailand's improper rej ection of the transaction values of the
imported cigarettes at issue is also proved by the invalid reason for such rejection as provided in the
12 April 2007 letter from Thai Customs. 635 The Philippines argues that the statement, "it cannot be

PWC and its attendance at the 6 March 2007 meeting on behalf of PM Thailand. Thailand argues that this
evidence proves that the minutes of the 6 March 2007 meeting were mailed to PWC on behalf of PM Thailand
(Thailand's second written submission, para. 79, footnote 57).
634 Exhibit PHL-68.
635 Philippines' first written submission, paras. 184, 225-230, and 234-253; second written submission,
para. 139. The Philippines also stated that a second argument put forward by Thai Customs, namely a
comparison between the transaction value for PM ciga rettes and the price of Importer A's cigarettes, was
irrelevant and invalid (Philippines' first written submissi on, paras. 231-253; first opening statement, paras. 55
and 72). Thailand confirmed that this comparison had not constituted a ground for the rejection of the
concerned transaction values (Thailand's first written submission, para. 162).

proven whether the relationship has an influence on the determination of customs values or not",
cannot constitute a valid reason for rejection under Article 1.2(a) for the following reasons: (i) the
Customs Valuation Agreement does not establish a legal presumption against the transaction value or
impose a burden of proof under Article 1.2(a) of th e Customs Valuation Agreement; (ii) if "doubts"
trigger a presumption, the authority must ensure that the "doubts" are "still reasonable" when
transaction value is rejected; and ( iii) even if there were a burden of proof, an authority's grounds for
rejecting transaction value cannot be a statement that the burden was not met.
636 From the perspective
of Articles 1.1 and 1.2(a), this statement in the 12 April letter does not demonstrate that there were
facts before the authority, other than the parties' relationship, supporting the conclusion that the
transaction value was unacceptable.
637 Under Articles 1.1 and 1.2(a), an authority cannot reject
customs value in the absence of such an additional fact.
7.197 Thailand did not directly respond to this aspect of the Philippines' argument under Article 1.1
and 1.2(a) although it provided counterarguments in relation to the Philippines' claim under Article 16
to provide an explanation in writing as to how the customs value of the importer's goods was
determined. Thailand holds the position that Thai Cu stoms' explanation provide d in its letter of 12
April 2007 and the minutes of the 6 March 2007 meet ing was sufficient to satisfy the obligation under
Article 16.
Analysis by the Panel

7.198 The Philippines argues that Thai Customs' imprope r rejection of the transaction values of the
cigarette entries at issue is also proved by the invalid and insufficient reasons for rejection. These
reasons are set out in Thai Customs' letter of 12 April 2007.
7.199 To recall, in support of its claim concerning Thai Customs' rejection of the transaction values
of the entries at issue, the Philippines raised two arguments: first, Thai Customs did not examine the
circumstances of sale within the meaning of Article 1.2(a) and, second, Thai Customs' rejection was
based on invalid reasons. We addressed in the previous sec tion the Philippines' first argument and
found that Thai Customs' rejection was inconsistent with Article 1.1 and 1.2(a) because it failed to
examine the circumstances of sale under Article 1.2(a) . To the extent that we have already reached
our finding on the Philippines' claim regarding Thai Customs' rejection of the transaction values of the
[[xx.xxx.xx]] entries at issue, we need not con tinue to examine the Philippines' second line of
arguments.
7.200 In any event, however, in the context of our an alysis of the Philippines' first argument, which
in our view is connected to its argument based on the alleged invalid and insufficient reason given, we
addressed the substantive adequacy of the reas ons provided in the 12 April 2007 letter for Thai
Customs' rejection of the transaction values for th e cigarettes at issue. We found that they are
substantively insufficient to justify Thai Customs' de termination with respect to the entries at issue.
In this regard, we note that the nature of the r eason given by Thai Customs – the importer failed to
establish the acceptability of the transaction value – may not necessarily be considered invalid in itself
if that is the conclusion reached by a customs au thority solidly based on the examination of the
evidence submitted before it. Setting aside the qu estion of the precise extent and scope of the
explanations to be given under Article 16, such a conclusion nevertheless needs to be supported with
substantive reasons that are linked to the evidence submitted by the importer or otherwise.

636 Philippines' second written submission, paras. 143-156.
637 Philippines' response to Panel question No. 108.

(e) Whether Thailand failed to communicate to PM Thailand grounds for rejecting declared
transaction values inconsistently with Article 1.2
(i) Main arguments of the parties
7.201 The Philippines claims that prior to taking the decision to reject the transaction value,
Thailand failed to inform PM Thailand of its "grounds for considering that the relationship influenced
the price", as required by Article 1.2(a). 638 According to the Philippines, this part of the dispute boils
down to a disagreement over the ordinary meaning of the term "grounds", read in context and in the
light of the stated object and purpose of the provisi on: Thailand alleges that the statement, "it cannot
be proven whether the relationship has an influence on the determination of customs values or not",
communicates the "grounds", whereas the Philippin es considers that the word "grounds" requires
communication of objective facts or information that support the authority's own conclusions on the
burden of proof and on the acceptability of the transaction value.639
7.202 The Philippines submits that the text, context and object and purpose confirm that the word
"grounds" in Article 1.2(a) refers to the objective basis in the facts or information before the authority
that provides support for the authority's conclusions; the "grounds" are not the authority's own
ultimate or intermediate legal conclusions, such as a conclusion that the burden of proof has not been
met. As for the immediate context, the Phili ppines refers to the first and second sentences of
Article 1.2(a) where the Philippines claims the dr afters equated the word "fact" with the word
"grounds", and indicated that "grounds" must be base d in the "information" before the authority. The
Philippines also points to the last sentence of th e Decision that allegedly explicitly distinguishes
between an authority's "decision" and "the grounds therefore".
7.203 The Philippines is of the view that a crucial c onsideration in interpreting the word "grounds"
is the stated due process objective of the provision: the authority's communication of "grounds" must
"give[] the importer a reasonable opportunity to respond " (emphasis in original). The due process
objective of Article 1.2(a) would be frustrated were the Panel to accept Thailand's view that a
statement that the burden of proo f has not been met is a sufficient communication of "grounds". This
is because if an authority does not address the evidence before it, the importer is left completely in the
dark as to why the burden of proof has not been met. The importer cannot explain the relevance of
the evidence it has submitted, for example, the sour ces and robustness of the data and calculations in
that evidence. The importer is, in sum, deprived of an opportunity to address whatever specific
deficiencies the authority perceives in the eviden ce. The Philippines also submits that the WCO
Technical Committee's case-study is instructive in this regard.
640
7.204 The Philippines considers that its interpretati on of the word "grounds" prevents customs
valuation from becoming a secret process, by ensuri ng that the authority is required to communicate
its views on the evidence as part of the decision-making process, and by giving the importer a
reasonable opportunity to comment on those views in an informed manner.

638 Philippines' second written submission, paras. 163-186.
639 The Philippines also notes that several third parties share the same view, namely that the word
"grounds" in Article 1.2(a) refers to the substantive co nsiderations (reasons) in the record before the authority
that provide the basis for the authority's conclusion.
640 Philippines' second written submission, para. 15 8, referring to Exhibit THA-41. The Philippines
submits that in the case study, "the importer and exporter were given a "reasonable opportunity" to explain the
specific "price differences" that formed the basis for th e authority's doubts, but were unable to do so. ... The
authority in the case gathered and analyzed information; it relied on objective facts, besides the relationship, to
reject transaction value; and the importer was given an opportunity to explain these specific facts, but could not
do so. The authority did not rely on spurious and unsubstantiated grounds, but on objective facts".

7.205 Thailand submits that the customs authority's obligation to communicate its grounds to the
importer under Article 1.2(a) means that it must give the importer preliminary notice regarding its
consideration that it has not been established that the relationship between buyer and seller did not
influence the price.
641 This notice must be provided in writing and an opportunity to respond must be
given before the final valuation takes place. The only ground under Article 1.2(a) under which the
transaction value may be rejected is a finding that it is not established that "the relationship [between
buyer and seller] did not influence the price". 642 If the importer fails to discharge the burden of
establishing that the price is not influenced by the relationship, the "'customs administration has
grounds for considering that the relationship influe nced the price ... in light of information provided
by the importer or otherwise' within the meaning of Article 1.2(a)".643
7.206 Thailand contests the Philippines' interpretati on of the word "grounds" as described above.
Thailand understands the Philippines' argument to be: (i) the term "grounds" refers only to the factual
basis on which the customs administration acts, rather than the legal basis; and (ii) the absence of
factual evidence establishing that the relationship did not influence the price is a legal basis, not a
factual basis, for action. Thailand does not agree th at the term "grounds" is limited to the factual
basis. Rather, it incorporates both. 644 Further, contrary to the Philippines' argument, the absence of
evidence also constitutes a factual basis on which the customs administration may act. 645 Thailand
argues that the Philippines fails to explain how the "grounds" are not "based in the information before
the authority" when the facts are that there is not enough information before the authority. Thailand
sees no logical reason why the presence of certain info rmation constitutes an appropriate factual basis
on which the customs administration may act but th e absence of that information would not. The
Philippines' interpretation of grounds would make it legally impossible for a customs administration
to communicate the factual grounds properly in cases in which the importer had provided no
evidence. Even accepting the Philippines' argument on grounds, a notification that the factual record
does not contain sufficient evidence to establish that the relationship did not influence the price,
communicates information regarding the "infor mation or otherwise" on which the customs
administration is considering to reject the transaction value.646
7.207 Thailand further submits that Article 1.2(a) contains no language regarding the detail in which
the grounds must be explained. Thailand contrast s this with Article 16 of the Customs Valuation
Agreement, which calls for an "explanation" of the determination of customs value, and the
provisions of the Anti-Dumping Agreement, which specify the detail in which anti-dumping
determinations must be communicated to interested parties.
647 In the absence of any such
requirements in the text of Article 1.2(a), the Pane l should take care not to impose any obligations to
which Members have not agreed.
7.208 Regarding the Philippines' argument that in order for the importer to have such a reasonable
opportunity to respond, the notification must address the evidence before the customs administration,
Thailand again argues that when there is insu fficient evidence before the administration,
communicating that fact satisfies the notification requirement. This is related to the fact that the
importer chooses the method and evidence to establis h that the relationship did not influence the
price. Where the customs administration notifies the importer of the insufficiency of information, the
importers are in no doubt as to the grounds on which the customs administration is acting.

641 Thailand's second written submission, paras. 93-94.
642 Thailand's response to Panel question No. 20.
643 Thailand's response to Panel question No. 20.
644 Thailand's second written submission, paras. 96-99.
645 Thailand's second written submission, para. 100.
646 Thailand's second written submission, para. 101.
647 Thailand's second written submission, para. 102.

(ii) Analysis by the Panel
7.209 The Philippines claims that Thailand's communica tion of the grounds for considering that the
relationship between PM Thailand and PM Philippines influenced the price was inconsistent with the
obligations under Article 1.2(a). The relevant part of Article 1.2(a) provides:
"[I]f, in the light of information provided by the importer or otherwise, the customs
administration has grounds for considering that the relationship [between the buyer
and seller] influenced the price, it sha ll communicate its grounds to the importer and
the importer shall be given a reasonable opportunity to respond. If the importer so
requests, the communication of the grounds shall be in writing."
7.210 Concerning Thai Customs' valuation of the entr ies at issue, the parties do not dispute that
from 4 August 2006 until 19 December 2006, Thai Cu stoms continued to question the acceptability of
the transaction value of those entries based on the relationship between PM Thailand and PM
Philippines. Nor is it disputed that PM Thailand made a request to Thai Customs by a letter dated 20
November 2006 to provide in writing its grounds for such consideration.
648 Thai Customs responded
to PM Thailand's request with a letter dated 19 De cember 2006. The parties agree that this letter is
the written communication of grounds that Thai Customs provided pursuant to Article 1.2(a).
7.211 The Philippines claims, however, that the 19 December 2006 letter from Thai Customs does
not meet the obligations to communicate its "gr ounds" within the meaning of Article 1.2(a). The
parties contest both the nature of "grounds" within the meaning of Article 1.2(a) and the consistency
of the grounds allegedly provided by Thai Cust oms in its 19 December 2006 letter with the
obligations under Article 1.2(a). We will first ex amine the nature of the obligations imposed on
customs authorities to communicate "grounds" under Article 1.2(a).
7.212 The term "ground[s]" can be defined as " noun. ... 6 The basis of an opinion or argument, the
reason or motive for an action, (now freq. in pl.). In pl. also, sufficient reason or reasons for, that.
ME".649 When used in plural, as in Article 1.2(a), "grounds" thus means "sufficient reason or reasons"
for an opinion or an action. Under Article 1.2(a) , the grounds to be provided to the importer are the
customs authorities' reasons for considering, in th e light of the information provided by the importer
or otherwise, that the relationship influenced the pr ice. In this regard, we recall our discussion above
regarding the procedural steps to be taken by customs authorities as well as importers under
Article 1.2(a). The importer is responsible for pr oviding information relevant to the acceptability of
the transaction value once it has been notified by th e customs authority of the need to examine the
circumstances of the sale in related-party situations . Subsequently, the customs authority must assess
the information initially provided by the importer and communicate its grounds for considering that
the relationship influenced the price based on th e evidence provided if that is the preliminary
conclusion reached at that point in the process.
7.213 In this context, the obligation to communica te the grounds under Article 1.2(a) can be
temporarily distinguished from the obligation to pr ovide an explanation under Article 16 for how the
final customs value of the importer' s goods was determined. As the parties have also clarified, the
obligation to provide "grounds" under Article 1.2(a) arises during the valuation process. The
obligation to "explain" the determination of the customs value, on the other hand, does not arise until
after the customs authority has ma de a final assessment of the cust oms value of the concerned goods.
This temporal difference in the process, in our view, thus affects the substantive nature of the content
of "grounds" under Article 1.2(a) and an "expl anation" under Article 16. Given that under

648 Exhibit PHL-65.
649 The New Shorter Oxford English Dictionary, (Fifth Edition), Oxford University Press, Volume 1, p.
1158 (2002).

Article 1.2(a), the importer shall be given a reas onable opportunity to further respond to the customs
authority's "grounds" for considering that the relationship influenced the price, the "explanation" to be
provided after the valuation process is completed must therefore include the assessment of all relevant
information, including that provided by the im porter as a response to the customs authority's
communication of its grounds regarding its consideration.
7.214 Moreover, we consider that the right of th e importer to have a reasonable opportunity to
respond to the customs authority's grounds for it s consideration under Article 1.2(a) provides
contextual basis for the term "grounds". As the Ph ilippines suggests, in order for the importer to have
a reasonable opportunity to respond to the customs authorities' consideration, particularly if the
customs authority considers that there is insufficien t information, the importer must not be left to
guess the reasons for the customs authorities' consider ation. The right of the importer to have "a
reasonable opportunity to respond" under Article 1. 2(a) would lose its meaning unless the importer is
informed of at least the reason(s) why the custom s authority continues to question the acceptability of
the transaction value despite the ev idence and information presented or otherwise in the possession of
the customs authority until that point. In this re gard, we do not find it necessary or useful for us to
define the exact extent and scope of "grounds" to be provided under Article 1.2(a) as they may vary
depending on the factual circumstances presented in each case. We do agree, however, with the
Philippines that without knowing the reasons for th e authority's consideration in relation to the
specific evidence before it, the importer would not be in the position to effectively "respond", for
example, by further elaborating on the relevan ce of the evidence it has already submitted and
presenting additional information. It would be desira ble if a customs authority could, to the extent
possible, inform the importer of the kind(s) of a dditional factual information that it considers may
prove useful in further assessing the acceptability of th e transaction value. It is difficult to conceive
any other way in which the importer can have a reasonable opportunity to respond to the customs
authorities' consideration that the relationship did influence the price.
7.215 We find support for our view above in a comment by the WTO Technical Committee on
Customs Valuation in Commentary 14.1.
650 In response to the question of whether customs
authorities must advise the importer of the reasons for believing that the price of goods in a
transaction has been influenced by the relationship, the WTO Technical Committee states:
"Yes. Subparagraph 2(a) of Article 1 provides that, where Customs has grounds for
considering that transaction value is unacceptable because the relationship has
influenced the price and that Article 1 do es not therefore apply to the transaction,
Customs shall communicate its grounds to th e importer. Moreover the importer must
be given a reasonable opportunity to res pond and is entitled to be advised in writing
of the grounds for Customs' beliefs."

650 Exhibit THA-26. The Panel notes that the Commentary by the WTO Technical Committee is not
legally binding upon the parties, however it is of the opinion that the Commentary is instructive and can provide
guidance on the interpretation of the Customs Valuation Agreement, especially since it is the WTO Members
that make up the Technical Committee. In this respect, we also refer to the Appellate Body ruling in EC –
Computer Equipment, which discussed the legal status of non-binding decisions of the WCO HS Committee,
and stated that in interpreting tariff concessions, these decisions may be relevant, and therefore they should be
examined by the Panel (Appellate Body Report, EC – Computer Equipment, para. 90). Following this statement
by the Appellate Body, the Panels in EC – Chicken Cuts and China – Auto Parts considered that decisions of the
HS Committee, although not binding, "could well be a very useful source of information on the subsequent
practice of WTO Members, a large proportion of whom are signatories to the HS Convention and, thus, are
members of the HS Committee" (Panel Report, EC – Chicken Cuts , para. 7.298; Panel Report, China – Auto
Parts, para. 7.423).

7.216 We now turn to the factual situation of this di spute. In its letter of 19 December 2006, Thai
Customs provided its grounds for considering that the relationship between PM Thailand and PM
Philippines influenced the price as follows:
"Pertaining to the reference letter, PMTL wi shes to be informed about grounds and
methodology of customs value determination.
The Customs Department would like to inform you of the grounds and methodology
of customs value determination as follows:
1. The Customs Department rejected the declared price of PMTL because
PMTL and the seller in a forei gn country are related parties , in accordance with the
Ministerial Regulation No. 132 (B.E. 2543) Ar ticle 4, and the importer has yet to
prove if the said relationship influences the customs value determination or not.
2. After PMTL has placed a guarantee to release goods from Customs' custody,
the import entry will be returned to th e assessment officer who requested the
guarantee placement. The assessment officer has the right to issue a letter requesting
the importer to provide additional clarif ication as well as supporting evidence for
further consideration. After the complete information has been submitted, the
assessment officer will determine the custom s value in sequential order according to
GATT, and subsequently issue a Notice of Assessment (Form KorSorKor 114) in
accordance with the Customs Notification No. 23/2549 dated 31 March 2006.
3. Once PMTL has received the Notice of Assessment stated in 2, and
completed the procedure of the Notice of Assessment, in the case where additional
duty is required, or the guarantee does not cover the import duty amount, PMTL can
file an appeal within 30 days from the date of receipt of the assessment, at Customs
Valuation Appeal Division, SCPVD, as instructed under Customs Notification
No. 29/2549 dated 2 May 2006." (underline added)
7.217 Thai Customs' grounds as provided in the above letter are that "PMTL and the seller in a
foreign country are related parties ... and the impo rter has yet to prove if the said relationship
influences the customs value determination or not".
7.218 Based on the dictionary meaning of the term "grounds", we considered above that customs
authorities' grounds under Article 1.2(a) were the customs authorities' reasons for considering , in the
light of information provided by the importer or otherw ise, that the relationship influenced the price.
As such, we do not consider that the relationship between the buyer and the seller in a foreign country
itself can form the "grounds" within the meaning of Article 1.2(a). Further, the first sentence of
Article 1.2(a) states that the fact that the buyer a nd the seller are related shall not in itself be grounds
for regarding the acceptability of the transaction valu e. We understand that the parties do not dispute
this either.
7.219 Thailand asserts, however, that the letter of 19 December 2006 satisfies the obligation to
communicate the "grounds" because it sets out that "the importer has yet to prove if the said
relationship influences the customs value determin ation or not". This statement means that
PM Thailand, the importer in this case, did not prove at that stage of the process that its relationship
with PM Philippines did not influence the decl ared transaction value. Thai Customs does not,
however, link this statement to the evidence that PM Thailand had provided until that time or
otherwise any other evidence that was before Thai Customs. We do agree with Thailand that if the
importer in a given case provided no evidence, it would be impossible for a customs authority to

communicate any other specific grounds than the f act that the importer did not demonstrate the
acceptability of the transaction value. That is, however, not the situation in the present dispute.
7.220 The facts before us show that PM Thaila nd did provide Thai Customs with certain
information and data to establish th e acceptability of the transaction value.
651 To the extent that Thai
Customs was presented with certain evidence, the gr ounds for its consideration that the relationship
between the buyer and the seller influenced the price must be linked to that concerned evidence so as
to assist the importer in understanding the authority's consideration. 652 Therefore, the subject
statement contained in the [19 December 2006] lette r from Thai Customs falls short of satisfying the
obligation to "communicate its grounds" within the meaning of Article 1.2(a).
7.221 We also observe Thailand's argument that PM Thailand's letter of 5 February 2007 to Thai
Customs clarifies that PM Thailand was fully in formed of the basis on which Thai Customs was
acting by Thai Customs' 19 December 2006 letter. 653 Thailand is therefore of the view that
PM Thailand's due process rights under Article 1.2( a) were fully respected. The 5 February 2007
letter from PM Thailand reads in relevant part that "Until the letter in refere nce (2) [the 19 December
2006 letter], received some four months after Customs first refused to clear the company's goods at
declared invoice prices, the company has never b een informed by any means or channels that
Customs officers have reasons to believe that th e relationship between the company and the foreign
seller may influence the price". Thailand consider s that this statement in PM Thailand's letter
supports its position that Thai Customs properly communicated in the 19 December 2006 letter its
grounds to believe that the relationship between PM Thailand and PM Philippines influenced the
price.
7.222 We do not find the concerned letter to evince PM Thailand's acknowledgment that
PM Thailand was sufficiently informed of the grounds of Thai Customs' consideration. A plain
reading of the above statement in the 5 Februa ry 2007 letter indicates that PM Thailand simply
underlines the fact that the 19 December 2006 letter was the first communication from Thai Customs
regarding its consideration of the related-party transaction at issue since Thai Customs started
questioning the declared transaction value of th e cigarettes at issue on 4 August 2006. More
importantly, read together with PM Thailand's additi onal statement in the letter that the 19 December
2006 letter from Thai Customs "does not provide suffi cient explanation of the reasons for Customs'
price rejection and is inconsistent with the [Cus toms Valuation Agreement]", the 5 February 2007
letter from PM Thailand does not indicate that PM Thailand was sufficiently informed of Thai
Customs' "grounds" Article 1.2(a).
7.223 For the foregoing reasons, we therefore find that Thai Customs failed to communicate its
grounds for considering that the relationship between PM Thailand and PM Philippines influenced the
price within the meaning of Article 1.2(a).

651 For example, PM Thailand provided Thai Customs with information and data to establish the
acceptability of the transaction value in its letters of 4, 7 and 8 August 2006. In the 4 August letter, PM Thailand
referred to its annual filings of 2003, 2004 and 2005 (Exhibit PHL-55); in the 7 A ugust letter it advised Thai
Customs how it could examine the cost structure of PM Thailand (Exhibits PHL-57 and PHL-76); and in the
letter of 8 August, amongst others, PM Thailand provi ded a copy of the 2005 annual filing, PG&E, and
deductive calculation (Exhibit PHL-56).
652 In its case study 10.1, the WTO Technical Commi ttee stated that "any decision [on whether the
relationship between two entities influenced the price] must, to a significant degree, be based on the information
provided by the importer." (Exhibit THA-41).
The United States also states in its oral statement at the third party session with the Panel that "the
failure by an importer to prove a negative, specifically to prove that the relationship did not influence the price,
does not relieve the customs authority of its obligation to accep t the transaction value unless it has grounds for
considering that the relationship influenced the price." (United States' third party oral statement, para. 9).
653 Thailand's second written submission, paras. 105-107; Exhibit PHL-68.

6. Article 16 of the Customs Valuation Agreement
(a) Obligations under Article 16
(i) Main arguments of the parties
7.224 The Philippines submits that Article 16 requires an authority to explain properly (i) why the
determination of the customs value was not based on th e transaction value; and (ii) what the basis is
for the alternative valuation determinations.
7.225 Regarding the legal basis for its position th at an explanation required under Article 16
includes an explanation of the basis for the custom s authority's rejection of the importer's transaction
value, the Philippines relies on the following three points to support its position: (i) the meaning of the
words "how" and "explain" requires that the explan ation "makes clear the cause" and "reason" for the
customs value; (ii) given the sequencing obl igation under the Customs Valuation Agreement, an
authority must explain how it satisfied the legal preconditions for using the valuation method used,
including its failure to use Article 1; and (iii) th e Ministerial Decision provides contextual support for
the Philippines' interpretation of Article 16 as it stipul ates that when the transaction value is rejected,
an authority must "communicate to the importer in writing its [final] decision and the grounds
therefore". Thus, an explanation must be given of the objective "ground" justifying the rejection of a
transaction value under Article 1 of the Customs Valuation Agreement.
654
7.226 Further, the Philippines submits that an authorit y must also provide a sufficient statement of
the particular valuation methodology, or "means", used to value the importer's goods. To explain how
the customs value was determined, the authority mu st also indicate how it derived the value from the
information before it, providing any calculations performed. In a deductive value calculation, the
authority must disclose the elements in Artic le 5.1 of the Customs Valuation Agreement that were
deducted and not deducted, and give reasons why.655
7.227 The Philippines explains that Article 16 is inte nded to ensure that importers and foreign
governments, as well as reviewing tribunals, courts and panels, understand how the authority reached
its conclusion, thereby enabling these parties to exercise their respective rights under Articles 11 and
19 of the Customs Valuation Agreement in deciding whether the manner or means of valuation were
consistent with the importing Member's WTO oblig ations. This interpre tation provides domestic
courts and panels with a basis to review the aut hority's decisions. If the importing Member were not
obliged to explain its failure to use valuation methods other than the one used, the means by which the
imported goods came to be valued as they were and the means by which the importing Member
complied with its sequencing obligations under the Customs Valuation Agreement, are never
explained. Such an interpreta tion would run counter to the due process and transparency purposes
promoted by Article 16.
7.228 Thailand refers back to its position that the obligations/standards under the Customs
Valuation Agreement differ from those under the Anti-Dumping Agreement. Article 16 and the
Customs Valuation Agreement generally do not provide detailed rules regarding the nature of the
explanation to be provided under Article 16. 656 Specifically, in response to the Philippines' position
that the customs administration should provide, under Article 16, an explanation of "what evidence
the authority relied upon" and "why the authority disregarded certain evidence or assigned lesser
evidentiary weight to evidence contradicting its assessed customs value", Thailand argues that this
describes the substantive and procedural standa rds with which a final anti-dumping determination

654 Philippines' response to Panel question No. 24(1); second written submission, paras. 188-192.
655 Philippines' response to Panel question No. 24(1); second written submission, paras. 193-194.
656 Thailand's second written submission, para. 116.

must comply pursuant to Articles 6.9 and 12.2 of the Anti-Dumping Agreement, not a customs
valuation determination. Th e Customs Valuation Agreement does not contain any such equivalent
provisions and the Panel should not read such oblig ations into the Customs Valuation Agreement.
Thailand emphasizes that given that anti-dumping and countervailing duty investigations are far more
complex investigations than a cu stoms valuation determination, the standards for explaining anti-
dumping or countervailing duty inves tigations would be much higher than the standards governing
explanations of customs valuation determinations.
657
7.229 In any event, Thailand contends that even if Article 16 includes an oblig ation to be informed
as to why the transaction value was rejected, Thai Customs complied with this obligation in its
12 April 2007 letter.658 Regarding the Philippines' position that the purpose of Article 16 is to ensure
that importers and foreign governments understand ho w the authority reached its conclusion, and to
enable, inter alia , importers to appeal decisions domestica lly or foreign governments to decide
whether to bring WTO proceedings, Thailand asserts that by those standards, Thai Customs'
explanation was clearly sufficient to enable PM Thailand to challenge the determinations domestically
and the Philippines to challenge them at the WTO.659
(ii) Analysis by the Panel
7.230 Article 16 of the Customs Valuation Agreement provides:
"Upon written request, the importer shall have the right to an explanation in writing
from the customs administration of the country of importation as to how the customs
value of the importer's goods was determined."
7.231 Article 16 sets forth two elements: (i) a written re quest from an importer for an explanation in
writing; and (ii) a customs authority's obligation to provide an explanation in writing as to how the
customs value of the importer's goods was determined . Regarding the Philippines' Article 16 claim,
the question before us concerns the second element, namely the nature of an explanation to be
provided as to how the customs value of the importer's goods was determined.
660 Specifically, the
parties disagree on the scope and extent of the explanation to be provided under Article 16.
7.232 To understand the nature of the explanation under Article 16, we first turn to the text of the
provision. The term "explanation" can be defined as " noun. 1 The action or act of explaining. 2 A
statement, circumstance, etc., which mak es clear or accounts for something. ... ". 661 T h e w o r d
"explain" can in turn be defined as follows: "1 verb trans. & intrans. Make clear or intelligible (a

657 Thailand's second written submission, paras. 116-1 17. Thailand points to important policy reasons
for which the drafters would not have wanted to apply the same detailed rules to Article 16 of the Customs
Valuation Agreement: (i) a customs valuation determination could pertain to a single entry or a series of entries
relating to a single importer, as opposed to an anti-dumping or countervailing duty determination that may
involve several exporters and importers and transactions covering a period extending up to three years; and (ii)
anti-dumping and countervailing duty investigations are co nducted by centralized investigating authorities with
extensive resources, whereas customs valuation determinations may be made by port or regional customs offices
whose resources do not match those of anti-dumping investigating authorities.
658 Thailand's response to Panel question No. 24(2), also referring to its response to Panel question
No. 8 and paras. 294-296 of its first written submission.
659 Thailand's second written submission, para. 118.
660 PM Thailand made a written request to Thai Customs for an explanation in writing by the 5
February 2007 letter. Thai Customs responded to this request by the letter dated 12 April 2007
(Exhibit PHL-69). See also the f actual summary of the communications between PM Thailand and Thai
Customs, para. 7.183.
661The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford Univer sity Press, Vol. I, p. 895
(2002).

meaning, difficulty, etc.); clear of obscurity or difficulty; give details of (a matter, how, etc) ... 6 verb
trans. account for; make clear the cause or origin of". 662 The word "how" means " adverb 1. In what
way or manner; by what means; in wh atever way; by whatever means ...". 663 The dictionary meaning
of the term "explanation", taken together with the word "how", therefore indicates that the explanation
to be provided under Article 16 requires customs aut horities to "make clear" and "give details" of the
manner and means in which a customs authority determined the customs value of imported goods.
7.233 Further, considered in its context, as discu ssed above, the explanation under Article 16 is
temporarily and substantively distinguished from th e authority's communication of its grounds for its
consideration under Article 1.2(a) as the explanati on under Article 16 must be provided after the final
assessment of customs value is made and thus must be based on complete information that formed the
basis for the customs authority's decision. Th is can be contrasted with the "grounds" under
Article 1.2(a) that are based on the information initially provided by the importer or otherwise.
7.234 We also heed the transparency and due pr ocess objective that Article 16 is intended to
achieve. As the Philippines submits, an explana tion under Article 16 enables importers and foreign
governments to effectively exercise their respectiv e rights under Articles 11 and 19 of the Customs
Valuation Agreement when requesting domestic reviewing tribunals, courts and WTO panels to
determine whether the manner or means of valuation by a customs authority was consistent with the
importing Member's WTO obligations. It provid es a window through which domestic tribunals and
WTO panels review and understand a customs author ity's valuation determination. As observed in
Section VII.C.5 above, our objective assessment of the Philippines' claims under Articles 1.1 and
1.2(a) required us to base our evaluation of Thai Customs' examination of the circumstances of the
sale on, inter alia, its explanation provided pursuant to Article 16.
7.235 As regards the scope of the explanation to be provided under Article 16, the Philippines
submits that Article 16 requires a customs authority to provide (i) the reason for rejecting transaction
value and (ii) the basis for the alternative valu ation determination. Although not expressly endorsing
this view, Thailand does not appear to object to the Philippines' view in this regard either. In its
explanation provided to PM Thailand in the letter of 12 April 2007, Thai Customs in fact states that it
informs PM Thailand of the reason and method which was used in the determination of customs
values in response to PM Thailand's request for the explanation on the rejection of the declared
import prices and valuation method used. 664 This suggests that in practice, Thailand itself also
includes the basis for its rejection of the impor ter's declared transaction value as part of the
explanation provided to the importer pursuant to Article 16.
7.236 The Philippines also references the sequenc ing obligation under the Customs Valuation
Agreement to support its view that the explanation under Article 16 encompasses both the reason why
the transaction value was rejected and why and how the method applied for the determination of the
customs value was used. In its view, given that customs authorities are required to respect the
sequencing obligation to apply the six different va luation methodologies, an authority's rejection of
the transaction value under Article 1 is a necessary a nd integral element of its determination of the
customs value under a different valuation method. In this context, in making "intelligible" the "cause"
or "reason" for valuation under a provision other th an Article 1, an authority must explain how it
satisfied the legal preconditions for using the va luation method used, including its failure to use
Article 1.

662 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford University Press, Vol. I, p. 895
(2002).
663 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford University Press, Vol. I,
p. 1219 (2002).
664 Exhibit PHL-70.

7.237 We share the Philippines' view. As we noted above, the primary basis for customs value
under the Customs Valuation Agreement is the transaction value. Whenever the customs value cannot
be determined based on the transaction value unde r Article 1 for the reasons authorized under the
same provision, the methods under Articles 2 through 7 are to be used in the sequential order.
Therefore, it seems logical for a customs authority to explain the basis for rejecting the transaction
value in situations where the authority relies on a valuation method other than the transaction value
under Article 1. Interpreting otherwise, in our view, would defeat the procedural objective of
Article 16 to preserve due process rights and tran sparency in the context of customs value
determination. This is particularly the case becau se, if not through an expl anation under Article 16,
the importer would be deprived of an opportunity to understand the customs authority's determination
of the final customs value for the concerned goods.
665 Therefore, we consider that the explanation
under Article 16 must be understood to include in its scope the reason for rejecting the transaction
value as well as the basis for the valuation method used.
7.238 We now address the extent of an explanation to be provided under Article 16, namely how
extensive and detailed an explana tion should be to satisfy the oblig ations under Article 16. The
ordinary meaning of the word "explanation", consider ed in its context and in the light of the object
and purpose of Article 16 as discussed above, suggest s that customs authorities' explanation must
include, at the minimum, the basis for rejecting th e transaction value in the light of the information
provided by the importer, the identification of the method used and the illustration of how the method
was applied in reaching the final customs value.
7.239 In this connection, we observe that the exte nt of an explanation to be provided under
Article 16 is not the same as that under the equivalent provisions of the WTO agreements on trade
remedy measures. The obligations imposed on domes tic authorities to explain determinations in the
context of the trade remedy rules are much more de tailed and specific. For example, Article 12.2 of
the Anti-Dumping Agreement refers to " sufficiently detailed explanations" and "a full explanation".
Article 4.1(c) of the Agreement on Safeguards requires a detailed analysis of the case under
investigation as well as a demonstration of the relevan ce of the factors examined. In contrast to these
provisions, Article 16 of the Customs Valuation Agreement contains succinct language that the
importer shall have the right to "an explanation ... as to how the customs value of the importer's goods
was determined". The absence of any modifying word s such as "detailed" or "full" before the term
"explanation" in Article 16 should be taken into account in clarifying the extent of the explanation
under Article 16. Moreover, the obligation to prov ide "an explanation in writing" under Article 16
arises only if there is a written request from the importer. 666 This too shows that the standard for the
explanation required under Article 16 of the Customs Valuation Agreement is less stringent than that
under the Anti-Dumping Agreement, the SCM Agreement or the Agreement on Safeguards.
7.240 The above considerations lead us to concl ude that although not as extensive and detailed
explanations as required under the WTO agreements on trade remedy measures, the explanation to be
provided under Article 16 of the Customs Valuation Agreement must be sufficient to make clear and
give details of how the customs value of the im porter's goods was determined, including the basis for

665 Philippines' response to Panel question No. 24(1 ); second written submission, paras. 188-192. The
Philippines also refers to the Ministerial Decision which allegedly provides contextual support for its
interpretation of Article 16. The Decision stipulates that when the transaction value is rejected, an authority
must "communicate to the importer in writing its [fin al] decision and the grounds therefore". Thus, an
explanation must be given of the objective "ground" justifying the rejection of transaction value under Article 1
of the Customs Valuation Agreement.
666 We note in this regard that the Ministerial Decision provides, "[w]hen a final decision is made, the
customs administration shall communicate to the importer in writing its decision and the grounds therefore."
Therefore, unlike under Article 16 of the Customs Valuation Agreement , under the Ministerial Decision, the
customs administration's obligation to communicate in writing its decision and the grounds for a final valuation
decision does not depend on the importer's request.

rejecting the transaction value and other valua tion methods that sequentially precede the method
actually used by the customs authorities.667
7.241 Further, we recall that we considered the subs tantive content of the explanation provided by
Thai Customs of its determination in the context of reviewing the Philippines' claims with respect to
Thailand's obligations under Article 1.1 and 1.2(a). Our examination of the explanation in that
context should be distinguished from our eval uation of whether the explanation satisfies the
requirements within the meaning of Article 16. As the Philippines responded to a question from the
Panel, under a hypothetical in which an authorit y determines the customs value using a spinning
wheel, the authority would be found to have comp lied with its obligations under Article 16 if an
authority concluded that the transaction value was not acceptable and provided an adequate
explanation for how the spinning wheel was applied in a specific case. Th is will be the case even
though the disclosed reasons would be insufficient to prove a compliance with Articles 1.1 and 1.2(a)
in rejecting the transaction value. If, however, no (or insufficient) reasons, including, for example,
how the spinning wheel was applied in a specific case, were disclosed in the explanation, the authority
would violate both Articles 1.1 and 1.2(a) as well as Article 16. In this light, our assessment of the
Article 16 claim should be focused on whether an explanation is formally sufficient to make clear and
give details of its decision to reject the transaction value and how the valuation method was applied to
derive the customs value.
(b) Whether Thailand failed to provide an explanati on for its determination of the customs value
of the imported cigarettes at issue inconsistently with Article 16
(i) Main arguments of the parties
7.242 The Philippines claims that Thailand violated Article 16 of the Customs Valuation
Agreement by failing to provide adequate explanation of its determination of the customs value for
the entries at issue. 668 The Philippines argues that Thailand failed to explain properly (i) why the
determination of the customs value was not based on the transaction value; and (ii) the basis for the
alternative valuation determinations made.669
7.243 The statement in the 12 April letter that PM Thailand failed to satisfy the burden of proof,
without any explanation of how the evidence before the authority supports this legal conclusion, is
inadequate to explain how and why the authority was entitled to reject the transaction value in
determining the customs value of the importer's goods. 670 In particular, the authority failed to provide
any explanation for its decision to disregard PM Thailand's evidence.671

667 The European Union also supports this view. In its third party submission, it states, "The European
Union considers that the relevance of transaction values as the preferred customs valuation method and the
sequencing order of the other customs valuation methods provided by the CVA once more imply that, when the
customs authorities reject the transaction value and determine the customs value on another basis, such
explanation should include: the reason for rejecting the transaction value; the reasons for using a particular
valuation method; how the value has been calculated pursuant to that method; and the reasons for not using any
other valuation method prior to the one effectively used following the sequencing order of Articles 2 to 7 of the
CVA." (European Union's third party written submission, para. 41).
669 Philippines' first written submission, paras. 297-323.
671 The Philippines refers back to its arguments under Article 1.1 and 1.2(a) regarding the "grounds" for
its rejection of declared transaction value. Under Article 1.1 and 1.2(a), the Philippines argued that "it does not
suffice for an authority to communicate a legal determination, beca use the importer has no 'reasonable
opportunity' to remedy the perceived de ficiencies in the evidence. The auth ority must inform the importer of

7.244 Furthermore, in respect of the requirement to provide a sufficiently detailed and reasoned
explanation to permit the importer to understand how and why the authority determined the assessed
customs values, the explanation provided in the 12 April 2007 letter – namely, "Method 6, which is
the 'fall back' method, using the deductive va luation method, was used" – is inadequate.
672 It does not
reveal the starting point of the deductive value calculation; the specific elements and amounts
deducted; and the sources of the data used. It does not explain why certain deductions were not made;
and fails to provide supporting calculations for th e assessed values. The minimal content of the 12
April 2007 letter may be contrasted with the cal culations provided in Exhibit THA-13 for the
[[xx.xxx.xx]] transactions between 11 August and 31 December 2006.
7.245 Thailand submits that the issue is whether the expl anation provided by Thai Customs in the
letter of 12 April 2007 and the minutes of the 6 Marc h meeting was sufficiently detailed to satisfy the
requirements of Article 16.673
7.246 Thailand argues that it satisfied the requirements under Article 16. First, regarding the
alleged obligation to properly ex plain why the determination of customs value was not based on
transaction value, Thailand is of the view that th e same response that it provided with respect to the
claim under Article 1.2(a) also applies here, i.e. Th ailand clearly explained in writing by letters dated
19 December 2006 and 12 April 2007.
7.247 With respect to the basis for the alternative valuation determ inations made, Thailand submits
that in the 12 April 2007 letter, Thai Customs expl ained that "in the determination of customs values,
Method 6, which is the 'fall back' method, using the deductive method, was used under Article 7 of
the GATT … Please be informed accordingly". 674 Therefore, PM Thailand was clearly informed in
the 12 April 2007 letter that the deductive valuation me thod was used to value the entries in question.
If that explanation were to be considered insufficient, Thailand submits that the Panel should also take
into account the circumstances in which it was provi ded, including a more detailed explanation that
had been provided at the 6 March 2007 meeting. 675 Prior to the meeting on 6 March 2007, both
PM Thailand and its accountants, PWC, were in regular correspondence with Thai Customs. Thailand
also refers to the minutes of the meeting which, according to Thailand, make clear that PM Thailand
was informed in detail how the deductive value was used under Article 5 or Article 7 of the Customs
Valuation Agreement.676 According to Thailand, the minutes of the 6 March 2007 meeting, referred
to in the notice of assessment 677, constitutes written notice of how the customs value was
determined.678
7.248 The Philippines contends that the minutes of the 6 March 2007 meeting cannot be used to
supplement the explanation given in the 12 April 2007 letter. 679 However, in its response to the Panel

specific shortcomings in, or absence of, evidence." (Phili ppines' second written submission, para. 116, referring
back to paras. 104-109).
672 Philippines' second written submission, paras. 201-203.
673 Thailand's second written submission, para. 115.
674 Thailand's first written submission, para. 175.
675 Thailand's first written submission, para. 178; response to Panel question No. 23; second written
submission, para. 114; Exhibits THA-64 and THA-65.
676 Thailand's first written submission, para. 178.
677 Exhibit THA-15.
678 Thailand's second written submission, para. 114; response to Panel question No. 23.
679 The reasons for the Philippines' initial contention were as follows: (i) Thai Customs never provided
the minutes to PM Thailand in writing as an explanation of its valuation. The minutes were provided by DG
Excise to the Central Tax Court, on 25 August 2008 , in the context of court proceedings regarding the
September 2006 and March 2007 MRSPs, which served as the base for VAT (Exhibit PHL-108). An oral
explanation – even if given to the importer – cannot satis fy the requirement in Article 16 to provide a written
explanation; (ii) the minutes do not explain crucial elemen ts of the calculation, such as the sales prices to the

questions following the second subs tantive meeting, the Philippines submits that it accepts that, in
assessing Thailand's compliance with its substan tive obligations, the Panel may review the
explanation given in the minutes, as a cont emporaneous statement of the determination. 680 T h e
Philippines is of the view that the explanation gi ven in the minutes is substantively the same as the
explanation given in the 12 April 2007 letter and that, in one respect, the minutes add to the 12 April
2007 letter because, in the minutes, Thai Customs st ates that it did not examine the circumstances of
sale.681
(ii) Analysis by the Panel
7.249 In response to a written request from PM Thaila nd on 5 April 2007, Thai Customs provided,
pursuant to Article 16 of the Customs Valuation Agreement, an explanation for how the customs
value of the cigarettes at issue was determined by a letter sent on 12 April 2007. The Philippines
claims that Thai Customs acted inconsistently with Article 16 because the 12 April 2007 letter does
not satisfy the requirements under Article 16. Thaila nd argues that the explanation provided by Thai
Customs in the 12 April 2007 letter, considered together with the minutes of the 6 March 2007
meeting, was sufficiently detailed to satisfy the requirements of Article 16.
7.250 The parties' arguments raise two issues: first, whether Thai Customs' letter of 12 April 2007
satisfies the obligations under Article 16 of th e Customs Valuation Agreement; and, second, whether
the explanation provided in the 6 March 2007 meeti ng and in its minutes should be considered as
constituting the explanation provided pursuant to Article 16 and, if so, whether the minutes,
considered together with the letter of 12 April 2007, satisfy the obligations under Article 16. We will
examine these two issues in turn.
7.251 The 12 April 2007 letter provides:
"According to the company's letter [dated 5 April 2007], requesting for the
explanation on the rejection of the import prices declared by the company, including
the method which was used in the determination of Customs values:
The Bonded Warehouse Service Division I, Tax Incentives Bureau, Customs
Department, hereby informs the company of the reason and method which was used
in determination of customs values, having the following details:
1. The rejection of the import prices comes from the fact that:
1.1 There is another importer importing th e same type of goods, with 3-4 times
price difference.

first independent buyer in the GAQ price to be used as the starting point for the calculation; and the nature and
amount of the specific deductions that would, and would not, be made; (iii) the explanation must be given to the
importer, i.e. PM Thailand (PWC ABAS on behalf PM Thailand), but PM Thailand was not present at the
meeting. Regarding PM Thailand's auditors from PWC, they were invited by Thai Customs in a letter addressed
to the auditors to the 2 and 6 March meetings only to discuss technical accounting questions regarding the
audited financial statement for 2005 (Exhibit THA-10; Philippines' second written submission, paras. 204-212).
680 Philippines' response to Panel question No. 108.
681 Philippines' second oral statement para. 49; response to Panel question No. 108.
The Philippines also submits that the 19 December 2006 letter is not relevant to Article 16 because – as
Thailand itself admits – the 19 December 2006 letter make s clear that customs valuation was not yet final, and
hence, the letter cannot explain the basis for a valuation not "yet" made. (Philippines' second written submission,
para. 198, footnote 162).

1.2 The company and the overseas seller ar e related parties, and it cannot be
proven whether the relationship has an infl uence on the determination of customs
values or not (according to the Ministerial Regulation no. 132/2545 Chapter 2, Clause
14).
2. In the determination of customs valu es, Method 6, which is the "Fall Back"
method, using the deductive valuation method, was used (according to the Ministerial
Regulation no. 132/2545 Clause 3), under Article 7 of GATT.
... "
682
7.252 The parties do not dispute that the 12 April 2007 letter is the explanation provided by Thai
Customs pursuant to Article 16. The question is whether the content of the letter satisfies the
obligation to provide an "explanation" under Article 16.
7.253 We clarified above that the scope of the explanation under Article 16 encompasses both the
reason why the transaction value was rejected as well as why and how the method applied for the
determination of the customs value was used. Th e 12 April 2007 letter sets forth both the reason for
rejecting the transaction value and the valuatio n method (fallback method) that was used in
determining the customs value of the cigarettes at issu e. Specifically, it states that the rejection of the
import prices comes from the fact that PM Tha iland and PM Philippines are related parties and it
cannot be proven whether the relationship has an in fluence on the determination of customs values.
Further, in determining customs values, the letter provides that Method 6, which is the "Fall Back"
method, using the deductive valuation method, was used.
683
7.254 The relevant question is therefore whether the e xplanation is substantively sufficient to make
clear and give details of the manner in which the customs value of the cigarettes at issue was
determined. We considered above that a sufficient explanation could include, for example, the basis
for rejecting the transaction value, the type of th e method used and an illustration of why the method
was selected and how the method was applied in calculating the final customs value.
7.255 First, the basis for rejecting the transaction va lue as provided in the 12 April 2007 letter is the
same as Thai Customs' grounds that were comm unicated through the letter of 19 December 2006,
namely that "it cannot be proven whether the relati onship has an influence on the determination of
customs values or not". We find the concerned stat ement in the Thai Customs' letter of 12 April 2007
inadequate to explain the reason for rejecting the transaction value under Article 1. If Thai Customs
considered that it could not be proven whether the relationship influenced the customs values declared
by PM Thailand, Thai Customs should have specified the precise basis for such a consideration to
satisfy the obligation to "explain" its final determination of the customs value. For example, as noted
above, PM Thailand presented Thai Customs with certain information and data to prove the
acceptability of the declared transaction value. In the concerned letter, however, Thai Customs refers
to neither such evidence nor any other informati on that may have formed the basis for its final
decision to reject the transaction value. A mere statement that the importer could not prove whether
its relationship with the exporter did not influence the price, in our view, does not fulfil the customs
authority's obligation to explain the reason for rejecting the transaction value.
7.256 As regards the alternative valuation method used, the letter identifies Method 6 (Fallback
method) under Thai law, a method equivalent to that under Article 7 of the Customs Valuation

682 Exhibit PHL-70.
683 The letter refers to Article 7 of the GATT in relation to the deductive valuation method used under
the Fall Back method (Method 6 under the Thai domestic law). We understand that by Article 7 of the GATT,
Thai Customs meant Article 7 of the Customs Valuation Agreement.

Agreement, as the method used. It does not, how ever, further elaborate on why the method was
selected and how the chosen method was applied in calculating the final customs value. The
statement that simply names the method used for valuation without any further elaboration, in our
view, cannot constitute an "explanation" within the meaning of Article 16 as it fails to make clear or
give details of the manner in which the customs va lue of the cigarettes at issue was determined.
Thailand points to the fact that PM Thailand was informed that the deductive valuation method was
used to value the cigarettes at issue. However, the requirement imposed on customs authorities under
Article 16 is to provide an explanation as to "how " the determination of the customs value of the
imported goods was made, not to just inform the importer of the method used.
7.257 Nonetheless, Thailand argues that in evalua ting the Philippines' Article 16 claim, the
circumstances in which the 12 April 2007 letter was provided must also be taken into account should
the Panel consider the information provided in this le tter insufficient. The circumstances of the letter
include the meeting on 6 March 2007 during which a more detailed explanation on the valuation
determination was allegedly provided as well as the minutes of that meeting.
7.258 Thailand's argument raises the question of whethe r a meeting and/or the minutes of a meeting
that is not formally part of the written explanation pr ovided by a customs authority pursuant to
Article 16 can nevertheless be considered as consti tuting the explanation. In the context of the
Agreement on Safeguards, we find an insight on this question in the reasoning of the Panel on US –
Steel Safeguards concerning the form and timing of a re port required to be published by an
investigating authority under Article 3.1 of the Ag reement on Safeguards. Regarding the form of the
report, the Panel in that case stated :
"[N]othing in the requirement to publish a report dictates the form that the report
must take, provided that the report complies with all of the other obligations
contained in the Agreement on Safeguards and Article XIX of GATT 1994. In the
end, it is left to the discretion of the Memb ers to determine the format of the report,
including whether it is published in parts, so long as it contains all of the necessary
elements, including findings a nd reasoned conclusions on all pertinent issues of fact
and law. Together, these parts can form the report of the competent authority.
The Panel believes that a competent authority' s report can be issued in different parts
but such multi-part or multi-stage report must always provide for a coherent and
integrated explanation proving satisfaction with the requirements of Article XIX of
GATT 1994 and the Agreement on Safeguard s, ... Whether a report drafted in
different parts or a multi-stage report constitutes "the report of the competent
authority" is to be determined on a case -by-case basis and will depend on the overall
structure, logic and coherence between the various stages or the various parts of the
report. ... The publication of a report in many stages may produce added difficulties
for the competent authorities to set forth coherent findings in a reasoned and adequate
manner."
684

684 Panel Report, US – Steel Safeguards , paras. 10.49-10.50. Regarding the timing of the report, the
Panel states:
"Given that the demonstration of unforeseen developments is a prerequisite for the application
of a safeguard measure, it cannot take place after the date as of which the safeguard measure is
applied. This has been confirmed by the Appellate Body, which noted, in US – Lamb , that
although Article XIX provides no express guidance on where and when the demonstration of
unforeseen developments is to be made, it is nonetheless a prerequisite, and 'it follows that this
demonstration must be made before the safeguard measure is applied. Otherwise, the legal
basis for the measure is flawed .' (Appellate Body Report, US – Lamb , para. 72 (emphasis in
original); see also Panel Report, US – Line Pipe, para. 7.296). Any demonstration made after

7.259 As in the case of the requirement to publish a report under Article 3.1 of the Agreement on
Safeguards, Article 16 of the Customs Valuation Agreement does not dictate the manner in which a
written explanation must be provided. To that exte nt, we agree that the question of whether a certain
instrument can constitute an explanation under Ar ticle 16 will have to be decided on a case-by-case
basis. We also agree that if an explanation is to be given in multiple parts, factors such as "the overall
structure, logic and coherence" among these variou s parts must be considered to determine the
appropriateness of the explanation given on the de termination of the customs value of the goods
imported. Furthermore, if explanations are provide d in multiple parts, it must also be considered
whether such a fact deteriorates the transparency and due process objective of Article 16.
7.260 Before evaluating whether the minutes of the 6 March 2007 meeting should be considered as
constituting the explanation under Article 16, we will first briefly explain the circumstances
surrounding the 6 March 2007 meeting and the issuance of the minutes.
7.261 Thai Customs sent a letter dated 26 February 2007 inviting a legal auditor, Mr. Prasit
Yeungsrikal, for PM Thailand (PWC ABAS) to th e 2 and 6 March meetings with Thai Customs
officials.
685 Although the invitation refers to meeti ngs on 2 and 6 March, we understand that the
relevant meeting for the purpose of this dispute is the 6 March meeting as that is the meeting where
the explanation of Thai Customs' valuation determ ination allegedly took place. The letter states that
the purpose of the 6 March 2007 meeting is to clar ify queries regarding the sale, expenditure and
administration data contained in PM Thailand's 2005 financial statements, which were submitted with
PM Thailand's letter to Thai Customs dated 5 February 2007. 686 The letter, however, does not explain
the context in which the queries on those data ar e raised. In this regard, Thailand presented a
statement of a Thai Customs official (Mrs. Natina Santinyanont) that the invitation was to discuss the
customs valuation of PM Thailand's imports and th at they had requested information directly from
both PM Thailand and PWC to enable Thai Customs to evaluate this determination. A statement from
PWC ABAS, submitted by the Philippines, shows that representatives from both PWC ABAS and
PWC WMS attended the meeting on 2 March 2007. As for the attendance by PW C officials of the 6
March 2007 meeting, the parties agree that the sa me legal auditor from PWC ABAS was present at
the meeting in the morning. The parties present, however, contradicting statements regarding whether
a representative from PWC WMS was allowed to be present at that morning meeting. The minutes of
the meeting were sent out to PWC ABAS on 15 March 2007. The revised meeting minutes have the
mailing date of 21 March 2007.
7.262 We will first consider whether the meeting of 6 March 2007 itself can form an explanation
given by Thai Customs under Article 16. Article 16 specifically requires an explanation to be
provided "in writing". In the light of this, we do not consider the discussion that took place during the
meeting on 6 March 2007 as forming part of the written explanation provided in accordance with
Article 16. Furthermore, the subject meeting took place before the final assessment of the customs
value for the entries at issue was made, while th e requirement to provide an explanation of the

the start of the application of a safeguard measure would have to be disregarded automatically
as it cannot afford legal justification for that measure.
... Since the demonstration of unforeseen develo pments must be included in the published
report of the competent authorities it is necessary to look for the demonstration of unforeseen
developments in the 'report of the competent au thority', completed and published prior to the
application of the safeguar d measures" (Panel Report, US – Steel Safeguards , paras. 10.52-
10.53).
685 Exhibit THA-10.
686 In the PM Thailand's letter of 5 February 2007, re ferred to in Thai Customs' invitation letter of 26
February 2007, PM Thailand requests Thai Customs to ex pedite its examination and valuation of the entries at
issue and to use a testing methodology for valuation (Exhibit PHL-68).

determination of the customs value arises once the final assessment is made. 687 To recall, Thai
Customs started issuing the Notices of Assessment for these entries as of 16 March 2007. In fact,
evidence shows that further information was subm itted to Thai Customs between the 6 March 2007
meeting and 16 March 2007. 688 We are also mindful that it is not clear based on the evidence before
us whether PM Thailand was properly represented in th is meeting in terms of both the capacity of the
representatives, in particular auditors from PWC ABAS, who participated in the concerned meeting as
well as the nature of their participation in the m eeting. The considerations above, taken together,
suggest that although discussions at the 6 March 200 7 meeting may be viewed as part of the process
of determining the customs value of the entries at issue, the meeting itself does not constitute a written
explanation as to the final customs determination. We consider that accepting the position that a
discussion(s) before the final assessment of the cust oms value was even made forms an explanation,
would not be in line with the purpose of Article 16 to maintain transparency and due process in the
customs valuation process.689
7.263 Next, we examine whether the minutes of the 6 March 2007 meeting should be considered as
forming the explanation under Article 16. 690 We consider that this requires a consideration of both
formalistic and substantive aspects of the explanation.
7.264 We first address the formalistic aspect of the minutes. The original minutes of the 6 March
2007 meeting were sent to PWC ABAS, whereas the explanation provided in the 12 April 2007 letter
was directed to PM Thailand. All other written correspondences between Thai Customs and
PM Thailand during the valuation process were also addressed to PM Thailand. We also note that the
minutes are not referred to in the official explana tion provided in the 12 April 2007 letter. We recall
our consideration above that although the manner in which a written explanation is provided is up to
the discretion of each Member, an explanation give n in multiple parts or separate instruments must
show structural and logical coherency so as not to deteriorate the transparency and due process
objective of Article 16. Considering also that the parties are contesting whether PM Thailand is
officially represented by PWC ABAS on its customs matters, we do not find that an instrument, which
was sent to a legal auditor for the importer rather than the importer itself and not referred to in the
formal letter providing for an explanation pursua nt to Article 16, can form part of the written
explanation.
7.265 As regards to the substantive aspect of the minutes, the minutes address the rejection of the
transaction value, the other alternative valuation methods and the deductive valuation method used.
The minute explanation given in the minutes are also much more detailed than those provided in the
12 April 2007 letter. However, as mentioned ab ove, the revised minutes identify Article 5 of the
Customs Valuation Agreement as the Article used, whereas the or iginal minutes, which were the
version sent to PWC ABAS, refer to Article 7. Th is is confirmed by the evidence showing that the
original minutes have the date of 14 March 2007 and were sent out to PWC ABAS on 15 March

687 As the Panel in US – Steel Safeguard observed, under the Agreement on Safeguards, a report must
be published prior to the imposition of a safeguard measure ("a necessary step in conducting an investigation"),
whereas under the Customs Valuation Agreement, an explanation is to be provided after the final assessment of
the customs value.
688 Exhibits PHL-169 and PHL-170.
689 We recall that subsequent to the 6 March 2007 meeting, PM Thailand provided, upon the requests
from Thai Customs, further information evidencing that th e transaction values were the prices actually paid; the
GAQ prices; and its financial statements for 2003-2005 to Thai Customs by the letters dated 7 and 14 March
2007 (Philippines' response to Panel question No. 29; Exhibit PHL-169; PHL-170).
690 The Philippines contends that the minutes cannot be used to supplement the explanation given in
the 12 April 2007 letter. The Philippines, however, accepts that the Panel may nonetheless review the
explanation given in the minutes as a contemporaneous statement of the determination in assessing Thailand's
substantive obligations.

2007
691, whereas the revised version has the mailing da te of 21 March 2007. In these circumstances,
we cannot consider the subject minutes as constitutin g part of the written explanation within the
meaning of Article 16, even though they may ha ve provided sufficient explanations to meet the
procedural requirements under this article, because of the existence of both the original and revised
minutes, which respectively provide different method s without an adequate explanation, combined
with the lack of evidence confirming that the revised minutes were sent to PM Thailand.
7.266 For the foregoing reasons, we find that Thai Cu stoms failed to provide an explanation as to
how the customs value of the importer's goods was determined inconsistently with Thailand's
obligations under Article 16.
7. Articles 5 and 7 of the Customs Valuation Agreement
(a) The Philippines' claims under Articles 5 and 7
(i) Evolvement of the Philippines' arguments with respect to its claims under Articles 5 and 7
7.267 The Philippines' arguments concerning its claims under Articles 5 and 7 have evolved
throughout the proceedings before this Panel. The Philippines explains that this evolution took place,
because in its first written submission and oral statemen t, Thailand denied that it had used Article 7 to
value PM Thailand’s cigarettes, and asserted that it used Article 5. 692 In its first written submission,
the Philippines, therefore, essentially argued that: (i ) Thailand violated Article 5 because it failed to
value the entries at issue using the deductive valuation method under th at provision; and (ii) Thailand
violated Article 7, in particular 7.1, because it failed to use "reasonable means" in determining
customs values by making erratic valuation decisions with respect to a series of entries that were
made in the same circumstances.
693
7.268 In its subsequent written submissions, th e Philippines submits that "[it] makes alternative
claims under Articles 5 and 7 with respect to Thailand's valuation of the [[xx.xxx.xx]] entries at issue,
and that the alternative that applies depends on wh ether the Panel finds that Thailand valued these
entries using Article 5 or 7".694 In essence, the Philippines' alternative claims are as follows:
"Depending on which provision the Panel finds was used to value PM Thailand's
goods, the Philippines makes the following alternative claims:
(1) If the Panel finds that Thailand used Article 7 of the Customs Valuation
Agreement to value PM Thailand's cigarett es (the Philippines' primary claim), the
Philippines claims that Thailand improperly applied:
(a) Article 5 by declining to use th at provision for impermissible reasons,
namely, a lack of contemporaneous financial information; and (underline in
original)
(b) Article 7 of the CVA because it failed to make deductions for three
elements that it was required to deduct; sales allowances; internal
transportation; and provincial taxes.

691 Exhibits PHL-74 and THA-64. Thailand presented a copy of the registered mail addressed to PWC
ABAS to prove that the 6 March meeting minutes were sent to PWC. The copy shows 15 March 2007 as the
mailing date.
692 Philippines' response to Panel question No. 26.
693 Philippines' first written submission, paras. 361 and 376.

(2) In the alternative, if the Panel fi nds that Thailand used Article 5 of the CVA
to value PM Thailand's cigarettes (the Ph ilippines' secondary claim), the Philippines
claims that Thailand violated Article 5 b ecause it failed to make deductions for three
elements that it was required to deduct: sales allowances; internal transportation, and
provincial taxes. Under this alternative, no claims are made under Article 7, because
Article 7 is inapplicable."695
7.269 The Philippines explains that its arguments th at Thailand failed to make certain deductions
that it was required to make, are based on the calcu lations that Thailand provided in Exhibit THA-13,
which Thailand disclosed for the first time through the current panel proceedings. The Philippines
submits that it revised its arguments with respect to the WTO-inconsistent aspects of the deductive
calculation (i.e. failure to deduct certain items) based on this new evidence.696
(ii) Scope of the Philippines' claims
7.270 In the light of the clarification of the Philippi nes' alternative arguments concerning its claims
under Articles 5 and 7 above, we understand that the Philippines' claims are under both Articles 5
and 7 if the Panel decides that the valuation method used by Thai Customs was Article 7. If the Panel
finds that the method used was Article 5, the Philippines' claim is limited to Article 5.
7.271 In its response to the Panel's second set of qu estions, the Philippines further submits that
Thailand acted inconsistently with Articles 4 and 7.1 by failing to respect the sequencing obligations
under these provisions. Given that the Philippines' clai m in this regard was introduced only at the last
stage of the proceeding, we wish to address the question of whether the Philippines' claims under
Articles 4 and 7.1 are properly presented. We will first describe the Philippines' position with respect
to Article 4 and the sequencing obligation under the Customs Valuation Agreement.
7.272 Although it is clear that Article 4 of the Cust oms Valuation Agreement is identified in the
Philippines' Panel request, the Philippines has not pursued a sequencing claim under Article 4 in the
course of the Panel proceedings. The question theref ore remains as to whether the Philippines made a
specific claim in this respect.
7.273 In US – Certain EC Products , the European Communities neith er requested nor argued for
findings under Article 23.2(a) of the DSU. There, the Appellate Body considered that although the
inconsistent claim of a given provision may be w ithin a panel's terms of reference, the European
Communities failed to actually make such a claim. The Appellate Body ruled that in the absence of a
specific claim of inconsistency by the complainant, the burden to present a prima facie case of
violation would not be met:
"[A]s the request for the establishment of a panel of the European Communities
included a claim of inconsistency with Ar ticle 23, a claim of inconsistency with
Article 23.2(a) is within the Panel's terms of reference.
However, the fact that a claim of inconsis tency with Article 23.2(a) of the DSU can
be considered to be within the Panel's terms of reference doe s not mean that the
European Communities actually made such a cl aim. An analysis of the Panel record
shows that, with the exception of two instances during the Panel proceedings, the
European Communities did not refer specifica lly to Article 23.2(a) of the DSU.
Furthermore, in response to a request from the United States to clarify the scope of its

695 Philippines' second written submission, para. 217; response to Panel question No. 26.
696 Philippines' response to Panel question No. 26, also referring to the Philippines' first oral statement,
paras. 132-144 and 146.

claim under Article 23, the European Communities asserted only claims of violation
of Articles 23.1 and 23.2(c) of the DSU; no mention was made of Article 23.2(a).
Our reading of the Panel record shows us that, throughout the Panel proceedings in
this case, the European Communities made ar guments relating only to its claims that
the United States acted inconsistently with Article 23.1 and Article 23.2(c) of the
DSU.

As the European Communities did not make a specific claim of inconsistency with
Article 23.2(a), it did not adduce any evidence or arguments to demonstrate that the
United States made a 'determination as to the effect that a violation has occurred' in
breach of Article 23.2(a) of the DSU. And, as the European Communities did not
adduce any evidence or arguments in support of a claim of violation of Article 23.2(a)
of the DSU, the European Communities c ould not have estab lished, and did not
establish, a prima facie case of violation of Article 23.2(a) of the DSU.
697"698
7.274 Similarly, in the present dispute, although Artic le 4 of the Customs Valuation Agreement was
explicitly listed in the Panel request relating to the entries at dispute 699, the Philippines neither
specifically referenced a violation of Article 4 of the Customs Valuation Agreement, nor provided
evidence or specific arguments to demonstrate a vi olation of that provision except for its passing
statement in a response to the Panel question. 700 On the contrary, the Philippines has maintained the
position that Article 4 is not relevant to its claim relating to valuation methodologies under Articles 5
and 7. The Philippines stated the following in its first written submission:
"This is not a sequencing claim , but a claim that Article 5 was improperly applied in
deciding that the customs value could not be determined under this provision.
However, as a consequence of its improper failure to use Article 5, Thailand also
failed to respect the proper sequencing of valuation methodologies in the CVA."
701
(italics added)
7.275 Further, in response to a question from the Pa nel whether its claim that Thailand failed to
respect the sequencing of valuation methodologies w ould be an issue that needed to be addressed
under Article 4 of the Customs Valuation Agreement, the Philippines explicitly stated that it did not
consider that Article 4 established a sequencing re lationship between Articles 5 and 7. Specifically,
the Philippines responded:
"Moreover, the Philippines considers that Article 4, properly interpreted, does not
establish a sequencing relationship between Articles 5 and 7. Rather, Article 4
establishes that importers have a choice as to whether the importing Member should

697 (footnote original) "We recall that in our Report in EC – Measures Concerning Meat and Meat
Products (Hormones) ("European Communities – Hormones"), we held that:

... 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." (WT/DS26/AB/R, WT/DS44/AB/R, adopted 13 February 1998, para. 104)

698 Appellate Body Report, US – Certain EC Products, paras. 111, 112 and 114.
699 Philippines' request for the establishment of a panel, para. 14.
700 Philippines' response to Panel question 115. In the Philippines' list of claims included in its first and
second written submission, reference to Article 4 canno t be found. (Philippines' first written submission,

value goods under Article 5 before Article 6, or the reverse. That sequencing
obligation is expressed in pa ragraphs 1 to 4 of the General Introductory Commentary
to the CVA. [I]n any event, should the Panel consider that the sequencing obligation
is found in Article 4, the Philippines not es that it made a claim under Article 4 in
paragraph 14 of its Panel Request." 702
7.276 The Philippines' position appears to have changed, however, when it provided written
responses to a second set of questions from the Pa nel after the second substantive meeting. In
response to the Panel question to the Philippines to clarify its claim under Articles 5 and 7 of the
Customs Valuation Agreement, the Philippines, for the first time in the Panel proceedings, made
explicit references to Article 4 violations:
"Thailand violated the sequencing obligations in Articles 7.1 and 4 by declining, for
impermissible reasons, to use Article 5 to value the [[xx.xxx.xx]] entries".

Thailand's determination not to use Article 5 also leads to violations of Articles 7.1
and 4. These provisions establish sequenc ing obligations, requiring Members to
value goods under Article 5 before Article 7. By failing to value goods under
Article 5, when doing so was possibl e, Thailand violated these sequencing
obligations."
 703
7.277 In the light of the absence of reference to or arguments concerning Article 4 of the Customs
Valuation Agreement until the last stage of the Panel proceedings and given its contradicting views on
the relevance of Article 4 through the course of the proceeding, it does not appear to the Panel that the
Philippines had properly established and was genuine ly pursuing a sequencing claim under Article 4
of the Customs Valuation Agreement. A change in the Philippines' position, expressed for the first
time in this proceeding in response to a question fro m the Panel, is not specific enough to explain the
sequencing obligation under Article 4 either. Furthe r, in a footnote to its response, the Philippines
continues to question whether Article 4 can be considered as setting forth a sequencing obligation.
7.278 Overall, it is our view that the Philippines' claim regarding Article 4 was neither timely nor
specific enough to warrant its inclusion in the Phili ppines' request for findings and recommendations
with respect to its claims under the Customs Va luation Agreement. Our view also reflects a
consideration that Thailand's right to due process shou ld not be negatively affected by the Philippines'
inclusion of the concerned claim only at the last stage of the proceeding.
7.279 Next, we address the Philippines' claim under Article 7.1 in respect of Thailand's alleged
violation of the sequencing obligation. 704 The text of Article 7.1 stipulates that resort to Article 7.1
for customs valuation is conditioned on the situati on where "the customs value of the imported goods
cannot be determined under the provisions of Article s 1 through 6". As such, Article 7 may only be
applied if the customs value of the imported go ods cannot be determined under the provisions of
Articles 1 through 6. We understand that the Ph ilippines' sequencing claim under Article 7.1 stems
from this part of Article 7.1. In our view, this phrase in Article 7.1 lays down a condition or
requirement that needs to be met before a cust oms authority can use the valuation principles under
Article 7.1. As such, we do not consider that Article 7.1 can form the basis for an independent
sequencing claim under the Customs Valuation Agreemen t. We consider that the Philippines' claim

702 Philippines' response to Panel question No. 27.
703 Philippines' response to Panel question No. 115.
704 We also consider, as in the case of the Philippines' claim under Article 4 of the Customs Valuation
Agreement, the Philippines' claim under Article 7.1 was not timely presented.

pertaining to this part of Article 7.1 rather falls within the Philippines' claim that Thailand improperly
applied the deductive valuation method under Article 7.1, which is addressed in Section VII.C.7(c)(ii)
below.
7.280 In sum, with respect to the Thai Customs' va luation of the [[xx.xxx.xx]] entries at issue, the
Philippines makes alternative claims under Articl es 5 and 7 depending on the provision under which
the Panel finds Thai Customs to have valued the en tries at issue. For the reasons explained above,
however, we do not find that the Philippines has pr operly made its sequencing claims under Articles 4
and 7.1.
(b) The provision under which to assess the valuati on methodology used by Thai Customs to
determine the customs value of the [[xx.xxx.xx]] entries at issue
(i) Main arguments of the parties
7.281 The Philippines is of the view that the Panel has to first decide whether Thailand valued the
imported cigarettes at issue using Article 5 or Article 7; the Philippines' primary claim is that Thailand
valued the entries at issue using Article 7.
705 The Philippines supports its position with the following
evidence: (i) the original version of the minutes of the 6 March meeting 706 ; (ii) Thai Customs'
12 April 2007 letter to PM Thailand stating that the imports were valued using [the method under
Article 7]707; and (iii) a written statement provided by Thai Customs on [[xx.xxx.xx]] of the
[[xx.xxx.xx]]] notices of assessment that the im ports were valued us ing [the method under
Article 7].708 The Philippines submits that Thailand's argument that Thai Customs used Article 5 of
the Customs Valuation Agreement to value imported cigarettes is based on a revised version of the
minutes of the 6 March meeting.709
7.282 Thailand argues that it is clear that Thai Customs used a deductive valuation method within
the meaning of Article 5 of the Customs Valuation Agreement (Method 4 under Thai law) and, to that
extent, its WTO-consistency should be determined by reference to Article 5, which governs deductive
value calculations.710 There was confusion which method under Thai law was being used to value the
entries at issue. Specifically, Thailand explains th at Thai Customs considered that its own regulations
prevented it from using the deductive value under Method 5 where current financial information
(financial statements for 2006 in this instance) was not available, but permitted it to use the deductive
value under Method 6 using the most r ecent available financial information. 711 Thailand does not
contest, for the purpose of this dispute, that Article 5 of the Customs Valuation Agreement does not
require that the customs administration use compa ny data from the year of importation (financial
statements for 2006 in this instance) in determining the deductive value. 712 The evidence is clear,
however, that Thai Customs used a deductive valuation method.713
7.283 Thailand submits that the only grounds for the Ph ilippines' claims appear to be the Thai
Customs' rejection of adjustments for sales allowa nces, provincial taxes and inland transportation. In
this respect Thailand showed that Thai Customs pr operly declined to make each of these adjustments

705 Philippines' second written submission, para. 213; response to Panel question No. 26.
706 Philippines' response to Panel question No. 26; Exhibit PHL-74.
707 Philippines' response to Panel question No. 26; Exhibit PHL-70.
708 Philippines' response to Panel question No. 26; Exhibit PHL-179.
710 Thailand's response to Panel question No. 28; second written submission, para. 112, also referring to
its first written submission, paras. 175, 177 and 183-185.
711 Thailand's first written submission, paras. 185-186.
712 Thailand's first written submission, para. 188.
713 Thailand's second written submission, para. 112, also referring to its first written submission,
paras. 175, 177 and 183-185.

based on the evidence before it.714 Regarding the relationship between Articles 5 and 7, Thailand is of
the view that, depending on the grounds on which the Panel may find that Thai Customs acted
inconsistently with Article 5, it may nevertheless s till need to consider Thai Customs' determination
under Article 7 of the Customs Valuation Agreement.715
(ii) Analysis by the Panel
7.284 With respect to the Philippines' claim c oncerning Thai Customs' valuation of the
[[xx.xxx.xx]] entries at issue, the parties do not dispute that the substantive content of the method
used by Thai Customs is a deductive valuation method.
716 Because the valuation methods to be
employed under Article 7 include a deductive valu ation method, both Articles 5 and 7 in principle
cover the same disciplines for using a deductive valuation method.717
7.285 However, as the Philippines submits, because a given deductive valuation method cannot be
simultaneously subject to both Articles 5 and 7, we must address the question of whether Thai
Customs used the deductive valuation method under Article 5 or Article 7. We consider it important
to determine the specific provision under which Th ai Customs used the deductive valuation method
particularly because of the sequencing obligation envisaged under the Customs Valuation Agreement.
As we mentioned in Section VII.C.1 above, the tr ansaction value is the primary basis for customs
value determination under the Customs Valuation Ag reement. If the transaction value is considered
not applicable under Article 1, the customs admini stration is then required to use an alternative
valuation method in the sequential order as provi ded in the Agreement, namely the respective
valuation methods indicated in Articles 2, 3, 5, 6 and 7. While each of Articles 1, 2, 3, 5 and 6
provides a specific valuation method, Article 7 is sli ghtly different from other provisions in nature, as
Article 7 allows the use of the valuation methods laid down in Articles 1 through 6 with a reasonable
flexibility.
7.286 In this connection, Thailand argues that, should the Panel find that a Member actually used a
deductive valuation method, the use of this method s hould then be examined under Article 5 because
"Article 5 of the CVA provides rules governing th e deductive value method of customs valuation.
Generally, therefore, the WTO-consistency of a deduc tive value determination is to be determined by
reference to Article 5 of the CVA". 718 We may agree with Thailand that the provisions of Article 5
must be referred to in examining whether the rules governing the deductive valuation method were
properly applied in a given case. However, we do not agree with Thailand's proposition that a

714 Thailand's second written submission, para. 110.
715 Thailand's response to Panel question No. 33, re ferring back to its response to Panel question
No. 28.
716 The parties' response to Panel question No. 28; the Philippines' response to Panel question No. 30.
Thailand's response in this regard is a bit more nuanced: it states that "Article 5 of the CVA provides rules
governing the deductive valuation method of customs valua tion. Generally, therefore, the WTO-consistency of
a deductive value determination is to be determined by reference to Article 5 of the CVA. That said, there may
be circumstances in which the WTO-consistency of a de ductive valuation method may have to be also assessed
under Article 7 of the CVA...". See also, Thailand's response to Panel question No. 33.
717 Philippines' second written submission, para. 282. The Philippines therefore only refers back to its
arguments under Article 7.1 (Thailand's failure to deduct three items) for its alternative claim under Article 5, in
the event that the Panel finds that Thailand applied Artic le 5 of the Customs Valuation Agreement, as Thailand
argues.
718 Thailand's response to Panel question No. 28. In its first written submission, Thailand states that
"[T]he issue before the Panel is whether the deductive value method actually used by Thai Customs was
consistent with Article 5 of the CVA. It is largely irrelevant how that method was described under municipal
law." (para. 187). In this connection, Thailand refers to the statement of the Panel on US – Hot-Rolled Steel that
"[I]t is not, in our view, properly a panel's task to consider whether a Member has acted consistently with its
own domestic legislation". (Panel Report, US – Hot-Rolled Steel , para. 7.267) (Thailand's first written
submission, footnote 180).

deductive valuation method used must be examined under Article 5 regardless of the actual provision
under which the customs administration used it. Furthermore, if we we re to follow Thailand's
reasoning, the obligations under the provisions of Ar ticle 7 will not be pr operly observed as parties
may always be able to insist that the prope r provision of the Customs Valuation Agreement under
which a panel must examine a certain valuation me thod be the provision setting forth the substantive
elements of that particular method, namely Articl es 1 through 6, but not Article 7 which, as explained
above, refers back to the methods under Articles 1 through 6. Therefore, we will now proceed to
determine the provision under which Thai Customs valued the entries at issue.
7.287 The Philippines submits that the following evidence demonstrates Thai Customs'
determination in its own terms to use the deductive valuation method under Article 7: (i) the original
version of the minutes of the 6 March meeting
719; (ii) Thai Customs 12 April 2007 letter to
PM Thailand stating that the imports were valued using [the method under Article 7] 720; and (iii) a
written statement provided by Thai Customs on [[xx.xxx.xx]] of the [[xx.xxx.xx]] notices of
assessment that the imports were valu ed using [the method under Article 7]. 721 The evidence referred
to by the Philippines does reveal that Thai Customs used the deductive valuation method under
Article 7 because the documents referenced all spec ifically describe Article 7 as the provision under
which the deductive valuation method was used in de termining the customs value of the cigarettes at
issue. Specifically, in the minutes of the 6 March meeting, Thai Customs stated: "the determination
of customs values for the Company is calculated by Method 6, that is, the Fall Back method ( ...
subject to provisions of Article 7 of GATT)" 722; in the 12 April letter, it is stated that "[i]n the
determination of custom values, Method 6, whic h is the "Fall Back" method, using the deductive
method, was used ... under Article 7 of GATT" 723; and the written statement by Thai Customs states
for [[xx.xxx.xx]] out of the [[xx.xxx.xx]] notices of assessment "no. 6 Fall Back Deductive Method ...
" was used. 724 Based on the evidence before us, therefore, we can preliminarily determine that
Thailand used the deductive valuation method pursu ant to Article 7 of the Customs Valuation
Agreement.
7.288 In this connection, the only evidence that make s reference to the deductive valuation method
under Article 5 is the revised minutes of the 6 March 2007 meeting. 725 However, we note that
Thailand also refers to the original minutes, not the revised minutes, in its first written submission in
stating that "[i]n the minutes of the 6 March 2007 mee ting, Thai Customs stated that it was using the
deductive valuation method pursuant to Method 6 of Thai Customs' regulations, which corresponds to
the "fall back" method of Article 7, rather than pursuant to Method 5 of the regulations, which would
correspond to Article 5 of the Customs Valuation Agreement. Thus, while the deductive value was
used, the provisions of municipal law relied upon were those relating to the fall back method, not the
provisions relating to the deductive valuation method as such". Thailand then continues to explain
that there was confusion which method under Thai law was being used to value the entries at issue.
These circumstances show that despite the refe rence to the deductive valuation method under
Article 5 in the revised minutes of the 6 Marc h 2007 meeting and regardless of Thai Customs'
mistaken understanding of the nature of the requirements under Article 5, Thailand itself
acknowledges that Thai Customs used the deductive valuation method under Article 7, not Article 5.

719 Philippines' response to Panel question No. 26; Exhibit PHL-74.
720 Philippines' response to Panel question No. 26; Exhibit PHL-70.
721 Philippines' response to Panel question No. 26; Exhibit PHL-179.
722 Exhibit PHL-74, p. 5.
723 Exhibit PHL-70.
724 Exhibit PHL-179. No. 6 fall back deductive method is the method used under Article 7 GATT.
725 Exhibit THA-37, pp. 7-8.

7.289 In the light of the foregoing, we conclude th at Thai Customs used the deductive valuation
method pursuant to Article 7. As such, the pr oper provision under which we must examine Thai
Customs' valuation of the entries at issue is Article 7.
(c) Whether Thai Customs determined the custom s value of the imported cigarettes at issue
inconsistently with the obligations of the Customs Valuation Agreement
7.290 Having found that Thai Customs' valuation deci sion must be evaluated under Article 7, we
will now address the Philippines' claim that Tha iland improperly applied the following provisions:
first, Article 5 by declining to use that provision for impermissible reasons, namely, a lack of
contemporaneous financial information; and (underline in original) second, Article 7 because it failed
to make deductions for three elements that it wa s required to deduct; sales allowances; provincial
taxes; and internal transportation.
(i) The Philippines' claim under Article 5
7.291 The Philippines claims that if the Panel conc ludes that Thai Customs used the deductive
valuation method under Article 7, it should find that Thailand violated Article 5 by declining to use
that provision for impermissible reasons, namely, a lack of contemporaneous financial information.
Article 5.1(a) provides:
"Article 5
1. (a) If the imported goods or identical or similar imported goods are sold
in the country of importation in the condition as imported, the
customs value of the imported goods under the provisions of this
Article shall be based on the unit price at which the imported goods
or identical or similar imported goods are so sold in the greatest
aggregate quantity, at or about the time of the importation of the
goods being valued, to persons who are not related to the persons
from whom they buy such goods, subject to deductions for the
following:
 (i) either the commissions usually paid or agreed to be paid or
the additions usually made for pr ofit and general expenses in
connection with sales in such country of imported goods of the same
class or kind;
 (ii) the usual costs of transport and insurance and associated
costs incurred within the country of importation;
 (iii) where appropriate, the costs and charges referred to in
paragraph 2 of Article 8; and
 (iv) the customs duties and other national taxes payable in the
country of importation by reason of the importation or sale of the
goods.
..."
7.292 We do not find in the text of Article 5 any specific obligation according to which Members
must use the method under that provision rather than the subsequent valua tion methods. In other
words, the provisions of Article 5 do not provide for the criteria to be used in deciding whether the

decision not to use the valuation method under Article 5 is consistent or not with the obligations under
Article 5. Rather, Article 5 prescribes the princi ples to be applied in using the deductive valuation
method once the customs authority has decided to use the deductive valuation method under Article 5.
In our view, declining to use Article 5 for impermissible reasons, namely, a lack of contemporaneous
financial information, would, for example, lead to a finding that the condition for resorting to a
method under Article 7.1 is not satisfied in the light of the text of the provisions under Article 7.1.
We address this question in the following section. We therefore find that the Philippines failed to
establish a prima facie case for its claim under Article 5.
(ii) The Philippines' claim under Article 7.1
7.293 The Philippines claims that Thai Customs valued the entries at issue inconsistently with
Article 7.1 because it failed to make deductions for sales allowances, provincial taxes and internal
transportation costs. Thailand argues that PM Th ailand did not provide sufficient evidence before
Thai Customs at the time of determination to justify the requested deductions.
7.294 We will start our analysis by examining the text of Article 7.1.
7.295 Article 7.1 provides:
"If the customs value of the importe d goods cannot be determined under the
provisions of Articles 1 through 6, inclusive, the customs value shall be determined
using reasonable means consistent with the principles and general provisions of this
Agreement and of Article VII of the GATT 1994 and on the basis of data available in
the country of importation."
7.296 Paragraph 2 of the Interpretative Note to Article 7 in turn provides:
"The methods of valuation to be employe d under Article 7 should be those laid down
in Articles 1 through 6 but a reasonable flexibility in the application of such methods
would be in conformity with the aims and provisions of Article 7."
7.297 As noted above, Article 7.1 sets forth that the customs value shall be determined by a
valuation method under Article 7 if the customs value of the importe d goods cannot be determined
under the provisions of Articles 1 through 6 of the Customs Valuation Agreement.
726 This condition
does not appear to have been met in the factual circumstances of this case because Thai Customs had
necessary financial data (financial statement for FY 2005) on the basis of which it could have
determined the customs value of the imported goods under the provisions of Article 5. As Thailand
acknowledges, Thai Customs however decided to use a deductive valuation method under Article 7
instead because it mistakenly believed that only the most current financial data, but not those from
prior years, could be used under Article 5. In our view, this could have provided a basis for finding
that Thai Customs' use of a deductive valuation me thod is not consistent with the requirements under
Article 7.1. However, given that the Philippines' claim is not based on this particular aspect of
Article 7.1
727, we will continue with our examination of whether Thai Customs otherwise complied
with the requirements of Article 7.1 to use reas onable means consistently with the principles and
general provisions of this Agreem ent and of Article VII of the GATT 1994 and on the basis of data

726 We recall our finding in para. 7.279 above that the Philippines' claim under Article 7.1 in respect of
Thailand's alleged violation of the sequencing obligation must have been brought under the Philippines' claim
that Thai Customs improperly applied the deductive valuation method under Article 7.1.
727 As addressed in detail in the subsequent sections, the Philippines claims that Thailand violated
Article 7.1 because it failed to make deductions for sales allowances, provincial taxes and internal transportation
costs.

available in the country of importation, in applyi ng the deductive valuation method to determine the
customs value of the cigarettes at issue.
(iii) Whether Thai Customs applied the deductive valuation method inconsistently with Article 7.1
Introduction
7.298 The text of Article 7.1, read together with para graph 2 of the Interpretative Note to Article 7,
provides that when using a deductive valuation me thod under Article 7.1, a customs authority is
required to apply the same principles that would be applied under Article 5, with allowance for a
reasonable flexibility where Article 5 cannot be applie d strictly. The parties' arguments concerning
Thai Customs' valuation of the entries at issue ar e therefore based on the specific principles to be
applied in using the deductive valuation method as prescribed in Article 5.
7.299 The parties do not dispute that Thai Customs did not deduct three items – sales allowances728,
provincial taxes and transportation costs. The Philippines claims that Thailand's decision is
inconsistent with the obligations under Article 5. Thailand takes the position that Thai Customs was
not able to deduct the three items at issue b ecause the data provided by PM Thailand for the
deductions were not sufficient. In response, the Philippines puts forwards arguments relating to both
procedural and substantive aspects of the Thai Customs' application of the deductive valuation
method to the entries at issue.
7.300 Specifically, the Philippines submits that because Thailand failed to explain the reason why it
decided not to deduct the requested items at the ti me of determination pursuant to Article 16, the
standard appropriate for this Pane l's review of the Philippines' cl aim under Article 7.1 prevents the
Panel from basing its decision on ex post explanations provided by Thailand in this proceeding.729
7.301 The Philippines further underlines the alleged procedural deficiency in the Thai Customs'
determination: Thai Customs failed to give the importer an opportunity to explain the information
provided and/or to present Thai Customs with fu rther information and data that Thai Customs
considered necessary for the requested deductions.730
7.302 The Philippines also claims that Thai Custom s' decision not to deduct the three items is
substantively inconsistent with the principles of the de ductive valuation method under Article 5.
Essentially, the parties disagree on how Article 5.1(a) should be interpreted in respect of the
deductibility of the three items at issue as well as on whether Thai Customs' decision not to deduct the
concerned items is consistent with Article 5.1(a).
7.303 We will start our analysis with the description of the valuation process by Thai Customs in
assessing the customs values of the entries at issue.
7.304 Before turning to the analysis, we observe that the Philippines takes the position that it has put
forward another claim under Article 7.1, namely that Thailand acted inconsistently with Article 7.1 of
the Customs Valuation Agreement by deducting incorrect amounts for VAT and excise tax for certain
transactions.
731 According to the Philippines, this is a claim additional to the claim that Thai Customs
violated Article 7.1 by failing to deduct certain items inconsistent with the principles under Articles
7.1 of the Customs Valuation Agreement. In our view, while the alleged deduction of incorrect

728 We note that in their submissions the parties re fer to "sales allowances " and "sales discounts"
interchangeably, in this report we will only refer to "sales allowances".
729 Thailand's second written submission, paras. 232-279.
730 Thailand's second written submission, paras. 264-267.
731 Philippines' comments on the Interim Review Report, paras. 36-42 (para. 6.78 of the Interim
Review section of this Report).

amounts for VAT and excise tax may form an additional argument for the Philippines' claim against
Thai Customs' application of the deductive valuation method under Article 7.1, it does not constitute a
separate claim as argued by the Philippines.
732 In the Descriptive Part of the Report, the Philippines
requests that the Panel find that "Thailand violat ed Article 7.1 of the Customs Valuation Agreement
by incorrectly assessing the deductive value of PM Thailand's transactions, specifically by failing to
deduct three claimed items and by deducting inco rrect amounts for VAT and excise tax for certain
transactions".733 In our view, this statement indicates th at the Philippines has made one claim under
Article 7.1 based on two sets of arguments. Having so considered and to the extent that we examine
and make a finding in the following sections with re spect to the Philippines' claim under Article 7.1
based on Thai Customs' decision not to deduct the th ree items at issue, we do not find it necessary to
examine the same claim based on another set of arguments.734
Factual background
7.305 Following a communication with Thai Customs on 15 February 2007 735, PM Thailand
submitted to Thai Customs on 16 February 2007 its fi nancial statement for 2005 to be used by Thai
Customs in calculating the deductive value. 736 In its letter of 21 February 2007, PM Thailand then
made a request for the deduction of sales allowances and provincial taxes. 737 Thailand does not
dispute this either. The same letter also indi cates the GAQ price and the amounts to be deducted for
VAT and profits and general expenses (i.e. gross marg in). This letter does not include a request for
the deduction of transportation costs.
7.306 On 27 February 2007, Thai Customs sent PM Thailand a letter in which it requested
information regarding the import price per unit, the highest first-tier selling price (i.e. the GAQ price),
the retail price between 1 January and 31 December 2006, and PM Thailand's gross margin for 2006,
with a profit and loss statement certified by the auditor and copies of PND 50 for 2006. 738 According
to the Philippines, Thai Customs' letter of 27 February therefore sought additional information
regarding two elements raised by PM Thailand in the 21 February letter, namely the GAQ price and

732 The Appellate Body made the following statement in this regard:
"By 'claim' we mean a claim that the respondent party has violated, or nullified or impaired
the benefits arising from, an identified prov ision of a particular agreement. Such a claim of
violation must, as we have already noted, be distinguished from the arguments adduced by a
complaining party to demonstrate that the responding party's measure does indeed infringe
upon the identified treaty provision. Argu ments supporting a claim are set out and
progressively clarified in the first written subm issions, the rebuttal submissions and the first
and second panel meetings with the parties" (Appellate Body Report, Korea – Dairy, para.139
(footnote original omitted)).
734 Even if we were to consider it as a separate claim, we are of the view that the Philippines neither
pursued nor substantiated its claim in a timely and sufficient manner to warrant the inclusion of the claim in our
examination and findings. Further, the same consideratio n also applies even if we decided to proceed with the
examination of this additional set of arguments.
735 The content of this communication are not on the record before the Panel (Thailand's response to
Panel question No. 10; first oral statement (para. 31)). Thailand submits that the sentence "we wish to confirm
our advice yesterday" in the 16 February letter (Exhibit PHL-137) from PM Thailand confirms the fact that on
15 February 2007, oral communications took place. The Philippines does not dispute this either.
736 Exhibit PHL-137.
737 Exhibit THA-39.
738 Exhibits THA-11; PHL-18. We note that these two exhibits refer to the identical letter. "PND 50" is
the income tax return form for companies or juristic partnerships. (Philippines' second written submission,
para. 234, footnote 197).

the gross margin. PM Thailand responded to the Th ai Customs' request for additional information on
the GAQ prices by a letter dated 7 March 2007.739
7.307 We also note that on 2 March 2007 Thai Cust oms sent PWC ABAS (the auditors of
PM Thailand) and PM Thailand respectively two sep arate letters requesting specific information to
clarify PM Thailand's letter of 5 February 2007. 740 PM Thailand responded by a letter of 6 March
2007 wherein it submitted the trial balance of the y ear 2005 and forecasted the trial balance of the
year 2006.741 As for the request for information on the computed value, PM Thailand stated in the
letter that it did not have the information of produc tion, such as the price of material, production cost,
profit and general expenses of the foreign manufactur er, as the company is the cigarette importer as
well as the distributor in Thailand. In the letter, PM Thailand also expresses its opinion that given the
sequential obligation under the Customs Valuation Ag reement and as there are no identical or similar
goods, the deductive valuation method is the next method used in testing the acceptance of the
imported value.
Thai Customs' application of the deductive valuation method – standard of review
Main argument of the parties
7.308 The Philippines submits that the Panel cannot conduct a de novo review of the evidence
before the customs authority.742 Instead, if PM Thailand claimed a deduction for a particular item, the
Panel should establish whether the authority adequa tely explained how the evidence supported its
decision to reject the claimed deduction. The Ph ilippines notes that a customs authority cannot
simply ignore a requested deduction, without explaining, when requested, why the evidence does not
support a deduction. 743 The Philippines considers that the WTO covered agreements, and the
Customs Valuation Agreement in particular, are not formulated in such a way that an importer must
find a route by using the WTO dispute settlement mechanism so as to obtain an explanation on why
the domestic customs authority refused a claimed deduction.
7.309 The Philippines argues that Thailand makes ex post objections to the sufficiency of the
information which PM Thailand provided to Thai Customs in support of certain deduction claims.
The Philippines contends that Thailand's argume nts to the Panel on the deductibility of the items
claimed by PM Thailand are entirely ex post explanations which Thai Customs did not provide to
PM Thailand at the time of determination. 744 If Thai Customs had raised these queries, when they
arose, PM Thailand could have produced supporti ng evidence for the figures. According to the
Philippines, the appropriate forum for a first dete rmination on the sufficiency of the evidence
concerning items claimed for deduction from the cust oms values is not the WTO, even less if the
arguments are based on ex post explanations which the authority failed to provide. 745 The failure of
Thai Customs to articulate its concerns about PM Thailand's evidence limits the examination of Thai
Customs' reasoning and decision-making process. In short, there is no Thai Customs determination or
explanation that the Panel can review .746 For the Panel to now decide th at the evidence was, or was

739 Exhibit PHL-169.
740 Exhibit THA-12. Thai Customs sought to confirm with PWC ABAS whether the "reserve tobacco
stamp tax" of a certain amount in the financial statement of 2005 was derived by following the accounting
standard. Thai Customs requested PM Thailand for information on the trial balance of 2005 and 2006 and the
computed value of certain items (e.g. material costs and labour costs in packaging goods).
741 Exhibit THA-92.
742 Philippines' second written submission, paras. 225-229.
743 Philippines' second written submission, para. 226 (emphasis in original).
744 Philippines' second written submission, paras. 228, 247 and 272.
745 Philippines' second written submission, paras. 255, 272-273 and 278.
746 Philippines' second written submission, paras. 228 and 272.

not, sufficient to warrant a deduction, it would have to conduct a de novo examination of the evidence
based on Thailand's ex post explanations, which is not the task of a WTO panel.
7.310 Thailand did not provide any specific counterargumen ts in this regard. We understand,
however, that its position on the standard appropriate for the Panel's review of the Philippines' claims
under Article 1.1 and 1.2(a) of the Customs Valuation Agreement would also stand with respect to the
Article 7.1 claim.
Analysis by the Panel
7.311 Our mandate in examining the Philippines' clai m under Article 7.1 is to make an objective
assessment of whether Thai Customs properly app lied the deductive valuation method in determining
the customs values of the cigarettes at issue in accordance with the disciplines under Article 7.1 and
the principles of the deductive valuation method as prescr ibed in Article 5. We considered above that
in objectively assessing the factual aspects of the cu stoms administration's determinations, we may
neither conduct a de novo review nor completely defer to the administration's determination.
7.312 In examining the Philippines' claim under Article 1.1 and 1.2(a) in respect of Thai Customs'
rejection of the transaction value, we clarified that our objective assessment of the claims must be
based on the grounds and explanations provided by Thai Customs at the time of determination
pursuant to Articles 1.2(a) and 16. Under Article 16, in particular, a customs authority is required to
make clear and give details of not only the basis fo r rejecting the transaction value, but also how the
chosen deductive valuation method was applied for the calculation of the final customs value.
7.313 In applying a valuation method falling under Article 7, customs authorities are required under
Article 7.3 to inform the importer in writing of the customs va lue determined under Article 7 and the
method used to determine such value if the importer so requests. As we address in Section VII.C.7(d)
below, the Philippines made a claim under Article 7.3 in this dispute. In order to set the standard for
our review of the Philippines' claim under Article 7.1, we consider the obligation imposed on the
customs authority under Article 7.3 also relevant. This is because our objective assessment of
Thailand's compliance with its obligations under Artic le 7.1 requires us to base our review of the
factual determinations made by Thai Customs when it applied the valuation method under Article 7.1
on Thai Customs' explanations and information at the time of determination.
7.314 Accordingly, we must assess whether Thai Cu stoms' application of the deductive valuation
method was consistent with Article 7.1 and Article 5. Particularly, in deciding whether Thai Customs'
decision not to deduct certain items was supported by the factual evidence befo re it at the time of
determination, we will base our assessment on Thai Customs' explanations provided pursuant to
Article 16 as well as information given to the importer under Article 7.3.
Thai Customs' application of the deductive valuation method – procedural aspect

Main arguments of the parties
7.315 The Philippines submits that on 21 February 2007, PM Thailand sent a letter to Thai
Customs indicating the GAQ price and the amount s to be deducted for sales allowances, VAT,
provincial tax, and prof its and general expenses. 747 According to the Philippines, the letter of
21 February 2007 mistakenly did not menti on the deduction of transportation costs, 748 however, Thai
Customs knew that PM Thailand had included a deduc tion for internal transportation costs in annual

747 Philippines' second written submission, para. 23 3; Exhibit THA-39. In its submission, the
Philippines mistakenly refers to Exhibit PHL-68.

filings covering the three year period from 2003 to 2005 for either "inland freight" or "domestic
transportation".749
7.316 In response to this, Thai Customs sent PM Th ailand a letter on 27 February 2007 to request
more information on import price per unit, the highest first-tier selling price (i.e. the GAQ price), the
retail price between 1 January and 31 December 20 06, PM Thailand's gross margin for 2006 with a
profit and loss statement certified by the auditor and copies of PND 50 for 2006 by 7 March 2007.
750
The Philippines points out that in this letter of 27 February 2007, Thai Customs did not request further
information on the deductions for sales allowances and provincial taxes as presented in its letter of
21 February.751
7.317 In this connection, the Philippines underlines that the customs authority and the importer must
cooperate with a view to determining a proper ba sis of the value for customs purposes. This is
particularly important under Article 5 of the Customs Valuation Agreement because the importer
typically possesses the relevant information for a deductive calculation, whereas the customs authority
knows what specific information it requires to make certain deductions. 752 As such, the Philippines
argues that if Thai Customs had queries concerning PM Thailand's claimed deductions, it should have
engaged in a "process of consultation" with PM Thailand. Thai Customs' failure to indicate clearly
the evidence it required and its failure to seek further information precludes Thailand from now
relying on the fact that PM Thailand did not provi de the required supporting information. If Thai
Customs considered, at the time, that additional information was re quired to support the 21 February
deductions claimed for sales allowances and provinc ial tax, it was required to include these items in
its 27 February request for additional information. 753
7.318 On 7 March 2007, PM Thailand sent a letter to Thai Customs in response to the request for
information of 27 February. In this letter, PM Thailand submitted the additional information as
requested by Thai Customs and it included a sp readsheet showing the GAQ price and additional
information PM Thailand thought might be relevant to the GAQ price, including absolute and relative
volume amounts, total sales receivable and the net sal es receivable, with the deductions to account for
the difference between the two ("Less VAT", "Les s Discount", "Less Other Sales Allowance", and
"Less P. Tax").754 According to the Philippines, based on th e data in this spreadsheet, Thai Customs
accepted the GAQ price shown in the spreadsheet.755
7.319 The Philippines further argues that Exhibit THA-13 provides a deductive calculation for the
entries at issue and that the heading of the Exhib it shows that the calculation was prepared by Thai
Customs "for [the] 6 March Meeting". 756 In the Philippines' view, this calculation shows that Thai
Customs deducted customs duties, al l internal taxes, and an amount fo r profits and general expenses.
According to the Philippines, therefore, all of the elements to be deducted in the calculation had been
finalized by 6 March 2007, before PM Thailand's requested response was even received on 7 March.

749 Exhibits PHL-40, PHL-41, PHL-42 and PHL-43.
750 Philippines' second written submission, para. 234; Exhibit PHL-18. "PND 50" is the income tax
return form for companies or juristic partnerships . (Philippines' second written submission, para. 234,
footnote 197).
753 Philippines' second written submission, paras. 254 and 257.
754 Philippines' second written submission, para. 242; Exhibit PHL-169.
756 The Philippines refers to the meeting held on 6 March 2007 concerning the prescription of import
prices of cigarettes between several Thai government departments and two accountants of
PricewaterhouseCoopers (the "6 March Meeting") (Philippines' first written submission, para. 336). It should be
noted though the the parties disagree as to whether th e two accountants of PricewaterhouseCoopers represented
PM Thailand during this meeting, see para. 7.261 above.

The Philippines asserts that therefore by 6 March, Thailand had already decided not to deduct sales
allowances or provincial taxes.
757
7.320 Thailand submits that the Philippines' objection to the Thai Customs decision not to deduct
sales allowances, provincial taxes and transporta tion costs are based largely on procedural, not
substantive, grounds.758 Regarding the Philippines' position that Thai Customs should have continued
to collect more information regarding the deduc tions, Thailand emphasizes that PM Thailand itself
had twice requested Thai Customs to expedite the assessments and use the deductive valuation
method.759 In the light of this, in Thailand's view, under the standard of review proposed by the
Philippines, the Panel should defer to Thai Custom s' exercise of its disc retion to expedite the
assessments in the manner requested by the importer at that time.
7.321 Thailand submits that in response to PM Thailand's letter of 5 February 2007 760, Thai
Customs expedited its examinati on and began to issue assessment notices for the entries at issue
within weeks. Thailand argues that there we re several documented events in "a process of
consultation" between Thai Customs and PM Thailand regarding the entries at issue.761 According to
Thailand, PM Thailand's letter of 5 February 2007 was first followed up by a meeting between Thai
Customs and PM Thailand on 15 February 2007. 762 Upon Thai Customs' requests for more
information presented between 16 and 20 February 2007, PM Thailand then provided the requested
information in its letter of 21 February 2007. 763 Thailand emphasizes that the letter does not refer to
the deduction of transportation costs.764
7.322 In response to the 21 February 2007 letter by PM Thailand, Thailand sent a request for further
information on 27 February 2007. 765 Thailand acknowledges that PM Thailand responded to this
request by a letter on 7 March 2007 including a spreadsheet on the GAQ price. However, Thailand
asserts that the price adjustments requested by PM Thailand were not supported by the information
provided by PM Thailand in the spreadsheet.766 Moreover, the spreadsheet does not contain any claim
for deduction of transportation costs.
7.323 Thailand argues that also in response to PM Th ailand's 5 February 2007 letter, Thai Customs
sent a letter on 2 March 2007 to PM Thailand reques ting additional information on trial balance and
computed value.767 In a letter dated 6 March 2007, PM Tha iland provided the requested information
on the trial balance and explained that it could not provide information on the computed value. 768

757 Philippines' second written submission, paras. 238-239.
758 Thailand's second oral statement, para. 45.
759 Thailand's second oral statement, paras. 46-47, referring to Exhibits PHL-69 and THA-92.
760 Thailand's first written submission, para. 50; s econd written submission, para. 51; Exhibit PHL-68.
In its first written submission, Thailand mistakenly refers to exhibit PHL-69. In the 5 February letter,
PM Thailand put forward its concerns regarding the guarantee values requested by Thai customs and the
rejection of PM Thailand's import prices and the fact that the reason provided by Thai Customs was that the
buyer and seller were related. Moreover, PM Thaila nd stated that it wanted to establish a common
understanding for going forward and to expedite the assessment process and issue an assessment notice.
762 Thailand's response to Panel question No. 10; second oral statement, para. 31; Exhibit PHL-137.
Thailand states that this meeting of 15 February 2007 wa s also referred to by the Philippines in its letter of 16
February 2007.
763 Thailand's response to Panel question No. 10; Exhibit THA-39.
764 Thailand's response to Panel question No. 29.
765 Thailand's first written submission, para. 52; Exhibit THA-11.
766 Thailand's response to Panel question No. 29; Exhibit PHL-169.
767 Thailand's response to Panel question No. 10; Exhibit THA-12.
768 Exhibit THA-92.

Thailand submits that at a meeting held on 6 Ma rch 2007, the method for calculating the deductive
value was discussed with accountants from PWC ABAS (auditors for PM Thailand).769
7.324 Contrary to the Philippines' argument that in the light of the deductive value calculations
available at the 6 March meeting (Exhibit THA-13), Thai Customs could not have taken into account
information submitted by PM Thailand on 7 March 2007, Thailand asserts that Thai Customs did not
make adjustments because the 7 March 2007 inform ation did not warrant such changes. Had
PM Thailand submitted any informati on subsequent to that meeting th at warranted revisions to those
calculations, Thai Customs could and w ould have made appr opriate revisions. 770 Thailand agrees
with the Philippines that from 16 March 2007 onwards, Thai Customs started issuing notices of
assessment for entries by PM Thailand since Au gust 2006, in which it rejected the declared
transaction values by PM Thailand. It also confir ms that PM Thailand wrote a letter on 5 April 2007
asking for clarification.
771 Thai Customs responded by letter on 12 April 2007, explaining that the
deductive valuation method was used.772
Analysis by the Panel
7.325 The parties do not dispute that PM Thailand made a request for the deduction of sales
allowances and provincial taxes in its letter dated 21 February 2007. 773 Thailand asserts, however,
that these items could not be deducted because the in formation and data submitte d together with this
letter was not sufficient for Thai Customs to make the requested deductions. The Philippines argues
that if Thai Customs considered the informa tion and the data submitte d on 21 February 2007
insufficient, Thai Customs should have given PM Thailand an opportunity to further explain the
submitted data and to provide the further informa tion it considered necessary to make the requested
deductions.
7.326 Paragraph 2 of the General Introductory Comme ntary to the Customs Valuation Agreement
provides:
"[W]here the customs value cannot be dete rmined under the provisions of Article 1
there should normally be a process of consultation between the customs
administration and importer with a view to arriving at a basis of value under the
provisions of Article 2 or 3. ... A process of consultation between the two parties will
enable information to be exchanged, s ubject to the requirements of commercial
confidentiality, with a view to determining a proper basis of value for customs
purposes."
7.327 Although the first sentence of paragraph 2 refers to "value under the provisions of Article 2
or 3", we consider that the spirit of the Customs Valuation Agreement envisaged under this paragraph,
namely the determination of customs value through a process of consultation between the customs
administration and importer , equally applies to other valuation methods. The phrase "using
reasonable means consistent with the principles and general provisions of this Agreement" in
Article 7.1 also supports this view. As the Phili ppines submits, while the importer is the party that
typically possesses relevant information for a deductiv e calculation, it is the customs authority that
knows the specific information necessary to accept the re quested deductions. Viewed in this light, it

769 Thailand's response to Panel question No. 10.
770 Thailand's second oral statement, para. 45.
771 Thailand's first written submission, paras. 61 and 70; Exhibit PHL-69.
772 Thailand's first written submission, para. 64; Exhibit PHL-70.
773 As for the transportation costs, the Philippines does not contest that PM Thailand did not include the
item in the 21 February 2007 letter. We address in Sec tion VII.C.7(c)(iii) the question of whether an importer
must make a specific request for the deduction of transportation costs for a customs authority to make such a
deduction.

is difficult to conceive that the drafters of the Agreement would have intended a process of
consultation between the customs administration and importer to be limited solely to the valuation
process under Article 2 or 3. Neither does Thailand a ppear to dispute that the process of determining
a customs value under the principles of Article 5 s hould be "a process of consultation". Rather,
Thailand argues that there was in fact a process of consultation between Thai Customs and
PM Thailand regarding the entries at issue.
774
7.328 Following PM Thailand's letter of 21 February 2007, Thai Customs requested PM Thailand to
provide more information on the import price per unit , the highest first-tier selling price (i.e. the GAQ
price), the retail price between 1 January and 31 December 2006, and PM Thailand's gross margin for
2006, with a profit and loss statement certified by the auditor and copies of PND 50 for 2006, through
its letter on 27 February 2007. 775 Thai Customs, however, did not request any further information
concerning sales allowances and provincial taxes. We also understand that in a meeting subsequently
held on 6 March 2007, Thai Customs addressed issues relating to the method for calculating the
deductive value although it is not clear whether and, if so, to what extent the representatives from
PWC ABAS participated in the discussion. Th e deductive calculation shown in Exhibit THA-13
confirms that Thai Customs had considered prior to the 6 March 2007 meeting the valuation method
to be applied to determine a cust oms value of the entries at issue.
776 The calculation in
Exhibit THA-13, however, does not reflect the deduc tions requested by PM Thailand through its 21
February 2007 letter. This is despite the fact that the minutes of the 6 March 2007 meeting indicate
that at the time of that meeting, Thai Customs wa s aware of questions relating to the deductibility of
certain items.
777
7.329 In the light of these circumstances, it is not cl ear to us why Thai Customs neither posed any
question nor requested further information or data relating to sales allowanc es and provincial taxes
from PM Thailand. This is particularly the case as Thai Customs did make a request for more
information on other items through its 27 February 2007 letter to PM Thailand. In our view, if upon
receiving the specific request for the deduction of sales allowances and provincial taxes, Thai
Customs had doubts about the deductibility of those items, as it explained to the Panel in this
proceeding, it could and should ha ve communicated such views to the importer during the valuation
process.
778
7.330 Regarding the deduction of transportation co sts, we note that although PM Thailand
(mistakenly) omitted to request deduction of these co sts, Thailand should have inquired as to whether
such a deduction was needed. First, deduction of "the usual costs of transport" is specifically
mentioned in Article 5.1(a)(ii), and therefore a co mmon item to be deducted. Second, the minutes of
the 6 March meeting show that Thailand was aware of the fact that in the calculation of the deductive
value, transportation costs must be deducted. Th ird, Thai Customs was aware of the fact that
PM Thailand had included a deduction for internal tr ansportation costs in annual filings covering the

774 See para. 7.321.
775 Exhibit THA-11.
776 Exhibit THA-13 was revised by Exhibit THA-71, but the only changes incorporated in the revised
version were the dates to which the calculations in the exhibit applied, hence those changes have no influence on
the discussion in this section.
777 The minutes of the 6 March 2007 meeting also read that "there was a weak point in certain issues in
determining customs values, that is, there should be clarification regarding the calculation methods, the meaning
of the words 'normal commission and general expenses', 'insurance cost', 'other taxes from selling of things'"
(original minutes, Exhibit PHL-74, p. 8).
778 We note a general lack of definite and clear rules on the type of deductible items under Article and
the kind and nature of evidence require d for the necessary deduction. This, in our view, provides more reason
for customs authorities to engage in the process of consultation with the importer in using the deductive
valuation method.

three year period from 2003 to 2005 for either "inland freight" or "domestic transportation". 779 We
believe, therefore, that although PM Thailand did not specifically request deduction of the
transportation costs, Thailand should have deducte d these costs based on the information put forward
by PM Thailand, or if it considered this informati on to be insufficient, it again could and should have
communicated such views to the importer during the valuation process.
7.331 We note that in response to the Philippines' position that Thai Customs should have continued
to collect more information regarding the deductio ns if the information submitted was insufficient,
Thailand emphasizes that Thai Customs exercised its discretion to expedite the assessments because
PM Thailand itself had twice requested Thai Cu stoms to expedite the assessments and use the
deductive valuation method.780 It is our view that an importer's request for expeditious assessments of
the customs value of imported goods cannot justify the customs administration's failure to respect the
due process principle inherent in a process of c onsultations between the administration and the
importer. In the factual circumstances of this case in particular, the Panel has taken note of the
argument that Thai Customs could not ask for further information because of the request from
PM Thailand to expedite the process. However, the Panel also notes that through its letter of 27
February 2007, Thai Customs did request th e importer to provide more information on other items
that were submitted at the same time as the in formation relating to sales allowances and provincial
taxes. Therefore, we are not co nvinced by Thailand's argument th at PM Thailand's request for an
expeditious assessments prevented Thai Customs from seeking further information concerning sales
allowances, provincial taxes and transportation costs.
7.332 In the light of the foregoing, we conclude that Thai Customs' failure to properly consult the
importer on the information necessary for the requested deductions renders its decision not to deduct
sales allowances, provincial taxes and transportation costs in the determination of the customs value
of the entries at issue inconsistent with Article 7.1 of the Customs Valuation Agreement.
Thai Customs' application of the deductive valuation method – substantive aspect
Introduction
7.333 Regarding the deductions for sales allowances, pr ovincial taxes and transportation costs, the
parties do not dispute that these items are, in principle, deductible under Article 5.1(a). The parties
also appear to agree that deductions under Article 5.1(a) are not automatic, but must be based on
relevant information and data. The parties, how ever, disagree on the type of evidence required from
the importer for the deduction of these items, namely, first, whether, as a general matter, the importer
is required to prove that these expenses are actu ally tied to the GAQ sales based on which the unit
price was decided
781, and, second, whether Thai Customs act ed inconsistently with the principles
under Article 5.1(a) in not deducting these items in th e light of the information and data before it at
the time of determination.
7.334 Particularly, Thailand takes the position that all these three items must be deducted only to the
extent that they reflect documented expenses that are actually included in the GAQ price. In support
of its position, Thailand has provided extensive arguments in the course of this proceeding on why the
information and data submitted by PM Thailand to Thai Customs was not sufficient to make the
relevant deductions. The Philippines argues that ther e is no requirement in Article 5 that deductions
from the GAQ price be tied specifically to the GAQ sal e. Further, the Philippines submits that the
Panel should not take into account Thailand's explanations in this proceeding of Thai Customs'

779 Exhibits PHL-40, PHL-41, PHL-42 and PHL-43.
780 Thailand's second oral statement, paras. 46-47, referring to Exhibits PHL-69 and THA-92.
781 Thailand's response to Panel question No. 29.

decision on the deductibility of th e claimed items because they are ex post explanations that were
never provided to the importer at the time of determination.
7.335 In evaluating the parties' claims and arguments in respect of the deductive valuation method,
we will first address whether the importer is genera lly required to prove that expenses requested for
deduction are actually tied to the GAQ sales based on which the unit price was decided.
Deductibility of sales allowances, provincial taxes and transportation costs
Main arguments of the parties
General
7.336 The Philippines claims that Thailand's ex post calculations demonstrate a violation of
Article 7.1 because Thailand failed to deduct sales allowances, provincial taxes and transportation
costs when it was obliged to deduct them b ecause they had been raised by PM Thailand.
782 T h e
Philippines submits that a customs authority is re quired to apply the same principles for deductive
calculations under Article 7 as would be applied unde r Article 5, with an allowance for "reasonable
flexibility" where Article 5 cannot be strictly applied. 783 Accordingly, Thailand should have deducted
these three items, which would have resulted in significantly lower customs values.784
7.337 Regarding the specific calculation used for th e deductive valuation method, the Philippines
argues that the GAQ price refers to the importer's unit resale price of the largest quantity sold to
unrelated parties in the country of importation 785, and that the items (i)-(iv) in Article 5 must be
deducted from this GAQ price.786 There is no requirement in Article 5 that deductions from the GAQ
price be tied specifically to the GAQ sale. 787 Several provisions of Ar ticle 5 use language showing
that deductions should be average amounts not tied to one specific sale (e.g. Art. 5.1(a)(i) – deduction
of "commissions usually paid" and the "additions usually made for profit and general expenses";
Article 5.1(a)(ii) – deduction of "usual costs of transport and insurance and associated costs ...").788 In
further support of its position, the Philippines refers to a statement in a treatise that "the deductions
[under Article 5] will in general not relate to the same resale(s) from which the price has just been
derived".789 The Philippines argues that there is no logical reason to require that deductions be tied to
the particular GAQ sale, because an authority does not determine the customs value of the GAQ sale.
Rather, it determines the customs value of a particular import, and the GAQ price is taken from a
resale made in the GAQ within 90 days of importation. Therefore, that resale need not involve goods
imported as part of the entry being valued. Beca use many parameters relating to the entry are
unknown at the time of valuation, an averaging a pproach is, at the very least, consistent with
Article 5.
790

782 Philippines' response to Panel question No. 29; second written submission, para. 222.
783 Philippines' response to Panel question No. 28; second written submission, para. 223.
790 Philippines' second written submission, paras. 2 65-267. As examples of such parameters, the
Philippines refers to "a very large volume of goods that will subsequently be broken down into smaller units,
sold to different customers, across a wide geographical area, at different points in time, stocked at various points
in the distribution chain for different periods of time, and sold subject to potentially divergent regional and local
taxes".

7.338 Thailand claims that the Philippines has failed to make a prima facie case that the Thai
Customs' determination of the deductive value, base d on the evidence before it at the time, was in any
way inconsistent with Article 5 of the Customs Va luation Agreement. Thailand does not contest that
the three elements at issue are in principle deduc tible from the GAQ price, whether under Article 5 or
Article 7.791 However, according to Thailand, deductions are to be made from the GAQ price only to
the extent that they reflect documented expenses th at are actually reflected in the GAQ price based on
the evidence available to the customs admi nistration when it makes its determination. 792 Thailand
argues that the evidence provided by PM Thailand to the Thai authority in this case did not justify a
deduction for any of the three items.
Sales allowances
7.339 Thailand submits that with respect to sales allowa nces, there would be no basis to make
adjustments to the GAQ price if that price were based on a sale to a customer that did not benefit from
a discount. 793 Thailand argues that the starting point for the deductive value calculation under
Article 5(1)(a) is the price for a particular sale of the imported goods made at or about the time of
importation of the goods being valued. 794 Discounts, rebates and similar price adjustments are not
expenses, but instead form part of the price itself.795 According to Thailand, Article 5.1(a)(i)-(iii) does
not mention discounts as deductions that must be made on the basis of usual amounts, such as
commissions or profits.796 Therefore, items such as discounts ma y only be deducted when tied to the
particular unit price for the GAQ sale that is being used in the deductive value calculation.797
7.340 The Philippines submits that where the importer offers an allowance or discount on the GAQ
price, that allowance reduces the "unit price" at wh ich the goods "are sold", and must therefore be
deducted under Article 5 to provide a proper starting-point for a deductive calculation. 798 The failure
to deduct sales allowances means th at the assessed customs value was inflated by discounts that were
never part of the "unit price" at which the goods "[we]re sold" by the importer.799
Provincial taxes
7.341 Regarding provincial taxes, the Philippines submits that Article 5.1(a)(iv) requires the
deduction of the national taxes payable, not the taxes paid on the GAQ sale as Thailand argues. 800
The amount of taxes "payable" may be determined on an average basis.801
7.342 Thailand takes the view that provincial taxes are different from national taxes as referred to
in Article 5(a)(iv), and deductible only if included in the resale price on which the [deductive value] is
based.802 Thailand submits that the Philippines does not appear to argue in its second written
submission that the evidence before Thai Customs established that provincial taxes were included in
the GAQ price on which the deductive value is based.803

791 Thailand's response to Panel question No. 29.
792 Thailand's response to Panel question No. 29.
793 Thailand's response to Panel question No. 29.
794 Thailand's second oral statement, para. 42.
795 Thailand's second oral statement, para. 42.
796 Thailand's second oral statement, para. 42.
797 Thailand's second oral statement, para. 42.
801 Philippines' second written submission, paras. 265-267.
803 Thailand's second oral statement, para. 43.

Transportation costs
7.343 The Philippines submits that Article 5.1(a)(ii) requires the deduction of the usual costs of
transportation, which means costs typically incurred, or average costs, not the costs linked to the sales
on which the GAQ price was based.
804
7.344 Thailand argues that the treatise cited by the Phi lippines states that the "usual" cost of
transportation should be, as far as possible in practi ce, the actual average inla nd cost incurred in the
resale of the imported goods whose price is the first step in the calculation.805
Analysis by the Panel
General
7.345 We will first review the general principles in Article 5.1(a). Article 5.1(a) provides:
"If the imported goods or identical or similar imported goods are sold in the country
of importation in the condition as imported , the customs value of the imported goods
under the provisions of this Article shall be based on the unit price at which the
imported goods or identical or similar imported goods are so sold in the greatest
aggregate quantity, at or about the time of the importation of the goods being valued,
to persons who are not related to the persons from whom they buy such goods,
subject to deductions for the following:
(i) either the commissions usually paid or agreed to be paid or the additions
usually made for profit and general expenses in connection with sales in such country
of imported goods of the same class or kind;
(ii) the usual costs of transport and insu rance and associated costs incurred within
the country of importation;
(iii) where appropriate, the costs and ch arges referred to in paragraph 2 of
Article 8; and
(iv) the customs duties and other national taxes payable in the country of
importation by reason of the importation or sale of the goods."
7.346 The Interpretative Note to Article 5 in paragra ph 1 defines the term "unit price at which ...
goods are sold in the greatest aggregate quantity" as "the price at which the greatest number of units is
sold in sales to persons who are not related to the persons from whom they buy such goods at the first
commercial level after importation at which such sales take place".
7.347 In this regard, we note that the terms "usually " and "usual" can be found in Article 5.1(a)(i)
and (ii), which states, for example, "the commissions usually paid or agreed to be paid", "the additions
usually made for profit and general expenses" and "the usual costs of transport and insurance and
associated costs". A plain reading of these phrase s therefore suggests that the deductions of the
commissions or the additions or the costs of transpor t as set out in Article 5.1(a)(i) and (ii) need not
necessarily be tied to a particular unit price for the GAQ sale that is being used in the deductive value
calculation.

805 Thailand's second oral statement, para. 43.

7.348 A treatise cited to by the parties also supports this view: "It should be pointed out initially
that the deductions will in general not relate to the same resale(s) from which the price has just been
derived".806 At the same time, we note the phrase "in general" in this statement, which appears to
imply that there may be exceptional situations . We also observe the Technical Committee's
commentary on Article 5.1 that "in general, the application of the deductive valuation method under
Article 5 of the Customs Valuation Agreement may differ on a set of circumstances from another and
thus the practical application of Article 5 requi res a flexible approach, having regard to the
circumstances in each case".
7.349 Considered overall, therefore, we do not find a general requirement under Article 5.1, which
can be applied to every situation, that deductions mu st be made only to the extent that they reflect
documented expenses that are actually tied to the GAQ sale. Particularly, items that fall within the
categories of (i), (ii) and (iv) of Article 5.1(a) do not appear to require such a requirement in the light
of the terms used in the text of the provisions such as "usual" and "payable" 807 and the statements in
reference sources. Further, as the Philippines subm its, we do not see a logical reason to require that
deductions be tied to the particular GAQ sale, beca use the customs value to be determined using the
deductive valuation method under Article 5 is not the customs value for that specific GAQ sale. 808 It
is rather the customs value for a particular import subject to the customs' valuation.
7.350 Having the foregoing in mind, we will proceed to examine the parties' arguments on the
deductibility of the three items under Article 5, na mely, sales allowances, provincial taxes and
transportation costs.
Sales allowances
7.351 Regarding sales allowances, the parties' ar guments raise the question of whether the
deductions of sales allowances can be made only if th ere is information and data showing that such
allowances are tied to a particular unit price for the GAQ sale that is being used in the deductive value
calculation.
7.352 Thailand argues that items such as discounts, re bates and sales allowances are not expenses,
but instead form part of the price itself. As the unit price for a particular sale, which is the starting
point for the deductive value calculation, is th e net revenue obtained by the importer net of
adjustments such as discounts and sales allowances, it is reasonable for the customs administration to
accept deductions of these items only for discounts that are tied to the particular unit price for the
GAQ sale that is being used in the deductive value ca lculation. Thailand argues that this is consistent
with the fact that Article 5.1(a)(i)-(iii) make no me ntion of discounts as deductions that must be made
on the basis of usual amounts, such as commissions or profits.
7.353 The Philippines submits that where the importer offers an allowance or discount on the GAQ
price, that allowance reduces the "unit price" at wh ich the goods "are sold", and must therefore be
deducted under Article 5 to provide a proper starting point for a deductive calculation.
7.354 We note that sales allowances, discounts and rebates are not one of the items listed in
Article 5.1(a)(i)-(iv). Nor do the interpretativ e notes to Article 5 provide any guidance on the
deductibility of these expenses under Article 5.1(a). We also observe a statement in the above-
mentioned treatise cited to by the parties that "[pr ice] means all direct and indirect net payments ...

807 For the discussion on the term "payable" contained in Article 5.1(a)(iv), please see para. 7.358.

excluding all rebates, discounts and similar reductions in the price payable".
809 We can infer from this
statement that sales allowances are an item that mu st be deducted from the sales price in order to
arrive at the unit price (GAQ price) within the meani ng of Article 5. Therefore, to the extent that
sales allowances are included in the sales price, th ey must be excluded from that sales price before
deducting the items falling within the categories unde r Article 5. We do not consider that the
Philippines is necessarily putting forward a different vi ew on this either. As its statement cited above
in paragraph 7.340 shows, the Philippines submits that, as sales a llowances reduce the unit price at
which the goods are sold, they must be deducted und er Article 5(1)(a), without specifying a specific
category under Article 5.1(a), to provide a proper starting point for a deductive calculation.
7.355 We therefore agree with Thailand that it is reasonable for the customs administration to
accept deductions only for sales allowances that are tied to the particular unit price for the GAQ sale
that is being used in the deductive value calculation. Although the Philippines asserts that the grant of
sales allowances, and their amount, is a function of factors including events in the marketplace; the
evolution of the business and marketing strategy; and, considerations relating to particular customers
(e.g. sales volumes), we do not see how this ass ertion can disprove of Thailand's position that
deductions of sales allowances (e.g. discounts, reba tes and sales allowances) must be tied to a
particular unit price for the GAQ sale that is being used in the deductive value calculation.
810
Provincial taxes
7.356 Thailand argues that unlike national taxes, which are deductible if they are payable under
Article 5.1(a)(iv), provincial taxes are deductible if included in the unit price on which the deductive
value is based. The Philippines asserts that Article 5.1(iv) requires the deduction of the national taxes
payable, not the taxes paid on the GAQ sales.
7.357 Article 5.1(a)(iv) refers to "the customs duti es and other national taxes payable in the country
of importation by reason of the importation or sale of the goods", but not to provincial taxes. "Local
taxes" are however mentioned in the interpretative not e to Article 5, in paragraph 8, where it states,
"local taxes payable by reason of the sale of th e goods for which a deduction is not made under the
provisions of paragraph 1(a)(iv) of Article 5 sh all be deducted under the provisions of paragraph
1(a)(i) of Article 5". The phrase in the Interpretativ e Note to Article 5 "local taxes payable by reason
of the sale of the goods" mirrors the phrase in Article 1(a)(iv).
7.358 The term "payable" can be defined as " adj. (Of a sum of money or a negotiable instrument)
that is to be paid. An amount may be payable without being due. Debts are commonly payable long
before they fall due".811 It can also be defined as "adjective. 1 Of a sum of money, a bill, etc: that is to
be paid; falling due (usu. at or on a specified date or to a specified person). 2 Able to be paid". 812
Therefore, the ordinary meaning of the term "payable " refers to both "a sum of money that is to be
paid without being due" and "that is due to be paid ". This suggests that national taxes and provincial
taxes subject to the deduction under Article 5 need not be related to the GAQ sale. The phrase "by
reason of the importation or sale of the goods" also s upports the view that these taxes refer to those
usually to be paid upon importation and upon sale in the market.

809 Exhibit PHL-206, para. 692. We note that there appears to be a very limited number of treaties or
reference materials concerning customs valuation issues. The definition of the term "payable" can be found infra
para. 7.358.
810 Gross margin calculations submitted by PM Thailand, inter alia, for FY 2003-2005 show that items
such as VAT, provincial tax and sales allowances are deducted from the amount of income (GAQ) to derive at a
net GAQ amount. Subsequently, domestic transportation costs and warehouse costs are deducted from the net
GAQ amount. (See, for example, Exhibits PHL-40, PHL-41, and PHL-42).
811 Black's Law Dictionary, 7th ed., B.A. Garner (ed.) (West Group, 1999), p. 1150.
812 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford Un iversity Press, Vol. II,
p. 2127 (2002).

7.359 Furthermore, paragraph 8 of the Interpretative Note to Article 5 states that "local taxes
payable ... for which a deduction is not made under th e provisions of paragraph 1(a)(iv) of Article 5
shall be deducted under the provisions of paragraph 1(a)(i) of Article 5". Article 5.1(a)(i) refers to
"either the commission usually paid or agreed to be paid or the additional usually made for profit and
general expenses ...". Therefore, we consider that provincial taxes payable must be deducted if the
information shows usual payments made for local taxes even if they are not included in the sales price
based on which the deductive valuation method will be applied under Article 5.
7.360 Further, we note the statement in the above-m entioned treatise, as Thailand points out, that
"state and local taxes … are deductible if incl uded in the resale price upon which the [deductive
value] is based". This statement, in our view, s upports our view as it stipulates that while state and
local taxes are deductible if they are included in the resale price, it does not necessarily imply that that
is the only situation in which state and local taxes can be deducted.
Transportation costs
7.361 Finally, the parties dispute whether the tran sportation costs, which were not included in
PM Thailand's request made in its letter dated 21 February 2007, should have been deducted in
determining the customs value of the cigarettes at issue. Thailand argues that PM Thailand never
claimed a deduction for transportation costs and in any event, the available evidence did not establish
that PM Thailand itself incurred transportation costs with respect to the sales on which the GAQ price
was based. The Philippines submits that although the 21 February 2007 letter mistakenly omitted
transportation costs, Thai Customs should have deducted such costs based on the information
included in PM Thailand's annual filings for 2003-2005.
7.362 Article 5.1(a)(ii) refers to "the usual costs of transport and insu rance and associated costs
occurred within the country of importation". As noted in paragraph 7.347 above, we consider that the
term usual in the provision indicates that the costs to be deducted may not be specifically linked to the
GAQ sale at issue. Thailand refers to a statement in the treatise that the usual cost of transportation
should be, as far as possible in practice, the actual average inland cost incurred in the resale of the
imported goods. The statement cannot however be understood as requiring transportation costs to be
specifically linked to the GAQ sale at issue. Furt hermore, it is not clear whether using the actual
average inland cost incurred in the resale of th e imported goods was "possible" in practice in the
situation at issue in this dispute. This is partic ularly so given that Thai Customs did not seek any
further information from PM Thailand in this re gard. We therefore do not agree with Thailand's
argument that transportation costs need to be specifi cally linked to the GAQ sale for a deduction to be
made under Article 5.
Thai Customs' decision not to deduct sales allowances, provincial taxes and
transportation costs
The standard for the Panel's review
7.363 We clarified above that the proper standard fo r our review of the Philippines' claims under
Article 7.1 requires an assessment, based on Thai Customs' explanations provided pursuant to
Article 16 as well as information given to the importe r under Article 7.3, of whether Thai Customs'
application of the deductive valuation method was consistent with Article 7.1 and Article 5.813

813 See supra paras. 7.311-7.314.

7.364 As for Thailand's explanations and informati on provided pursuant to Articles 16 and 7.3, the
parties refer to the same 12 April 2007 letter from Thai Customs.
814 As noted earlier, however, the
explanations in the 12 April 2007 letter are not very detailed as they simply identify the valuation
method used, Method 6 (Article 7) without any furt her elaboration. In the context of examining
Thailand's compliance with the substantive oblig ations under the Customs Valuation Agreement , we
considered that the minutes of the 6 March 2007 m eeting may also be considered. The minutes of the
6 March 2007 meeting are relatively more elabora tive on the application of the deductive valuation
method chosen to be used in determining the customs value of the imported cigarettes at issue.
7.365 However, neither the 12 April 2007 letter nor the minutes explain why Thai Customs decided
not to deduct sales allowances, provincial taxes and transportation costs. 815 We note that Thai
Customs did not provide a basis for its final decision not to deduct these items at the time it took its
decision. In the light of the standard of review formulated for our examination of the Philippines'
claim under Article 7.1, therefore, we can concl ude based on the absence of such explanation that
Thai Customs failed to apply the deductive valu ation method consistently with Article 7.1.
Nonetheless, during the course of the proceeding, bo th parties heavily substantiated their arguments
related to the deductibility of the three items at issu e. Particularly, Thailand explained in detail the
reason why Thai Customs, at the time of the domes tic proceeding, decided not to deduct the three
items at issue. In these circumstances, we cons ider that making an assessment of Thai Customs'
decision not to deduct these three items, as explained in this proceeding based on the evidence before
Thai Customs at the time of the determination, help s to resolve the parties' dispute relating to the
deductibility of the concerned items.816
Main argument of the parties
Sales allowances
7.366 Regarding the spreadsheet attached to the Philippines' 7 March 2007 letter 817, Thailand
submits that in many of the months for whic h data was provided, no discount was provided to
[[xx.xxx.xx]], a customer on which the GAQ price w as based. Further, it shows a negative discount
in a couple of months. In September, the month in which the greatest single quantity was sold to this
customer, the amount of the discount was about one fifth of the amount of the discount claimed by
PM Thailand for Marlboro and about half of the discount claimed for L&M. PM Thailand provided
no method or breakdown of data to determine whether the discount was actually paid on Marlboro or
L&M sales or, if on both, in what proportion. For example, PM Thailand did not provide any invoice
showing that these discounts had actually been paid. 818 Thailand also points to the differences

814 As noted in Section VII.C.7(d)(ii) below, if the importer knows that a customs authority used a
valuation method under Article 7 when it requests for the explanation under Article 16 as well as under
Article 7.3, we understand that the same request may be used for both purposes. The customs authority could
then provide the requested explanation as well as information through the same instrument.
815 As described above in para. 7.330, PM Thailand mistakenly omitted transportation costs in its letter
of 21 February 2007.
816 Panels in previous disputes addressed a similar issue. In Argentina – Ceramic Tiles and Argentina –
Poultry Anti-Dumping Duties , for instance, the panels considered that ex post facto explanations provided by
Argentina in the Panel proceedings should not be taken into account in the panels' analysis. (Panel Report,
Argentina – Ceramic Tiles , para. 6.27; Panel Report. Argentina – Poultry Anti-Dumping Duties , para. 7.178).
The panel in Argentina – Ceramic Tiles also refers to the panel's analysis in Guatemala – Cement (II) ,
para. 8.245. We further note that the panels in Argentina – Ceramic Tiles and Guatemala – Cement (II)
nonetheless continued to examine th e parties' claims based on the ex post facto explanations. The panel in
Argentina – Poultry Anti-Dumping Duties, however, did not proceed to examine ex post explanations.
817 Exhibit PHL-169.
818 Thailand's response to Panel question No. 29.

between the GAQ prices reported in the July 2006 letter and the 21 Februa ry 2007 and 7 March 2007
letters on which the deductive price was actually based.819
7.367 On the topic of the copies of the annual filings submitted by PM Thailand, in particular the
FY 2005 filing made in the July 2006 letter, in cluding an explanatory note in PM Thailand's
[[xx.xxx.xx]] document of July 2006 820, Thailand argues that the explanatory note consists merely of
an assertion that "sales allowances are sales di scounts for [company name]". Information about
discounts on a different price reported on July 2006 do not establish the existence or amount of
discounts that might have been paid on the pri ce reported in the 21 February 2007 letter that was
actually used to establish the deductive value.821
7.368 Regarding the information submitted in the spre adsheet attached to its 7 March 2007 letter,
the Philippines submits that the grant of sales allowances, and their amount, is a function of factors
including events in the marketplace; the evolu tion of the business and ma rketing strategy; and,
considerations relating to particular customers (e.g . sales volumes). As a result, sales allowances are
not granted automatically on each sale, or in each month, and allowances do not simply track sales
volumes.
822 Negative allowances account fo r sales allowances that were granted in relation to goods
subsequently returned. The allowance initially gr anted was, therefore, cancelled and appears as a
negative number.823 As regards the lack of a breakdown of sales allowances between Marlboro and
L&M, an aggregate sales allowances was given because PM Thailand was not asked to provide
additional information on the sales allowances. 824 It was not aware that brand-specific amounts for
sales allowances and proof thereof, were requested as part of its 7 March response. In any event,
brand-specific amounts were provided in the 21 February 2007 letter.825
7.369 In response to Thailand's statement that there is a lack of invoice showing actual payment of
these discounts, the Philippines holds that Thailand's ex post explanation suggests that Thai Customs'
treatment of the evidence in the 7 March letter wa s not even-handed. Thai Customs accepted the
GAQ price shown in the spreadsheet, without in formation such as "invoices" to support the GAQ
prices shown in the spreadsheet. However, Thaila nd now asserts that Thai Customs could not accept
other information, shown in the same spreadsheet , regarding sales allowances because there were no
supporting "invoices". Differences between the GAQ prices reported in PM Thailand's letters of 17
July 2006, 21 February 2007, and 7 March 2007 are explained by the fact that the July 2006 letter
concerned the GAQ for FY 2005, whereas the other letters concerned the GAQ for FY 2006. The
differences have no bearing on sales allowances.826
7.370 Moreover, the Philippines argues that annual filin gs, in particular the FY 2005 filing made in
July 2006, explicitly provided a breakdown of the deduction values for sales allowances, provincial
tax and domestic transportation (the most recen t filing before Thailand began conducting assessments
in March 2007).827 This information was resubmitted by le tter of 8 August 2006 and referred to in a
separate letter of 25 October 2006.828

819 Thailand's response to Panel question No. 29.
820 Exhibit PHL-42.
821 Thailand's response to Panel question No. 29.
825 Philippines' second written submission, para. 251; Exhibit THA-39.
827 Philippines' first oral statement, para. 135; Exhibits PHL-40, PHL-41, and PHL-42.
828 Philippines' first oral statement, para. 136; Exhibits PHL-56 and PHL-60.

Provincial taxes
7.371 The Philippines claims that the spreadsheet attached to its 7 March 2007 letter provided
information related to the GAQ price, including th e total sales receivable ("Sales A/R") and the net
sales receivable ("Net Sale to PM"), with deductio ns to account for the difference between the two
("Less VAT", "Less Discount", "Less Other S.A.", and "Less P. Tax"). This last element is the
provincial tax.
 829
7.372 The Philippines further argues that PM Thailand's distribution agreements provide that the
provincial tax is payable by PM Thailand and p assed on to its customers through a higher price. 830
The GAQ price is inclusive of this amount. PM Thailand deducted the provincial tax in each of the
filings made for FYs 2003, 2004, 2005, and 2006. The FY 2005 fili ng was submitted on 6 July 2006,
resubmitted on 8 August 2006, and referenced in a letter on 25 October 2006. The provincial taxes
were also mentioned in a letter of 28 June 2007. Thai Customs sought no additional information on
this issue and, as Exhibit THA-13 shows, failed to deduct the provincial tax. 831 Given Thai Custom's
failure to seek additional information regarding th ese items in its 27 February 2007 request, Thailand
cannot now rely on the fact that PM Thailand did not provide the required supporting information.832
7.373 Thailand argues that provincial taxes are payable only on sales in provinces outside the
Bangkok area.833 Specifically concerning PM Thailand's cigarette sales, Thailand estimates that one
half of all cigarette sales, including sales of imports, are made outside Bangkok. 834 Based on the
national figures, it could not be assumed that PM Thailand paid provincial taxes on the sales on which
the GAQ price was actually based. Regarding the information put forward in the spreadsheet
accompanying the 7 March 2007 letter, Thailand subm its that the printout from PM Thailand's sales
records lists total provincial taxes paid during each month (in the column headed "less P Tax"), but
that it shows no values for provincial taxes for sales to individual customers, including, in particular,
the sales to the customer on which the GAQ price was based. In these circum stances, the evidence
before Thai Customs, when it made its valuati on determinations for these entries, did not support
adjustment.835
7.374 In relation to the Philippines' argument on the distribution agreements, Thailand argues that to
support its argument that an adjustment should ha ve been made, the Philippines relies on evidence
that does not appear to have been provided to Thai Customs at the time it made its valuation
determinations.836 This evidence includes a sample provi ncial tax return filed by PM Thailand 837 and
a standard distribution agreement with a clause providing that PM Thailand would pay provincial
taxes.838 Thailand stresses that the Panel should ensure that it reviews the Thai Customs'
determination in the light only of the contemporan eous evidence before Thai Customs and not of
evidence submitted ex post facto to the Panel.839 However, even if this evidence had been before Thai
Customs at the time it made its determinations, it does not establish that PM Thailand paid provincial
taxes on the sales on which the GAQ prices were based. The provincial tax retu rn does not appear to

832 Philippines' second written submission, paras. 248-253.
833 Thailand's response to Panel question No. 29.
834 Thailand's response to Panel question No. 29.
835 Thailand's response to Panel question No. 29.
836 Thailand's response to Panel question No. 29.
837 Exhibit PHL-144.
838 Exhibit PHL-146.
839 Thailand's response to Panel question No. 29.

have anything to do with to whom the GAQ sal es were made, and there was no evidence that
PM Thailand had a distribution agreement requiring it to pay provincial taxes with that customer.840
Transportation costs
7.375 In respect of transportation costs, the Philippines submits that although the 21 February 2007
letter mistakenly omitted transportation costs, Th ai Customs knew that PM Thailand had included a
deduction for internal transportation costs in annua l filings covering the three year period from 2003
to 2005 for either "inland freight " or "domestic transportation". 841 In particular, the FY 2005 filing
shows such a deduction, this is the most recent f iling before the current year in which the customs
value of the entries at issue were assessed, and it was submitted on 7 July and 8 August 2006 and also
referenced in a letter of 25 October 2006. 842 Therefore, if Thai Customs had queries regarding the
facts surrounding this deduction, Thai Customs s hould have clarified whether PM Thailand pursued
such a deduction or requested additional information for clarification.843
7.376 The Philippines also points out that PM Thailand requested a deduction for transportation
costs in its letter of 28 June 2007. 844 Although Thailand argues that this letter was not before Thai
Customs at the time it made its valuation decisi ons, the letter was submitted before Thai Customs
assessed the customs value for [[xx.xxx.xx]] of the [[xx.xxx.xx]] entries at issue.845
7.377 Thailand submits that PM Thailand never clai med a deduction. Specifically, neither
PM Thailand's letter of 21 February 2007, nor the spreadsheet attached to the 7 March 2007 letter, nor
any other correspondence from PM Thailand regarding the deductive value for these entries refers to a
claim for a deduction for inland transportation costs.846
7.378 Thailand further contends that in any event, the documents submitted by the Philippines in
previous years do not establish that PM Thailand it self incurred transportation costs with respect to
the sales on which the GAQ price w as based. Further, although the Philippines also refers to
documents submitted in the context of appeals of these entries before the BoA, these documents were
not before Thai Customs at the time of the valuation decision and thus cannot be used in this dispute.
Besides, Thailand asserts that nothing in the 28 Ju ne 2007 letter cited by the Philippines constitutes
evidence that PM Thailand incurred inland transportation costs.847
Analysis by the Panel
Sales allowances
7.379 Regarding the actual data submitted, Thailand re fers to the spreadsheet attached to the
Philippines' 7 March 2007 letter. Thailand argues th at this evidence does not prove that the sales
allowances claimed for the deduction were provide d to the company on which the GAQ price was
based. Thailand points to the following elements in support of its position: in many of the months for
which data was provided, no discount was provided to this company; in September, the month in
which the greatest single quantity was sold to this customer, the amount of the discount was not equal
to, but was actually less than the amounts of the discount claimed respectively for Marlboro and

840 Thailand's response to Panel question No. 29.
841 Exhibits PHL-40, PHL-41, PHL-42 and PHL-43.
842 Philippines' second written submission, para. 274; Exhibits PHL-55, PHL-57 and PHL-60.
844 Exhibit PHL-142.
845 Philippines' second written submission, para. 275; Exhibit PHL-198.
846 Thailand's response to Panel question No. 29.
847 Thailand's response to Panel question No. 29; Exhibit PHL-142, p. 13.

L&M; and PM Thailand provided no me thod or breakdown of data to determine whether the discount
was actually paid on Marlboro or L&M sales or, if on both, in what proportion.
7.380 The Philippines does not dispute that the subject spreadsheet in Exhibit THA-39 shows that
the actual amount of sales allowances given to th e company on which the GAQ price was based was
less than the actual deductions claimed for Marlboro and L&M. The Philippines, however, asserts
that sales allowances are not granted automatically on each sale, or in each month, and allowances do
not simply track sales volumes and that negative a llowances account for sales allowances that were
granted in relation to goods subsequently returned.
7.381 In assessing the parties' arguments in respect of the deduction of sales allowances, we are not
presented with any evidence that clarifies whethe r the amount of sales allowances that a company
declares for deduction to the customs authorities mu st exactly match the amount of sales allowances
actually provided by the company in the period under evaluation. Thailand, as the party claiming that
sales allowances may only be deducted when tied to the particular unit price for the GAQ sale, had the
burden of proving its position with supporting evidence. Thailand, however, failed to do so. Further,
Thailand is not disputing the fact that sales allo wances were provided to the company on which the
GAQ price was based for the valuation of the imported cigarettes at issue. What is contested by
Thailand is that the amounts of sales allowances s hown on the spreadsheet provided by PM Thailand
are less than the amounts requested for the deduction for Marlboro and L&M. In the light of these
circumstances, we do not see how the Thai Customs' decision not to deduct sales allowances at all, as
opposed to adjusting the deductible amount for the sales allowances of the imported cigarettes at
issue, can be justified. Even if Thailand's pos ition concerning the determination of the deductible
amount for sales allowances were correct, this does not render the Thai Customs' decision not to
deduct sales allowances consistent with Article 5.1 of the Customs Valuation Agreement.
Provincial taxes
7.382 In the light of our finding above in paragraph 7.360 that provincial taxes payable must be
deducted if the information shows us ual payments made for local taxes even if they are not included
in the sales price, we consider that it is not necessar y for us to continue with the parties' arguments on
whether the evidence submitted by PM Thailand to Th ai Customs show the inclusion of the requested
provincial taxes in the GAQ price used for the deductive calculation.
Transportation costs
7.383 The next issue raised by the parties in rela tion to transportation costs is whether Thai
Customs' decision not to deduct this item was not inc onsistent with the principles of Article 5 because
PM Thailand failed to make a specific request for its deduction. In respect of the transportation costs
at issue in this case, as the Philippines acknowle dges, PM Thailand mistakenly omitted them in its
letter of 21 February 2007. Thailand argues that due to PM Thailand's failure to claim a deduction for
transportation costs, it did not have to deduct these co sts, but even if the deduction had been claimed,
the documents submitted by PM Thailand do not estab lish that PM Thailand incurred transportation
costs with respect to the sales on which the GAQ price was based. Nonetheless, we note the
following Thai Customs' statement relating to the deductive valuation method in the original minutes
of the 6 March 2007 meeting:
"To prescribe customs prices by using deductive value, the deductive value must
comprise the following: selling price of the imported thing per unit sold at the first
sale in the country, and sold in the biggest volume to the person with no relationship
less commission or normal profit and ge neral expenses less insurance cost

transportation cost in the country and less import tariff, other taxes for the import and
the sale of such things."848
7.384 This shows that Thai Customs understood a nd discussed at the 6 March 2007 meeting that
transportation costs in the country of importation, as one of the items that are subject to deductions
under Article 5, had to be deducted in calculating the customs value of the cigarettes at issue. As we
explained above, a valuation process must be that of consultation between an importer and a customs
administration. To the extent that transportation costs usually are incurred in the resale of goods in
the country of importation, Thai Customs had to re ly on the available evidence or, if not, consult
PM Thailand as regard this item if it had queries on the available evidence.
7.385 As such, it is not necessary for us to proceed with the parties' argument on whether Thai
Customs had sufficient information and data to make the deduction for transportation costs.
Conclusion
7.386 As noted above in paragraph 7.365, we decide d to examine the parties' arguments on Thai
Customs' decision not to deduct sales allowances, provincial taxes and transportation costs despite our
earlier conclusion based on the absence of an adequate explanation in the record that Thai Customs
acted inconsistently with its obligations under Article 7.1 of the Customs Valuation Agreement. This
was to help resolve the parties' dispute on the de ductibility of these items. Our examination of the
arguments and evidence leads to the conclusion that even if we were to base our findings in respect of
the Philippines' claim under Article 7.1 on Thailand's explanations as provided in this proceeding,
Thai Customs' decision not to deduct the three items at issue is not supported by the evidence before it
at the time of determination.
(d) Whether Thai Customs acted inconsistently with Article 7.3
(i) Main arguments of the parties
7.387 The Philippines claims that contrary to the obligations in Article 7.3, despite PM Thailand's
request, Thailand did not inform PM Thailand in writing of the customs value determined under the
provision of this Article and the method used to de termine such value. Article 7.3 requires that the
customs authority explain to the importer, upon requ est, "the method used to determine such value".
The term "method" is defined, inter alia, as "a way of doing anything, esp. according to a defined and
regular plan; a mode of procedure in any activity, business, etc".
849 The Philippines therefore argues
that Article 7.3 requires the customs authority to inform the importer of its "defined" "mode of
procedure" – that is, the particular procedural steps to be followed in assessing the customs value
under Article 7. Thai Customs did not do this at the time of the valuation at issue here.
7.388 PM Thailand requested information on the met hod used in assessing its customs values by its
letter of 5 April 2007.850 The Philippines acknowledges that Thai Customs responded to its request by
the 12 April 2007 letter, in which it provides that it applied, "Method 6, whic h is the deductive value
under the 'Fall Back' method". However, in the light of the nature of the obligation under Article 7.3,
the Philippines is of the view that PM Thailand was not notified of the "method used" within the
meaning of Article 7.3, because merely stating the method used is not adequate information regarding

848 Exhibit PHL-74, p. 6 (emphasis added). This statement is not included in the revised minutes
(Exhibit THA-37).
849 Exhibit PHL-87. Oxford English Dictionary , J.A. Simpson and E.S.C. Weiner (eds.) (Clarendon
Press, 1989, 2nd ed.), p. 690.
850 PM Thailand's letter to Thai Customs of 5 April; Exhibit PHL-69. See also Philippines' first written
submission, para. 182; response to Panel question No. 112.

the procedural steps that comprised the deduc tive valuation method used. Specifically, the
Philippines claims that Thailand omitted to show the starting point for the deductive value calculation;
the sources of the data used to determine the st arting point; which components were deducted; how
the amounts to be deducted for these components we re calculated; and how this "deductive value
under the 'Fall Back' method" differed from the deduc tive valuation approach under Article 5, which
Thailand rejected.
851 The Philippines provides that, with the omission of such "basic information, it
cannot understand how Thailand valued PM Thailand's imports or how Thailand arrived at its erratic
and arbitrary valuation results". Therefore, Tha iland acted inconsistently with Article 7.3 of the
Customs Valuation Agreement.852
7.389 In response to a question from the Panel, however, the Philippines submits that an explanation
under Article 7.3 is more limited in scope than that under Article 16 because it relates solely to the
valuation process under Article 7. Under Artic le 7.3, there is no obligation to explain how the
determination as a whole was made, as there is under Article 16. Therefore, the Philippines explains
that no requirement exists under Article 7.3 to expl ain how the facts support the rejection of the prior
valuation methods under Articles 1, 2, 3, 5, and 6.853
7.390 Thailand has not submitted any counter-arguments against this claim.854
(ii) Analysis by the Panel
7.391 Article 7.3 provides:
"If the importer so request, the importer shall be informed in writing of the customs
value determined under the provisions of this Article and the method used to
determine such value."
7.392 Under Article 7.3, therefore, when there is a request from an importer, the customs authority
must inform the importer of the customs value de termined and the method used to determine such
value.
7.393 We observe that the obligation to inform the customs value determined under the provisions
of Article 7.3 and the method used to determine su ch value can be compared to the obligation under
Article 16 to provide an explanation as to how the customs value was determined. We clarified above
that the explanation to be provided under Article 16 must be sufficient to make clear and give details
of how the customs value of the importer's goods was determined, including the basis for rejecting the
transaction value, the identification of the method used and the illustration of how the method was
applied in reaching the final customs value. The information to be provide d under Article 7.3 on the
other hand may be different from the expl anation to be given under Article 16, inter alia, in its scope,
as the Philippines submits. In other words, as Article 7 is a provision addressing how to determine the
customs value when it cannot be determined under the provisions of Articles 1 through 6, the
information to be delivered to an importer under Artic le 7.3 may be confined to the specific valuation
method used within the meaning of Article 7 and may not include, for example, the basis for rejecting
the transaction value.
7.394 We also consider that the request for inform ation under Article 7.3 would become possible
only if the importer was already aware at the time of requesting that the customs authority had relied
on a valuation method under Article 7. Given the pa rticular nature of Article 7, i.e. allowing the

853 Philippines' response to Panel question No. 112.

customs authority to use any of the valuation methods under Articles 2 through 6 with a reasonable
flexibility, we can envisage a situation where th e importer wishes to clarify the exact method used
under Article 7 once it is known that the customs aut hority used one of the methods falling within the
scope of Article 7.
7.395 To the extent that the information to be provi ded under Article 7.3 is linked to a particular
method used under Article 7, the content of the info rmation, in our view, needs to be specific and
elaborative on the method chosen as well as the app lication of that method to derive at the final
customs value. The term "method" in Article 7.3 is defined as " noun. I. Procedure for attaining an
object. 2. A mode of procedure; a (defined or sy stematic) way of doing a thing, esp. (with specifying
word or words) in accordance with a particular th eory or as associated with a particular person". 855
The ordinary meaning of the word "method" therefor e indicates that more than a mere identification
of the type of valuation method used must be pr ovided, including how a given method was applied to
calculate the customs value of the imported goods concerned.
7.396 The Philippines refers to the 5 April 2007 lette r as PM Thailand's request made to Thai
Customs pursuant to Article 7.3 for the customs valu e and the method. This is the same letter in
which PM Thailand requested an explanation pur suant to Article 16 of the Customs Valuation
Agreement.856 We note in this regard that Thailand did not dispute the Philippines' characterization of
this letter as the written request for information su bmitted to Thai Customs under Article 7.3. The
Philippines further submits that Thai Customs' respon se to this request was made in the 12 April 2007
letter, which is the very letter in which, the pa rties agree, Thai Customs provided an explanation
pursuant to Article 16 of the Customs Valuation Agreement.
7.397 We noted above that the 12 April 2007 letter did not satisfy the requirements of the
explanation to be provided under Article 16. As ex amined in detail in Section VII.C.6 above, we do
not consider that the mere identification of a va luation method used by a customs authority as Thai
Customs did in the 12 April 2007 letter (i.e. th e Fall Back method) without setting out the actual
application of the particular method to arrive at the customs value, is su fficient for the purpose of
Article 7.3.
7.398 Accordingly, we find that the Philippines estab lished a prima facie case that Thai Customs
acted inconsistently with the obligations under Article 7.3 of the Customs Valuation Agreement.
8. Article 10 of the Customs Valuation Agreement
(a) Main arguments of the parties
7.399 The Philippines claims that Thailand has breached Article 10 of the Customs Valuation
Agreement by repeatedly revealing to the press PM Thailand's c.i.f. price, transaction values and 2005
import volumes.857
7.400 The Philippines argues that import prices and import volume are confidential information "by
nature" within the meaning of Article 10 of the Cu stoms Valuation Agreement. It points out that
Thailand admitted that "there is no dispute that c. i.f. prices for imported cigarettes are confidential
information and that the disclosure of this in formation would prejudice the legitimate commercial

855 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford University Press, Vol. I,
p. 1762 (2002).
856 If an importer already knows that the customs authority used a method under Article 7, it is not
inconceivable that the importer may request through the same communication for both the information under
Article 7.3 as well as the explanation under Article 16.
857 Philippines' first written submission, paras. 386-409.

interests of importers of cigarettes".
858 Thus, Article 10 prohibits the disclosure of such information
by customs authorities, unless the company agr ees to have its information made public. The
Philippines argues that PM Thailand considered this information as confidential: it repeatedly
exhorted the Thai government to stop releasing such information, for instance by requests dated
27 September 2006 859 and 27 April 2007. 860 The Philippines submits that, although the aggregate
quantities of imported cigarettes are commonly made public, no company-specific information should
be made available by Thai authorities.
7.401 The Philippines claims that on 9 August 2006 861, 29 August 2006 862, 31 August 2006 863, and
again on 27 September 2006864, Thai Government officials have disclosed PM Thailand's c.i.f. price to
the press. Moreover, the Philippines argues that on 10 August 2006, "unnamed sources from the
Customs department" declared to the Post Today that "Marlboro's import price is Bt.[[xx.xxx.xx]] and
retail selling price Bt. 65 while L&M's import price [is] Bt.[[xx.xxx. xx]] per pack and retail selling
price is Bt. 47 per pack. In 2005, [[xx.xxx.xx]] of Marlboro and [[xx.xxx.xx]] packs of L&M were
imported to Thailand for domestic sale". 865 Thus both PM Thailand's c.i.f. price and imports volume
were made public.
7.402 The Philippines contends that another breach of confidentiality occurred on 1 st June 2009 866,
as Thai officials revealed PM Tha iland's transaction values to the press. 867 This contradicts Thailand's
argument that those claims concern past acts on which the Panel needs not make recommendations or
findings.
7.403 Thailand considers that the Philippines' claim unde r Article 10 of the Customs Valuation
Agreement relates to past completed acts. Hence the Panel should not make any finding thereof.
868
7.404 With regards to import volumes and the declar ed transaction value, Thailand alleges that
import statistics are generally not confidential and, th erefore, in a situation in which an importer was
the sole importer of a particular commodity, and th is importer decides to reveal this information, its
import volumes would not be confidential statistics. 869 More generally, Thailand claims that the
Philippines has not discharged its burden of est ablishing that the information at issue had a
confidential status at the time is was disclosed.870

858 Philippines' second oral statement, para. 55, citing Thailand's second written submission, para. 286.
859 Exhibit PHL-180, para. 6. PM Thailand requested the Thai Government to "refrain from releasing
any o the Company's confidential and price sensitive information to the media".
860 Exhibit PHL-112, p. 10.
861 "Thailand Considers Pulling Wine, Cigarettes out of AFTA as Loopholes Exploited", Bangkok Post,
9 August 2006. Exhibit PHL-54. " Customs Agreed to Adjust Prices of Cigarettes - Wine ", Daily News,
9 August 2006. Exhibit PHL-64.
862 " A proposal will be made to the Cabinet to fix tax evasion by foreign cigarette importers ",
Matichon, 29 August 2006. Exhibit PHL-85.
863 "Thanong presses to raise tax on imported cigarettes", Khao Hun, 31 August 2006. Exhibit PHL-1.
864 " Excise Plans to Ban Importation of Cigarettes ", Krungthep Turakij, 27 September 2006.
Exhibit PHL-86.
865 "Customs put pressure on ‘Marlboro'", Post Today, 10 August 2006. Exhibit PHL-48.
866 Philippines first oral statement, para. 20. " Authorities Plan to Plug Loopholes" , Bangkok Post,
1 June 2009. Exhibit PHL-159.
868 Thailand's first oral statement, para. 30.
869 Thailand's response to question No. 35.
870 Thailand's response to question No. 35.

(b) Analysis by the Panel
7.405 The Philippines claims that Thailand breach ed Article 10 of the Customs Valuation
Agreement when Thai government officials disc losed the c.i.f. price, transaction values of
PM Thailand for the year 2006, and PM Thaila nd's import volumes for the year 2005 to the press. 871
The Philippines argues that this information is confidential by nature within the meaning of Article 10
of the Customs Valuation Agreement.872
7.406 Article 10 of the Customs Valuation Agreement provides:
"All information which is by nature confidential or which is provided on a
confidential basis for the purposes of custom s valuation shall be treated as strictly
confidential by the authorities concerned who shall not disclose it without the specific
permission of the person or government providing such information, except to the
extent that it may be required to be disclosed in the context of judicial proceedings."
7.407 We therefore understand that Article 10 of the Customs Valuation Agreement prohibits
Customs authorities from disclosing information whic h is in essence confidential when an importer
provided it for the purpose of customs valuation.
7.408 The Customs Valuation Agreement neither defi nes confidential information nor provides a
specific list of information that qualifies as confidentia l information. We find useful guidance in the
discussions of the Ad Hoc Group on Implementati on in the Committee on Anti-Dumping Practices.
The record of the discussions indicates that information can be considered as confidential if it is not in
the public domain and if its disclosure would be likely inter alia: "to be of significant competitive
advantage to a competitor ... , to have a signifi cant adverse effect upon the party who submitted the
information ... , to prejudice the commercial position of a person who supplied or who is the subject
of the information, ...".873
7.409 Both parties agree that the PM Thailand's c.i.f. price, transaction values and imports volume
were revealed to the press by Thai officials. The evidence before us shows that Thai government
officials were involved in the revealing of this info rmation to Thai newspapers, both in the months of
August and September 2006, and in June 2009. 874 For instance, "unnamed sources from the Customs
department" declared on 10 August 2006 to the Post Today that " Marlboro's import price is
Bt.[[xx.xxx.xx]] and retail selling price Bt. 65 while L&M's import price [is] Bt.[[xx.xxx.xx]] per
pack and retail selling price is Bt. 47 per pack. In 2005, [[xx.xxx.xx]] of Marlboro and [[xx.xxx.xx]]
packs of L&M were imported to Tha iland for domestic sale". 875 Ms. Kanyanuch Sorthip, the Thai
Department of Special Investigation deputy direct or-general revealed on 29 August 2006 that "as for
the imported cigarette L&M, the c.i.f. price is Bt[[xx.xxx.xx]], retail selling price is Bt47 each. Royal
Deluxe's and Krongthip Deluxe's factory price is Bt7.946, with the retail selling price of Bt53.
Marlboro is priced at Bt[[xx.xxx.xx]], retail selling price of Bt65".876
7.410 Thailand does not dispute that PM Thailand's c.i.f. price is classified as confidential
information.877 Thailand also admits that PM Thailand's customs value is confidential information. 878

873 G/ADP/AHG/W/65
874 Exhibits PHL-1, PHL-48, PHL-54, PHL-64, PHL-85, PHL-86, PHL-112, PHL-159 and PHL-180.
875 "Customs put pressure on ‘Marlboro'", Post Today, 10 August 2006. Exhibit PHL-48.
876 Exhibit PHL-85, p. 2.
877 Philippines' second written submission, para. 286 ("th ere is no dispute that c.i.f. prices for imported
cigarettes are confidential information and that the disclosure of this information would prejudice the legitimate
commercial interests of importers of cigarettes").

Concerning import volumes, however, Thaila nd submits that although import volumes may be
confidential information, they would not be confid ential either when a company is the sole importer
of a given good, or when the company has agreed that the information shall be publicly disclosed.
879
In this regard, we note that PM Thailand is not the sole cigarette importer in Thailand. 880
Furthermore, at no point has PM Thailand agreed to make its confidential information available to the
public. On the contrary, PMTL has insisted on mu ltiple occasions that this information should be
kept confidential. 881 Moreover, we agree that the very disclosure of PM Thailand's c.i.f. price,
transaction values and imports volume information could cause commercial damages to PM Thailand
by giving its competitors access to its sensitive business information. For example, the nature of such
information could give competitors useful indica tions on PM Thailand's business strategy, including
profit margins. Thailand did not specifically respon d to this argument. Rather, it acknowledged that
"the disclosure of [the c.i.f. price] information would prejudice the legitimate commercial interests of
importers of cigarettes".882
7.411 Therefore, the Panel concludes that Thailand acted inconsistently with Article 10 of the
Customs Valuation Agreement by disclosing confiden tial customs valuation information provided by
PM Thailand to Thai Customs in the Thai media.
D. ARTICLE III:2, FIRST SENTENCE OF THE GATT 1994 – VAT FOR CIGARETTES
1. Introduction
7.412 The Philippines claims that Thailand acts incons istently with Article III:2, first sentence,
because Thailand imposes a VAT on imported cigarettes "in excess of" the VAT imposed on like
domestic cigarettes by establishing a discriminatory tax base for VAT imposed on imported
cigarettes.
883 Thailand argues that the tax base for a VAT is established in the same manner for both
imported and domestic cigarettes and that the Philippines has not established a prima facie case that
imported cigarettes are taxed "in excess of" domestic cigarettes.
7.413 Article III:2 of the GATT 1994 provides:
"Article III
National Treatment on Internal Taxation and Regulation
2. The products of the territory of an y contracting 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 excess of those applied, directly
or indirectly, to like domestic products. Moreover, no contracting party shall
otherwise apply internal taxes or other in ternal charges to imported or domestic
products in a manner contrary to the principles set forth in paragraph 1."

878 Philippines' first oral statement, para. 197 ("With respect to imported cigarettes, the customs value is
confidential and cannot be published").
879 Thailand's response to Panel question No. 35.
880 Exhibit PHL-77.
881 Exhibit PHL-159 and PHL-112, p. 10.
882 Philippines' first oral statement, para. 197 ("With respect to imported cigarettes, the customs value is
confidential and cannot be published").
883 Philippines' first written submission, paras. 458-459 and 493-516; first oral statement,
paras. 208-220; second written submission, paras. 369- 427; comments of 16 September 2009, para. 19; second
oral statement, para. 74.

7.414 As clarified by the Appellate Body in Canada – Periodicals , the question of whether a
measure is consistent with the first sentence of Article III:2 of the GATT 1994 requires a two-step
analysis: first, whether imported and domestic products are like and, second, whether imported
products are subject to an internal tax in excess of that applied to the domestic products. If the
answers to both questions are affirmative, then there is a violation of Article III:2, first sentence.884
7.415 We will commence our analysis by identifying the specific VAT-related measure(s) that the
Philippines claims are in violation of Article III:2, first sentence.
2. Measures at issue
7.416 In its panel request, the Philippines identifies the following as the measures through which the
Thai VAT system operates:
• Sections 79/5, 81, 82/7, 88, 88/2, 88/5, 88/6, 89(4), and 89/1 of the Revenue Code of
Thailand;

• Section 23 of the Tobacco Act B.E. 2509 (1966);

• Royal Decree, issued under the Revenue Code, Governing the Reduction of the Value
Added Tax Rates (No. 479), B.E. 2551 (2008);

• Royal Decree issued under the Revenue Code Governing Exemption from Value
Added Tax (No. 239) B.E. 2534 (1991);

• Order of the Revenue Department No. Por 85/2542 (1999);

• Notification of the Director-General of the Revenue Department on VAT (No. 10);

• MRSP Notices issued by the Director-General for Excise. The currently applicable
MRSPs are set out in the Notice B.E. 2550 (2007) of 29 August 2007 (for domestic
products) and in the Notice B.E. 2551 (2008) of 19 August 2008 (for imported
products); and

• any amendments, implementing measures, or other related measures.

7.417 The Philippines requests that the Panel finds that Thailand violates Article III:2, first sentence
of the GATT 1994 by imposing a VAT on imported cigarettes "in excess of" the VAT imposed on
like domestic cigarettes through the level of the MR SPs (i.e. the tax base for VAT). Specifically, the
Philippines claims that the MRSP Notices issued for Marlboro and L&M on 7 December 2005, 18
September 2006, 30 March 2007, and 29 August 2007 violate Article III:2 of the GATT 1994.
885
7.418 The Panel notes that the Philippines submitte d in its comments of 9 November 2009 on
Thailand's second oral statement, that by mistake, in its second oral statement, it omitted to include
the MRSP Notice of 19 August 2008 as part of the MR SP Notices that form part of this proceeding.886

884 Appellate Body Report, Canada – Periodicals, pp. 22-23, DSR 1997-I, 449, at 468. The Panel in
this case laid down the two step test, which was referred to and upheld by the Appellate Body (Panel Report,
Canada – Periodicals, para. 5.21).
885 Philippines' comments of 16 September 2009, para. 19; second oral statement, para. 75; response to
Panel question No. 128. In Section VII.B.1(c) above, we explained that these notices are within our terms of
reference.
886 Philippines' comments on Thailand's second oral statement, para. 16.

The Panel observes that while this specific Notice is identified in the Philippines' Panel request and
is referred to as an example of Thailand's MRSP calculation in certain parts of the Philippines'
written submissions, the Philippines never put forward a claim, not to mention specific arguments, in
this proceeding that the 19 August 2008 Notice itself violates Article III:2 until its comments of 9
November 2009. In its comments on the Interim Pa nel Report, the Philippines provided a table which
presents an overview of all its submissions related to this MRSP Notice, we consider that the referred
submissions can be divided into three types: (i) submissions referring to the marketing cost
calculation for the 18 August 2008 MRSP Notice; (ii) submissions related to the absolute difference in
MRSPs between domestic and imported cigarettes; a nd (iii) submissions referring to other aspects of
the 18 August 2008 MRSP Notice.
7.419 We consider that submissions of type (ii) and (iii) are too general to be considered
"arguments" or "evidence" specifically put forwar d in connection with the Philippines' claim under
Article III:2, first sentence, as in those subm issions the 2008 MRSP Notice is simply used as an
example to endorse a different claim.
887 We agree that submissions of type (i), on the contrary, deal
with the calculation of the marketing costs, and are of a more substantive nature. In these submissions,
the Philippines puts forth that the December 2005 MR SP Notice is inconsistent with Article III.2 of
the GATT 1994 because the marketing costs for this Notice have been incorrectly calculated, and
since these costs are al so used for the calculation of the 2008 (and 2009) MRSP, the 2008 MRSP is
also in violation of Article III:2. However, despite the fact that the Philippines is referring several
times to the August 2008 MRSP Notice and also provides information on the Notice in several
exhibits,
888 we do not consider this information to cons ist of claims or arguments on the Notice, and
accordingly, we are not in a position to make a fi nding on the consistency of the 19 August 2008
Notice with the obligations under Article III:2, first sentence.
7.420 During the Panel proceedings, in May 2009, a new MRSP Notice was issued. During the
proceedings, the Philippines speci fically requested the Panel not to rule on this MRSP Notice by
stating that: "the Panel should not base its fi ndings on the May 2009 MRSP Notices. WTO dispute
settlement should not involve a moving target that changes through revised measures adopted during
panel proceedings, possibly in light of ar gument and evidence presented to a panel". 889 Thailand did
not contest this either. As the MRSP Notice was is sued after the establishment of the Panel, and as
the parties did not want the Panel to consider this new Notice in its analysis, the Panel decided to not
include it.
7.421 As explained in Section VII.D.4(a)(iii) below, the specific methodology and procedural steps
that Thai Excise follows to determine the MRSP is not set forth in the Thai law or regulations
although the elements for the calculation of the MRSP are indicated in the MRSP Notices issued as
from August 2007 onwards. In the course of this dispute, Thailand presented to the Panel the
methodology that Thai Excise uses to establish the MRSP. As we understand, the Philippines has not
challenged this general methodology that is allegedly used by Thai Excise in determining MRSPs
per se. The Philippines states, for example, "the dispute concerns the MRSPs established on

887 Philippines' first written submission, paras. 493-50 2, including table 4 in para. 498, para. 708, item
19 and para. 712; first oral statement, paras. 208, 210 and 212-216; request of 15 June 2009, para. 6 and table of
documents, item 19; question to Thailand following the first panel meeting, para. 2 and table of documents, item
19; response to Panel question No. 79; second written submission, paras. 414-424, including graphs 1-4;
comments on Thailand's answers to Panel questions (second meeting), paras. 90, 117-121 and 126-130.
888 Exhibits PHL-77, PHL-127, PHL-155, PHL-171, PHL-172, PHL-204, PHL-208, PHL-210,
PHL-211, PHL-212, PHL-213, PHL-238, PHL-270 and PHL-208.

7 December 2005, 18 September 2006, 30 March 2007, and 29 August 2007". 890 Therefore, the
Philippines' claim under Article III:2, first sentence, is confined to these MRSP Notices.
3. Like product analysis
(a) Whether the like product analysis under Article III:2, first sentence, requires a comparison
between "all" imported and "all" domestic products
(i) Main arguments of the parties
7.422 The Philippines submits that its primary claim under Article III:2, first sentence, pertains to
all imported and all domestic cigarettes, across all price segments. 891 In the alternative, the
Philippines argues that all domestic and imported cigarettes within each price segment are "like
products".892
7.423 The Philippines is, however, of the view that a fi nding of a violation under Article III:2, first
sentence, does not require a finding that a ll imported and domestic cigarettes are like. 893 Thailand
violates Article III:2 whenever a given imported brand of cigarettes is "like" a given domestic brand,
and the former is subject to taxation in excess of th e latter. The Philippines po ints out that Thailand
accepted in its first written submission that cigarettes in the same price bracket are "like" products.
7.424 Thailand understands that which categories of im ported and domestic products need to be
compared for the likeness analysis under the Artic le III:2 claim depends on how the complainant
structures its claims.894 To the extent that the Philippines' claim is that all imported cigarettes are like
all domestic cigarettes and that any difference in taxation between the two constitutes a violation of
Article III:2, the Panel cannot conclude that Thailand violates Article III:2 unless it finds that all
imported cigarettes are like all domestic cigarettes. Nonetheless, Thailand does not dispute that
particular pairs of imported and domestic cigarettes may be like products.895
(ii) Analysis by the Panel
7.425 The Philippines' primary claim on "like products " is that "all" imported cigarettes are like
"all" domestic cigarettes. Thailand therefore submits that the Panel cannot conclude that Thailand
violates the first sentence of Article III:2 unless it finds that all imported cigarettes are like all
domestic cigarettes, to the extent that the Philippi nes' claim is structured in such a manner. The
Philippines' claim in respect of likeness between imported and domestic ci garettes is, however, not
confined to its primary claim. The Philippines also claims that domestic and imported cigarettes
within each price segment are like products.
896 It submits that Thailand violates Article III:2 whenever

890 Philippines' second oral statement, para. 75. The Philippines also states that "the Philippines
indicated that the dispute concerns MRSP Notices from the past 'two and a half years', which includes the
December 2005 MRSP Notice, in force at the beginning of that period, and the 2006 and 2007 MRSP Notices,
which were already contested in Thai proceedings when the Panel Request was prepared." The Philippines also
refers to its panel request, para. 25.
891 Philippines' first written submission, paras. 464-4 86; first oral statement 369; response to Panel
question No. 39.
892 Philippines' response to Panel question No. 39.
893 Philippines' response to Panel question No. 48.
894 Thailand's response to Panel question No. 48(2).
895 Thailand's first written submission, para. 221.
896 We note the Panel's statement in Dominican Republic – Import and Sale of Cigarettes that
"imported cigarettes can generally be considered as like products to domestic Dominican Republic cigarettes
within the meaning of the first sentence of Article III: 2 of the GATT". In the light of the Panel's further
elaboration on its like product analysis, however, we understand that the above statement was made more as a

a given imported brand of cigarettes is "like" a gi ven domestic brand, and the former is subject to
taxation in excess of the latter.
897
7.426 Given the arguments above, the Panel will firs t identify the scope of imported and domestic
products that are to be compared in the pr esent dispute for the like product analysis under
Article III:2, first sentence.
7.427 The first sentence of Article III:2 states that "t he products ... imported ... shall not be subject
... to internal taxes or other internal charges ... in excess of those applied ... to like domestic products".
Therefore, the language of Article III:2, first sente nce, does not indicate that "all" imported products
should be found like "all" domestic products. In previous disputes involving a likeness analysis under
Article III:2, first sentence, panels found that th e imported products concerne d were "like" domestic
products within the meaning of this provision, so far as the imported product[s] at issue in a given
dispute was [were] considered "like" to at least some domestic products.898
7.428 In the light of the above, we do not consider that a comparison between "all" imported
cigarettes and "all" domestic cigarettes is required fo r the analysis of likeness under Article III:2, first
sentence. Although presenting evidence showing likeness between all imported and all domestic
cigarettes will definitely satisfy the likeness requirement of Article III:2, first sentence, we do not find
it necessary to conduct such an analysis for the purpose of this dispute. Therefore, we will proceed to
examine whether the Philippines has established with supporting evidence that the imported cigarettes
at issue are like at least some domestic cigarettes within the meaning of Article III:2, first sentence.
(b) Whether the imported and domestic cigarettes within particular price segments are "like"
within the meaning of Article III:2, first sentence
(i) Main arguments of the parties
7.429 The Philippines submits that if the Panel does not make a finding with respect to all
cigarettes, the Philippines maintains that all cigarettes within particular price segments are like. 899
The Panel must then assess which domestic brands are like imported L&M cigarettes, and which
domestic brands are like imported Marlboro cigarettes. The Philippines also notes that Thailand
concedes that domestic and imported cigarette brands within a price segment are "like" products. 900
In any event, the Philippines has adduced the necessary evidence to show that all imported and
domestic cigarettes are like products. 901 Specifically, the Philippines relies on three pieces of

general remark than as a finding on the likeness between the imported and domestic cigarettes at issue in that
dispute (Panel Report, Dominican Republic – Import and Sale of Cigarettes , para. 7.330). Specifically, the
Panel stated in the following paragraph:
"However, for the purpose of th e analysis within the first sentence of Article III:2 of the
GATT, a narrowly construed interpretation of the likeness requirement, would require the
Panel to additionally consider the fact that, w ithin the general product description, cigarettes
are presented to consumers distinguished by brands. Under the identification of these brands,
cigarettes compete within specific price segments against each other. The distinction between
different price segments may be particularly important for the analysis under Article III:2 of
the GATT, since the Selective Consumption Tax was applied on an ad valorem basis, i.e. was
related to the price of the product" (Panel Report, Dominican Republic – Import and Sale of
Cigarettes, para. 7.331).
897 Philippines' response to Panel question No. 48.
898 See, for example, Panel Report, Indonesia – Autos, para. 14.110.
899 Philippines' second written submission, para. 388; response to Panel question Nos. 39 and 48.
900 Philippines' second written submission, para. 388; response to Panel question No. 48, referring to
Thailand's first written submission, para. 221.
901 Philippines' response to Panel question No. 48.

evidence – (i) a TNS Market Study on switching rat es between cigarette brands as well as the cross-
price elasticity of demand902; (ii) research on the elasticity of substitution between cigarette brands 903;
and (iii) an expert statement on income-com pensated cross-price elasticity of demand 904 – to
demonstrate that all imported and all domestic ciga rettes are like. The Philip pines argues that this
same evidence also supports its position that impor ted and domestic cigarettes within the same price
segments are like.905
7.430 According to the Philippines, L&M cigarettes are priced similarly to Krongthip, Gold City
FF 90, Falling Rain, Krongthip FF 90, Roya l Standard FF Regular, Samit FF 90, and Krongthip
Lights; and Marlboro cigarettes are priced similarly to Krongthip FF Deluxe and Royal Standard
FF Deluxe.906
7.431 Thailand does not dispute that particular pairs of imported and domestic cigarettes may be
like products. 907 Moreover, Thailand did not respond to the Philippines' argument that L&M and
Marlboro cigarettes are like domestic cigarettes within th eir specific price segments. To the extent
that the Philippines claims that all imported and all domestic cigarettes are like products, Thailand
takes the view that the Philippines must establish that every possible pair of imported and domestic
cigarette brands is "perfectly substitutable". 908 Thailand argues that the Philippines bears the burden
of establishing that particular imported and domes tic brands are "perfectly substitutable" and,
therefore, "like products".
(ii) Analysis by the Panel
7.432 For the likeness analysis under Article III:2, fi rst sentence, we decided to compare the
likeness between the imported cigarette brands at issue (i.e. Marlboro and L&M) and the domestic
cigarette brands that are within the same price segments. The Philippines submits that premium
Marlboro cigarettes are priced similarly to two domestic cigarette brands, Krongthip FF Deluxe and
Royal Standard FF Deluxe , and mid-priced L&M cigarettes are priced similarly to Krongthip, Gold
City FF 90, Falling Rain, Krongthip FF 90, Royal Standard FF Regular, Samit FF 90, and Krongthip
Lights. Thailand does not object to this categorization by the Philippines. 909 As noted above,
Thailand agrees that particular pair s of imported and domestic cigarettes may be like products. We
will therefore examine in this section whether the Philippines has established that Marlboro cigarettes
are "like" Krongthip FF Deluxe and Royal Standard FF Deluxe cigarettes and whether L&M
cigarettes are like Krongthip, Gold City FF 90, Falling Rain, Krongthip FF 90, Royal Standard FF
Regular, Samit FF 90, and Krongthip Lights cigarettes.

902 Exhibit PHL-111(a) and PHL-111(b).
903 Exhibit PHL-148.
904 Exhibit PHL-149.
905 Philippines response to Panel question Nos. 39 and 48.
906 Philippines' response to Panel question No. 48, re ferring to Exhibits THA-19 and PHL-148; second
written submission, para. 390, Table 2.
907 Thailand's first written submission, para. 221.
908 Thailand's second written submission, para. 126. Thailand argues that given that there were 19
domestic brands and 86 imported brands present in the Thai market at the time of the establishment of the Panel,
there are 1,634 possible pairings of imported and domestic brands that the Philippines must demonstrate to be
"perfectly substitutable".
909 The Philippines submits that the only difference between the argument and evidence for likeness
within price categories, and the argume nt and evidence for likeness across categ ories, concerns the retail price.
The Philippines maintains that for all other likeness criteria, its argument and evidence is the same. (Philippines'
second written submission, para. 389). Thailand has not ob jected to this characterization of the Philippines'
argument and evidence.

7.433 We begin our analysis by recalling the Appellate Body's guidance on the like product analysis
under Article III:2, first sentence. The Appellate Body considered that the proper test for a
determination of like products for the purposes of Article III:2, first sentence must be construed
narrowly, on a case-by-case basis, by examining re levant factors including the following: (i) the
product's end-uses in a given market; (ii) consumers' tastes and habits; (iii) the product's properties,
nature and quality; and (iv) tariff classification.
910 We are also mindful of the Appellate Body's
observation in EC – Asbestos that "having adopted an approach b ased on the four criteria set forth in
Border Tax Adjustments , the Panel should have examined the evidence relating to each of those four
criteria and, then, weighed all of that evidence, along with any other relevant evidence, in making an
overall determination of whether the products at issue could be characterized as 'like'". 911 We will
therefore examine the evidence re lating to the likeness of the imported and domestic cigarettes at
issue based on each of the four criteria above, as well as on any other relevant evidence, and evaluate
all the evidence in its entirety before reaching a final conclusion.
7.434 In this connection, we note Thailand's argumen t that only "perfectly substitutable products"
fall within the definition of "like products" in Ar ticle III:2, first sentence. Thailand supports its
position by referring to the Appe llate Body's explanation in Korea – Alcoholic Beverages . The
Appellate Body stated:
"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'. The notion of like
products must be construed narrowly but the category of directly competitive or
substitutable products is broader. While perfectly substitutable products fall within
Article III:2, first sentence , imperfectly substitutable products can be assessed under
Article III:2, second sentence."
912 (emphasis added)
7.435 Thailand appears to rely on the last sentence in the paragraph quoted above to argue that only
perfectly substitutable products will satisfy the lik e products standard under Article III:2, first
sentence.
7.436 We find Thailand's reading of the Appellate B ody's statement above unnecessarily restrictive.
Although we agree that perfectly substitutable prod ucts will clearly be "like products" within the
meaning of Article III:2, first sente nce, we do not consider that the Appellate Body meant to restrict
the scope of like products to identical products. While this interpretati on may be consistent with the
economic definition of "perfectly substitutabl e", it would render a finding of likeness under
Article III:2, first sentence, almost impossible.
7.437 As noted above, a determination of like produc ts must be carried out on a case-by-case basis
taking into account, inter alia, the four criteria cited in Border Tax Adjustments as well as any other
criteria that may also be relevant in a given case. 913 Our view is also supported by the Appellate
Body's following statements:
"[W]e agree with the Panel that the first sentence of Article III:2 must be construed
narrowly so as not to condemn measures that its strict terms are not meant to
condemn ...

910 Appellate Body Reports on Japan – Alcoholic Beverages II, pp. 19-21, DSR 1996-I, 97, at 112-114;
Canada – Periodicals, p. 21, DSR, 1997-I, 449, at 466.
911 Appellate Body Report, EC – Asbestos, para. 109.
912 Appellate Body Report, Korea – Alcoholic Beverages, para. 118.
913 Appellate Body Report, Japan – Alcoholic Beverages II, pp. 19-21, DSR 1996-I, 97, at 112-114.

How narrowly is a matter that should be de termined separately for each tax measure
in each case. We agree with the practice under the GATT 1947 of determining
whether imported and domestic products are 'like' on a case-by-case basis ..."
914
"Panels can only apply their best judgment in determining whether in fact products
are 'like'. This will always involve an unavoidable element of individual,
discretionary judgment ... it is a discretionary decision that must be made in
considering the various characteristics of products in individual cases."915
7.438 Therefore, while the scope of likeness between imported and domestic products is to be
construed very narrowly, we understand that, as th e Appellate Body indicated, the proper test for a
panel's determination of like products for the purpos es of Article III:2, first sentence requires a case-
by-case analysis taking into account the factual circ umstances in each case and discretionary decision
by panels.
7.439 Bearing the above in mind, we will examine wh ether the Philippines has established that the
imported cigarettes at issue are like the domestic cigarettes within the same price segments. We note
that the parties tend to agree that all imported and domestic cigarettes are like at least in terms of
physical characteristics, end-uses and classification under the Harmonized System. In the following
paragraphs, we will therefore first evaluate th e likeness of the imported and domestic cigarettes
concerned based on these three criteria. We will th en analyze the likeness based on consumer habits
and preferences.
7.440 First, with respect to the physical properties and characteristics of cigarettes, the Philippines
submits that imported and domestic cigarettes have the same essential physical characteristics: they
are all composed of a paper tube; a mix of tobacco a nd additives that fills the tube ("filler"); a filter
through which the smoke is inhaled
916; and they are presented and packed in a virtually identical
manner in all relevant aspects (i.e. the number of cigarettes contained in each pack and each carton
and the size of the packs). 917 We find that an expert's statem ent based on a laboratory analysis on
nature and composition of cigarette s, submitted by the Philippines, supports the view that physical
characteristics of the imported and domestic cigarettes at issue are essentially the same. 918 Thailand
has not provided any opposing views to this. While noting that, as a factual matter, different brands
of cigarettes have different physical properties and qualities 919, Thailand does not explain or support
its observation with any evidence. Rather, Thailand argues that the physical differences caused by the
varieties of tobacco and favouring agents used in cigarette brands are reflected in consumer
preferences and in varying prices charged for different brands of cigarettes. In the light of this,
Thailand's position appears to be that any differen ces in physical qualities or characteristics that exist
between imported and domestic cigarettes will be elements relevant to consumer habits and
preferences.
7.441 The very similar physical characteristics of all domestic and imported cigarettes then confirm,
according to the Philippines, that cigarettes serve the same end-uses, namely smoking. 920
Furthermore, the imported and domestic cigarettes are classified under the same tariff heading of the

914 Appellate Body Report, Japan – Alcoholic Beverages II, p. 20, DSR 1996-I, 97, at 113.
915 Appellate Body Report, Japan – Alcoholic Beverages II, pp. 20-21, DSR 1996-I, 97, at 113.
918 Exhibit PHL-199. The Annex to the Exhibit shows the brands that have been analyzed for the
comparison. The Panel notes that not all domestic cigarette brands are covered, but that a substantial part is (6
brands and 10 types are included), and therefore the Panel is of the opinion that the comparison in the Exhibit is
representative for the Thai cigarette market as a whole.
919 Thailand's response to Panel question No. 38.

Customs Tariff of Thailand, namely heading 2402.20. 90, "[c]igars, cheroots, cigarillos and cigarettes,
of tobacco or of tobacco substitutes ... cigarettes containing tobacco ... other".
921 The Philippines also
points out that the imported and domestic cigarettes at issue in this dispute are all subject to not only
the same types of tax (i.e. excise tax, VAT, health tax, and television tax), applied at the same
nominal rate; but also to the same domestic regulations on advertising, marketing, distribution, as well
as labelling; and to the same health regulations. 922 We see no reason to question that Marlboro and
L&M cigarettes and the corresponding domestic cigare tte brands have the same end-uses; are
classified under the same tariff heading; and subject to the same types of tax and domestic regulations.
7.442 We find, based on the above analysis, that the imported and domestic cigarettes at issue are
like in terms of (i) physical quality and characteristics; (ii) end-uses; (iii) tariff classification; and (iv)
Thai internal taxes and regulations. As these four elements are not the only criteria that may be
considered in the determination of likeness between the imported and domestic cigarettes at issue, and
since the parties have also put forward arguments regarding consumer behaviour, we now turn to the
question of whether the Philippines discharged its burden of proving that Marlboro and L&M brand
cigarettes can be considered like the domestic coun terpart cigarette brands in terms of consumer
habits and preferences. 923 The Philippines presented three pi eces of evidence – switching evidence
and price elasticity 924 and two economic studies on the elasticity of substitution and the cross-price
elasticity of demand 925 – to support its position that importe d and domestic cigarettes are close
substitutes, which in turn establishes that accord ing to the consumer habits and preferences the
imported and domestic cigarettes at issue are alike.926
7.443 The Philippines first refers to a study c onducted by Taylor Nelson Sofres ("TNS"). 927
According to the Philippines, this study shows: (i) a high degree of inter-changeability among all
major cigarette brands in the light of the switch in and switch out rates for cigarette brands such as
Marlboro [[xx.xxx.xx]], L&M [[xx.xxx.xx]] and certain domestic cigarette brands [[xx.xxx.xx]] 928;
(ii) a high degree of switching between importe d and domestic cigarette brands based on the
switching rates between imported and domestic cigarettes (e.g. the switching rates between L&M
cigarettes and TTM cigarettes within the same price segments) 929; (iii) close substitutability between
imported and domestic cigarettes: when the price of an imported brand increases by 10 per cent,
purchases of that brand decreases by 27.6 per cent, whereas when the prices of two domestic brands
also increase by 8.7 per cent at the same time, purchases of the same imported brand decreases by
19.5 per cent. This mitigated response in demand for the imported brand suggests that the price of
domestic cigarettes impacts demand for imported ci garettes and, hence, domestic and imported
cigarettes are close substitutes.

921 Philippines' first written submission, para. 483, referring to Harmonized Tariff Schedule of
Thailand, Chapter 24 (Exhibit PHL-29).
923 We note that given our approach to the scope of imported and domestic cigarettes that are compared
for the like products analysis (i.e. comparison between those in the same price segments), it would not be
necessary to address Thailand's argument that significant price differences between cigarette brands indicate that
all of these brands cannot be deemed to be like products (Thailand's first written submission, para. 220).
924 Philippines' first written submission, paras. 474-481; first oral statement, paras. 201-205; second
written submission, para. 380.
925 Philippines' first oral statement, paras. 206-207.
926 Philippines' second written submission, paras. 380-381.
927 Exhibit PHL-111a; PHL-111b; Philippines' response to Panel question No. 48.
928 Exhibit PHL-111a. The switch out rate for cigarette brand A over a certain period of time is
the percentage of consumers that regularly smoke brand A, but switch to regularly smoking another brand in
that period. The switch in rate for cigarette brand A over a certain period of time is the percentage of consumers
that regularly smoke another brand, but switch to regularly smoking brand A in that period (Philippines' first
written submission, para. 475).
929 Exhibit 111(b), p. 6.

7.444 Thailand criticizes the Philippines' interpreta tion of this study for the following reasons:
(i) the switch in and switch out ratios are low, which makes it difficult to conclude that the five major
cigarette brands are perfectly substitutable; (ii) si gnificant price differences between cigarette brands
makes it difficult to consider them being "like prod ucts"; (iii) the data on changes in demand for a
particular brand of cigarettes following price increases is of limited value because it simply shows
consumer perceptions of whether they would purchase L&M under these scenarios and does not
contain measurements of actual changes in demand at given price points.930
7.445 Another study, submitted by the Philippines, a llegedly shows the elasticity of substitution
between domestic and imported cigarettes: if pr ices for imported cigarettes increase, purchases of
domestic cigarettes would also increase. 931 Thailand questions the rele vance of this evidence to the
like product analysis with respect to all domestic and all imported cigarette brands on the grounds that
all cigarettes are treated as a single unit.932
7.446 Finally, the Philippines relies on an economic study conducted by an economics professor,
Jamie de Melo, on the cross-price elasticity betw een imported and domestic cigarettes in Thailand
between 2007 and 2009. 933 The study concludes that "the estimate increase of market share of
domestic cigarettes pursuant to an increase in the relative RSP of imported cigarettes strongly
suggests that the two products are close s ubstitutes in the eyes of Thai consumers". 934 Thailand is of
the view that this evidence is of limited value because it treats all brands of domestic and imported
cigarettes respectively as a single unit and uses a composite price index in its calculations.935
7.447 We will evaluate the a bove evidence in turn. 936 As noted earlier, the econometric studies put
forward by the Philippines purport to prove the subs titutability between all imported and all domestic
cigarettes. The more convincing the evidence show s the substitutability between the cigarette brands
concerned, the more likely that imported and dom estic cigarettes are like within the meaning of
Article III:2, because they show consumer habits and preferences that treat them alike.
7.448 First, the market study prepared by TNS alle gedly showing the consumers' switching patterns
between cigarette brands, alt hough providing evidence compatible with substitutable products, it
cannot per se be considered a sufficient proof that consumers consider these products to be
interchangeable. The switching ratios calculated in the study could also have been obtained as the
outcome of, for example, changes in consumers' income levels or in the conditions of distribution of a
certain brand.
7.449 Similar concerns can be raised with respect to the study on the elasticity of substitution
between domestic and imported cigare ttes. The relationship shown by the figures in the study may be
spurious because they are calculated without various controlling factors that may also have affected
this relationship.

930 Thailand's second written submission, para. 128.
931 Exhibit PHL-148; Philippines' response to Panel question No. 48.
932 Thailand's second written submission, para. 128.
933 Exhibit PHL-149.
934 Exhibit PHL-149, p. 9.
935 Thailand's second written submission, para. 128.
936 The Appellate Body has clarified that in the co ntext of an Article III:2, first sentence analysis,
"substitution implies interchangeability" of the products. Article III:2 requires direct substitutability between
products. (Appellate Body Report, Canada – Periodicals , p. 25, DSR 1997-I, 449 at 470). It has clarified that
"the word 'substitutable' indicates that the requisite relationship may exist between products that are not, at a
given moment, considered by consumers to be substitutes but which are, nonetheless, capable of being
substituted for one another" (Appellate Body Report, Korea – Alcoholic Beverages , para. 114). In this context,
panels have recognized that quantitative studies of cross- price elasticity are relevant, but not exclusive or even
decisive in nature (Panel Report, Korea – Alcoholic Beverages, para. 10.44).

7.450 The study on cross-price elasticity addresses some of the limitations of the other two studies
by, for instance, taking income into account. In pa rticular, since the overall price index is built by
weighing each price by the market share, we consider that the results of the study may be driven by
the pair of cigarette brands with the highest market share. This means that if the estimations made in
the study are assumed to have been conducted corr ectly, the study can be understood as showing that
at least one pair of imported and domestic cigarettes are substitutable.
7.451 In sum, we are of the view that the TNS market study and the study on the elasticity of
substitution are inconclusive to show the substitu tability between imported and domestic cigarettes
because of the incomplete control of all relevant variables. The economic study on cross-price
elasticity, although insufficient to show likeness between all imported and all domestic cigarettes, as
the Philippines intended to show, indicates that at least Marlboro and L&M cigarettes are substitutable
with like domestic cigarettes within the same pr ice segments. Considered together with our
conclusion above on the likeness between the imported and domestic cigarettes at issue related to their
physical characteristics, end-uses and tariff classification, the Philippines has established a prima facie
case that Marlboro and L&M cigarettes are at least like the domestic cigarettes within the same price
segments. Therefore, given that Thailand di d not prove otherwise, we conclude that Marlboro
cigarettes are "like" Krongthip FF Deluxe and Royal Standard FF Deluxe cigarettes and that L&M
cigarettes are like Krongthip, Gold City FF 90, Falling Rain, Krongthip FF 90, Royal Standard FF
Regular, Samit FF 90, and Krongthip Lights cigarettes within the meaning of Article III:2, first
sentence.
4. Excess taxation analysis
7.452 The Philippines argues that Thailand imposes VAT on imported cigarettes in excess of VAT
imposed on like domestic cigarettes because: (i) the tax base (the MRSP) for imported cigarettes in
absolute terms is higher than for like domestic cigarettes
937; and (ii) the tax base (the MRSP) for
imported cigarettes is systematically higher than the actual retail selling price (the RRSP/RSP) for
imported cigarettes, whereas the tax base (the MRSP) for domestic cigarettes is systematically equal
to the actual retail selling price (the RSP).
938
7.453 We will begin our analysis by examining the Thai VAT system as it is applied to cigarettes.
We will then proceed to address the two arguments advanced by the Philippines in turn.
(a) The Thai VAT system
(i) Introduction
7.454 A value added tax can be defined as "a tax assessed at each step in the production of a
commodity, based on the value added at each st ep by the difference between the commodity's
production cost and its selling price. A value added tax ... effectively acts as a sales tax on the ultimate
consumer".939 The OECD defines it as follows: "value added taxes (VAT) are consumption taxes.
They have three distinctive characteristics: they are levied on a broad base (as opposed to excise taxes
which cover specific products), the collection system is organised in stages where each agent may
deduct input taxes on purchases and must account for output tax on sales, and, ultimately, the burden

937 Philippines' first written submission, paras. 493- 496; first oral statement, paras. 208-209 and
212-220; second written submission, paras. 392-393 and 397-424; second oral statement, paras. 83-84 and 87.
938 Philippines' first written submission, paras. 497-50 2 and para. 498, Table 4; first oral statement,
paras. 210-211; second written submission, paras. 394-39 6; second oral statement, paras. 83-84 and 87. The
Panel notes that the Philippines initially submitted three r easons in this regard. The third reason was that in
calculating the MRSP, Thailand applied a discrimina tory calculation method (P hilippines' first written
submission, paras. 503-513; first oral statement, para. 212).
939 Black's Law Dictionary,7th ed., B.A. Garner (ed.) (West Group, 1999), p. 1472.

will be borne by consumers who, as end-users, cannot operate immediate deduction operations. In
practice, three tax collection mech anisms are mainly used: (a) under a registration system, the vendor
registers with the tax authorities and is responsible for paying/collecting the tax; (b) the tax may,
alternatively, be collected directly by the cust oms authorities at the border; (c) under the reverse
charge/self-assessment system, the customer pays directly to the tax authorities".940
7.455 The rules pertaining to the imposition and operatio n of the Thai VAT system are set forth in
Title II (Revenue Taxes and Duties), Chapter IV (Value Added Tax) of the Thai Revenue Code
B.E. 2481 (1938) (the "Revenue Code). 941 Chapter IV is then divided into 14 divisions according to
the subject matter relating to the VAT system.
7.456 Section 77, Division 1 (General Provisions) of Ch apter IV provides that "Value added tax is
an assessment tax and duty". In accordance with Section 77/2, VAT under the provisions of
Chapter IV is charged on the sale of goods or provision of a service by a supplier and the import of
goods by an importer in Thailand.
942
(ii) Tax rate
7.457 The tax rate for VAT is provided for in Section 80 of the Revenue Code, which in turn refers
to the "Royal Decree Issued Under the Revenue Code Governing Reduction of Rate of Value Added
Tax (No. 440) B.E. 2548 (2005)" ("Royal Decree 440") for new rates.943 The Royal Decree prescribes
two VAT tax rates – 7 per cent [6.3 per cent]944 for the period of 1 October 2005 – 30 September 2007
and 9.0 per cent for the period of 1 October 2007 onwards. The parties do not dispute that the

940 Organisation for Economic Co-operation and Development, International VAT/ GST Guidelines ,
February 2006, p. 7.
941 Exhibit PHL-94, Chapter IV (Value Added Tax) of Title II (Revenue Taxes and Duties) of the
Revenue Code is divided into 14 divisions: General Provisions (Division 1 (Section 77-77/5)); Tax Liability
(Division 2 (Section 78-78/2)); Tax Base (Division 3 (Section 79-79/7)); Tax Rates (Division 4
(Section 80-80/2)); Exemption from Value Added Tax (Division 5 (Section 81-81/3)); Persons Liable to Tax
and Tax Computation (Division 6 (Section 82-82/18)); Filing of Returns and Payment of Tax (Division 7
(Section 83-83/10)); Tax Credit and refund of Value Added Tax (Division 8 (Section 84-84/4)); Value Added
Tax Registration (Division 9 (Section 85-85/19)); Tax Invoice, Debit Note, Cr edit Note (Division 10
(Section 86-86/14)); Preparation of Records and Maintenance of Vouchers and Documents (Division 11
(Section 87-87/3); Power of the Assessment Officer (D ivision 12 (Section 88-88/6); Penalties and Surcharges
(Division 13 (Section 89-89/2); and Punishment (Division 14 (Section 90-90/5)).
942 Thailand explains that VAT is administered by the Revenue Department. In the case of imports,
however, VAT is collected by Thai Customs on behalf of the Revenue Department (Thailand's response to Panel
question No. 41, citing to http://www.rd.go.th and http://www.customs.go.th). The Thai VAT system applicable
to cigarettes differs from the system applied to other products in that for cigarettes every reseller collects VAT
from the purchaser in respect of every stage of sale. Subsequently, the supplier deducts so-called "input tax"
already paid to the previous seller, from "output tax" collected from the next purchaser of goods in each tax
month. The VAT registrant supplier thus pays VAT equal to output tax deducted by input tax. However, this
system only applies to the (re)sales of imported cigarettes, since for domestic cigarettes TTM directly pays all
VAT liable to the Thai Government and resellers are exempted from VAT liability. See paras. 7.579-7.592
below.
943 Exhibit PHL-93.
944 Section 5 of Royal Decree 440 identifies 6.3 per cent as the VAT tax rate for 1 October 2005–
30 September 2007 (Exhibit PHL-93). In a Note to Subs cribers, however, Royal Decree 440 explains that the
actual tax rate is 7 per cent:

"Note to Subscribers: Section 80 of the Revenue Code fixes the value added tax at
10.0 per cent, which is exclusive of municipal tax at 1/9 thereof. Thus, when the value added
tax is reduced to 6.3 per cent, the said rate must be added by the municipal tax at 1/9 thereof
when collected. Therefore, the applicable rate is (6.3+(6.3x1/9)=0.7) = 7.00 per cent."

relevant VAT tax rate for cigarettes is 7 per cent ad valorem
945, which is the rate applied in computing
VAT on the sale of goods, the provision of services and imports, including imports of cigarettes and
sales of both imported and domestic cigarettes, on the Thai market.
(iii) Tax base – MRSP
Overview

7.458 Division 3 of Chapter IV of the Revenue Code contains provisions relating to the tax base for
the calculation of VAT. It contains separate sections for the tax base that applies in general and for
the tax base that applies to cigarettes in particular . Section 79 defines the tax base that applies in
general: "the tax base for sale of goods or provision of services means total value received or
receivable by a supplier from such sales or provisions ...". As the Philippines explains, the total value
received or receivable, used as the tax base for the v ast majority of products, is the retailer's chosen
selling price.
946
7.459 The tax base for cigarettes is provided in Section 79/5 of the Revenue Code:
"[T]he tax base for the sale shall be the valu e of tobacco arrived at by deducting the
amount of value added tax from the full amount of its retail price, such tax amount
being computed at the rate of value added tax where the tax has been included in the
full amount of the retail price."
7.460 The parties explain that the VAT tax base fo r cigarettes is the MRSP liability, a reference
price fixed by the Thai government.947 To be exact, as set out in Section 79/5, the VAT tax base is the
MRSP minus the VAT because the MRSP is inclusive of VAT. This can be put in an equation as
follows:
VAT = 7%*(MRSP-VAT) or

7/107*MRSP

7.461 For ease of reference, in this section, we will generally refer to the MRSP as the tax base for
VAT, which in fact means the MRSP minus the VAT.
7.462 Although the exact term "MRSP" is not stipulat ed in Section 79/5 of the Revenue Code, we
understand that "the full amount of its retail price" referred to in the provision means the MRSP. The
concept of MRSP is provided for in Section 23 of the Tobacco Act B.E. 2509 (1966) (the "Tobacco
Act").948 Section 23 provides:
"The Director-General shall have the power to make announcements fixing the price
of tobacco. It is forbidden to sell tob acco at prices exceeding those fixed in the
announcement of the Director-General."

945 The parties refer to 7 per cent as the VAT tax ra te in the following submissions: Philippines' first
written submission, para. 415; Thailand's first written submission, para. 76; response to Panel question No. 41.
947 Philippines' first written submission, para. 416; Thailand's response to Panel question No. 41;
Exhibit PHL-93. The difference between VAT imposed on cigarettes and VAT imposed on other products thus
lies in the fact that for cigarettes, the VAT is based on the MRSP, which is set by the Thai Government, while
for other products the VAT is based on the actual selling price of the product.
948 Philippines' first written submission, para. 419; Exhibit PHL-119.

7.463 The text of Section 23 thus indicates that th e Director-General of the Excise Department
("DG Excise") determines maximum prices (i.e. the de finitive MRSP, which is here a price inclusive
of the VAT amount) at which a particular brand of cigarettes may be sold on the Thai market. 949 This
implies that although a brand of cigarettes cannot be sold at prices exceeding the MRSP, it may be
sold at prices below the MRSP.
Establishment of the MRSP
7.464 Given that the MRSP is the tax base for VAT, the MRSP must be established first to calculate
the VAT amount for a particular brand of cigarettes.
7.465 The text of Section 23 of the Tobacco Act do es not set out the specific manner in which the
MRSP is determined. The components comprising the MRSP are explained in the preambles of the
MRSP Notices issued after August 2007.950 The preambles read:
"[T]he Excise Department therefore fixes the [MRSP] ... by making a computation as
based on the c.i.f. price, customs duty, tobacco stamp (i.e. excise tax), value added
tax, contributions to the health promotion fund, contributions to the Thai Public
Broadcasting of Sound and Picture Foundation, contributions to provincial
administration organization development, and marketing margin combined."
7.466 In sum, the MRSP consists of the following eight variables:
MRSP = c.i.f. or ex factory price
 + [Customs duties (c.i.f. price*5%)]
951
 + Excise tax ((c.i.f. price + customs duties)*400%)
 + Health tax (excise tax*2%)
 + Television tax (excise tax*1.5%)
 + Local tax (currently 1.86 baht per pack)
 + VAT
 + Marketing costs
952

949 Section 4 of the Tobacco Act provides that "Dir ector-General" means the Director-General of the
Excise Department. Philippines' first written submi ssion, para. 420; Thailand's first written submission,
para. 83; response to Panel question No. 41. Thailand states that "Thai Excise is responsible for the
determination and publication of the MRSPs for all brands of cigarettes, both domestic and imported" and that
"the MRSPs are determined by Thai Excise". Thailand also submits that it is within Thai Excise's discretion to
administer the MRSPs, under Section 23 of the Tobacco Act, to accept suggestions as to revisions of the MRSPs
from both TTM and importers (Thailand's first written submission, para. 89).
950 Exhibits PHL-77, PHL-104, PHL-105, PHL-106 and PHL-118.
951 Customs duties are added for the calculation of the MRSP for imported cigarettes only.
952 Furthermore, Thailand submitted a sample calculation of how the amount of an MRSP is calculated
in Exhibit THA-47. As the worksheet in Exhibit THA-47 shows, with the exception of marketing costs, all
other variables comprising the MRSP (i.e. customs duties, excise tax, health tax, television tax) can be derived
on the basis of the c.i.f. or ex factor y price. The c.i.f./ex factory price th erefore forms the starting points for the
calculation of MRSPs for domestic and imported cigarettes (Thailand's first written submission, para. 85;
Exhibit THA-48).

7.467 According to Thailand, new MRSPs are established and existing MRSPs are revised
953 in the
following manner:954
7.468 The primary source of the MRSP is the importe r's or the domestic manufacturer's proposed
MRSP/RRSP. Importers and the domestic manufacturer inform Thai Excise of the proposed
MRSP/RRSP when they want to introduce a new brand or revise an existing MRSP.
955
7.469 Importers and domestic manufacturers may request changes in the MRSPs at any time to
reflect changes in their c.i.f. or ex factory prices, desired retail prices, or other factors such as changed
market conditions. Subject to a review as to whether the proposed MRSP/RR SP is consistent with
Thai Excise's dual objectives of protecting consumer s from excessive pricing and preventing any tax
avoidance by the manufacturer/importer understating the proposed retail price, Thai Excise will then
accept or reject the proposed MRSP/RRSP. If it accepts the proposed MRSP/RRSP, it publishes this
price as the MRSP for that brand. Thai Exci se may reject proposed changes or make other
adjustments956 consistent with the dual function of the MRSP as a maximum price to protect
consumers and as the tax base for VAT.
7.470 Thai Excise may also, and normally does, calcula te a new MRSP if any of the applicable tax
rates changes, necessitating a revision in the MRSP. In these cases, Thai Excise calculates the new
MRSP by changing the relevant c.i.f. or ex factory prices, updating the tax amounts that are based on
those figures, and holding the so-called "marketing costs" constant. Thai Excise generally uses the
same amount of "marketing costs" as included in the latest MRSP or in the MRSP previously
requested by the domestic manufacturer or the impor ter, which is derived by subtracting all other
elements (i.e. the c.i.f./ex factory price plus all applicable taxes) from the MRSP.
957
7.471 Once a new MRSP is determined, Thai Exci se publishes a notice, reflecting the new
MRSP.958
7.472 The Philippines does not appear to take issue with the overall methodology to be applied to
establish the MRSPs for cigarettes as described by Th ailand above. To that extent and in the absence
of any specific written rules in Thai law indicating how the MRSP is established, we will undertake
our analysis of the parties' claims and argumen ts in this section on the understanding that the
methodology set out above is the general method ology applied in determining the MRSP for a
specific brand of cigarettes.959
7.473 We note in this connection that the parties c ontest how the "marketing costs" component of
the MRSP is determined. Thailand defines the "marketing costs" as the total selling expenses and

953 Philippines' second written submission, paras. 324 and 326. The Philippines argues, in the context of
its Article X:1 claim with respect to Thailand's alleged failure to publish rules for determining MRSPs, that the
methodology used to revise an MRSP is more important than the methodology first used to establish an MRSP,
because the MRSPs are regularly revised, usually at least once per year. It further states that for Marlboro and
L&M, the initial MRSP was determined, respectively, approximately 20 and 10 years ago, and the MRSP
revision methodology has determined the MRSPs ever si nce. The Philippines contends, however, that MRSPs
have not been revised following the methodology that Thailand has presented to the Panel.
954 Thailand's first written submission, paras. 83-96; Philippines' second written submission, para. 135.
955 Exhibits THA-18, THA-31 and THA-100.
956 Thailand's first written submission, para. 89.
957 Thailand's first written submission, paras. 85-86 and 88; response to Panel question No. 41; second
written submission, para. 245; comments of 25 September 2009, paras. 42 and 45.
958 Thailand's first written submission, paras. 83 and 87; Exhibit THA-59 and THA-63. The MRSP is
issued separately for each brand, fo r both domestic and imported cigarettes, which is for example shown in
Exhibit THA-19, in which Thailand shows MRSP determinations for several foreign and domestic brands.
959 See Section VII.G.1(c)(ii) below.

profits associated with selling the cigarettes to the final consumer in the Thai market. 960 This amount
represents the selling expenses and profits of not ju st the manufacturer or importer (e.g. TTM or
PM Thailand), but also of all the wholesalers and retailers in the chain of distribution until the
cigarettes are sold to the final consumer (who ultimately pays the VAT). 961 We will address the
parties' arguments on the determin ation of the marketing costs in the context of our analysis of
whether imported cigarettes are subject to excess taxation through the alle ged gap existing between
the MRSP and the RRSP/RSP for imported cigarettes.
(b) Whether imported cigarettes are subject to excess taxation – the higher absolute level of the
MRSPs for imported cigarettes than for domestic cigarettes
(i) Main arguments of the parties
7.474 The Philippines submits that Thailand applies a higher tax base for imported cigarettes than
for like domestic cigarettes, while simultaneously main taining an identical tax rate applicable to all
cigarettes, resulting in the imposition of a tax on imported cigarettes in excess of like domestic
cigarettes.962 The data before the Panel indicate that the absolute MRSPs for imported cigarette
brands ( i.e Marlboro and L&M) are almost always higher than the MRSPs for domestic cigarette
brands ( i.e. TTM). 963 The Philippines argues that this data illustrate that Marlboro and L&M are
taxed in excess of their respective like domestic brands in absolute te rms because the VAT for
cigarettes in Thailand is based on the MRSP value. 964 Therefore, the Philippines claims that this
excess tax burden for imported cigarettes in absolute te rms violates Article III:2, first sentence, of the
GATT 1994.965
7.475 Thailand argues that Article III:2, first sentence do es not require that all imported cigarettes
bear the same absolute tax amount as all domestic cigarettes. 966 Moreover, Members are permitted to
use fixed price systems and ad valorem systems of internal taxation. 967 Thailand asserts that its ad
valorem system explains the natural result of a diffe rential tax basis (MRSP) for domestic and
imported cigarettes. 968 Thailand references the Panel in Dominican Republic – Import and Sale of
Cigarettes, which provided that the fact that different ci garette brands are priced differently may be
especially important for the analysis under Article III:2 [of the GATT 1994]. 969 Furthermore, if the
Philippines' absolute ta xation test were accepted, WTO Memb ers would be precluded from applying
ad valorem internal taxes altogether. 970 Thailand submits that a system of taxation where more
expensive imported brands are taxe d higher, in absolute terms, than less expensive domestic brands,
may be consistent with WTO obligations.971

960 Thailand's first written submission, paras. 86 and 89.
961 Thailand's first written submission, para. 86.
963 Philippines' first written submission, paras. 493-496; second written submission, para. 392.
964 Philippines' second written submission, para. 390, see Table 2.
967 Thailand first written submission, para. 210, referring to the French VAT system in
Exhibit THA-29; second written submission, para. 131.
968 Thailand's first written submission, paras. 223-224.
969 Thailand's first written submission , para. 223; referencing Panel Report, Dominican Republic –
Import and Sale of Cigarettes, para. 7.331.
970 Thailand's first written submission, para. 224.
971 Thailand's second written submission, para. 132.

(ii) Analysis by the Panel
7.476 The Philippines argues that because the VAT is calculated on the basis of the MRSP, a higher
MRSP translates into a higher VAT burden. Based on the data that shows higher absolute MRSP
figures for imported cigarettes compared to domestic cigarettes, the Philippines asserts that Thailand
imposes a higher tax burden on imported cigarettes by applying a higher MRSP to imported cigarettes
than to domestic cigarettes.
972
7.477 In Thailand's view, the MRSP numbers in abso lute terms are irrelevant to the Panel's
analysis.973 This is because the determination of whet her an internal tax discriminates against
imported goods within the meaning of Article III:2 depends on whether the tax base for imported
cigarettes is established and applied in a manner that affords protec tion to domestic cigarettes, and
not on whether the tax base in itself is higher fo r imported cigarettes than domestic cigarettes.
Thailand further points out that under an ad valorem tax system, the absolute amounts collected on
differently-priced like products will be different; greater absolute amounts will be collected on higher-
priced goods.974
7.478 The question before us is, therefore, whethe r the higher absolute MRSP figures for imported
cigarettes can in themselves be considered as proving a VAT imposed on imported cigarettes in
excess of that applied to domestic cigarettes within the meaning of Article III:2, first sentence.
7.479 Examining issues relating to the excess taxation of imported products under Article III:2, first
sentence, the Appellate Body in Japan – Alcoholic Beverages II stated that "even the smallest amount
of 'excess' is too much. The prohibition of discrimin atory taxes in Article III:2, first sentence, is not
conditional on a 'trade effects test' nor is it qualified by a de minimis standard".975 The Appellate
Body's statement thus clarifies that an internal tax will be found discriminatory against imported
products within the meaning of Article III:2, firs t sentence, if the tax imposed on imported products
exceeds, even in the smallest amount, the tax imposed on domestic products.
7.480 Turning to the factual circumstances of the pr esent dispute, the parties do not contest that
higher MRSPs result in higher VAT amounts. We not e that the data presented to us do indeed
illustrate that the MRSPs, the tax base for VAT amounts, for Marlboro and L&M are higher than
those for domestic cigarette brands. The table below shows a comparison between the MRSPs for
Marlboro and L&M and those for the domestic cigarettes within the same price segments between
2005 and 2007.

972 As stated in paras. 7.417-7.421 above, the MRSP notices at issue are the ones of 7 December 2005,
18 September 2006, 30 March 2007 and 29 August 2007.
973 Thailand's first written submission, para. 223.
974 Thailand's first written submission, para. 223.
975 Appellate Body Report, Japan – Alcoholic Beverages II , p. 23, DSR 1996:I, 97, at 115. The
Appellate Body also found that, given the absence of a reference to Article III:1 (the provis ion setting forth a
general principle and informing the rest of Article III) in the first sentence of Article III:2, "the presence of a
protective application need not be established separately from the specific requirements that are included in the
first sentence in order to show that a tax measure is inc onsistent with the general principle set out in the first
sentence" (Appellate Body Report, Japan – Alcoholic Beverages II , p. 18, DSR 1996:I, 97, at 111-112). The
Appellate Body further elaborates that "this does not mean that the general principle of Article III:1 does not
apply to this sentence. To the contrary, ... the first sentence of Article III:2 is, in effect, an application of this
general principle".

MRSPs of domestic and imported brands in premium and mid-price segments

[[The deleted table contains business confidential information976, 977]]

7.481 Specifically, the MRSPs for Marlboro in December 2005, September 2006 and March and
August 2007 are respectively [[xx.xxx.xx]], [[xx.xxx.xx]], [[xx.xxx.xx]] and [[xx.xxx.xx]] baht,
whereas the MRSPs for Krongthip FF Deluxe and Royal Standard FF Deluxe are [[xx.xxx.xx]],
[[xx.xxx.xx]], [[xx.xxx.xx]] and [[xx.xxx.xx]] baht for the same time period. As for L&M, MRSPs
were [[xx.xxx.xx]], [[xx.xxx.xx]], [[xx.xxx.xx ]] and [[xx.xxx.xx]] baht, whereas MRSPs for Gold
City FF 90, Falling Rain, Kronthip FF 90 and Royal Standard FF Regular, Samit FF 90 and
Krongthip Lights were [[xx.xxx.xx]], [[xx.xxx.xx]], [[xx.xxx.xx]] and [[xx.xxx.xx]] baht. As noted
above, higher MRSP figures will result in higher VAT amounts because the VAT is calculated on the
basis of the MRSP. The question that we have to answer is whether higher MRSP figures in absolute
terms can be interpreted as excess taxation within the meaning of Article III:2, first sentence. As
described above, the MRSP is the tax base for the VAT and derived by adding up c.i.f. or ex factory
prices, internal taxes and marketing costs. Am ong these components, the internal taxes are derived
from the c.i.f. price plus customs duties for importe d cigarettes and the ex factory price for domestic
cigarettes. These figures are determined by the importer and the domestic manufacturer, not by the
Thai government.
978 If an importer's c.i.f. price is therefore higher than the ex factory price of a
domestic manufacturer, the higher c.i.f. price can contribute to a higher MRSP for an imported
cigarette brand compared to the MRSP for a domestic cigarette brand to the extent that the marketing
cost component is kept at the same level for both imported and domestic cigarettes. The evidence
before us illustrates that the c.i.f. prices for importe d cigarettes are usually high er than the ex factory
prices for domestic cigarettes.979 Moreover, in the case of the MRSP for imported cigarettes, customs
duties, which are not added for domestic cigarettes, are also included in deriving the final MRSP and
added to the c.i.f. price to provide a basis for the calculation of the internal taxes. This will also
increase the absolute level of MRSPs for imported cigarettes.
7.482 In our view, a comparison of the absolu te MRSP numbers for imported and domestic
cigarettes, without considering the specific nature of the MRSP, including how MRSPs are
established and/or revised under the Thai VAT system , is not sufficient to demonstrate an allegedly
discriminatory VAT applied to imported cigarettes. Therefore, we do not consider that higher
MRSPs, in absolute terms, for imported cigare ttes compared to MRSPs for domestic cigarettes
establish that imported cigarettes are taxed in excess of like domestic cigarettes within the meaning of
Article III:2, first sentence.
(c) Whether imported cigarettes are subject to ex cess taxation – an alleged difference in the
determination of the MRSPs for imported and domestic cigarettes
(i) Legal standard
Main arguments of the parties

7.483 The Philippines submits that the MRSPs for imported cigarettes have typically been higher
than the RRSPs/RSPs, whereas the MRSPs for domestic cigarettes are always equal to the RSPs for
those cigarettes.980 This gap between the MRSPs and RRSPs for imported cigarettes results in a VAT

976 [[xxx.xx.xxx]].
977 [[xxx.xx.xxx]].
978 See para. 7.824.
979 Exhibits THA-76, THA-81 and THA-82.
980 Philippines' second written submission, paras. 394-396.

for imported cigarettes which is systematically in excess of the VAT for like domestic cigarettes. The
Philippines emphasizes that the gap between the tax base (the MRSP) and the actual retail selling
price (the RRSP/RSP) for imported products will result in a higher tax burden on imported products if
the gap is not the result of a decision of the impor ter to sell at a lower price than the MRSP. The
MRSP will exceed the RRSP/RSP if the Thai government uses an inflated starting-point for the
MRSP calculation for imported products or adds an inflated amount for marketing costs for imported
products.
981
7.484 Specifically, the Philippines submits that there is a significant difference in the marketing
costs used for the MRSP calculation, as the mark eting costs used for the MRSP calculation for
imported brands are typically higher than the mark eting costs used in the MRSP calculations for like
domestic brands.982 In practice, when DG Excise rejects the proposed MRSP for Marlboro or L&M,
it creates its own proxy for the actual marketing costs derived from the importer's information. 983
Assuming that DG Excise properly determines the ot her elements of the MRSP (i.e. c.i.f. price,
customs duties and internal taxes), the difference between the proposed MRSP (i.e. the RRSP) and the
imposed MRSP is the extra amount that DG Excise adds to the actual marketing costs. Moreover, the
Philippines submits that Thailand has failed to offe r a legitimate countervailing explanation that the
excess taxation can be explained with objective factor s relating to the methodology used to calculate
the MRSPs.984
7.485 Thailand submits that the Philippines' claim does not establish a prima facie case that
imported cigarettes are systematically taxed in excess of domestic cigarettes. 985 To the extent that the
WTO Members are free to use both fixed price systems and ad valorem systems of internal taxation,
the fact that an imported brand may pay more tax than a domestic brand cannot constitute
discrimination within the meaning of Article III:2. 986 Rather, Thailand maintains that the proper test
to determine whether Thailand's use of the MRSP as the tax base for its VAT, is inconsistent with
Article III:2, first sentence, requires an examinatio n of the measure's criteria, structure and overall
application, to determine if it is applied in a way that affords protection to domestic products. 987 The
key issue is therefore whether Thai Excise dete rmines the MRSP for both domestic and imported
cigarettes in the same manner.988 Thailand submits that the same methodology is used to establish the
MRSP for both domestic and imported cigarettes and that the Philippines failed to make a prima facie
case that Thai Excise establishes the MRSPs diffe rently for imported and domestic cigarettes or
applies the methodology described in a manner that affords protection to domestic cigarettes.989
7.486 In this connection, the Philippines does not consider that Thailand's taxation of cigarettes can
be examined on the basis that it is an ad valorem tax system because the Thai VAT system is not a

981 Philippines' response to Panel question No. 49.
982 Philippines' first written submission, para. 498; fi rst oral statement, para. 185; second written
submission, para. 395.
983 Philippines' comments on Thailand's response to Panel question Nos. 122 and 123.
984 Philippines' first written submission, para. 498, Ta ble 4; second written submission, para. 397. The
Philippines also submits that in 2006 and 2007, Thailand used guarantees that exceeded the customs value as the
starting point to calculate MRSPs; and the percentage amount added for marketing costs has been higher for
imported cigarettes (Philippines' first oral statement, paras. 169-173 and 213-216; response to Panel question
Nos. 49 and 128). The Philippines did, however, not effec tively pursue this line of arguments in relation to its
claim under Article III:2.
985 Thailand's first written submission, paras. 222-233, second written submission, para. 130.
986 Thailand's second written submission, paras. 131-133.
987 Thailand's first written submission, para. 206, quoting Appellate Body Report, Japan – Alcoholic
Beverages II, p. 29, DSR 1996-I, 97, at 120; second written submission, para. 134.
988 Thailand's second written submission, paras. 135-136.
989 Thailand's response to Panel question No. 41.

typical ad valorem system.990 The Thai government fixes both the tax rate and the tax base since the
tax base is not the seller's price or the manufacturer's RRSP, but rather the MRSP, which is a figure
determined by the government using an unpublished methodology.
991 The Philippines does not
dispute Thailand's right to impose VAT on the basis of a government-fixed price per se.992 However,
under Article III:2, imported goods cannot be subject to any "e xcess" taxation through a higher
government-fixed tax base than the tax base applie d to like domestic goods. For imported cigarettes,
however, the government-fixed tax base – the MRSP – is systematically higher than the RRSP. By
fixing both the tax rate and the tax base according to its own criteria, Thailand effectively imposes a
specific tax that is differentiated by brand, and not an ad valorem tax based on the
seller/manufacturer's chosen retail price. This sp ecific tax effectively imposed on imported cigarettes
is higher than the specific tax imposed on domest ic cigarettes because of the Thai government's
decision to fix a higher tax base for imports coupled with the same tax rate.
7.487 Thailand asserts that because PM Thailand, and no t Thai Excise, initially determines the
"marketing costs" element of the MRSP, stating the marketing costs as a percentage of the MRSP is
not a measure of whether the MRSP methodology is a pplied so as to afford protection to the domestic
industry.
993 Thailand points out that a request by PM Thailand for new MRSPs for certain L&M
brands in 2008 was granted by Thai Excise and th at the MRSPs for these brands were further updated
in 2009 based on the 2008 Notice.994 This evidence shows that the starting point for the determination
of the MRSP is the manufacturer's RRSP/RSP and th at Thai Excise does not independently determine
the "marketing costs" element of the MRSP.995 The same methodology is used for domestic cigarettes
as demonstrated through the changes made to the MRSPs following requests by TTM.996
7.488 Furthermore, Thailand points out that, contrary to what the Philippines appears to suggest, in
a fixed price tax system, the government is not re quired to automatically accept the manufacturer's
proposed tax base. To prevent the manufacturers' pot ential avoidance or evasion of their tax liability,
Thailand uses the maximum price as the tax base. 997 This means that the manufacturers cannot
propose a low MRSP simply to minimize their tax es without also foregoing considerable sales
revenue.
Analysis by the Panel
7.489 The Philippines' second ground for its claim under Ar ticle III:2, first sentence, with respect to
the Thai VAT system can be summarized as follows: the imported cigarettes at issue are subject to
excess VAT taxation through a higher government-fixed tax base than the tax base applied to like
domestic cigarettes. A higher tax base for impor ted cigarettes is fixed by establishing marketing
costs, one of the components of the tax base, in a manner discriminatory against imported cigarettes.

990 Philippines' response to Panel question Nos. 49; Exhibit PHL-188. The Ph ilippines refers to the
French system of taxation to exemplify ad valorem taxation systems. According to the Philippines, France
prescribes a tax base for cigarettes, but automatically accepts the manufacturer/impor ter's recommended retail
selling price as the prescribed price. Thailand rebuts this factual assertion, and claims that the French text, which
states that the relevant Minister must "homologuer le prix", actually requires the minister to register the
proposed price after examination.
991 Philippines' response to Panel question No. 49.
993 Thailand's second written submission, para. 138.
994 Thailand's second written submission, para. 139.
995 Thailand's first written submission, paras. 83-87; response to Panel question No. 41; second written
submission, para. 139.
996 Thailand's first written submission, paras. 236-2 37; response to Panel question No. 41; second
written submission, para. 140; Exhibit THA-19 and THA-51. See also Exhibit THA-45 for a list of all changes
in MRSPs having affected PM Thailand between 2003-2006.
997 Thailand's second written submission, para. 137.

Thailand's position is that Thai Excise establishes the tax base for VAT in the same manner for both
domestic and imported cigarettes and that the importers and the manufacturer, not the Thai
government, initially determine the marketing cost co mponent of the tax base. Thailand claims that
the Philippines failed to make a prima facie case that Thai Excise establishes the MRSPs differently
for imported and domestic cigarettes.
7.490 In support of its argument, th e Philippines focuses on the fact that the MRSPs for imported
cigarettes have typically been higher than the RRSPs/RSPs, whereas the MRSPs for domestic
cigarettes are always equal to the RSPs of those cigarettes
998, and this gap between the MRSPs and
RRSPs for imported cigarettes results in a VAT for imported cigarettes systematically in excess of
like domestic cigarettes. It is also not disputed that, for the MRSP Notices at issue, a gap exists
between the MRSPs and the RRSPs for imported cigare ttes only, but not for domestic cigarettes, as
illustrated in the table below.
7.491 We observe that the parties have interchang eably referred to the terms "RRSPs" and "RSPs"
in this dispute. We understand that for imported cigarettes, the RRSP figures are virtually the same as
the RSP figures as the retailers will normally accept the retail selling price proposed by PM Thailand
(i.e. the RRSP (Recommended Retail Selling Price)) as their actual retail selling price (i.e. the RSP
(Retail Selling Price)). For domestic cigarettes, Thailand explained at the second substantive meeting
with the Panel that TTM branded cigarettes only k now an RSP, not an RRSP. Therefore, unless
specified otherwise, our references in this Report to RRSP and RSP will relate to the same figure.
MRSPs and RRSPs of domestic and imported brands in premium and mid-price segments

[[The deleted table contains business confidential information
999, 1000]]

7.492 Thailand argues that given that the VAT tax base can be a fixed price, which may not always
be equal to the actual retail price, a difference in tax amounts caused by the gap between the actual
retail price and the fixed-price tax base (e.g. MRSP ) cannot, in itself, give rise to a violation of
Article III:2.1001 We are also of the view that the mere existence of a gap between such a fixed tax
base and the actual retail price cannot be an automatic proof of an inconsistency with the obligation
under Article III:2. This is because the company determines the RSP based on business
considerations, which can be lower than the government-fixed MRSP.
7.493 However, what the Philippines contends in this dispute is that Thai Excise establishes the
MRSP in a manner which discriminates against imported cigarettes by inflating the marketing cost
element of the MRSP for imported cigarettes. Th erefore, the question presented to us goes beyond
the mere existence of a gap between the fixed-price VAT tax base (MRSP) and the actual retail price.
The Philippines' claim raises issues relating to th e manner in which Thai Excise establishes the
government-fixed tax base, the MRSP, particularly in respect of its marketing cost component, for
imported and domestic cigarettes.
7.494 Both parties do not dispute that a government is free to fix a tax base. It will be WTO-
consistent as long as the government determines the tax base in the same manner for both imported
and like domestic goods concerned. In Thailand, DG Excise has the authority to determine the tax
base (MRSP) for VAT imposed on cigarettes. For the purpose of addressing the Philippines' claim in
this section, therefore, we will have to examin e whether DG Excise has equally applied the general
methodology, as described by Thailand in this dis pute, in determining the MRSPs for both imported

998 Philippines' second written submission, paras. 394-396.
999 [[xx.xxx.xx]].
1000 [[xx.xxx.xx]].
1001 Thailand's response to Panel question No. 124.

and domestic cigarettes. Particularly, in the light of the parties' arguments, we will evaluate whether
DG Excise determines the marketing cost com ponent of the MRSP for imported cigarettes in a
manner different from the general methodology, such that imported cigarettes are subject to a VAT
liability in excess of that applied to domestic cigarettes.
7.495 We find support for our approach in the Panel's analysis in Argentina – Hides and Leather:
"Article III:2, first sentence, requires a comparison of actual tax burdens rather than
merely of nominal tax burdens ... Thus, even where imported and domestic products
are subject to identical tax rates, the actual tax burden can still be heavier on imported
products. This could be the case, for instance, where different methods of computing
tax bases lead to a greater actual ta x burden for imported products."
1002 (emphasis
added)
7.496 We underline in this relation that in the light of the obligations under Article III:2, first
sentence, a VAT system under which the tax base is determined by a government, is more susceptible
to a potential violation of this provision than a sy stem under which the tax base is determined solely
by figures provided by a company.
7.497 Therefore, in order to determine whether Thaila nd acted inconsistently with Article III:2, first
sentence, by subjecting imported cigarettes to a VAT in excess of that applied to domestic cigarettes,
we must address the following questions: (i) how marketing costs are determined under the general
methodology; (ii) whether DG Excise departed from the general methodology in establishing the
marketing costs for the MRSPs of the imported ciga rettes contained in the MRSP Notices at issue;
and, if so, (iii) whether DG Excise's departur e from the general methodology resulted in subjecting
the imported cigarettes to excess taxation compared to like domestic cigarettes.
(ii) Establishment of the "marketing costs" component of the MRSP
7.498 We recall that "marketing costs" was the only component of the MRSP that was not based on
the c.i.f. or ex factory price and/or any fixed formula. Provincial tax is also not based on the
c.i.f./ex factory price, but it is a fixed-figure th at is determined by the government. Thailand has
maintained that marketing costs represent the ab solute "residual difference" between the proposed
MRSP and other known elements of the MRSP and that these costs are determined in the same
manner for both imported and domestic cigarettes.
1003
7.499 Thailand's further elaboration on the nature of the marketing costs informs us, however, that
there are, in practice, two different ways of establishing the marketing costs: (i) from the top-down
perspective, the marketing costs represent the di fference between the MRSP or maximum price of a
brand of cigarettes and the sum of the already-k nown components of the MRSP (which is Thailand's
initial explanation above); and (ii) from the bottom- up perspective, the marketing costs represent the
amounts incurred in bringing cigarettes to the consumer market in Thailand on top of the
c.i.f./ex factory price and all applicable taxes.
1004 In other words, the marketing costs represent the
selling expenses and profits of all entities in the sales distribution chain – including the
importers/manufacturers, wholesalers, and retailers.1005

1002 Panel Report, Argentina – Hides and Leather, para. 11.183, referring to GATT Panel Report, Japan
– Alcoholic Beverages I, para. 5.8.
1003 Thailand's response to Panel question No. 41.
1005 Thailand's response to Panel question No. 122.

7.500 Based on Thailand's explanation, we understand that the top-down perspective of establishing
the marketing costs pertains to situations where Th ai Excise revises an MRSP for a cigarette brand on
its own initiative because of a change(s) in the tax rate (s). In such a case, Thai Excise calculates the
new MRSP by changing the relevant c.i.f. and ex factory prices, updating the tax amounts that are
based on those figures, and holding the so-called "m arketing costs" constant. The same marketing
costs are derived from the latest MRSP for that brand or the MRSP previously requested by the
importers or the domestic manufacturer. The marketing costs of the revised MRSP are calculated by
deducting the sum of the already-known components of the MRSP from the MRSP figure, which
conforms to the so-called top-down perspective. If Thai Excise simply accepts a revised MRSP for a
certain cigarette brand that is proposed by an impor ter or the domestic manufacturer, then there will
be no need for any calculation.
7.501 On the other hand, however, the bottom-up perspe ctive of explaining marketing costs, which
appears to involve a consideration of various el ements, may become relevant when Thai Excise
rejects a revised MRSP figure proposed by an importer or the domestic manufacturer. Thai Excise
may reject proposed changes or make other adjustments
1006 consistent with the dual function of the
MRSP as a maximum price to protect consumers and as the tax base for VAT. Thailand explains that
Thai Excise reviews the proposed MR SP in the light of the information provided by the importer or
the domestic manufacturer to ensure that the proposed MRSP reflects the reasonable maximum selling
price of those cigarettes in the light of the market conditions and the information provided. 1007 As the
Philippines points out 1008, Thailand has not specifically explained what market conditions it is
referring to and how Thai Excise evaluates them.
7.502 Thailand submits that requests for increases in MRSPs are generally accepted, whereas
requests for reductions in MRSPs are not automatically accepted. 1009 Requests for reductions in
MRSPs are reviewed to ensure that they are ju stified and that the proposed reduced MRSP will not
lead to cigarettes being illegally sold above the MRSP. 1010 In cases of a request for reduction of the
MRSP, the commercial interests at stake are not just those of the importer or the domestic
manufacturer because the ability of the reseller to make a profit on the sale of the cigarettes may also
be affected. 1011 Thailand alleges that Thai Excise can ensure that it does not favour certain
commercial interests over others by warranting th at requests for reductions in MRSPs are supported
by information about changes or reductions in co sts, such as c.i.f. costs, selling expenses, or
marketing strategies that properly reflect the reaso nable maximum selling price of the cigarettes.
Thailand submits that because the expenses and pr ofits of wholesalers and retailers are not known,
Thai Excise has only two possible sources of information for the marketing costs – the
importers/manufacturers and the market itself.1012
7.503 Overall, we understand from Thailand's expl anation above that Thai Excise does not
automatically accept MRSPs proposed by the importers or the domestic manufacturer. When Thai
Excise revises the existing MRSPs on its own initiative to reflect changes in the c.i.f. or ex factory
prices and/or tax rates, Thai Excise calculates th e new MRSP by changing the relevant c.i.f. or
ex factory prices, updating the tax amounts that ar e based on those figures, and holding the so-called
"marketing costs" constant. When it rejects an MRSP proposed by an importer or the domestic
manufacturer, however, Thai Excise determines the marketing costs component of a new MRSP based

1006 See para. 7.469 above.
1007 Thailand's response to Panel question No. 123(1).
1008 Philippines' combined comments on Thailand's response to Panel question Nos. 122 and 123.
1009 Thailand's response to Panel question No. 123(1).
1010 Thailand's response to Panel question No. 123(1).
1011 Thailand's response to Panel question No. 123(1).
1012 Thailand's response to Panel question No. 122.

on the current MRSP/RRSP; or on the one previously proposed by an importer or by the domestic
manufacturer; or on information from the market, as the starting point.
(iii) Establishment of the MRSP for TTM brands
Main arguments of the parties
7.504 The Philippines asserts that the methodology used to calculate TTM's marketing costs is
different from the general methodology that Thailand cl aims is used to calculate the marketing costs
for both imported and dom estic cigarette brands. 1013 The DG Excise's description to the Thai Tax
Court of the calculation of the marketing costs a pplied to TTM brands demonstrates that Thailand
calculated marketing costs as a percentage (i.e. [[xx.xxx.xx]] per cent) of TTM's own "genuine
income" for TTM brands. 1014 The Philippines argues that this is different from the methodology
explained by Thailand in this proceeding that th e marketing costs represent the absolute "residual
difference" between the proposed MRSP a nd other known elements of the MRSP. 1015 According to
the Philippines, this is another example of Thaila nd's failure to provide a coherent and objective
explanation of its determination of MRSPs that might explain ra tionally the higher tax burden on
imported cigarettes.1016
7.505 Thailand argues that its description before the Panel is correct and thus the marketing costs
for TTM brands are calculated in the same way as for imported brands. 1017 This is proved by the fact
that Thai Excise accepted TTM's proposed MRSPs wit hout any adjustment to reflect a percentage of
the marketing costs. 1018 The MRSPs for TTM have always been accepted because TTM has only
requested increases in its MRSPs. 1019 There are no instances of TTM requesting a reduction in its
MRSPs. The only instance in which PM Thaila nd's proposed MRSPs were not accepted, in
December 2005, involved a request for a reduction in the MRSPs. This request was not accepted
because the importer did not provide adequate support and its desire to "absorb" taxes does not justify
reducing those taxes. 1020 Thai Excise's explanation before th e Thai Tax Court was that marketing
costs can be stated as a percentage of the MRSP afte r calculating the MRSP. Thailand does not
interpret that statement as intended to state that Thai Excise has independently determined the
marketing costs as a percentage of the genuine income and used these prospectively to establish
MRSPs.1021
Analysis by the Panel
7.506 The Philippines argues that the DG Excise's d escription to the Thai Tax Court of the
calculation of the marketing costs applied to TTM br ands ("DG Excise's description to the Thai Tax
Court") demonstrates that the methodology used to calculate TTM's marketing costs (calculating
marketing costs as a percentage (i.e. [[xx.xxx.xx]] per cent) of TTM's own "genuine income" for TTM
brands) is different from the general methodology applied to imported cigarettes.1022 We will examine

1013 Philippines' second written submission, paras. 408-413.
1014 Exhibit PHL-109.
1015 Thailand's response to Panel question No. 41.
1017 Thailand's response to Panel question No. 127.
1018 Thailand's response to Panel question No. 127, referring to Exhibit THA-80 which contains the
letters from TTM.
1019 Thailand's response to Panel question No. 123(2).
1020 Thailand's response to Panel question No. 123(2) , also referring to Thailand's comments of 25
September 2009, paras. 23-25 and 42-45.
1021 Thailand's response to Panel question No. 127, referring to Exhibit THA-49.
1022 Philippines' second written submission, paras. 408-413.

whether the subject exhibit shows, as the Philippi nes argues, that Thai Excise did not follow the
general methodology to determine the marketing costs for TTM.
7.507 The document at issue was DG Excise's submission to the Thai Tax Court in an appeal
proceeding initiated by PM Thailand concerning the 2006 and 2007 MRSP Notices. Relevant parts of
the DG Excise's description to the Thai Tax Court are as follows:
"3. Fact

 3.1 Imported Cigarette
 Principle and Reason

(4) The minimum margin percentage of 32.60 which is used for
calculating the retail price of imported cigarettes, as per the
Notification of the Excise Depa rtment ..., dated 18 September,
has reflected the situation of the competition, cost and
marketing of the imported cigarettes. This results in the
increase of imported cigarette's market share (Attachment 6).

3.2 Domestic Cigarette
Principle and Reason

(2) The price for domestically produced cigarette at the
manufacturer remains unchanged.

(3) On 7 December 2005, Thailand Tobacco Monopoly increased
the marketing margin of domestic cigarette. For example,
Krongthip 90 brand was increased from baht [[xx.xxx.xx]] per
pack to baht [[xx.xxx.xx]] per pack (Attachment 7)

(4) In order to determine th e maximum retail price as per
Section 23, the Excise Department has inspected the marketing
margin of the domestic cigarette and believed that the
marketing margin which was adjusted on 7 December 2005 is
still acceptable. There are 2 methods of inspection

 Method 1: Inspection of sale price at each particular selling
period, it is found that the No tification ..., dated 9 March 2007
has been complied.

 Method 2: Inspection of the marketing margin from the
financial statement which was endorsed by the Office of the
Auditor General of Thailand. In this regard, it is found that
the percentage of the marketing margin to the income, as per
the retail price structure, of Thailand Tobacco Monopoly is
equivalent to [[xx.xxx.xx]] . This amount is [[xx.xxx.xx]] than
the percentage of marketing marg in, to the income as appeared
in the financial statement of 2006 which is [[xx.xxx.xx]]. In
this connection, if the maximum retail price was calculated
from the percentage of marketi ng margin to the income as
appeared in the financial statement , it will be lower than the
price announced by the Excise Department.

 By the way, the percentage of the marketing margin to the
income each year can be changed depending on the quantity of
production. In any case, the change should not exceed
the percentage of marketing marg in to the genuine income of
the Thailand Tobacco Monopoly. Therefore, there is no
ground to adjust the marketing margin (Attachment 8)."
(underline added)

7.508 The text of DG Excise's explanation as cited above indicates that the percentage of the
marketing costs
1023 to TTM's income was used as one of the two methods of inspecting the
acceptability of the marketing margin at issue, not the method of calculating the marketing costs itself.
This understanding is also confirmed by an additional statement on Method 2 that " if the maximum
retail price was calculated from the percentage of ma rketing margin to the in come as appeared in the
financial statement, it will be lower than the price announced by the Excise Department". This
illustrates that the actual calculation of marketing co sts was not based on the percentage of marketing
costs to TTM's income. In the light of this, we agree with Thailand that DG Excise's explanation
before the Thai Tax Court should be interpreted as m eaning that the marketing costs can be stated as
a percentage amount after an MRSP is determined. Th erefore, we are not persuaded that DG Excise's
explanation before the Thai Tax Court proves that Thai Excise calculates marketing costs for
domestic cigarettes in a manner different from the general methodology.
1024
(iv) Establishment of the 7 December 2005 MRSP for Marlboro and L&M
Main arguments of the parties
7.509 The Philippines claims that the 7 December 2005 marketing costs for Marlboro and L&M,
which were applied again in the 2008 and 2009 MRSPs, were not derived from the information
PM Thailand provided to DG Excise and the marketing cost value was set four times higher than the
appropriate requested level. 1025 This resulted in higher MRSPs for imported cigarettes than for
domestic cigarettes, which in turn explains th e gap between the MRSP and the RRSP for imported
cigarettes.1026 The Philippines submits that the Decem ber 2005 MRSPs therefore illustrate that
Thailand does not apply its stated methodology in practice.
7.510 Thailand submits that the December 2005 MRSP Notice, the only instance in which
PM Thailand's proposed MRSPs were not accepted, involved a request for a reduction in the
MRSPs.1027 The request was not accepted because PM Thailand did not provide adequate support and
a desire to "absorb" taxes does not justify reducing those taxes. 1028 PM Thailand has not requested

1023 We understand "marketing margin" used in Exhibit PHL-109 to mean "marketing costs".
1024 Additionally, we note from the above document submitted by DG Excise that Thai Excise relied on
the percentage of a marketing margin to TTM's income to examine the acceptability of the marketing costs level
for the concerned MRSP. It states th at such a method is endorsed by the Office of the Auditor General of
Thailand. Therefore, although Thai Excise did not use a percentage of TTM's genuine income per se to
establish the marketing costs of TTM brand cigarettes, th e evidence indicates that such a method was applied to
inspect the adequacy of the "marketing costs" component of TTM's MRSP.
1025 Philippines' second written submission, paras. 335-337 and 402 ( L&M), paras. 346-350 and 403-
404 (Marlboro); comments of 16 September 2009, paras. 17-23 and 45-49; second oral statement, paras. 63-67.
1027 Thailand's response to Panel question No. 123(2).
1028 Thailand's response to Panel question No. 123(2), referring to its 25 September 2009 comments,
paras. 23-25 and 42-45. Thailand also points to examples of other instances in which importers have made
properly-documented requests for and have duly received reductions of their MRSPs (Exhibit THA-80).

any change in its MRSPs for existing Marlboro and L&M brands since December 2005, although it
has requested new MRSPs for two new L&M brands in August 2008.
1029
7.511 The parties' arguments on the determination of marketing costs for the 7 December 2005
MRSP Notice of Marlboro and L&M are summarized below.
Marlboro
7.512 Regarding the MRSP calculated for Marlboro in December 2005, in its comments of
25 September 2009, Thailand explained that Marlboro's marketing costs were derived from the
figure provided in PM Thailand's letter of 19 July 2005, in which PM Thailand proposed an MRSP of
[[xx.xxx.xx]] baht for provinces without provincial tax. 1030 Following the Philippines' explanation
that PM Thailand's letter of 19 July 2005 proposed an MRSP of [[xx.xxx.xx]] baht inclusive of
provincial tax, Thailand submitted a second explanation that it calculated marketing costs based on
Marlboro's current RRSP/RSP of [[xx.xxx.xx]] baht, which did not apply in provinces that imposed
provincial tax.1031 PM Thailand's current marketing costs for Marlboro are illustrated in the left-hand
column on page 2 of the 19 July 2005 letter, wh ich shows [[xx.xxx.xx]] baht as PM Thailand's selling
price (the RSP) in provinces w ithout provincial tax (e.g. Bangkok). 1032 In the absence of any grounds
to reduce the marketing costs for Marlboro cigarettes, Thai Excise used the current marketing costs
([[xx.xxx.xx]] baht) based on current sales in areas without provincial taxes, such as Bangkok, as the
basis for the marketing costs for the single nationwide MRSP by rounding it up to [[xx.xxx.xx]]
baht.
1033 As a result, DG Excise issued an MRSP of 65 baht. DG Excise subsequently refused
PM Thailand's request of 13 December 2005 for the MRSP to be reduced to [[xx.xxx.xx]] baht.
7.513 The Philippines argues that neither of these ex post explanations is supported by a
contemporaneous explanation by DG Excise. Th e Philippines points out three key elements for
Thailand's second explanation of the December 2005 marketing costs for Marlboro. 1034
7.514 First, DG Excise did not follow its "normal prac tice" in choosing not to base the marketing
costs on the importer's latest information. U nder DG Excise's "normal practice", it should have
adopted one of two approaches in determining the MRSP for December 2005: (i) carry over
marketing costs derived from an MRSP for provinces with provincial tax that was based on a proposal
by the importer; or (ii) rely on the marketing co sts derived from a subsequent proposal by the
importer. DG Excise followed neither approach. If DG Excise followed the first approach, it should
have carried forward [[xx.xxx.xx]] baht, which is th e actual marketing costs used in the previous
Marlboro MRSP (i.e. December 2004 MRSP) inclusive of provincial tax of 1.86 baht for provinces
with provincial tax. In the alternative, DG Ex cise could have relied on PM Thailand's July 2005
MRSP proposal of [[xx.xxx.xx]] baht inclusive of provincial tax for provinces with provincial tax,
which would have resulted in marketing costs of [[xx.xxx.xx]] baht.1035

1029 Thailand's response to Panel question No. 123(2), referring to Exhibit THA-66.
1030 Thailand's comments of 25 September 2009, paras. 42-47; Exhibit THA-82.
1031 Thailand's response to Panel question No. 130.
1032 Thailand's response to Panel question No. 130; Exhibit THA-18, pp. 6-7.
1033 Thailand explains that a marketing cost of [[xx.xxx.xx]] baht was rounded up by approximately one
baht to [[xx.xxx.xx]] baht, which resulted in a total pre-rounded up MRSP of [[xx.xxx.xx]] baht. To arrive at a
published MRSP of 65 baht, a marketing cost of [[xx.xxx.xx]] was then further rounded up by [[xx.xxx.xx]]
baht. The marketing cost of [[xx.xxx.xx]] therefore represents the sum of the marketing cost of [[xx.xxx.xx]].
1034 Philippines' comments on Thailand's response to Panel question No. 130.
1035 Philippines' comments on Thailand's response to Panel question No. 130; Exhibit PHL-282.

7.515 Instead, DG Excise chose to base the December 2005 Marlboro MRSP on Marlboro's RSP in
July 2005 of [[xx.xxx.xx]] baht. 1036 Although this RSP equalled the MRSP proposed in July 2005,
Thailand alleges a crucial difference between th ese two figures. Thailand argues that, although
PM Thailand proposed an MRSP of [[xx.xxx.xx]] baht for provinces with provincial tax in July 2005,
its actual retail price of [[xx.xxx.xx]] baht did not apply to provinces with provincial tax. The
Philippines submits that it is not clear why DG Excise decided to base its calculation on a retail price
(RSP) it believed applied exclusively to the one area without provincial tax especially given that, in
December 2005, DG Excise sought to calculate a single Marlboro MRSP that was inclusive of
provincial tax.
7.516 Specifically, the Philippines submits that Thailand is incorrect in stating that the marketing
costs of an RSP of [[xx.xxx.xx]] baht did not appl y to provinces with provi ncial tax, and applied
solely to Bangkok. This allegation is not supporte d by any reference to evidence. PM Thailand's 19
July 2005 letter identifies a single, nationwide, retail price of [[xx.xxx.xx]] baht, and proposes a
single, nationwide MRSP of [[xx.xxx.xx]] baht.
1037 There is no indication that the price of
[[xx.xxx.xx]] baht applied solely to Bangkok, and that PM Thailand applied a second unidentified,
retail price in all 75 provinces besides Bangkok. The Philippines alleges that PM Thailand has always
maintained a single RRSP for Thailand as a whole, to ensure consistent retail pricing across the
country.1038
7.517 The Philippines takes the view that Thailand's argument has one practical consequence for the
calculation of marketing costs: if the RSP of [[ xx.xxx.xx]] baht applied to provinces with provincial
tax, it would have reduced the marketing costs from [[xx.xxx.xx]] baht to [[xx.xxx.xx]] baht because
in such a case, DG Excise was required to deduct all internal taxes, including the provincial tax of
1.86 baht, from the MRSP (RSP in this case) to derive the marketing costs. Accordingly, by ignoring
the importer's information on actual marketing cost s in provinces with provincial tax, and instead
alleging that the RSP of [[xx.xxx.xx]] baht did not apply to provinces with provincial tax, Thailand
inflated the December 2005 Marlboro marketing costs by 1.86 baht.
7.518 In response to Thailand's position that PM Th ailand failed to provide sufficient supporting
information to warrant a reduction in marketi ng costs, the Philippines points to an alleged
inconsistency in Thailand's statements rega rding the calculation of the marketing costs. 1039 I n t h e
Philippines' view, this ex post argument by Thailand contradicts Thailand's earlier statements, such as
"Thai Excise does not collect information from PM Thailand or any other manufacturer or importer
regarding 'gross margin percentages' or any other profit or marketing expenses".1040
7.519 Further, regarding the rounding up of the Marlboro marketing costs of [[xx.xxx.xx]] baht to
[[xx.xxx.xx]] baht, the Philippines does not consider that this involves any kind of rounding. The
rounding would actually have reduced [[xx.xxx.xx]] baht to [[xx.xxx.xx]] baht, not increased to a

1036 Philippines' comments on Thailand's response to Panel question No. 130, also referring to
Exhibit THA-18. The Philippines explains that PM Thailand 's letter of 19 July 2005 showed a "retail price" of
[[xx.xxx.xx]] baht for Marlboro, without distinguishing between the RRSP and the RSP. According to the
Philippines, at the time, the difference between the two was marginal.
1037 Exhibit THA-18.
1038 Philippines' comments on Thailand's response to Panel question No. 130. In footnote 163, the
Philippines refers to Exhibit PHL-270, claiming that the exhibit shows a single RSP of [[xx.xxx.xx]] baht in
2005, and also shows that the monthly Marlboro RSP in 2005 was no more than a fraction higher than the
[[xx.xxx.xx]] baht RRSP.
1039 Philippines' comments on Thailand's response to Panel question No. 130.
1040 Thailand's response to Panel question No. 50(1). The Philippines also quotes Thailand's statement
that "Thai Excise never requests any manufacturer or importer, of domestic or imported cigarettes, to provide
information regarding marketing costs." (emphasis in or iginal) (Thailand's response to the Philippines' question
No. 2).

larger number that still included a fraction (i.e. [[ xx.xxx.xx]] baht). This arbitrary rounding exercise
served only to inflate the MRSP and the tax burden imposed on imported cigarettes.
L&M
7.520 As for L&M, as the Philippines points out
1041, Thailand provided three different explanations:
originally, Thailand presented the December 2005 L&M marketing costs as based on [[xx.xxx.xx]]
baht, derived from PM Thailand's own proposal in October 2001, which were then simply added,
unchanged, to the MRSPs calculated in December 2005 and August 2008 1042; second, in response to
the Panel's request for information under Article 13 of the DSU, Thailand explained that the
December 2005 L&M MRSP was based on PM Thailand's proposed MRSP of [[xx.xxx.xx]] baht on
19 July 2005 1043; and lastly, in the light of the Philippines' argument that in July 2005, PM Thailand
proposed an MRSP of [[xx.xxx.xx]] baht, not [[xx.x xx.xx]] baht, inclusive of provincial tax (which
results in the marketing costs of [[xx.xxx.xx]] baht , not [[xx.xxx.xx]] baht), Thailand then submitted
that the marketing costs were derived from PM Thailand's current marketing costs for L&M included
in the 6 October 2005 MRSP Notice, and not from PM Thailand's 19 July 2005 letter as previously
explained.
1044
7.521 According to Thailand, the 6 October 2005 MRSP Notice established an MRSP of
[[xx.xxx.xx]] baht for provinces without provincia l tax. A breakdown of this MRSP provides
marketing costs of [[xx.xxx.xx]] baht, which is the same amount as previously explained in Thailand's
comments of 25 September 2009 and as shown in the breakdown provided in Exhibit THA-82.
Thailand used [[xx.xxx.xx]] baht, the MRSP for prov inces without provincial tax, for the 7 December
2005 MRSP Notice to ensure that no entity in the distribution chain – importer, wholesaler, or retailer
– was punished by or had to bear the burden of the switch to a single nationwide MRSP and to avoid
the "market turbulence" referred to by the Philippine s in its 19 July 2005 letter. The marketing costs
of [[xx.xxx.xx]] baht were then rounded up in orde r to arrive at the marketing costs used in the
December 2005 MRSP Notices (i.e. [[xx.xxx.xx]] baht).
1045
7.522 The Philippines takes the position that none of these ex post explanations is supported by a
contemporaneous explanation by DG Excise. Regard ing Thailand's last explanation, the Philippines
recalls that in July 2005, PM Thailand proposed a nationwide MRSP of [[xx.xxx.xx]] baht for L&M,
inclusive of provincial tax. 1046 In October 2005, DG Excise accepted the proposed MRSP of
[[xx.xxx.xx]] baht for the 75 provinces with provincia l tax (and the actual marketing costs included in
that proposal). However, on its own initiative, DG Excise also established an MRSP of [[xx.xxx.xx]]

1041 Philippines' comments on Thailand's response to Panel question No. 129.
1042 Philippines' comments on Thailand's response to Panel question No. 129, referring to Thailand's
first written submission, para. 93; Exhibit THA-18.
1043 Philippines' comments on Thailand's response to Panel question No. 129, referring to Thailand's
comments of 25 September 2009, paras. 42-47; Exhibit THA-82. PM Thailand's letter of 19 July 2005 is
contained in Exhibit THA-18.
1044 Thailand's response to Panel question No. 129; Exhibit THA-94.
1045 Thailand's comments of 25 September 2009, para. 44, referring to Exhibit THA-82. Thailand
explains that to consequently ensure that MRSPs were set at a level that would facilitate the provinces in
collecting the full amount of the provincial taxes, Thai Excise rounded up the MRSP by approximately
[[xx.xxx.xx]] baht for all major brands in the market. For L&M cigarettes, this resulted in a rounding up of the
"marketing costs" element of the MRSP from [[xx.xxx.xx]].
If all the components comprising the December 2005 MRSP are adde d up, including the marketing
costs of [[xx.xxx.xx]] baht as determined by Thai Excise, the total sum comes to [[xx.xxx.xx]] baht. We
understand that Thai Excise then decided to round up the MRSP by approximately [[xx.xxx.xx]] baht to arrive at
the MRSP of [[xx.xxx.xx]] baht. The difference of [[xx.xxx.xx]] baht between [[xx.xxx.xx]] baht and
[[xx.xxx.xx]] baht was added to the marketing costs component of the MRSP.
1046 Philippines' comments on Thailand's response to Panel question No. 129.

baht for Bangkok, the one area without provincial ta x. The Philippines argues that in calculating the
[[xx.xxx.xx]] baht MRSP in October 2005, DG Excise did not use the marketing costs of
[[xx.xxx.xx]] baht taken from PM Thailand's July 2005 proposal as it should have done under the
"normal practice", but increased them to [[xx.xxx.xx]] baht, which were then rounded up to
[[xx.xxx.xx]] baht.
1047
7.523 With respect to Thailand's reason for starting w ith the marketing costs of [[xx.xxx.xx]] baht
(calculated for the one province without provincial ta x – Bangkok), namely that it had to ensure that
no entity in the distribution chain was punished by or had to bear the burden of the switch to a single
nationwide MRSP, the Philippines argues that no en tity, both in provinces with provincial tax and
those operating in Bangkok, could have been punished by DG Excise's decision.
1048 As for provinces
with provincial tax, the prior MRSPs had already b een adjusted to account for the provincial tax of
1.86 baht/pack in order to ensure that importers and resellers operating in these provinces were not
punished by the collection of the tax. Given Tha iland's explanation that, when tax rates change, the
MRSP is revised to add an updated amount for the ta x concerned, but that other elements of the
calculation, including the marketing costs, remain unchanged, DG Excise had no basis to increase the
marketing costs for reasons related to provincia l tax in calculating the MRSP for December 2005.
Regarding Bangkok, the only province without provincial tax, the Philippines submits that because
the MRSP for Bangkok was now calculated assuming that provincial tax of 1.86 baht/pack was paid,
the additional amount in the increased MRSP consequently increased the marketing costs.
7.524 The Philippines stresses that the decisive element of the methodology applied by Thai Excise
in determining the December 2005 MRSP for L&M was a "rounding" exercise because it added one
baht to the MRSP, driving it above the prevaili ng RSP at the time: PM Thailand requested on 13
December 2005 that the December 2005 MRSP be reduced from 47 baht to [[xx.xxx.xx]] baht.
Regarding the rounding up of the marketing costs of [[xx.xxx.xx]] baht to [[xx.xxx.xx]] baht (an
additional [[xx.xxx.xx]] baht), the Philippines notes that if DG Excise had simply added marketing
costs of [[xx.xxx.xx]] baht/pack to the other elements of the December 2005 MRSP, the resulting
MRSP would have been [[xx.xxx.xx]] baht.
1049 In the Philippines' view, DG Excise would have
rounded this overall amount to a final MRSP of [[ xx.xxx.xx]] baht, which equalled PM Thailand's
proposal of 13 December 2005. Instead, DG Excise rounded up the marketing costs to [[xx.xxx.xx]]
baht to arrive at a final MRSP of 47 baht, which exceeded the RRSP by [[xx.xxx.xx]] baht.
Therefore, DG Excise's decision to "round up" the ma rketing costs was the decisive factor that drove
the L&M MRSP beyond the RRSP.
Analysis by the Panel

Overview
7.525 We clarified earlier that in order to determine whether Thailand violated its obligations under
the first sentence of Article III:2 by subjecting impor ted cigarettes to excessive taxation, we need to
examine whether Thai Excise departed from the general methodology that it has explained is normally
applied in determining the MRSP for both imported and domestic cigarettes.
7.526 The Philippines argued that Thai Excise es tablished the 7 December 2005 MRSP, in
particular its marketing cost component for Marlboro and L&M, so as to arrive at a higher level of
MRSP than would have been calculated if Thai Excise had followed the "normal" methodology that
applies to both imported and domestic cigarettes. Thailand submits that PM Thailand's proposed

1047 Exhibit PHL-290.
1048 Philippines' comments on Thailand's response to Panel question No. 129.
1049 Philippines' comments on Thailand's response to Panel question No. 129, referring to
Exhibit PHL-282.

MRSPs in December 2005 were not accepted because th ey involved a request for a reduction in the
MRSPs and PM Thailand did not sufficiently justify its request.
7.527 We will begin our analysis by first recalling Th ailand's description of how the marketing cost
component of the MRSP is derived under the so-called normal methodology and then we will describe
the nature of the 5 December MRSP Notices.
7.528 Thailand submitted that in revising the existing MRSPs because of changes in tax rates, Thai
Excise generally uses the same amount of "marketing costs" as included either (i) in the latest MRSP
or (ii) in the MRSP previously requested by the domestic manufacturer/importer.
1050 However, in
situations where Thai Excise rejects MRSPs proposed by the importer/manufacturer, Thailand
explained that the marketing costs needed to de termine the MRSP will be calculated so that they
represent the selling expenses and profits of all en tities in the sales distribution chain. For this
calculation, Thailand uses information provided by the importer/manufacturer and information of the
market itself.
1051 This, in our view, is the general methodol ogy used to derive the marketing cost
component of MRSPs according to Thailand's explanation.
7.529 Regarding the December 2005 MRSP for TTM, TTM requested an increase in the current
MRSPs because of the increase in the excise tax rate and proposed its own revised MRSPs for its
brands, which were accepted by Thai Excise. 1052 Accordingly, it is uncontested that Thai Excise
applied the general methodology to determine the new MRSPs for dom estic cigarettes in December
2005 by simply accepting the new MRSPs/RRSPs proposed by TTM.
7.530 As for Marlboro and L&M, on the other hand, the evidence on the record shows that Thai
Excise issued the revised MRSP Notices for Marlboro and L&M on 7 December 2005.1053 The reason
for the revised MRSPs is indicated as a change in the excise tax rate, which increased from 75 per
cent to 79 per cent. Therefore, it appears that Th ai Excise revised, on its own initiative, the current
MRSPs for the Marlboro and L&M cigarette brands to reflect the changed excise tax rate in the
MRSPs for imported cigarettes.
7.531 Thai Excise rejected, however, PM Thailand's subsequent request for the reduction of the
level of MRSPs as revised by Thai Excise. Speci fically, on 13 December 2005, about a week from
the issuance of the 7 December 2005 MRSP Notices, PM Thailand submitted a letter to Thai Excise
requesting a change of the MRSPs for Marlboro and L&M1054, referring to the 6 October 2005 MRSP
Notice for L&M and the 7 December 2005 Notice for Marlboro.1055 In the letter, PM Thailand
proposes an MRSP of [[xx.xxx.xx]] baht for Marlboro and [[xx.xxx.xx]] baht for L&M. As its
reasons for the proposals, PM Thailand states: as for Marlboro, "[t]he Company has always been
conscious that Marlboro retail prices are already expensive in the current market according to a
market survey by an independent consulting comp any. Therefore, the Company proposes a retail
price of [[xx.xxx.xx]] baht/pack"; and concerning L&M, "[a]s the excise tax burden of L&M group
cigarettes increased from [[xx.xxx.xx]] baht/pack to [[xx.xxx.xx]] baht/pack, the Company therefore
proposes a retail price of [[xx.xxx.xx]] baht/pack".1056

1050 See paras. 7.498-7.501 above.
1051 See para. 7.502 above.
1052 Thailand's response to Panel question Nos. 123(2), 127 and 160.
1053 Exhibits PHL-99 and THA-76.
1054 Exhibit THA-18.
1055 PM Thailand referred to these notices, so that Th ai Customs could use the marketing costs used in
these notices (Philippines comments on Thailand's response to Panel question No. 129; Exhibit PHL-190).
1056 Exhibit PHL-221. The Exhib it shows a letter dated 23 Decembe r 2005, in which DG Excise
rejected PM Thailand's request of 13 December 2005.

7.532 Against this factual background, we now tu rn to the parties' arguments on Thailand's
determination of the marketing costs for the 7 December 2005 MRSPs for Marlboro and L&M.
Marlboro
7.533 The reason for a change of the current MRSPs for Marlboro in December 2005 was an
increase in the excise tax rate. To reflect th is change, Thai Excise revised the MRSPs for Marlboro.
Under these circumstances, the general methodolog y used for determining marketing costs as
described by Thailand would have required Thai Ex cise to base the amount of marketing costs for the
7 December 2005 MRSP for Marlboro on the marketing costs as included in either (i) the 27
December 2004 MRSP Notice, the latest MRSP for Marlboro prior to December 2005; or (ii) the
MRSP previously requested by PM Thailand, which is the MRSP proposed in PM Thailand's letter of
19 July 2005.
7.534 It is clear, and Thailand does not dispute, that Thai Excise did not use the marketing costs
included in the 27 December 2004 MRSP (i.e. [[xx.xxx.xx]] baht).1057 Nor does Thai Excise appear to
refer to the MRSP previously requested by PM Thailand because it relied on the actual retail price of
Marlboro cigarettes as indicated in the 7 July 2005 letter from PM Thailand. To the extent that Thai
Excise was revising the existing MRSPs to simply reflect the changes in tax rates, it is not clear to us
why Thai Excise did not use the marketing cost s as included in the current MRSPs or in the
previously proposed MRSPs, which we understand is the normal rule for revising MRSPs under the
general methodology.
7.535 Thailand submits that Thai Excise reject ed PM Thailand's proposed MRSPs, which we
understand as referring to those contained in the le tter of 13 December 2005, because they involved a
request for a reduction in the MRSPs. In this regard, we recall that if Thai Excise decides to reject the
proposed MRSPs, it determines the marketing costs in the light of market conditions and the
information provided by the importer/manufacturer.
7.536 Thailand argues that the marketing costs for the 7 December 2005 Marlboro MRSP were
based on PM Thailand's current marketing costs for Marlboro as illustrated in the left-hand column
on page 2 of the 19 July 2005 letter from PM Thailand.
1058 According to Thailand, this shows
PM Thailand's selling price, which we understand to mean the actual RSP, in areas with no provincial
tax, was [[xx.xxx.xx]] baht. 1059 A breakdown of the MRSP figure – [[xx.xxx.xx]] baht – into its
components then results in marketing costs of [[xx.xxx.xx]] baht as provided in a worksheet contained
in Exhibit THA-82.
7.537 Prior to the issuance of the 7 December 2005 MRSP Notice, PM Thailand proposed an MRSP
figure of [[xx.xxx.xx]] baht for Marlboro in its letter of 19 July 2005. Although both parties refer to
this letter as the basis for de riving the marketing costs for the December 2005 MRSP, they put
forward different views on the MRSPs indicated in the letter.

1057 Exhibit THA-76.
1058 Thailand's response to Panel question No. 130; Exhibit THA-18.
1059 As pointed out by the Philippines, we note that Thailand initially submitted that the marketing costs
for the 7 December 2005 Notice were based on an MRSP of [[xx.xxx.xx]] baht as proposed by PM Thailand for
provinces that had no provincial taxes in its letter of 19 July 2005 (Thailand's comments of 25 September 2009,
para. 45).

7.538 A table summarizing the relevant MRSPs leading to the 7 December 2005 is provided below.
[[The deleted table contains business confidential information
1060, 1061, 1062, 1063, 1064, 1065, 1066]]

7.539 The Philippines has put forward several points to rebut Thailand's argument. The Philippines
argues that Thailand's assertion that the marketing costs of an RSP of [[xx.xxx.xx]] baht applied only
to provinces with no provincial tax is not supported by reference to any evidence. The Philippines
alleges that PM Thailand's 19 July 2005 letter id entifies a single, nationw ide, retail price of
[[xx.xxx.xx]] baht, and proposes a single, nationwide MRSP of [[xx.xxx.xx]] baht for all provinces, in
which case the marketing costs will be [[xx.xxx.xx]] baht (i.e. [[xx.xxx.xx]]-1.86).
7.540 The table contained in PM Thailand's letter of 19 July 2005 can be summarized as follows:
1067
[[The deleted table contains business confidential information]]

7.541 At page 3 of the letter, PM Thailand notes that th e table in the letter shows "current cigarette
retail prices, retail prices according to the Exci se Notice, and the increased retail prices that the
company is requesting, respectively". We understand that the categories identified by PM Thailand
refer to the three main columns in the table, as reproduced above.
7.542 Therefore, contrary to Thailand's argument, the column headings of the table as well as the
explanation included in the letter do not suggest that the figure in the left-hand column of the table at
page 2 of the letter, "retail price of authorized t obacco retailer type 3 at present", refers to the actual
retail selling price of Marlboro cigarettes that was applied only in Bangkok (the only province in
Thailand with no provincial tax). In fact, the evidence submitted by the Philippines (an overview
table of the MRSP, RRSP and monthly RSP values for Marlboro and L&M for 2005-2009) also
confirms that there was indeed a single RRSP/RSP ([[xx.xxx.xx]] baht) nationwide in 2005.
1068
7.543 The Philippines points out that Thailand's pos ition has one practical consequence for the
calculation of the marketing costs, namely that, if the RSP of [[xx.xxx.xx]] baht applied to provinces
with provincial tax, it would have reduced the marketing costs from [[xx.xxx.xx]] baht to
[[xx.xxx.xx]] baht because in such a case, DG Exci se was required to deduct all internal taxes,
including the provincial tax of 1.86 baht, from the MRSP (RSP in this case) to arrive at the marketing
costs (i.e. [[xx.xxx.xx]]–1.86=[[xx.xxx.xx]], compare the second and third columns in the table
above). The Philippines submits that by ignoring the importer's information on actual marketing costs
in provinces with provincial tax, and instead alleging that the RSP of [[xx.xxx.xx]] baht did not apply
to provinces with provincial tax, Thailand inflated the December 2005 Marlboro marketing costs by
1.86 baht.
7.544 We consider that the Philippines' view provides a mathematical explanation of the gap in the
amount of the provincial tax (i.e. 1.86 baht/pack) between the marketing costs derived from the RSP
applied to the provinces without provincial tax and that derived from the RSP applied to provinces
with provincial tax. In the absence of any su pporting documentary evidence, however, we are not

1060 [[xx.xxx.xx]].
1061 [[xx.xxx.xx]].
1062 [[xx.xxx.xx]].
1063 [[xx.xxx.xx]].
1064 [[xx.xxx.xx]].
1065 [[xx.xxx.xx]].
1066 [[xx.xxx.xx]].
1067 Exhibit THA-18.
1068 Exhibit PHL-270.

able to conclude that Thailand used the MRSP/R SP that was allegedly applied to the area with no
provincial tax with the intention of inflating the marketing costs for Marlboro.
7.545 Nonetheless, even if we were to follow Thaila nd's explanation as provided in this proceeding,
it is not clear to us what the reason was for b asing the marketing costs for the 7 December 2005
MRSP for Marlboro on the MRSP/RSP that was allegedly applie d to Bangkok only. We do not see
any particular logical link between DG Excise's deci sion to calculate a single national cigarette price
that was inclusive of provincial tax and its decisi on to base the calculation of the marketing costs for
Marlboro on the MRSP/RSP that allegedly applied to the area without provincial tax, and not the
provinces with provincial tax. This is particularly so given that the provincial tax of 1.86 baht is
already included in the calculation of the MR SP for the MRSP/RSP applied to provinces with
provincial tax.1069
7.546 Thailand also explains that it rounded up the marketing costs of [[xx.xxx.xx]] baht, derived
from the current RSP for Marlboro applied to Bangkok, to [[xx.xxx.xx]] baht to reflect the Thai
government's decision to have a single nationwide MR SP by adding one baht to the MRSP. We first
note that the difference between [[xx.xxx.xx]] baht and [[xx.xxx.xx]] baht – [[xx.xxx.xx]] baht – is
more than the one baht that Thailand explains needed to be added. Furthermore, Thailand stated that
the decision was to add one baht to the MRSP figure, not to the marketing costs. Therefore, we do not
understand why this additional one baht was included in the marketing costs for the 7 December 2005
MRSP for Marlboro. This is particularly difficult to comprehend as the marketing costs is a
component of the MRSP that may be carried over for the establishment of the subsequent MRSPs
when such MRSPs need to be revised. In other wo rds, a change in the marketing costs can have a
consequential effect on the subse quent MRSPs. Moreover, as the ta ble above shows, the provincial
tax of 1.86 baht is already included in the 7 December 2005 MRSP for Marlboro. In this
circumstance, Thailand has not suffi ciently explained why an additi onal amount of one baht still had
to be added.
7.547 In the light of the above considerations, we find that Thailand failed to use the general
methodology in determining the marketi ng costs for the December 2005 MRSP for Marlboro. This
resulted in increasing the marketing costs and consequently the MRSP for Marlboro so as to subject
Marlboro to a VAT in excess of that imposed on the like domestic cigarettes.
L&M
7.548 Regarding the 7 December 2005 MRSP for L&M, Thailand submits that the marketing costs
were derived from PM Thailand's current marketi ng costs as included in the 6 October 2005 MRSP
Notice.1070 According to Thailand, a breakdown of the 6 October 2005 MRSP – [[xx.xxx.xx]] baht
for provinces without provincial tax – provides marketing costs of [[xx.xxx.xx]] baht with "0"
provincial tax.

1069 Furthermore, if Thai Excise rejected the proposed MRSPs becau se they were a request for a
reduction in the current MRSPs, a question arises as to why it did not simply test the percentage of the
marketing costs of PM Thailand's genuine income, the meth od used by Thai Excise to test the acceptability of
the marketing costs component of th e proposed MRSPs for TTM brand cigare ttes. In the context of Thai
Excise's establishment of marketing costs for TTM bran ds above (Section VII.D.4(c)(iii)), we found that DG
Excise's explanation before the Thai Tax Court showed th at Thai Excise used the pe rcentage of the marketing
costs of TTM's genuine income based on its financial statement to inspect the acce ptability of the marketing
margin at issue. This also tends to show that Thai Excise did not apply the same methodology of establishing
the marketing costs for the imported cigarettes at least in the circumstance in which the marketing costs included
in the MRSPs proposed by the importer/manufacturer were being questioned.
1070 Thailand's response to Panel question No. 129.

7.549 We note that the 6 October 2005 MRSP Notices included two separate MRSPs – one for the
provinces with provincial tax (i.e. [[xx.xxx.xx]] ba ht) and the other for Bangkok without provincial
tax (i.e. [[xx.xxx.xx]] baht). The former – i.e. [[xx.xxx.xx]] baht – is the MRSP figure proposed by
PM Thailand to be applied nati onwide. Thai Excise then accepte d this figure as the MRSP for the
provinces with provincial tax while establishing on its own initiative [[xx.xxx.xx]] baht as the MRSP
applied to Bangkok. The MRSP data before us provides a breakdown of the [[xx.xxx.xx]] baht
calculation only. In the case of the 6 October 2005 MRSP for L&M, therefore, the "marketing costs"
component of the MRSP of [[xx.xxx.xx]] baht is indicated as [[xx.xxx.xx]] baht.
1071 The Philippines
argues that in deriving the marketing costs for the 5 December 2005 MRSP based on the October
2005 MRSP, Thai Excise should have used the ma rketing costs of [[xx.xxx.xx]] baht under the
alleged "normal practice" because that is the ma rketing costs as included in the MRSP previously
requested by the domestic manufacturer/importer (i.e. a nationwide MRSP of [[xx.xxx.xx]] baht)
through PM Thailand's July 2005 letter.
7.550 A table summarizing the relevant MRSPs leading to the 7 December 2005 is provided below.
[[The deleted table contains business confidential information1072, 1073, 1074]]

7.551 Although we agree that [[xx.xxx.xx]] baht woul d have been the marketing costs if Thailand
had relied on the marketing costs as included in the previously requested MRSP, namely [[xx.xxx.xx]]
baht, we recall Thailand's explanation that the lat est MRSP can also be referred to under the general
methodology in order to derive the marketing cost s for the MRSP to be revised. Thai Excise's
reliance on the MRSP of [[xx.xxx.xx]] baht, the la test MRSP established by Thai Excise for Bangkok
(the only province without provincial tax), therefore would not necessarily have been a deviation from
Thai Excise's general methodology per se . This means that Thai Excise's decision to use
[[xx.xxx.xx]] baht, derived from [[xx.xxx.xx]] baht as shown in the table above, as the value of the
marketing costs for the December 2005 MRSP can be considered as compatible with its general
methodology.
7.552 The Philippines stresses, however, that, in order to arrive at a final MRSP of 47 baht for the
L&M December 2005 MRSP, instead of [[xx.xxx.xx]] baht, which was the MRSP/RRSP proposed by
PM Thailand, Thai Excise unnecessarily rounded up the marketing costs of [[xx.xxx.xx]] baht to
[[xx.xxx.xx]] baht. In the Philippines' view, if DG Excise had simply added marketing costs of
[[xx.xxx.xx]] baht to the other elements of the December 2005 MRSP, the resulting MRSP would
have been [[xx.xxx.xx]] baht
1075, which would have been rounded to [[xx.xxx.xx]] baht. Instead,
Thailand rounded up [[xx.xxx.xx]] baht to 47 baht . The difference of [[xx.xxx.xx]] baht (i.e.
[[xx.xxx.xx]]) was subsequently added to the mark eting costs of [[xx.xxx.xx]] baht to make it
[[xx.xxx.xx]] baht.
7.553 In considering the Philippines' point on Thai Excise's rounding up of both the MRSP as well
as the marketing costs, we recall Thailand's explan ation that when revising an existing MRSP, Thai
Excise would add all the elements comprising the MR SP (bottom up approach) to arrive at the value
of the revised MRSP, including the marketing cost component that is derived by deducting all
elements other than the marketing costs from e ither the current MRSP or the MRSP previously

1071 Thailand's response to Panel question No. 129 , referring to Exhibit THA-82, providing a
breakdown of the MRSP calculation for L&M in 2005. The calculation appear s as a computation of the ex
factory price (5.88), the Customs tax (0.29), the Tobacco Stamp (18.52), VAT (2.55), Health Tax (0.37),
Marketing costs (11.38) resulting in an MRSP of 39 baht.
1072 [[xx.xxx.xx]].
1073 [[xx.xxx.xx]].
1074 [[xx.xxx.xx]].
1075 Philippines' comments on Thailand's response to Panel question 129; Exhibit PHL-282.

requested by the importers/manufacturer (top dow n approach). As the Philippines points out,
Thailand also explained that the marketing cost co mponent, as included in the current MRSP or in the
MRSP previously requested by the importer/manufacturer, would remain constant.1076
7.554 Regarding the rationale behind rounding up th e marketing costs and MRSP figures, Thailand
asserts that both domestic manufacturers and importers of cigarettes expressed the concern that
"different cigarette prices across various provi nces" would cause "market turbulence" and proposed
that a single national cigarette price should be achieved by a one baht increase in prices. 1077 T o
address these concerns, Thai Excise discontinue d the practice of publishing two MRSPs for each
brand – one for provinces that collected provincial ta xes and one for provinces that did not. Thailand
then decided to round up the MRSP by approximately on e baht for all major brands in the market so
that the change of its practice resulted in MRSPs being set at a level that would facilitate the
provinces in collecting the full amount of the provin cial taxes and discourage retailers from selling at
prices in excess of the MRSP. We are not convinced by Thailand's explanation, however, as to why
the MRSP needs to be rounded up by one baht to a ddress such concerns when the provincial/local tax
component is already included in calculating a single national MRSP.
7.555 In the light of the above considerations, we fi nd that Thai Excise failed to properly follow the
general methodology in establishing the marketing costs for the December 2005 MRSP for L&M by
rounding it up. This resulted in increasing the marketing costs and consequently the MRSP for L&M,
which forms the basis for a final VAT liability applied to L&M, which in turn led to taxation of L&M
cigarettes in excess of like domestic cigarettes.
(v) Establishment of the 2006-2007 MRSPs for Marlboro and L&M
Main arguments of the parties
7.556 The Philippines claims that, under Article III:2 of the GATT 1994, Thailand's use of
marketing costs of [[xx.xxx.xx]] per cent for the September 2006, March 2007, and August 2007
MRSPs is evidence supporting the Philippines' cl aims, because it helps to explain how the
discrimination arose vis-à-vis PM Thailand's brands. 1078 According to the Philippines, these MRSPs
demonstrate that DG Excise determined arbitrary a nd inflated marketing costs of [[xx.xxx.xx]] per
cent that drove up PM Thailand's MRSPs. The Ph ilippines points out that, based on PM Thailand's
December 2005 information, proposing MRSPs of [[xx.xxx.xx]] baht and [[xx.xxx.xx]] baht
respectively, the marketing costs in Sept ember 2006 – with unchange d RRSPs – were only
[[xx.xxx.xx]] baht for Marlboro and [[xx.xxx.xx]] baht for L&M, whereas DG Excise added
marketing costs of [[xx.xxx.xx]] baht and [[xx.xxx. xx]] baht for the imported cigarettes at issue
respectively.
7.557 In contrast, the marketing costs used for TTM were much lower, at [[xx.xxx.xx]] per cent.
1079
Thailand calculated Marlboro and L&M marketing costs in September 2006, March 2007 and August
2007 through the use of price surveys conducted in other Asian countries instead of relying on
PM Thailand's marketing cost figures
1080, while calculating TTM's marketing costs as a percentage of
its own genuine income. 1081 Compared to the marketing costs of TTM's brand at the time – i.e.

1076 Philippines' second written submission, para. 410, referring to Thailand's response to Panel
question No. 41.
1077 Thailand's comments of 25 September 2009, para. 43, referring to Exhibits THA-18 (p. 5) and
THA-75 (pp. 11-13) for the concerns expressed in the letters from PM Thailand and TTM respectively.
1078 Philippines' response to Panel question No. 128, also referring to Exhibit PHL-282.
1079 The Philippines refers to DG Excise's explanation to the Thai Tax Court (Exhibit PHL-109).
1081 Philippines' second written submission, para. 408; Exhibit PHL-109.

[[xx.xxx.xx]] per cent, the imported PM Thailand brands were generated with a discriminatory
[[xx.xxx.xx]] per cent, which is 61.2 per cent higher than marketing costs for TTM.
1082
7.558 The Philippines understands that Thailand derive d the marketing cost figure for these three
MRSP valuations as follows: Thailand took the Marlboro retail prices in 12 countries, including
Thailand, and possibly also the Thai retail prices of non-PM International im ported brands. Thailand
then developed a methodology that effectively gave the various retail prices in different countries
various weights, based on four different averagi ng groups. To produce the final Thai MRSP of
[[xx.xxx.xx]] baht/pack, Thailand averaged the average retail prices derived from the four different
groups. The [[xx.xxx.xx]] per cent marketing co sts were then derived using the MRSP of
[[xx.xxx.xx]] baht as the starting point in a deductive calculation. 1083 This percentage was then
applied to calculate the September 2006 MRSP for L&M and the March and August 2007 MRSPs for
Marlboro and L&M.
7.559 The Philippines argues that: (i) the Philippines fails to see the relevance of the Marlboro retail
price in 11 countries other than Thailand in fixing the Marlboro and L&M MRSPs; (ii) it is unclear
why three different groups (i.e. "ASEAN", "ASEA N+3", "ASEAN+3+Thailand") were chosen and
then combined, which seems random1084; (iii) it is unclear why the Marlboro and L&M MRSPs should
be based, even partly, on the retail prices of these ot her competing non-PM International brands; (iv)
it is not clear why DG Excise calcula ted an average Thai retail price using the non-PM International
imported brands to the apparent exclusion of TTM 's domestic brands; and (v) Thailand did not apply
this methodology to calculate the MRSPs for any other imported or domestic Thai cigarettes.1085
7.560 Thailand argues that the 2006-2007 MRSPs have little probative value, because the
methodology used to determine those MRSPs varied significantly from the methodology used for the
MRSPs within the Panel's terms of reference. 1086 Thailand has not provided detailed arguments
regarding the Philippines' claim on the specifics of the concerned methodology. Thailand explains
that the purpose of the methodology was to use re tail price information from other countries in the
region to determine "marketing costs" for imported cigarettes in Thailand for circumstances in which
Thai Excise had determined, in a departure from its normal methodology, that the c.i.f. values (which
were rejected by Thai Customs) and "marketing costs", as contained in the proposed MRSPs by the
importers, could not be relied upon. Thai Excise used Marlboro's retail sales prices in the other
countries for this purpose because Marlboro is a well-known brand that is sold throughout the
region.
1087
Analysis by the Panel
7.561 We will now examine whether the Septembe r 2006, March 2007, a nd August 2007 MRSPs,
demonstrate that DG Excise determined arbitrary a nd inflated marketing costs of [[xx.xxx.xx]] per
cent that drove up PM Thailand's MRSPs.
7.562 Thailand's main position in respect of the Philip pines' claim has been that these MRSPs are
outside the Panel's terms of re ference and hence have little proba tive value in deciding whether
Thailand violated Article III:2. We recall our finding above that the September 2006, March 2007,

1082 Philippines' second written submission, para. 405; Exhibit PHL-74 and PHL-109.
1083 Exhibit THA-78.
1084 Philippines comments on Thailand's Article 13 DSU re sponse, paras. 59-93; Thailand's Article 13
DSU response, para. 17; response to Panel question 50; Exhibits THA-44 and THA-78.
1086 Thailand's comments on the Philippines' Article 13 DSU response, paras. 52-58.
1087 Thailand's comments on the Philippines' Article 13 DSU response, paras. 52-58.

and August 2007 MRSPs are within our terms of reference. Therefore, we will proceed with our
examination of the Philippines' claim.
7.563 We note that Thailand does not dispute that the methodology used to determine these MRSPs
significantly departed from the general methodology. It is also not disputed that this methodology
was used for the determination of the MRSPs, par ticularly their "marketing cost" component, for the
imported cigarettes concerned only, and not for domestic cigarettes. The evidence also shows that the
resulting MRSPs were much higher than the RSPs fo r the imported cigarettes for the two year period
during which these MRSPs were in effect (October 2006 – August 2008). During this period, we also
note that the MRSPs for domestic cigarettes matche d their RSPs. The gap between the MRSPs and
the RSPs, existing for the imported cigarettes only, is translated into a higher VAT burden on the
imported cigarettes than on the domestic cigarett es, because the VAT is based on the MRSP and not
on the RSP.1088
7.564 In our view, therefore, this proves that the imported cigarettes were taxed in excess of the
domestic cigarettes for the relevant period. We are not convinced by Thailand's explanation as to why
a different methodology was used for the MRSPs fo r the imported cigarettes during this period.
Thailand argues that because the c.i.f. values, which were being rejected by Thai Customs at that time,
and "marketing costs" built into the proposed MRSPs by the importers could not be relied upon, it
used retail price information from other countries in the region to determine "marketing costs" for
imported cigarettes in Thailand in a departure from its normal methodology. Setting aside the c.i.f.
values that were being questioned by Thai Customs at that time, it is not clear to us what was the basis
for considering that the marketing cost component of the proposed MRSPs could not be relied upon.
7.565 Even if there was a legitimate basis for doubti ng the current marketing costs, the marketing
costs determined based on the retail price survey ([[xx.xxx.xx]] baht for Marlboro and [[xx.xxx.xx]]
baht for L&M) are drastically higher than the previous mark eting costs. Thailand explains that Thai
Excise used Marlboro's retail sales prices in the other countries for this purpose because Marlboro is
a well-known brand that is sold throughout the region. In the light of Thailand's previous description
of "marketing costs" as "the total selling expenses and profits associated with selling the cigarettes to
the final consumer in the Thai market", we are not persuaded that Marlboro's retail sales prices in the
other countries could have provided Thai Excise with the correct marketing costs for Marlboro in the
Thai market, not to mention those for L&M in the Thai market.
7.566 For the foregoing reasons, we conclude that Thai Excise departed from the general
methodology in determining the 2006 and 2007 MRSPs fo r the imported cigarettes. This in turn
resulted in a VAT imposed on the imported cigarettes in excess of that on like domestic cigarettes
inconsistently with Article III:2, first sentence.
5. Conclusion
7.567 In conclusion, with respect to the 7 December 2005, 18 September 2006, 30 March and 29
August 2007 MRSP Notices for the imported cigarettes, we consider that in fixing the VAT tax base
for imported cigarettes, Thai Excise failed to fo llow its general methodology, which resulted in
marketing costs for the imported cigarettes being hi gher than they would have been if the general
methodology had been followed. This combined w ith the fact that no similar departure from the
methodology was found with respect to the determin ation of the marketing costs for like domestic
cigarettes, we find that the Philippines has establ ished that the imported ci garettes were taxed in
excess of like domestic cigarettes in violation of Ar ticle III:2, first sentence, with respect to the 7
December 2005, 18 September 2006, 30 March and 29 August 2007 MRSP Notices.

1088 See para. 7.460 above.

E. A
RTICLE III:2 OF THE GATT 1994 – VAT EXEMPTION FOR RESELLERS OF DOMESTIC
CIGARETTES
1. Introduction
7.568 The Philippines claims that Thailand acts inconsis tently with Article III:2, first sentence, of
the GATT 1994 because Thailand imposes a VAT on imported cigarettes in excess of that applied to
like domestic cigarettes by exempting resale of domestic cigarettes from the VAT obligations.
Thailand argues that the Philippines has not established a prima facie case that imported cigarettes are
taxed "in excess" of domestic cigarettes.
7.569 As discussed in the previous section, the questi on of whether a measure is consistent with
Article III:2, first sentence requires a two step an alysis: (i) whether importe d and domestic products
are like; and (ii) whether the measure subjects the im ported products to an internal tax or charge in
excess of the domestic products. If the answers to these questions are affirmative, then there is a
violation of the first sentence of Article III:2.1089
2. Measures at issue
7.570 In its panel request, the Philippines identifies the following as the measures through which the
Thai VAT exemptions operate:
• Sections 81 and 82/7 of the Thai Revenue Code;

• Section 3(1) of Royal Decree No. 239;

• Order of Revenue Department No. Por. 85/2542; and

• any amendments, implementing measures or other related measures.

7.571 The Philippines claims that the VAT exemp tion provided for domestic cigarettes in the
above-mentioned Thai regulations is a de jure violation of Article III:2. In addition to these
provisions, which were listed in its panel request, in its written submissions to the Panel, the
Philippines also referred to certain other provisions of the Thai regulations it considered relevant to its
claims.
3. Description of the Thai VAT system – application of VAT to cigarette resale
7.572 In this section, we will describe how a VAT is applied to cigarette resale under the Thai VAT
system.1090 As indicated above, the Thai measures specifically identified in the Philippines' panel
request are Sections 81 and 82/7 of the Thai Reve nue Code, Section 3(1) of Royal Decree No. 239,
and Order of Revenue Depa rtment No. Por. 85/2542. 1091 In the course of the dispute, however, the
parties have also referred to other provisions pe rtaining to the imposition and exemption of the VAT
liability. To the extent necessary to fully unders tand how the Thai VAT system operates with respect
to cigarette resale, we will also describe these other relevant provisions.

1089 Appellate Body Report, Canada – Periodicals, pp. 22-23, DSR 1997-I, 449, at 468.
1090 We addressed the Philippines' claim under Article III:2, first sentence, in respect of the manner in
which the VAT, specifically, the tax base for VAT, is calculated in Section VII.D.4(a)(iii) above.
1091 Exhibits PHL-94, PHL-217 and PHL-95, respectively.

7.573 Thai Revenue administers VAT pursuant to Chapter IV (Value Added Tax) of the Thai
Revenue Code.1092 We will first describe the general provisions governing VAT and then proceed to
consider those relating to the application of VAT to cigarette resellers.
(a) General provisions
7.574 Thailand imposes VAT, inter alia, on the sale of goods. Under Thai law, suppliers of goods
are liable for the actual payment of VAT.
7.575 Section 77/2 of Division 1 (General Provisions) sets out the general rule on the imposition of
VAT:
"Value added tax under the provisions of this Chapter shall be charged on the
following transactions that are performed in Thailand:
(1) Sale of goods or provision of a service by a supplier.
(2) Import of goods by an importer."1093 (emphasis added)
7.576 Division 6 of the Thai Revenue Code then sets forth the rules on "Persons Liable to Tax and
Tax Computation". Section 82 provides:
"The following persons shall be liable to value added tax under this Chapter:
(1) a supplier,
(2) an importer."
(b) Provisions on the imposition and the exemption of VAT
(i) Imposition of VAT on cigarette resale
7.577 Regarding cigarettes, Section 82/7 of Division 6 of the Thai Revenue Code provides:
"In the case of the sale of tobacco … every registrant shall collect value added tax
from the purchaser by reference to the tax base under Section 79/5(2) in Division 3
and the tax rates under Division 4 in respect of every stage of sale." (emphasis added)
7.578 Therefore, as a general rule, every cigarette reseller in the distribu tion chain incurs VAT
liabilities.
7.579 Under Section 82/3 of the Thai Revenue Code, a VAT registrant 1094 supplier deducts the so-
called "input tax" already paid to the previous se ller, from the "output tax" collected from the next
purchaser of goods in each tax month. The VAT registrant supplier thus pays VAT equal to the
output tax deducted by the input tax. Division 1 (G eneral Provisions) defines the terms "output tax"
and "input tax" as follows:

1092 Exhibit PHL-94.
1093 Exhibit PHL-94 (footnotes in original are omitted).
1094 Exhibit PHL-94. "Registrant" is defined in Section 77/1 of Division 1: "'Registrant' means a
supplier who has been recorded for value added tax registration under Section 85 or 85/1 or for temporary value
added tax registration under Section 85/3." Section 85 provides:
"A supplier about to commence a business of selli ng goods or providing services shall file an
application for value added tax registration before the date of commencing business ...".

"(17) "Output tax
" means value added tax which a registrant collects or is liable to
collect from a purchaser of goods or a recipient of services under the first
paragraphs of Section 82/4…
(18) "Input tax
" means value added tax which a registrant is called upon to pay to
another registrant under Section 82/4, fourth paragraph, and includes-
 (a) Value added tax paid by a registrant at the time of import; …"
7.580 The VAT liability incurred by resellers of imported ciga rettes in the distribution channel can
thus be put in the following equation:
VAT liability = Output tax (sale to purchaser) – Input tax (purchase from reseller)

7.581 Section 82/3 of the Thai Revenue Code further sets forth that if the output tax liability, which
arises by selling cigarettes in a given month, exceed s the input tax, which was already received in the
form of a tax credit when cigarettes were purchased, the tax payable shall be equal to the difference
between the two. If input tax exceeds output tax, th e difference shall be treated as tax credit, and the
supplier is entitled to receive a ta x refund or to apply the credit fo r paying value added tax under
Division 8 (Tax Credit and Refund of Value Added Tax).
7.582 In terms of collection of VAT, Section 82/4 of Division 6 provides:
"[A] registrant shall collect value added tax from a purchaser of goods … at the time
the liability to value added tax arises by re ference to the tax base under Division 3
and the tax rates under Division 4…
The value added tax that a registrant [i.e. reseller of goods] collects from a purchaser
of goods … shall be taken as output tax of such registrant.
The value added tax that is collected from a registrant by another registrant under this
section by reason of purchasing goods … shall be taken as input tax of the first
mentioned registrant [i.e. purchaser of goods]" (underline added)
7.583 Specifically, tax credit and refund of VAT is administered in the following manner under
Division 8 of the Thai Revenue Code.
"Section 84. A registrant shall have the ri ght to apply tax credit resulting from the
computation of tax under Section 82/3 in each tax month for payment of value added
tax according to the rules, procedures a nd conditions prescribed by a Royal Decree
[No. 242], or to claim for a refund at the ti me of filing a tax return for the tax month
under Section 83 or 83/1, …
Section 84/1. A claim for refund of value added tax on sale of goods or provision
of services may be made under the following conditions:
 (1) In the case where a tax refund is due on sale of goods …, but the
registrant fails to claim a refund in accordan ce with Section 84, he is entitled to enter
a claim for a tax refund within three years fro m the expiry of the time limit for filing
a tax return for that tax month.
 (2) In respect of sale of goods and provision of services in other cases, a
claim for a tax refund shall be entered within three years from the date of paying tax."

(ii) Exemption of VAT for domestic cigarette resale
7.584 Section 81(1)(v) of Division 5 (Exemption from Value Added Tax) provides for VAT
exemptions for sales of goods or services designated by Royal Decree No. 239.
7.585 Section 3(1) of Royal Decree No. 239 in turn provides for VAT exemptions for the sale of
domestic cigarettes. It provides:1095
"Section 3. There shall be exempt from value added tax for the following businesses:
(1) Sale of cigarettes produced by a manuf acturer which is an organization of a
government where the seller is not such manufacturer who produces such cigarettes:
provided that this shall not include th e seller who is a bonded ware house duty free
shop."
As noted above, TTM is the only manufacturer of cigarettes in Thailand and an organization of the
Thai government. Therefore, the resellers of TTM brand cigarettes will be exempt from value added
tax pursuant to the above provisions.

7.586 The Order of Revenue Department No. Por. 85 -2542 provides, in relevant part, that a
registered operator who buys cigarettes and receives a tax invoice from the tobacco industrial operator
that is a State's organization is exempted from VAT in Section 81(1)(v) of the Revenue Code.
1096
(c) Operation of the Thai VAT system with respect to cigarette resale
7.587 Based on the above provisions pertaining to the VAT liability under Thai law, the process of
collecting and exempting VAT imposed on the resale of cigarettes can be explained as follows.
7.588 As for domestic cigarettes, when TTM sells cigarettes to the wholesaler, TTM incurs a VAT
liability of 7 per cent of the MRSP (exclusive of VAT) to the Thai government. 1097 Upon resale of
imported cigarettes, the importer also incurs a VAT liability of 7 per cent of the MRSP (exclusive of
VAT) to the Thai government.
7.589 Given that both TTM and the importer incur a VAT liability of 7 per cent of the MRSP upon
the sale of cigarettes to wholesalers and upon importation, it can be assumed that they would want to
include this VAT amount in their sales price to the wholesaler. We can also assume that the
wholesaler and the subsequent retailers of both do mestic and imported cigarettes in the distribution
chain would want to pass on the VAT to the next retailer by including it in their retail price. This is in
line with the VAT system in general, namely that the VAT liability ultimately passes to the
consumers. It is not inconceivable, however, that TTM, an importer, and an individual wholesaler or
a retailer in the distribution chain can also make a business decision to not include the VAT amount in
their retail price.
7.590 As noted above, however, Section 82/7 of Division 6 of the Thai Revenue Code requires that
in the case of cigarettes, every registrant collects VA T from the purchaser in respect of every stage of
sale. According to this provision, therefore, TTM as well as an importer and all the other resellers of
cigarettes in the subsequent distribution chain ar e under an obligation to collect VAT from their

1095 Exhibit PHL-217.
1096 Exhibit PHL-95, p. 6, No. 7.
1097 Philippines' first written submission, para. 415; Thailand's response to Panel question No. 41;
Exhibit PHL-93.

purchasers, independently from the VAT included in the actual sales price, until the transaction
reaches the consumer level.
7.591 When the wholesaler sells domestic cigarettes to retailers and so forth under each subsequent
transactional stage, however, these wholesal er and subsequent resellers incur no VAT liability
because of the exemption given under Section 81(1)(v ) of the Thai Revenue Code, Section 3(1) of
Royal Decree No. 239 and the Order of Revenu e Department No. Por. 85-2542 as mentioned
above.
1098 No such exemption is available for importe d cigarettes. As such, when the wholesaler
subsequently resells imported cigarettes to the re tailer, for example, the wholesaler incurs a VAT
liability of 7 per cent of the MRSP. This VAT liabi lity arises at each subsequent transactional stage
until consumers purchase imported cigarettes. Each ag ent subject to VAT in the imported cigarettes
distribution chain can claim a refund of the VAT amounts paid in excess, based on the amount of
VAT credits acquired upon the purchase of cigarettes from a previous seller, by filing form Por.Por.30
with the Thai authorities.1099
7.592 The following chart explains the Thai VAT system for domestic manufacturers and importers
respectively. The chart is based on the calculation examples provided by both parties.1100 However, it
should be noted that we are using this chart for the purpose of illustrating the Thai VAT system and
that the figures shown in the graph are not based on real figures. Hence, for the purpose of explaining
the difference in VAT liability between the resale of imported and domestic cigarettes under the Thai
law, we assume that the MRSP including VAT is 107 baht/pack and equals the RSP for both imported
and domestic cigarettes. 1101 This then results in a VAT of 7 baht/pack (107*(7/107)), which means
that the MRSP excluding VAT is 100 baht/pack. 1102 The transaction in the chart involves the sale of
one cigarette pack for both imported and domestic cigarettes with the same VAT-inclusive transaction
prices for resellers in the distribution chain, namely 67, 77 and 87 baht/pack.

1098 Philippines' first written submission, paras. 534-539; response to Panel question No. 138;
Thailand's first written submission, para. 98; response to Panel question No. 41; Exhibits PHL-217 and PHL-95.
1099 Philippines' first written submission, paras. 529-53 3; Thailand's first written submission, paras. 99-
100; response to Panel question No. 41.
1100 Philippines' response to Panel question No. 138; Exhibit THA-20.
1101 The MRSP excluding VAT is made up of the c.i.f. /ex factory price, customs duties, excise tax,
health tax, television tax, local tax and marketing costs (Exhibit THA-47), see para. 7.466 above. The MRSP
including VAT is the maximum price a retailer can charge a consumer. The RSP is the price which a retailer
chooses to ask from a consumer, the actual retail price, this price cannot exceed the MRSP (parties' response to
Panel question No. 119). Hence, as the Philippines submits, in reality the retailer can choose, for various
reasons, to set the RSP at a lower level than the MRSP. Thailand does not contest this (Philippines' first written
submission, para. 417; response to Panel question No. 52 and 119; Thailand's first oral statement, para. 11;
response to Panel question No. 119; Exhibit THA-48).
1102 Philippines' first written submission, para. 418; response to Panel question 138; Thailand's first

(d) Other relevant provisions
7.593 Section 82/5 of the Revenue Code notes six potential instances in which a VAT registrant
reseller would not be allowed to deduct output tax paid to its prev ious seller in computing tax under
Section 82/3: (i) a tax invoice is absent or cannot be produced to prove that input tax has been
collected, except where there is a reasonable excu se according to the rules and conditions prescribed
by the Director-General; (ii) a tax invoice contains information which is incorrect or inadequate in the
matter of substance according to the rules and condi tions prescribed by the Director-General; (iii) the
input tax is not directly connected with the business carried on by a supplier according to the rules and
conditions prescribed by the Director-General; (i v) the input tax originated from entertainment
expenses or expenses of a similar nature accordi ng to the rules and conditions prescribed by the
Director-General; (v) input tax under a tax invoice issued by a person not authorized to do so under
Division 10; or (vi) input tax designated by the Director-General with the approval of the Minister.
7.594 Section 86/5(2) of the Thai Revenue Code, in relevant part, provides that the Director-General
may vary the particulars in respect of a tax invoice for tobacco under Section 79/5.
1103 Moreover,
Sections 89 and 90 provide for penalties, surcharges and punishment if forms and information to Thai
authorities are incorrectly, inappropriately or fraudulently submitted.1104
4. Like product analysis
(a) Main arguments of the parties
7.595 The Philippines claims that imported cigarettes and dom estic cigarettes are like products for
the same reasons that it presented in relation to its other claim under Article III:2, first sentence. 1105
Moreover, the Philippines submits that because of th e distinctions between products purely based on
national origin in the Thai law at issue, the Philippines, as a complainant, need not separately establish

1103 Exhibit PHL-94, p. 93.
1104 Exhibit PHL-94, pp. 101-103.
1105 Philippines' first written submission, paras. 543-544; second written submission, paras. 370-390.
7
7
TTM
Price = 60+7
Importer (PMTL)
Price = 60+7
Wholesaler
Purchase price = 77
(70+7)
Wholesaler
Purchase price =77
(70+7)

Retailer
Purchase price = 87
(80 + 7)
 Retailer
Purchase price = 87
(80 + 7)
Final Consumer
Purchase price = 107
(100+7)
Final Consumer
Purchase price = 107
(100+7)
Thai Govt.
7
7
VAT liability -

VAT credit -
VAT = 7
ÆPor.Por.30
ÆPor.Por.30
ex factory
60
c.i.f.
60

the likeness between imported and domestic cigarettes.
1106 Specifically, Section 2 of the Order of the
Revenue Department refers expressly to tobacco a nd cigarettes "imported from abroad". In contrast,
the Philippines points out that Section 7 of the Orde r of the Revenue Department refers to cigarettes
"from the tobacco industrial operator that is a Stat e [] organization", which refers exclusively to
domestic cigarettes.
7.596 Thailand has not specifically responded to the likeness element of Article III:2, first
sentence, in the context of the Philippines' claim concerning the VAT exemption.
(b) Analysis by the Panel
7.597 We recall our finding above that Marlboro and L&M cigarettes at issue are like the domestic
cigarettes within the same price segments unde r Article III:2, first sentence, of the GATT. 1107 A s
such, we find that the imported cigarettes at issue, Marlboro and L&M are "like" domestic cigarettes
within the same price segments.
5. Excess taxation analysis
7.598 We address in this section the question of whether the VAT exemption available only for
domestic cigarette resellers under th e Thai regulations subjects import ed cigarettes to an excess VAT
liability compared to domestic ciga rettes and consequently leads to a de jure violation of the first
sentence of Article III:2. In this regard, the Phili ppines submits that the VAT at issue under Thai law
is an internal tax within the meaning of Article III:2 of the GATT 1994.1108 Thailand has not disputed
this either. We also find that value added tax es, and hence the VAT at issue imposed on cigarettes
under the Thai law, are an internal tax covered by Article III:2. We will begin our analysis by first
examining the VAT in general and Thailand's position th at the scope of Article III:2, first sentence is
confined to the VAT amount applied to cigarettes at the final consumer level.
(a) Whether the scope of Article III:2, first senten ce is confined to the VAT amount applied to
cigarettes at the final consumer level
(i) Main arguments of the parties
7.599 Thailand argues that the Panel should only examine whether domestic and imported
cigarettes are ultimately subject to equal amounts of internal taxes at the final consumer level. 1109
Thailand argues that there is no basis on which to conclude that imported cigarettes are taxed in
excess of domestic cigarettes within the meaning of Article III:2 because VAT is a tax on consumers,
who pay exactly the same tax on imported and domestic cigarettes. 1110 The key issue is that the total
tax on the imported and domestic product be the same , and not whether the tax is collected uniformly
from different merchants at each stage of the distribution process. 1111 Thailand notes that the text of
Article III:2(a) and Ad Article III of the GATT 1994 st ates that internal taxes can be imposed on
imported products at the time of importation. Internal taxes on domestic products are however
collected later in the distribution chain. Thailand therefore concludes that Article III:2 does not focus
on when the taxes are collected, but rather on how much is collected. The fact that VAT for domestic
cigarettes is collected at the manufacturer leve l, while VAT for imported cigarettes is passed on

1106 Philippines' first written submission, paras. 543-544.
1107 See Section VII.D.3 above.
1108 Philippines' first written submission, paras. 463 and 542.
1109 Thailand's second written submission, para. 149.
1110 Thailand's second oral statement, para. 59, referring to Thailand's second written submission,
paras. 156-161; Exhibit THA-61.
1111 Thailand's second oral statement, para. 60.

through the distribution chain to the consumer, therefore cannot constitute grounds for a violation
claim under Article III:2, first sentence.1112
7.600 In this connection, Thailand argues that the OE CD clarified that VAT is a consumption tax,
which is ultimately paid by the final consumers. 1113 This, in turn, has the aim of achieving neutrality
of taxation. 1114 As such, it is highly unlikely that many Members understood Article III:2 of the
GATT 1994, to render multi-stage VAT systems WTO-in consistent. Thailand is of the view that
input tax credit constitutes a basic feature of every VAT system 1115, and the practice of offsetting
output tax liability against the input tax credit is a basic feature of Members' VAT systems. 1116
Thailand provides examples of several WTO Members using exactly the same system as its VAT
system (i.e. the Philippines, Canada, France, Ireland, Peru and Australia).
1117 Thailand asserts that if
the Philippines' argument concerning the WTO-incons istency of the Thai VAT system was accepted,
every WTO Member's VAT system which is based on input/output tax offsets would also be found
inconsistent with WTO obligations where in "at leas t some circumstances" the reseller of an imported
product does not obtain the credit.1118
7.601 The Philippines claims that, contrary to Thailand' s assertions, the final consumer does not
always bear the ultimate VAT burden. 1119 As a matter of Thai law, the VAT is imposed on importers
and the domestic manufacturer of cigarettes, alik e. However, VAT is automatically passed on to
wholesalers, retailers and, ultimately, consumers in the commercial chain for imported products only.
On the other hand, VAT may be imposed on domestic cigarette consumers only if TTM chooses to
reflect its VAT burden in the retail price of the product. The Philippines argues that, from an
economic perspective, and for a variety of commerc ial reasons, there might be instances where an
importer, a manufacturer or a reseller may decide to absorb the VAT burden rather than to increase its
RSP.
1120 As a consequence, the Thai consumers may not be ultimately liable to pay VAT.1121
7.602 The Philippines argues that, the taxation of the products at issue throughout the distribution
chain should be assessed, not just at the consumer level. 1122 The Philippines agrees that both TTM
and PM Thailand pay the same VAT amount on their initial sale transaction. The Philippines
however points out that the relevant test is wh ether, through the chain of distribution, imported
cigarettes are subjected to taxes in excess of tho se on domestic cigarettes. The Philippines argues that

1112 Thailand's second written submission, para. 149.
1113 Thailand's second written submission, para. 156, referring to Exhibit THA-61.
1114 Thailand's second written submission, para. 161.
1115 Thailand's first written submission, para. 242, footnote 247; response to Panel question No. 54.
1116 Thailand's second written submission, para. 160.
1117 Thailand's response to Panel question No. 54; Exhibit THA-43.
1118 Thailand's first written submission, para. 242, footnote 247; comments on the Philippines' response
to Panel questions, para. 71. Furthermore, Thailand argues that PM Thailand adds the same amount for VAT in
determining its RRSPs as Thai Excise uses to determine the MRSPs. Thailand uses the example of RRSPs for
L&M since 2005, which is the same as MRSP, with the exception of the 2006-2007 period (Exhibit PHL-270).
Therefore, there is no cumulative tax burden, as PM Thailand's practice is consistent with Thailand's calculation
of the total VAT in the distribution chain (Thailand's comments on the Philippines' response to Panel questions,
paras. 85-86).
1119 Philippines' response to Panel question No. 52.
1120 Philippines' response to Panel question No. 52. The Philippines notes that PM Thailand's
commercial policy is to pass on the increases in the tax rate to consumers, which ha ve affected domestic and
imported cigarettes similarly, however, not to pass on increases in the tax base, which have typically affected
only imported cigarettes (para. 335). The Philippines cites two examples (September 2006 and August 2007)
where Thailand increased PM Thailand's MRSPs, and therefore the VAT amount due, and the company chose to
absorb the increase in VAT rather than to pass it on to the consumer. As a result, PM Thailand, accepted a lower
profit margin, and the tax increase burden was not ultimately borne by the consumer.
1121 Philippines' response to Panel question No. 52.
1122 Philippines' response to Panel question No. 138.

at each subsequent stage in the distribution chain, resellers of imported cigarettes, alone, are subject to
a cascading VAT. Therefore the cumulative VAT bur den on like imported and domestic cigarettes is
not the "same", and imported cigarettes are taxed in excess of like domestic cigarettes.
1123
7.603 The Philippines claims that none of the c ountries of which Thailand says it has a WTO-
consistent system similar to its own, recognizes ex emptions for domestic cigarettes. Thailand is the
only country to apply different rules for the coll ection of VAT for domestic and imported cigarettes
respectively: a single stage system where only the manufacturer bears VAT liability for domestic
cigarettes, and a multi-stage system where VAT is passed on through all economic agents in the resale
chain for imported cigarettes. The Philippines poi nts out that normal multi-stage VAT systems are
premised on the principle of fiscal neutrality, where all goods in the same situation are treated equally
and any variation in tax burdens is due to factual variations of the goods and not de jure exemptions
granted to domestic goods. 1124 The Philippines concludes first th at the rules implemented in the
countries mentioned by Thailand should have no bearing on the Pa nel's analysis of Thailand's
exemption system.1125
7.604 Thailand submits that the Philippines' assertions are incorrect because TTM is also entitled to
a tax credit on VAT paid on its purchases of raw materials and other VAT-liable inputs, in addition to
the output payment on its sales of cigarettes.1126 Even if the treatment of domestic cigarettes under the
Thai VAT system is "single stage", Thailand's VAT system for both imported and domestic cigarettes
is therefore consistent with the basic features co mmon to VAT because a tax credit for input tax paid
remains the same for imported and domestic cigarettes.1127
(ii) Analysis by the Panel
7.605 The Panel notes that, in general, VAT is included in the final price of the product because
VAT is a consumption tax, which is ultimately paid by the final consumers. As referred to by
Thailand, in the "International VAT/GST Guide lines (February 2006)", the OECD observes that
although there are many differences in the way va lue added taxes are implemented around the world
and across OECD countries, there are some common core features. 1128 These features include the
following:
7.606 "Value added taxes are taxes on consumption, paid, ultimately, by final consumers. In
principle, businesses should not bear the burden of the tax itself since there are mechanisms in place
that allow for a refund of the tax levied on intermed iate transactions between firms. The system is
based on tax collection in a staged process, with successive taxpayers entitled to deduct input tax on
purchases and account for output tax on sales. Each business in the supply chain takes part in the
process of controlling and collecting the tax, … . In general, OECD countries with value added taxes
impose the tax at all stages and normally allow immediate deduction of ta xes on purchases by all but
the final consumer."

1124 Philippines' second oral statement, para. 95; response to Panel question No. 140(1). The
Philippines states that "[it] agree[s] with Thailand that non WTO-inconsistency arises in a multi-stage VAT
system that has the following basic features: (1) domestic and imported goods are both su bject to tax 'at each
stage of distribution'; (2) the tax base is chosen by the se ller or reseller and, hence, is non-discriminatory, and,
(3) the tax rate is equal for all goods." The Philippines underlines that this, however, is not the VAT system that
Thailand operates.
1126 Thailand's second written submission, para. 164.
1127 Thailand's second written submission, para. 164, referring to Exhibit THA-61, p. 1; response to
Panel question No. 134.
1128 Exhibit THA-61, paras. 1-2.

7.607 It is further stated that the above featur es give value added taxes their main economic
characteristic, that of neutrality. According to the guidelines, the full right to deduction of input tax
through the supply chain, with the exception of the final consumer, ensures the neutrality of the tax,
whatever the nature of the product, the structure of the distribution chain and the technical means used
for its delivery.
7.608 The Thai system as applied to imported cigarettes appears to fit within the general description
of VAT systems as observed in the OECD guidelin es. What distinguishes the VAT-related measures
maintained by Thailand from other so-called nor mal VAT measures is, however, the VAT exemption
accorded to domestic cigarette resale only. In our view, this distinguishing feature of the Thai VAT
system for the cigarettes resale is directly relevant to the question of whether the concerned measure
imposes excess taxation on imported cigarettes inconsistently with Article III:2, first sentence.
7.609 The Appellate Body has established a strict st andard for the term "in excess of" found in
Article III:2, first sentence, with even the smallest amount of excess taxation considered inconsistent
with WTO obligations.
1129 The purpose of Article III:2, first sen tence is to ensure the equality of
competitive conditions between im ported and like domestic products. 1130 The obligation to respect
this most fundamental principle enshrined in Artic le III:2, first sentence is also well illustrated in
GATT disputes. For example, the GATT panel in US – Tobacco , found a violation of Article III:2
because the measure concerned in that dispute "carried with it the risk of discriminatory treatment of
imports in respect of internal taxes".1131
7.610 We do not therefore consider that the scope of scrutiny of a given measure for its consistency
with Article III:2, first sentence, can simply be lim ited to whether the final consumer ultimately pays
the same VAT for imported and domestic cigarettes. In our view, the fact that VAT is in principle a
consumer tax that normally is passed on to the fi nal consumer does not eliminate the possibility that
imported cigarettes may still be exposed to poten tial excess taxation under a Member's specific VAT
system through the manner in which resellers of impo rted cigarettes in the distribution chain are held
liable for the VAT obligations. Further, we do not find that the VAT exemption granted only to the
resale of domestic cigarettes under the Thai VAT system is a typical feature of VAT or a common
practice shared by other countries.1132
7.611 Finally, we do not agree with Thailand's view that the obligations under Article III:2, first
sentence, are not concerned with the issue whethe r the tax is collected uniformly from different
merchants at each stage of the distribution process. We agree that the issue is not whether the tax is
collected uniformly from distributors at each stage of the transaction chain. However, to the extent
that the manner in which the tax is collected aff ects the tax liability applied to imported goods, we are
of the opinion that a measure falls within the scope of Article III:2, first sentence. We also find
support for our view from the statement of the Appellate Body in Canada – Periodicals that "[a]ny
measure that indirectly affects the conditions of competition between im ported and like domestic

1129 Appellate Body Report, Japan – Alcoholic Beverages II, p. 23 and 26, DSR 1996:I, 97, at 115 and
118; Panel Report, Argentina – Hides and Leather, para. 11.243.
1130 Appellate Body Report, Canada – Periodicals, p. 18, DSR 1997:I, 449, at 468.
1131 GATT Panel Report, US – Tobacco, para. 97 (emphasis added). In the context of Article III:4, the
GATT Panel in EC – Oilseeds I also reasoned that the exposure of a pa rticular imported product to simply the
risk of discrimination within legal provisions constitutes, by itself, a form of discrimination (para. 141).
1132 For instance, in the examples provided by Thailand in Exhibit THA-43 regarding VAT systems in
the Philippines, Canada, France, Ireland, Peru and Australi a, we find that although these countries have similar
VAT systems to the Thai VAT system, they do not have an exemption system regarding domestic cigarettes as
used by Thailand.

products would come within the provisions of Article III:2, first sentence, or by implication, second
sentence, given the broader application of the latter".
1133
7.612 We now proceed to examine whether Thailand' s VAT exemption on the resale of domestic
cigarettes subjects imported cigarettes to an excess VAT liability in violation of Article III:2, first
sentence.
(b) Whether Thailand's VAT exemption on the resale of domestic cigarettes subjects imported
cigarettes to an excess VAT liability in violation of Article III:2, first sentence
(i) Main arguments of the parties
7.613 The Philippines claims that the VAT exemption for resellers of domestic cigarettes contained
in Thai law, which is not available to imported cigarette resellers, is a de jure violation of
Article III:2, first sentence because the Thai Re venue Code explicitly ca lls for the taxation of
imported cigarettes in excess of domestic cigarettes. 1134 Moreover, the fact that the Thai VAT law
offers a tax credit, does not mean that resellers of imported cigarettes will always be left – in
Thailand's words – "automatically and simultaneously" with a zero "net" VAT liability.
1135
7.614 The Philippines contests that the input tax cred it balances the net VAT liability to zero at the
time the obligation to pay output tax VAT liability ar ises. There could be instances where the net
VAT liability will be greater than zero after the output tax is levied on the resale of imported
cigarettes, which would constitute excess taxation. 1136 The Philippines argues that even if there is a
perfect match between the input tax credit and the ou tput tax liability, the input tax credit could not
occur if wholesalers/retailers do not comply with their obligations to submit Form Por.Por.30. 1137
According to the Philippines therefore, the tax credit mechanism is conditional, not available
automatically and simultaneously to offset VAT liability imposed on foreign cigarettes resellers,
which is never imposed on the resale of domestic cigarettes. 1138 The Philippines cites certain
situations where an input tax credit shall not be allowed 1139, and submits that these examples are
sufficient to show that the VAT measures apply excess taxation to imported cigarettes.
7.615 Furthermore, the Philippines claims that providing a private party the opportunity to offset
statutorily-imposed less favourable treatment cannot cure the government's failure to ensure the

1133 Appellate Body Report, Canada – Periodicals, p. 19, DSR 1997:I, 449, at 464.
1134 Philippines' first written submission, paras. 528, 541-542; second written submission,
paras. 439-441; Exhibit PHL-94.
1137 Thailand's response to Panel question No. 57.
1139 Philippines' comments on Thailand's response to Panel question Nos. 137 and 138; Philippines'
response to Panel question Nos. 133 and 138; refere ncing Exhibits PHL-94, Section 82/5 and PHL-271. The
following are the relevant situations: (i) a tax invoice cannot be produced and there is no reasonable excuse; (ii)
a tax invoice contains incorrect or in adequate information; (iii) output ta x is not directly connected with the
supplier's business; (iv) input tax originated from entertainment expenses; (v) input tax invoice issued by a non-
authorized agent; and (vi) input tax designated by the DG with the approval of the Minister. The Philippines
also notes that pursuant to Notification No. 42, Clause 1(2) and Section 82/5(6) of the Thai Revenue Code, a
reseller of imported cigarettes who chooses to use retail business right to submit a summary tax invoice to ease
the administrative burden, cannot deduct the input tax stated therein from the output tax in connection with
resale of imported cigarettes; and regular tax invoices, under Section 86/4 of the Thai Revenue Code do not
contain the word "Tax invoice" (Philippines' respon se to Panel question Nos. 133 and 138, para. 211,
referencing Exhibits PHL-280 and PHL-271).

equality of competitive conditions. A Member's re spect for the national treatment obligation cannot
be contingent upon merely private party actions.1140
7.616 Thailand argues that TTM pays the entire VAT amount for resale up front and that in
practice, imported cigarette resellers have the sa me VAT liabilities as domestic cigarette resellers. 1141
Thailand maintains that imported cigarettes do not bear a greater VAT burden than domestic
cigarettes, since wholesalers and retailers do not pay any net VAT to the Thai government on sales of
domestic or imported cigarettes. 1142 Moreover, wholesalers and retailers typically buy both domestic
and imported cigarettes, which are all subject to the same administrative requirements. 1143 Thailand
characterizes the Thai VAT system as a mere reporting requirement because the imported and
domestic cigarettes are taxed equally in practice. 1144 Thailand argues that the VAT payable is
automatically neutralized with a tax credit before the liability is due.1145
7.617 Thailand submits that a VAT exemption for the resellers of domestic cigarettes is balanced
with a tax credit automatically available to the r esale of imported cigarettes. The comparison of tax
imposed on the cigarettes at issue under Article III:2, first sentence, should only be determined at the
stage of the transaction when the final consumer purchases the cigarettes. 1146 The VAT is calculated
as 7 per cent of the MRSP (output tax liability) minus 7 per cent of the MRSP (input tax credit) = 0
(net VAT liability) for imported cigarette resal e and simply "0" for domestic cigarette resale. 1147
Thailand notes that the Philippines' own expert pr ovided that the VAT calculation is achieved by
crediting input tax against output tax liability 1148 and that VAT registrants are "entitled" to input tax
credits as a "right" and the cumulative VAT tax bur den would be calculated in connection with the
supply of a pack of imported cigarettes. 1149 The VAT liability for the resale of imported cigarettes
would therefore be equal to that of domestic cigarettes.1150
7.618 Thailand argues that a private party does not have to take any additional steps to receive the
tax credit. Thailand maintains that the right to an input tax credit arises when the goods are
purchased, at the same time or before the liability to pay an output tax is incurred, therefore the
liability to pay an output tax can never pre-date the entitlement to an input tax credit.1151
(ii) Analysis by the Panel
7.619 The Philippines claims that the VAT exempti on for the resale of domestic cigarettes under
Thai law is a de jure violation of Article III:2, first sentence. Thailand asserts that the Philippines
misinterprets the Thai VAT system and that there is no excess taxation for imported cigarettes
because the VAT payable by imported cigarette resellers is automatically neutralized with a tax credit
before the liability is due.

1140 Philippines' response to Panel question No. 52.
1141 Thailand's first written submission, para. 99; Exhibit THA-20.
1142 Thailand's first written submission, para. 101.
1143 Thailand's first written submission, para. 102.
1144 Thailand's first written submission, paras. 99, 101 and 242-243; Exhibit THA-20.
1145 Thailand's first written submission, para. 103.
1146 Thailand's second written submission, para. 147; first written submission paras. 241-244;
Exhibit THA-20.
1147 Thailand's first written submission, para. 103.
1148 Thailand's comments on the Philippines' response to Panel questions, para. 86.
1149 Thailand's comments on the Philippines' response to Panel questions, para. 86, referencing the
Philippines' response to Panel question Nos. 133 and 138.
1150 Thailand's comments on the Philippines' response to Panel questions, para. 86, referencing the
Philippines' response to Panel question Nos. 133 and 138.
1151 Thailand's comments on the Philippines' response to Panel questions, para. 72; response to Panel
question No. 132(3).

7.620 A de jure inconsistency of a measure with the WTO obligations can be demonstrated if the
relevant legal instrument explicitly provides for the words that result in a violation of certain
obligations.
1152 For the purpose of the obligation under Article III:2, first sentence, of the
GATT 1994, the Panel in Indonesia – Autos recognized that origin-based distinctions for internal
taxes leading to excess taxation for imported goods is in itself inconsistent with Article III:2 of the
GATT 1994:
"[A]n origin-based distinction in respect of internal taxes suffices in itself to violate
Article III:2, without the need to demonstr ate the existence of actually traded like
products. This is directly in accord w ith the broad purposes of Article III:2, as
outlined by the Appellate Body."1153
7.621 Turning to the facts of this dispute, it is not disputed that imported cigarette resellers are liable
for VAT under Section 82/7 of the Thai Revenue Code and that an exemption from this VAT liability
is provided only to the resale of domestic cigarettes pursuant to Section 3(1) of Royal Decree No.239
and the Order of Revenue Department No. Por. 85- 2542. To recall, Section 3(1) of Royal Decree
No.239 reads:
"Section 3. There shall be exempt from value added tax for the following businesses:
(1) Sale of cigarettes produced by a manuf acturer which is an organization of a
government where the seller is not such manufacturer who produces such cigarettes:
provided that this shall not include th e seller who is a bonded ware house duty free
shop."
1154
7.622 The Order of Revenue Department No. Por. 85-2 542 also provides, in relevant part, that a
registered operator who buys cigarettes and receives a tax invoice from the tobacco industrial operator
that is a State organization is exempted from VAT in Section 81(1)(v) of the Revenue Code.1155
7.623 The text of the above measures pertaining to th e VAT exemption therefore specifically refers
to cigarettes produced by a manufacturer which is an organization of a government, namely TTM –
the only domestic cigarette manufactur er in Thailand. Consequently , if the VAT liability arises only
with respect to the resale of imported cigarettes because of the exemption given to domestic cigarette
resale under the relevant provisions, the Thai measures at issue, on their face, lead to applying a VAT
to imported cigarettes in excess of that imposed on like domestic cigarettes.
7.624 Thailand, however, argues that the resellers of imported cigarettes are not subject to excess
taxation because the tax credit is available automa tically and simultaneously on the submission of a
required form (Form Por.Por.30): the VAT registrant reseller is automatically entitled to deduct VAT
paid on purchases in calculating its VAT liability for the month. 1156 The Philippines contends that a
de jure VAT exemption for the resellers of domestic cigarettes cannot be cured by the availability of a
tax credit that is contingent upon an action from a private party and that does not necessarily offset the
tax liability in a given tax period.

1152 In the context of an export subsidy under the Subsidies Agreement, the Appellate Body in Canada
– Aircraft stated on de jure export contingency: "… There is difference, however, in what evidence may be
employed to prove that a subsidy is export contingent. De jure export contingency is demonstrated on the basis
of the words of the relevant legislation, regulation or othe r legal instrument …" (underline added) (Appellate
1153 Panel Report, Indonesia – Autos , para. 14.113; noting Appellate Body Report, Canada –
Periodicals, pp. 21-22, DSR 1997-I, 449 at 468; see also Panel Report, Colombia – Ports of Entry, para. 7.182.
1154 Exhibit PHL-217.
1155 Exhibit PHL-95, p. 6, No. 7.
1156 Thailand's response to Panel question No. 137.

7.625 We recall our earlier discussion that the obliga tion under Article III:2, first sentence, not to
tax imported products in excess of like domestic pr oducts, prohibits even the smallest amount of
excess taxation on imported products. We furthe r recall the statement by the GATT Panel in US –
Tobacco:
"[T]he Panel thus considered that the system for calculation of the BDA on imported
tobacco itself, not just the manner in which it was currently applied, was inconsistent
with Article III:2 because it carried with it the risk of discriminatory treatment of
imports in respect of internal taxes."1157 (emphasis added)
7.626 The obligation not to tax imported products in excess of like domestic products under the first
sentence of Article III:2 therefore extends to a pote ntial risk of excess taxation. By definition, the
existence of a mere possibility or potential risk of such excess taxation under a given measure cannot
be equated to a real risk. The Appellate Body's finding in US – Section 211 Appropriations Act
provides guidance in this regard. By first noti ng that the jurisprudence on Article III:4 of the
GATT 1994 [in particular, the Panel report on US – Section 337 Tariff Act ] may be useful in
interpreting the national treatment obligation in the TRIPS Agreement , the Appellate Body agreed
with a previous panel's view that the national treatment obligation must be interpreted strictly:
"And that panel [Panel on US – Section 337 Tariff Act], importantly for our purposes,
concluded that:
…while the likelihood of having to defend imported products in two
fora is small, the existence of the possibility is inherently less
favorable than being faced with having to conduct a defense in only
one of those fora.
…
again echoing that panel, even the possibility that non-United States
successors-in-interest face two hurdles is inherently less favorable than the
undisputed fact that United states successors-in-interest face only one."1158
7.627 We are of the view that the standard set for th e national treatment obligation in the context of
Article III:4 and the TRIPS Agreement could therefore be equally relevant to the national treatment
obligation under Article III:2. U nder Article III:4, a violation of the obligation not to treat imported
products less favourably than like domestic pr oducts will be found if the measure concerned
negatively affects the conditions of competition of the imported products in the importing Member's
market. Given that the existence of the mere po ssibility of less favourable treatment was considered
sufficient to find a violation of Article III:4, the mere risk of discriminatory treatment of imported
products in respect of "internal taxes" would be su fficient to find a violation of the national treatment
obligation under Article III:2, first sentence. With this principle in mind, we will examine VAT tax
credits granted to the resellers of imported cigarettes under the Thai law.
7.628 The Thai Revenue Code allows the resellers of imported cigarettes to offset their VAT
liability arising from the resale of imported cigarettes against VAT input tax already paid to a
previous reseller. As explained above, this can be put into an equation:

1157 GATT Panel Report, US – Tobacco, para. 97.
1158 Appellate Body Report, US – Section 211 Appropriations Act , paras. 261-265, referencing the
GATT Panel Report, US – Section 337 Tariff Act, para. 5.19.

VAT liability = Output tax (sale to a next purchaser) – Input tax (purchase from a
previous reseller)
7.629 Tax amounts are calculated by multiplying the VAT amount (i.e. 7%*(MRSP-VAT)) by the
number of cigarette packs sold. Section 82/3 of th e Thai Revenue Code then provides that if output
tax exceeds input tax, the tax payable shall be equal to the difference. If input tax exceeds output tax,
the difference shall be treated as a tax credit, and th e supplier is entitled to r eceive a tax refund or to
apply the credit for paying value added tax later on.
7.630 Thailand argues that the entitlement to deduction of an input tax under the Thai Revenue
Code is automatic and simultaneous with the obligati on to pay output tax, which arises at the time of
submission of a VAT return form, Form Por.Por.30 . Thailand asserts that no additional step by a
reseller is involved in this process for the tax cred it to be granted to the reseller. Based on this,
Thailand maintains that the net VAT liability is the sa me – i.e. "zero" – for resellers of both domestic
and imported cigarettes. Therefore, according to Thailand, the resellers of imported cigarettes can
never incur a net liability on the resale of a particular pack of cigarettes for the year to date or for the
total amount of cigarettes sold because the credit fo r input tax paid on the purchase of a pack of
cigarettes will always come before the liability for output tax payable on the sale of the pack.
1159
7.631 The Philippines, however, points to instances wher e the net VAT liability will be greater than
zero for imported cigarette resellers, which amounts to an excess tax for imported cigarettes. 1160
Specifically, the Philippines' position is that the inpu t tax credits are not automatically available and
thus a reseller of imported cigarettes will be subj ect to excess taxation under certain circumstances,
including when any of the administrative re quirements linked to the input and output VAT
mechanism for imported cigarette resale are not met.
7.632 In these circumstances, we must clarify whether input tax cred its under the Thai regulations
are granted automatically and simultaneously with th e obligation to pay output taxes in every case so
as not to create even the potential risk of an excess tax for imported cigarettes.
7.633 We note Thailand's explanation that the reselle r of imported cigarettes can never incur a net
liability on the resale of a particular pack of cigarettes: the input tax credit always precedes the
liability because the credit is provided at the time of the purchase of imported cigarettes. Although
the text of the relevant provisions of the Thai Revenue Code does not explicitly spell out that the input
tax credit "always precedes" the liability, it is logi cal to understand that the purchase, entailing an
input tax credit, occurs before the sale of importe d cigarettes, resulting in an output tax liability.
However, in our view, this does not mean that a reseller of imported cigare ttes can never incur a net
liability on the resale of a particular pack of cigarettes for the following reasons.
7.634 As addressed in more detail in the following section relating to the Philippines' claim under
Article III:4, certain administrative requirements are imposed on imported cigarette resellers in
obtaining tax credits for the tax liability arising from sales of imported cigarettes. For example,
resellers of imported cigarettes must submit a VAT re turn form, Por.Por.30; this is also the form
through which they can request a tax credit. 1161 As the Philippines has submitted, and Thailand
acknowledges, the reseller of imported cigarettes would not receive a tax credit to which it was
entitled if it did not file the form or if the reseller files the form but subsequently cannot prove that the

1159 Thailand's response to Panel question No. 123(3).
1160 Philippines second oral statement, paras. 92 and 96.
1161 Exhibit THA-42. DG Notification No. 65 re: Pres cription of VAT Forms, dated 22 November
BE2538 (1995) requiring the use of Form Por.Por.30, pursuant to paragraph 1 of Section 83 of the Thai Revenue
Code.

purchase took place, for example, by losing the purchasing invoice. 1162 These resellers are also
obliged to complete and maintain tax invoices, ta x input/output reports and goods and raw material
records for VAT purposes.1163 A tax credit will also not be availa ble if a reseller is unable to produce
an invoice as proof of purchase or if its invoices are incomplete or inaccurate. 1164 Further, as
described above in paragraph 7.59 3, Section 82/5 of the Thai Revenue Code sets forth six specific
situations where a reseller of imported cigarettes woul d not be allowed to deduct output tax paid to its
previous seller in computing tax under Section 82/3.
7.635 Therefore, we are not persuaded by Thaila nd's argument that the tax credit granted to
imported cigarette resellers is automatically granted under the Thai law, without the need for resellers
to take any procedural steps.
7.636 Thailand argues that, as the only conceivable instances of alleged excess taxation relied on by
the Philippines do not depend on the law, but rather on the reseller's own failure to exercise its right to
claim a tax credit, this cannot give rise to a viol ation of Article III:2. We do not find Thailand's
argument convincing. It is the Thai laws and regula tions at issue that give rise to certain obligations
on resellers of imported cigarett es, which the Panel describes at paragraph 7.634 above and in
Section VII.F of its report. The failure to co mply with these obligations will in turn deprive
importers of tax credits necessary to offset thei r VAT liability; yet, this potential liability for VAT
payment does not exist for resellers of domestic ci garettes under the measures at issue due to the tax
exemption described in paragraph 7.623.
7.637 As emphasized by the Appellate Body in Korea – Various Measures on Beef, what is relevant
in assessing the consistency of a measure with the WTO obligations is whether the concerned measure
itself imposes "the legal necessity" of certain action on private parties. 1165 In that case, the Appellate
Body underlined that given the restrictive nature of a choice given to retailers, "the intervention of
some element of private choice does not relieve Korea of responsibility under the GATT 1994 for the
resulting establishment of competitive conditions less favourable for the imported product than for the
domestic product".1166 In Thailand, the law imposes VAT on resellers of imported cigarettes for the
sale of imported cigarettes. This liability is not off set automatically and requires resellers to satisfy
certain administrative requirements. Failure to sa tisfy these requirements means that the reseller of
imported cigarettes remains subject to VAT. In our view, the fact that this potential liability does not
exist for domestic cigarette resellers und er the Thai law, by virtue of a de jure exemption of resale of
domestic cigarettes, leads to excess taxati on for imported cigarettes and consequently a de jure
violation of the first sentence of Article III:2.
(c) Whether the VAT exemption for domestic cigarette resellers is otherwise justified
(i) Main arguments of the parties
7.638 Thailand argues that the different regulatory tr eatment of resale of imported and domestic
cigarettes serves an important role in ensuring tax collection and preventing fraud such as black
market sales, contraband and counterfeiting in the Thai cigarette market.1167

1162 Thailand's response to Panel question No. 138; the Philippines' response to Panel question Nos. 133
and 138.
1163 See paras. 7.669-7.776.
1164 Thailand's response to Panel question No. 137, referencing Section 82/5(1) and (2) of the Thai
Revenue Code (Exhibit PHL-94).
1165 Appellate Body Report, Korea – Various Measures on Beef, para. 146.
1166 Appellate Body Report, Korea – Various Measures on Beef, para. 146.
1167 Thailand's response to Panel question No. 135.

7.639 Thailand contends that there is no risk of unde rpayment of tax for domestic cigarettes resale
as TTM is a government entity responsible for all ta xes on the cigarettes they sell. As a practical
matter, a state owned cigarette manufacturer will al ways pay its taxes, since its revenues ultimately
rest in the government accounts.
1168
7.640 Further, smuggling of cigarettes is a signifi cant problem in Thailand with some estimates
showing that consumption of contraband imported cigarettes is three times larger than consumption of
legally imported cigarettes. 1169 Since imported brands may enter the market illegally, less VAT may
be paid on the resale of those imported cigarettes overall.1170 There is no equivalent risk of smuggling
VAT free domestic cigarettes because VAT for domestic cigarettes is acquitted by the sole domestic
manufacturer.1171 Furthermore, TTM monitors Thailand's public health objectives, but has no bearing
on such objectives in exporting countries.1172
7.641 The Philippines argues that under WTO law, a Member's justification for subjecting
imported goods to discriminatory taxation must be assessed under the specifi c exceptions listed in
Article XX of the GATT 1994.1173 The respondent, Thailand in this case, bears the burden of proving
that its measures are justified pursuant to one of those exceptions. Thailand has, however, elected not
to advance its arguments under Article XX.
(ii) Analysis by the Panel
7.642 We note that the applicability of the first sen tence of Article III:2 is not conditional upon the
policy purposes of the tax measures at issue. 1174 Article XX of the GATT 1994 exists to cover certain
public policy exceptions including measures necessar y to secure compliance with domestic law.
However, Thailand has not raised Article XX in th is dispute for us to assess the policy goals that
would be achieved by the VAT exemption under the Thai law.
7.643 In our view, therefore, Thailand's ju stifications as cited above for its de jure VAT exemption
for domestic cigarette resellers do not bear on the deci sion of the Panel that such an exemption results
in imposing a VAT on imported cigarettes in excess of that on domestic cigarettes in violation of
Article III:2, first sentence.
(d) Conclusion
7.644 For the foregoing reasons, we conclude that th e measures at issue subject imported cigarettes
to excess taxation compared to like domestic cigarett es in violation of Article III:2, first sentence, of
the GATT 1994. Under the relevant provisions of Th ai laws and regulations, resellers of domestic
cigarettes are de jure exempt from the VAT liability, whereas th e same exemption is not granted to
resellers of imported cigarettes as tax credits do not automatically and irrevocably offset tax liabilities
incurred by retailers of imported cigarettes in every case.

1168 Thailand's first written submission, paras. 21-30; response to Panel question No. 61.
1169 Thailand's first written submission, para. 29; Exhibit THA-1, p. 26.
1170 Thailand's first written submission, paras. 21-30 and 254-255; response to Panel question No. 61.
1171 Thailand's first written submission, para. 24.
1172 Thailand's first written submission, paras. 21, 25, 27 and 30; response to Panel question No. 61.
1173 Philippines' comments on Thailand's response to Panel question No. 135 and to the Philippines'
question No. 1.
1174 Panel Report, US – Superfund, para. 5.2.4, Panel Report, EEC – Parts and Components , para. 5.6;
Panel Report, Argentina – Hides and Leather, paras. 11.143-11.144.

F. ARTICLE III:4 OF THE GATT 1994 – VAT EXEMPTION FOR RESELLERS OF DOMESTIC
CIGARETTES
1. Introduction
7.645 The Philippines claims that Thailand violates Article III:4 of the GATT 1994 because its
VAT system accords less favourable treatment to imported cigarettes by imposing more onerous
administrative requirements on resellers of imported cigarettes than on resellers of domestic
cigarettes. Thailand argues that resellers of both imported and domestic cigarettes are subject to the
same regulatory treatment and that the minor difference that exists in relation to the VAT reporting
requirements does not modify the conditions of competition for imported cigarettes in the Thai
market.
7.646 Article III:4 of the GATT 1994 provides:
"The products of the territory of any contr acting party imported into the territory of
any other contracting party shall be accord ed treatment no less favourable than that
accorded to like products of national origin in respect of all laws, regulations and
requirements affecting their internal sale, offering for sale, purchase, transportation,
distribution or use. ... "
7.647 The Appellate Body clarified that three requireme nts must be satisfied to establish a violation
of Article III:4: (i) the imported and domestic product s at issue are "like products"; (ii) the measure at
issue is a "law, regulation, or requirement affecting their internal sale, offering for sale, purchase,
transportation, distribution, or use"; and (iii) the imported products are accorded "less favourable"
treatment than that accorded to like domestic products.
1175
7.648 We will examine the Philippines' claim under Ar ticle III:4 on the basis of the three elements
identified above.
2. Measures at issue
7.649 In its request for the establishment of a panel, the Philippines identified the following as the
relevant measures in connection with Thailand' s VAT-related administrative requirements for
wholesale and retail sellers of cigarettes:
• Sections 81 and 82/7 of the Thai Revenue Code;

• Royal Decree issued under the Revenue Code Governing Exemption from Value
Added Tax (No. 239) B.E. 2534 (1991);

• Order of Revenue Department Por 85/2542; and

• any amendments, implementing measures, or other related measures.

7.650 The Philippines claims that these Thai regulations are as such in violation of Article III:4.
1176

1175 Appellate Body Report, Korea – Various Measures on Beef, para. 133.

3. Description of the measures at issue
7.651 Chapter IV (Value Added Tax) of the Thai Revenue Code provides for the administrative
requirements that businesses subject to VAT must comply with. Specifically, Divisions 7-14 of
Chapter IV include provisions concerning the filing of VAT tax returns and invoices and describe the
auditing and sanctioning procedures in case of non-co mpliance with the requirements. The specific
obligations included in Chapter IV are as follows:
7.652 VAT registrants
1177 must obtain, complete, and file the VAT Filing Form (VAT Form,
Por.Por.30). Division 7, Section 83 of the Thai Revenue Code states that the form must be sent
monthly "whether or not goods are sold or services are provided in the tax month", and must be filed
locally at each place of business unless the Director-G eneral has authorized joint filing with the
central authority 1178; this same form is also used to obtain a VAT credit 1179, provided the credit is
claimed at the time of filing the VAT form. Otherwise, an additional form (Kor. 10) would have to be
filed for tax credit purposes.1180
7.653 VAT registrants must prepare, for every resale, a detailed tax invoice 1181, which must be
delivered to the purchaser of the good. A copy thereo f must be kept for a period of no less than five
years from the date of filing of returns or preparing the records.1182

1177 Exhibit PHL-94, Chapter IV, Division 1, Section 77/1 defines "registrants" as "a supplier who has
been recorded for value added tax registration under Section 85 or 85/1 or for temporary tax registration under
Section 85/3". The same section defines "supplier" as "a person who sells goods or provides a commercial
service whether in doing so he receives any benefit or co nsideration". Sections 85 and 85/1 explain that persons
commencing or carrying on a business of selling goods or providing a commercial service in Thailand are
required to register for VAT purposes. Exhibit PHL-94 ("Thai Revenue Code, B.E. 2481 (1938)").
1178 Exhibit PHL-94, Chapter IV, Division 7, Section 83.
1179 Exhibit PHL-94, Chapter IV, Division 8, Section 84 to 84/4 sets out the requirements to claim tax
credits and VAT refunds:

"A registrant shall have the right to apply tax credit resulting from the computation of tax
under Section 82/3 in each tax month for paymen t of value added tax according to the rules,
procedures or conditions prescribed by a Royal D ecree, or to claim for a refund at the time of
filling a tax return for the tax month under Section 83 or 83/1, except in the cases where a
supplementary tax return is filed because of an incorrect or inadequate filling under
Section 83/4, a refund may be claimed at the time of filing such a supplementary tax return."

1180 Exhibit THA-89.
1181 Exhibit PHL-94, Chapter IV, Division 10, Section 86/4:

"Subject to Section 86/5 and 86/6, a tax invoice shall contain at least the following particulars:
(1) the word, "Tax invoice", in a conspicuous spot,
(2) name, address and tax-payer identification, number of the registrant issuing a tax invoice, ...
(3) name, address of the purchaser of the goods and the recipient of services,
(4) serial number of the tax invoice, and of the pad, if any,
(5) name, type, category, quantity, and value of the goods and services, which shall be clearly separated
from such a value,
(7) date of issuance of the tax invoice,
(8) Any other information specified by the Director-General."

Division 10, Section 86/5 of the Thai Revenue Code states that the Direct or-General may "vary the
particulars in respect of [tax invoices for imported tobacco]". Division 10, Section 86/6 of the Thai
Revenue Code reserves the possibility that the Dir ector-General authorize VAT registrants selling by
retail to a large number of customers to file only a summary tax invoice.

7.654 VAT registrants must prepare tax records: 1183 a tax input record (recording VAT amounts
which a registrant pays when purchasing goods or acquiring services in the course of his business)
and a tax output record (recording VAT amounts a registrant collects/is liable to collect from a
purchaser of goods or a recipient of services); a goods and raw materials record (required only from
VAT registrant selling goods). In addition, Division 11, Section 87/1 of the Thai Revenue Code states
that the Director-General may require that a "registr ant prepare records other than or at variance with"
the documents hereinabove, where necessary or approp riate. Those records mu st be maintained for a
period of at least 5 years from the filing.
1184
7.655 VAT registrants may be subject to audit pro cedures. The powers of the assessment officer
include both asking the administered to "do any act as necessary for the examination of the various
pertinent documents", and "seizing those documents for examination".1185
7.656 VAT registrants may be subject to penalties, criminal sanctions, surcharges, and/or denial of a
VAT credit in the event of non-compliance with the provisions of Chapter IV of the Thai Revenue
Code.1186
7.657 Unless specifically exempted under the relevant Thai law, businesses selling any good liable
to VAT are required to comply with the VAT-related administrative requirements.
7.658 Neither party disputes that the measure at issue – Chapter IV of the Thai Revenue Code - is
a "law, regulation, or requirement" within the meaning of Article III:4.
4. Like product analysis
(a) Main arguments of the parties
7.659 The Philippines submits that the distinction drawn by Thailand with respect to the
VAT-related administrative requirements are ba sed purely on the origin of the cigarettes. 1187 T h e
Philippines relies on the principle established in Argentina – Hides and Leather that where domestic
legislation draws distinctions between products pu rely on the basis of national origin, it is not
incumbent on the complainant to compare specific products or to address the criteria relevant to
determining likeness. 1188 The Philippines notes that the distinc tion is evidenced in section 2 of the
Order of the Revenue Department where it refe rs expressly to imported tobacco and cigarettes 1189 and

1182 Exhibit PHL-94, Chapter IV, Division 10, Section 86.
1183 Exhibit PHL-94, Chapter IV, Division 11, Section 87.
1184 Exhibit PHL-94, Chapter IV, Division 11, Section 87/1.
1185 Exhibit PHL-94, Chapter IV, Division 12, Sections 88-88/6 enumerates the powers of the
assessment officer. The list includes th e power to conduct periodic tax audits if doubts exist as to the accuracy
1186 Exhibit PHL-94, Chapter IV, Division 13 and 14, Sections 89-90/5.
1188 Philippines' first written submission, pa ras. 543 and 550, citing Panel Report, Argentina – Hides
and Leather, para. 11.168.
1189 Order of the Revenue Department No.Po.85/2542 Re Computation of Tax Base for Importation and
Sale of Tobacco According to Category and Type Prescribed by Director-General and Approved by Minister
Under Section 79/5 of Revenue Code, and Preparation of Tax Invoice in Case of Sale of Tobacco Under
Section 86/5/2) of Revenue Code. Section 2 of the Order of the Revenue Department states:

"In case the registered operator has sold tobacco imported from abroad to a buyer, irrespective
of whether it be the registered operator who imports the tobacco himself or the registered
operator who buys same from the importer or the sellers of every level, the tax base of the
value added tax shall be computed."

Section 7 of the Order where it refers to cigarettes "from the tobacco industrial operator that is a State
organization".
1190
7.660 Thailand did not provide any counterargument in this regard.
(b) Analysis by the Panel
7.661 As the Philippines submits, in previous disputes, products that are distinguished solely on the
basis of their origin were found to be "like" products within the meaning of Article III:4. 1191 As we
concluded above 1192, the Thai measures at issue do disti nguish between cigarettes based on their
origin. In the light of this and i n the absence of any counterarguments from Thailand, the Panel
concludes that imported and domestic cigarettes are like products.
7.662 Furthermore, we also recall our finding above that Marlboro and L&M cigarettes at issue are
like the domestic cigarettes within the same price se gments under Article III:2, first sentence, of the
GATT. The Appellate Body clarified that the scope of "like" in Article III:4 is broader than that in the
first sentence of Article III:2. 1193 Accordingly, to the extent that the imported and domestic products
compared are found "like" within the meaning of the first sentence of Article III:2, they can also be
deemed to meet the likeness requirement unde r Article III:4. Therefore, we find that Marlboro and
L&M are "like" domestic cigarettes within the meaning of Article III:4.
5. "Affecting the internal sale, offering for sa le, purchase, transportation, distribution or
use of imported cigarettes"
(a) Main arguments of the parties
7.663 The Philippines refers to the statement by the Appellate Body in US – FSC (Article 21.5) that
the term “affecting” is to be interpreted so as to have a “broad scope of application" and to the finding
of the Panel in India – Autos , which stated that the term "affecti ng" covers any laws or regulations
"which might adversely modify the conditions of competition between domestic and imported
products".1194 Thailand did not respond to the Philippines' argument in this regard.
(b) Analysis by the Panel
7.664 The second element under Article III:4 concerns whether the VAT requirements imposed on
imported cigarettes which are laws, regulations or requirements under Article III:4 are "affecting the
internal sale, offering for sale, purchase, transporta tion, distribution, or use of" imported cigarettes.

1190 According to Section No.7 of the Order of the Revenue Department:

"The registered operator who buys cigarett e and receives a tax invoice from the tobacco
industrial operator that is a State's organization under No.6, when selling cigarette, shall be
exempted from the value added tax under Section 81(1)(v) of the Revenue Code. Likewise, it
needs not prepare tax invoice and shall have no right to collect value added tax from the buyer
thereof."

1191 See, for example, Panel Report, Canada – Wheat Exports and Grain Imports , para, 6.164; Panel
Report, China – Publications and Audiovisual Products, para. 7.1446.
1192 See Section VII.D.3 above.
1193 Appellate Body Report, EC – Asbestos, para. 99.
1194 Philippines' first written submission, para. 551, referring to Appellate Body Report, US – FSC
(Article 21.5), para. 210 and Panel Report, India – Autos , para. 7.196; second written submission,
paras. 477-479, referring to Panel Report, India – Autos, para. 7.196.

We recall that the word "affecting" is understood to mean "to have an effect on, which indicates a
broad scope of application". 1195 The Appellate Body also stated that "the word 'affecting' assists in
defining the types of measure that must conform to the obligation not to accord 'less favourable
treatment' to like imported products, which is set out in Article III:4. The word 'affecting' ... does not,
in itself, impose any obligation ...". 1196 The Panel in Dominican Republic – Import and Sale of
Cigarettes also found that a tax stamp imposed on th e sale of imported cigarettes qualified as a
measure affecting the sale of the cigarettes.1197
7.665 In the light of the term "affecting" as underst ood by the Appellate Body and previous panels
and given the absence of any objection from Thailand, we find that the Thai regulations at issue,
which concern the VAT-related administrative requi rements, can be considered as affecting the
internal sale of imported cigarettes within the meaning of Article III:4.
6. "Less favourable treatment"
7.666 As regards the "less favourable treatment" require ment in Article III:4, the Appellate Body
states:
"A formal difference in treatment between imported and like domestic products is
thus neither necessary, nor sufficient, to show a violation of Article III:4. Whether or
not imported products are treated 'less fa vourably' than like domestic products should
be assessed instead by examining whether a measure modifies the conditions of
competition in the relevant market to the detriment of imported products."1198
7.667 In addressing the question of whether the imported cigarettes are subject to treatment less
favourable than the like domestic cigarettes, theref ore, we will examine the following three issues: (i)
whether the Thai regulations at issue impose an ex tra-administrative burden on resellers of imported
cigarettes; (ii) whether this alleged extra-burden, if found to exist, has any negative impact on the
competitive conditions for imported cigarettes in the Thai market, and; (iii) whether Thailand
demonstrated that this alleged modification of th e competitive conditions could still be justified under
Article III:4.
(a) Whether an additional administrative burden is imposed on resellers of imported cigarettes
(i) Main argument of the parties
7.668 The parties disagree on the existence of an a lleged additional admini strative burden imposed
on the resellers of imported cigarettes. The Philippines argues that Thailand violates Article III:4 on
the grounds that only resellers of imported cigare ttes are subject to the VAT-related administrative
requirements.1199 Thailand submits that the Philippines ignores that wholesalers and retailers of
imported and domestic cigarettes are all subject to equivalent treat ment. In Thailand's view, the
minor differences of treatment existing under Thai law do not amount to unequal treatment. 1200
Thailand further argues that the Philippines has not provided any actual evidence of the forms or
records required to be maintained by sellers of im ported cigarettes other than lawyers' statements
describing the administrative requirements of Thai law. 1201 According to Thailand, without any direct

1195 Appellate Body Report, EC – Bananas III, para. 220.
1196 Appellate Body Report, US – FSC (Article 21.5 – EC), paras. 208-210.
1197 Panel Report, Dominican Republic – Import and Sale of Cigarettes, paras. 7.170 and 7.171.
1198 Appellate Body Report, Korea – Various Measures on Beef, para. 137.
1199 Philippines' first written submission, paras. 553 and 555; Philippines' response to Panel question
No. 59; Philippines' second oral statement, para. 101.
1200 Thailand's first written submission, paras. 250-251; second written submission para. 169.
1201 Thailand's second oral statement, para. 65.

evidence regarding the administrative burdens allege d by the Philippines, the Panel cannot evaluate
whether these alleged burdens constitute less favourable treatment under Article III.4.
1202
VAT Form Por.Por.30
7.669 The Philippines submits that Section 81/2 of the Thai Revenue Code exempts VAT
registrants from complying with all VAT administrative requirements in connection with the resales
of VAT-exempt goods and services, and it underlines that only sales of imported cigarettes are subject
to the obligation to file Form Por.Por.30. 1203 Resellers are spared the burden of completing and filing
the said form if they carry only domestic cigarett es. Even if a supplier carries both imported and
domestic cigarettes, such a supplier does not report sales of domestic cigarettes in Form
Por.Por.30.
1204 In support of its position, the Philippines has presented expert testimony on Thai
law1205 and a 2002 DG Revenue's ruling on the requirement to file Form Por.Por.30. 1206 Filing Form
Por.Por.30 is all the more burdensome because one fo rm must be completed for each individual place
of business operation.
7.670 Thailand explains that the legal obligation to f ile Form Por.Por.30 arises under Section 83,
paragraph 1 of the Thai Revenue Code and Notifi cation No. 65 re: Prescription of VAT Forms, dated
22 November BE2538 (1995) ("Notification No. 65").1207 Thailand argues that in accordance with the
instructions for Form Por.Por.30, all VAT regi strants (i.e. entities with sales of more than
7.671 Thailand further submits that sales of both imported and domestic cigarettes must be reflected
on Form Por.Por.30 – the sales of domestic cigarette s (as all other VAT exempted goods) both under
line 1 ("sales amount this month") and 3 ("exempted sales"), and the sale of imported cigarettes under
line 1 only.1209 Thailand also presented an excerpt from the textbook on the Thai Revenue Code as
well as a 1995 DG Revenue ruling to support its position. 1210 Therefore, the compliance burden
associated with the filing of Form Por.Por.30 is very similar for both imported and domestic cigarette
resellers. The requirement to file Form Por.Por. 30 depends on the entity's total sales, not on whether
it sells imported and domestic cigarettes.
1211 As an example, Thailand submitted samples of Form
Por.Por.30 filed by TTM and by a convenience stor e that sells both imported and domestic cigarettes
as well as other products. 1212 According to Thailand, these forms show amounts for both VAT and
VAT-exempt sales. In response to the 2002 DG Re venue filing put forward by the Philippines 1213,
Thailand explains that regarding certain advocacy services the ruling stated, correctly, that income
from such services is exempt from VAT and is, th erefore, not included in the calculation of the
company's VAT liability. However, the ruling does not go on to say that this VAT-exempt sales need
not be reported as VAT-exempt sales on line 3 of Form Por.Por.30. In fact, the portion of the ruling

1202 Thailand's second written submission, para. 176.
1203 Philippines' first written submission, para. 525; re sponse to Panel question No. 59; second written
submission, paras. 467-468; second oral statement, para. 102.
1205 Exhibits PHL-207 and PHL-254.
1206 Exhibit PHL-253.
1207 Thailand's response to Panel question No. 142(1); Exhibit PHL-94. Section 83, paragraph 1 of the
Thai Revenue Code provides that "a VAT registrant shall file taxes using the form prescribed by the Director
General." Thailand submits that pursuant to this au thority, the Director General issues the above-mentioned
Notification.
1208 Thailand's second oral statement, para. 66; response to Panel question Nos. 62 and 142.
1209 Thailand's response to Panel question No. 51.
1210 Thailand's response to Panel question No. 142(1); Exhibit THA-95, para. 1.
1211 Thailand's second oral statement, para. 66.
1212 Exhibit THA-89.
1213 Exhibit PHL-253.

titled "Ruling" makes no reference whatsoever to Form Por.Por.30. Thailand therefore does not
understand how this ruling can be construed to su pport the proposition that VAT-exempt sales need
not be reported on the line on Form Por.Por.30 for "exempted sales".1214
Tax invoices and other record-keeping requirements
7.672 The Philippines submits that VAT registrants reselli ng imported cigarettes are required to
prepare and maintain a detailed tax invoice and a copy thereof for every resale. Under Section 3(1) of
Revenue Order No. Por. 85/2542, the tax invoice to be drafted when reselling imported tobacco is
even more detailed than the standard one provided for under Chapter IV, Division 10 of the Thai
Revenue Code. 1215 The additional complexity stems from the use of MRSP as the VAT base
applicable to imported cigarettes pursuant to Section 79/5 of the Thai Revenue Code. 1216 More
information is required to calculate the MRSP price in the first place. Therefore, the administrative
burden on the reseller of imported ci garettes is higher than the one resellers of domestic cigarettes
have to bear.
7.673 Thailand responds that reporting procedures applying to resellers of domestic cigarettes
mirror the ones that resellers of imported cigare ttes must comply with. Resellers of domestic
cigarettes must provide a receipt to the purchaser. 1217 Resellers of imported cigarettes must provide a
receipt and a tax invoice to the purchaser (which must be filed by all VAT registrants), but both may
be filed on the same form. 1218 Moreover, Revenue Department's Instruction No.Paw.86/25421219 states
that sales receipts may serve as tax invoices, ther eby avoiding duplication of requirements under the
Accounting Acts and the Revenue C ode. Thailand therefore considers that resellers of domestic
cigarettes and resellers of imported cigarettes face a similar administ rative burden with regard to tax
invoices.1220
Income tax reports, input/output reports, goods and raw material r ecords, alternative records,
and books and records for accounting purposes
7.674 The Philippines relies on an expert's opinion to argue that individual resellers of domestic
cigarettes are exempt from income tax. 1221 It takes the view that th e income from such sales does not
qualify as "assessable income" under the Ministerial Declaration No.126. 1222 As a consequence,

1214 Thailand's response to Panel question No. 142(2).
1215 Philippines' second written submission, para. 474; Exhibit PHL-95.
1216 Exhibit PHL-207, p. 4.
1217 Exhibit PHL-94, Section 105, 105bis and 105ter.
1218 Thailand's first written submission, para. 251, re ferring to Exhibit PHL-94, Sections 86/5(2) 105,
105bis, 105ter, and Exhibit PHL-95.
1219 Exhibit THA-90. Clause 6 of the Departmental Instruction No.Paw.86/2542 states:

"The registrant under Clause 4 may prepare tax invoices together with other commercial
documents such as receipts, invoices or deb it notes, which are comprised of many documents
in the same set."

1220 Thailand's second oral statement, para. 67.
1221 Philippines' second oral statement, para. 104; comments on Thailand's response to Philippines'
question No. 2.
1222 Exhibit PHL-254, p. 3; Exhibit PHL-94. The Philippines states that income earned from the sale of
domestic cigarettes is not "assessable" income under Section 42(17) of the Thai Revenue Code, which reads:

"Section 42. The assessable income of the following description shall be excluded for the
purpose of computing income tax: (17) Income specified for exemption by Ministerial
Regulations (See M.R. No.126,230 and 254)."

resellers of domestic cigarettes do not have to fill out and maintain either revenue/expense reports or
books and records for accounting purposes.
1223 If the Panel does not find the exemption from income
tax, the Philippines' subsidiary argument is that the reports required fro m resellers of imported
cigarettes (input/output, raw materials) are more " onerous" than the revenue /expense reports required
from resellers of imported cigarettes.1224
7.675 The Philippines underlines that resellers of impor ted cigarettes, who are liable to VAT, have
to maintain books and records for VAT a uditing purposes, and tax input/output records. 1225 As stated
above, resellers of domestic cigarettes are exempt from this requirement. The Philippines therefore
concludes that a heavier administrative burden is imposed on resellers of imported cigarettes.
7.676 Thailand submits that no one may be exempt from the obligation to fill tax input/output
reports.1226 It stresses that reports required from resellers of imported cigarettes are "virtually
identical"1227 to revenue/expenses reports that resellers of domestic cigarettes must provide under
Section 17(1) of the Revenue Code 1228 and Revenue's DG Notification No. 161 on Income Tax. The
only discrepancy lies in the fact that input/output tax report must include the registrant's amount of
VAT payable and tax invoice number.1229
7.677 In relation to books and records to be ma intained for accounting and auditing purposes,
Thailand alleges that they are identical, whether one is subject to VAT or to income tax. In both
cases, books and records consist of the sale journa ls and ledgers, purchase records, and other normal
accounting records maintained by most commercia l businesses in most countries that rely on
generally-accepted accounting principles. 1230 In addition, Thailand stresses that many businesses
resort to software programs which automatically prepare income tax and VAT reports and may

Article 2(19) of the Ministerial Regulation No.126 provides:

"Clause 2. The following income shall be income under (17) of Section 42 of the Revenue
Code as amended by the Revenue Code Amendment Act (No.10) BE. 2496: (19) Income from
sale of tobacco products on which the Thai Tobacco Monopoly has paid taxes for all stages of
the sellers under Section 48 bis of the Revenue Code."

1223 Philippines' first written submission, para. 525, referring to Exhibit PHL-94, Section 87.
1224 Exhibit PHL-182, footnote 2.
1225 Exhibit PHL-182, para. 15.1. According to the Philippines:

"[b]ecause the resale by subsequent sellers of cigarettes purchased fr om the Thai Tobacco
Monopoly (TTM) are exempted from VAT (Section 81(v) of the Revenue Code, in
conjunction with Section 3(1) of the Royal Decree No.239), such seller is outside the scope of
the VAT provisions. Such seller would only be required to comply with VAT reporting and
book-keeping requirements if they sold goods other than domestic cigarettes."

1226 Thailand's second written submission, para. 175.
1227 Thailand's second written submission, para. 175.
1228 Exhibit PHL-94. Section 17(1) esta blishes that individual sellers must maintain revenue/expenses
report:

"For the purpose of administration of taxes and duties: (1) The Director-General with the
approval of the Minister shall have the power to issue a general order requiring persons to
keep any special books of accoun t and to make any required entr ies therein. Such order shall
be published in the Government Gazette."

1229 Thailand's second written submission, para. 175.
1230 Thailand's second written submission, para. 175.

process the related records and books as well. 1231 In any case, Thailand considers that the Philippines
has failed to demonstrate how the books and records to be maintained respectively by resellers of
imported and domestic cigarettes va ry. Hence no evidence was brought to show that a greater
administrative burden is imposed on resellers of imported cigarettes.
Preparation and maintenance of documents for auditing
7.678 The Philippines argues that VAT registrants re-selling imported cigarettes are subjected to an
auditing requirement that resellers of domestic cigarettes are not subject to.1232
7.679 Comparing the reporting requirements for domestic and imported cigarettes, Thailand
submits that both obligations are the same: "sellers are subject to audit".1233
Consequences of failure to comply with the administrative requirements
7.680 The Philippines puts forward that, should resellers of imported cigarettes fail to comply with
the administrative requirements refered to hereinabove1234, high penalties, fines and surcharges will be
imposed.1235 In the same vein, the failure to claim a VAT credit at the time of the Por.Por.30 filing
results in additional requirements for resellers of im ported cigarettes: a supplementary form then has
to be filed. On the contrary, resellers of domestic cigarettes are exempt from such penalties, fines and
surcharges because they are not subject to VAT. The risk of sanction associated to the VAT
administrative requirements constitutes a burden wh ich is imposed only on resellers of imported
cigarettes.1236
7.681 In Thailand's view it is not clear why a difference in penalties between VAT registrants and
non-VAT registrants would constitute excess taxation within the meaning of Article III:4 and
therefore give rise to a violation of this article. Thailand argues that the penalties imposed for failure
to comply with VAT related administrative requi rements cannot be qualified as "internal taxes or
other internal charges" within the meaning of Article III:2, as they are only an administrative
penalties.
1237 Furthermore Thailand contends that those penalties are applied to all VAT registrants,
not to resellers of imported cigarettes only.1238
7.682 In the same line of argument, Thailand explains that the penalties are both gradual (the later
one pays, the higher the amount) and flexible (fines may be reduced or waived by the Director
General with the approval of the Minister of Finance).1239
(ii) Analysis by the Panel
7.683 In this section, we must determine whether Thailand's VAT-related requirements impose an
additional administrative burden on resellers of impor ted cigarettes compared to resellers of domestic
cigarettes. We will examine whether each administra tive requirement as referred to by the parties as
relevant to cigarette sales, separately and/or as a whole, impose an additional administrative burden
on the resellers of imported cigarettes.

1231 Thailand's second written submission, para. 175.
1232 Philippines' second written submission, para. 467; comments on Thailand's response to Philippines'
question No. 2; Exhibit PHL-94.
1233 Thailand's first written submission, para. 251.
1234 Paras. 7.669-7.679.
1235 Philippines' response to Panel question No. 59.
1236 Philippines' response to Panel question No. 59.
1237 Thailand's second written submission, para. 174.
1238 Thailand response to Panel question No. 139.

VAT form Por.Por.30

7.684 The main contention between the parties regardi ng the administrative requirements relating to
the filing of a VAT return form (Form Por.Por.30) concerns the scope of businesses subject to the
requirement to submit the form and whether sales of do mestic cigarettes must be reported in the form.
Given that the issue here concerns obligations under Thailand's own domestic law, Thailand should
normally be in a position to explain the nature of such obligations. 1240 However, to the extent that the
parties disagree on the interpretation of relevant provisions, we are required to objectively examine
the question at issue based on the text of the con cerned provision[s] as well as on the evidence before
us.1241
7.685 As Thailand has explained, paragraph 1 of S ection 83 of the Thai Revenue Code, read in
conjunction with Notification No. 65, is the legal au thority that gives rise to the obligation to file
"Every registrant shall file a tax return in the form prescribed by the Director-General
every tax month and pay tax, if any, at the same time, whether or not goods are sold
or services are provided in the tax month."
1242
7.686 The text of paragraph 1 of Section 83 clearly indicates that it is "every [VAT] registrant" who
has the obligation to file a tax return in Form Por.Por.30. We do not see any language in the provision
that limits the obligation to specific types of goods. Therefore, the obligation to file a tax return
applies to all VAT registrants regardless of the type of goods sold and/or services provided.
7.687 "Registrant" is defined in Section 77/1(6) as "a supplier who has been recorded for value
added tax registration under Section 85 or 85/1 or for temporary value added tax registration under
Section 85/3". Section 85 of Division 9 (Value Added Tax Registration) in turn provides:
"Section 85. A supplier about to comme nce a business of selling goods or
providing services shall file an application fo r value added tax registration before the
date of commencing business."
7.688 Therefore, any supplier who wishes to comme nce a business of selling goods is required to
apply for VAT registration under Se ction 85 regardless of the kind of goods it carries. In this
connection, however, Section 81/2 provides as follows:

1240 Panel Report, EC – Trademarks and Geographical Indications (Australia) , para. 7.106; Panel
Report, US – Section 301 Trade Act , paras. 7.17-7.20 stating "It follows that in making factual findings
concerning the meaning of Sections 301-310 [ of the US Trade Act of 1 974], we are not bound to accept the
interpretation presented by the US. That said, any Member can reasonably expect that considerable deference be
given to its views on the meaning of its own law".
1241 Article 11 of the DSU. Appellate Body Report, Dominican Republic – Import and Sale of
Cigarettes, paras. 110-115; As the Panel on Columbia – Ports of Entry noted (at para.7.93):

"In making an 'objective assessment' of municipal legislation, a panel should begin its
analysis by considering the very terms of the law. This examination should also include a
reading of the provisions in their proper context. A panel is not however required to limit
its examination solely to the text or wording of the norm under review. A panel's analysis
should be complemented, whenever necessary, with additional sources, which may include
proof of the consistent application of such laws, the pronouncements of domestic courts of
the meaning of such laws, the opinions of legal experts and the writings of recognized
scholars"

1242 Exhibit PHL-94, Section 83 (emphasis added, footnote in original omitted).

"Section 81/2. If a business is exempt from value added tax under the provisions of
this Division or of any other law, the supplier carrying on such business shall be
exempted from compliance with the provisions of this Chapter, ..." (emphasis added)
7.689 Section 81/2 therefore provides VAT-exempt businesses 1243 under Division 5 with total
exemption from compliance with the obligations unde r Chapter IV (Value Added Tax) of the Thai
Revenue Code. In the light of the language "exe mpted from compliance with the provisions of this
Chapter", we consider that the scope of exempti on under Section 81/2 extends to all obligations under
Chapter IV, including the requirement to apply for VAT registration before the date of commencing
business under Section 85. Therefore, if a business is qualified for exemption from VAT under
Division 5, then such a business is also exempt from the requirement to become a VAT-registrant
before commencing its business.
7.690 In this connection, we recall that certain businesses, including domestic cigarette resellers, are
exempt from VAT under Division 5 of the Thai Re venue Code. The above-m entioned provisions of
the Thai Revenue Code, read together, indicat e that a supplier falling within the scope of
VAT-exemption under Section 81 will be exempt fro m the obligation to apply for VAT registration
before commencing its business if that supplier d ecides to carry only the VAT-exempt goods and/or
services exclusive of other VAT-liable goods and/or services. In our view, however, once a supplier
becomes a VAT registrant in accordance with Secti on 85 of the Thai Revenue Code, the obligation
under Section 83 to file a VAT tax return in Form Por.Por.30 will remain regardless of the goods
and/or services the supplier subsequently carries an d/or provides unless the supplier can qualify for
withdrawal of VAT registration under Section 85/10(3).
7.691 With the above understanding of the relevant pr ovisions of the Thai Revenue Code in mind,
we will now consider the parties' specific arguments on Form Por.Por.30.
7.692 The Philippines' position has been that sales of domestic cigarettes do not need to be reported
in Form Por.Por.30 because they are exempt from VAT. 1244 Thailand insists that, regardless of the
VAT exemption, sales of both imported and domestic cigarettes must be reflected on Form
Por.Por.30.
7.693 Our examination of the Thai Revenue Code s hows that under Section 83, paragraph 1 of the
Thai Revenue Code, the obligatio n to file Form Por.Por.30 hi nges on the supplier's status as a
VAT-registrant, not the specific type of goods. The introductory statement contained in "the
particulars on a monthly basis for VAT registrant who is subject to calculate tax by offsetting Output

1243 Businesses exempted from VAT under Division 5 are categorized into two types – (i) specific
transactions and import of certain goods and export of certain goods and provision of services as listed in
Section 81 and (ii) small businesses (i.e. businesses wi th sales of more than 1.8 million baht) pursuant to
Section 81/1.
1244 Philippines' second written submission, paras. 472 and 475; Exhibit PHL-94. The Philippines first
references a combination of Section 81(1)(v) and 81/2 of the Thai Revenue Code, and Section 3(1) of Royal
Decree No 239 to explain that resellers carrying ex clusively domestic cigarettes are exempt from all VAT
administrative requirements. In addition, the Philippines refers to the expert statement by Mr. Piphob Verahpong
dated 17 July 2009 (Exhibit PHL-207, para.12) to assert that resellers carrying both domestic and imported
cigarettes are subject to VAT administrative requirements only in relation to imported products. Domestic
products are exempted of all VAT administrative requirements pursuant to Section 81/2 of the Revenue Code.
Specifically, this expert argues that domestic cigarettes do not fall under the heading "3. exempted sales" of
Form Por.Por.30 because this category rather refers to the products exempted unde r Section 79 of the Revenue
Code, read in conjunction with DG Revenue Notification Re: VAT (No 40), which do not mention domestic
cigarettes.

tax by Input tax arising in a tax month regardless of the status of the registrant be it individual, group
of persons, ...".
1245
7.694 Therefore, for example, there could indeed be a situation where a certain supplier decides to
start a business carrying only domestic cigarettes or any other VAT-exempt goods and/or services
falling within the scope of Section 81. In such a case, we consider that Section 81/2 renders that
supplier exempt from the obligation to apply for VAT registration and consequently the requirement
to file Form Por.Por.30. We also note that domest ic cigarette sales are not covered by Section 81/3
either – a provision that gives suppliers carrying on exempt businesses the right to elect to register and
pay VAT on exempt businesses. 1246 While Thailand's position has been that both imported and
domestic cigarette sales must be reported in Form Por.Por.30, it has never addressed a situation where
a supplier sells only domestic cigarettes. Similarly, sample Por.Por.30 forms completed by resellers
that sell both imported and domestic cigarettes, and other goods, as provided by Thailand in Exhibit
THA-89, do not address the situation where a reseller only carrying domestic cigarettes gets
exempted even from the obligation to apply for VAT registration. 1247 In our view, the fact that only
resellers of domestic cigarettes can enjoy an ex emption from VAT registration and consequently are
exempted from the obligation to file Form Por.Por. 30, subjects resellers of imported cigarettes to an
additional administrative burden.
7.695 We now turn to the question of whether a supplier must report income from domestic
cigarette sales in Form Por.Por.30 when that su pplier also carries VAT-liable goods (e.g. imported
cigarettes). It is not disputed that the supplier carrying both VAT-exempt and VAT-liable goods must
register for VAT purposes under Section 85 and beco me a VAT-registrant. This will consequently
subject the supplier to the obligation to file Form Por.Por.30. The Philippi nes argues that such a
supplier must report only the sale of goods subject to VAT in the form, but not VAT-exempt goods
such as domestic cigarettes. Thailand disagrees with the Philippines' position and submits that the
sale of VAT-exempt items must be reported in line 3 of Form Por.Por.30.
1. Sales amount this month, or, in case of additional filing, (1.1) Under-declared sales (1.2)
Over-declared sales
2. Less sales subject to 0% tax rate (if any)
3. Less exempted sales (if any)
4. Taxable sales amount (1-2-3-)
5. This month's output tax
6. Purchase amount that is entitled to a deduction of input tax from output tax in this month's tax
computation or (6.1) Under-declared purchases (6.2) Over-declared purchase
7. This month's input tax (according to invoice of purchase amount in 6)
8. This month tax payable (if 5 is greater than 7)
9. This month excess tax payable (if 5 is greater than 7)

1245 Exhibit THA-42 (emphasis added).
1246 Section 81/3 provides that "a supplier carrying on the following exempt businesses may notify the
Director-General in the form prescribed by the Director-General of his intention to be recorded for value added
tax registration and to pay the tax under this Chapter by computing tax in accordance with Section 82/3: (1) sale
of goods specified under Section 81(1)(a) through (f); (2) a small business under Section 81/1; and (3) other
businesses designated by a Royal Decree [No. 241] ...". Sale of domestic cigarettes is exempted from VAT
under Section 81(1)(v) in conjunction with Royal Decree No. 239 and therefore not covered by Section 81/3.
1247 We note that sample Por.Por.30 forms have been submitted by Thailand (Exhibit THA-89) and the
Philippines (Exhibit PHL-181).

10. Excess tax payment carried forward from last month
11. Net Tax Payable (if 8 is greater than 10)
12. Net Excess Tax Payable (if 8 is greater than 10) or (9 plus 10)

7.697 We first observe that line 3 "less exempted sales am ount (if any)" of Form Por.Por.30, read in
light of the instructions to Form Por.Por.30 as al so noted above in paragraph 7.693, does not inform
us which exempted sales must be recorded. In other words, even if we were to understand line 3
"Less exempted sales amount (if any)" as requiring that VAT exempted sales must be reported on
Form Por.Por.30, it is still not clear to us which exempted sales must be recorded. The instructions
included in Form Por.Por.30, particularly the part stating that "a taxpayer shall fill the amount of
exempted sales [that] were reported in the Reve nue account", do not clarify whether the sale of
domestic cigarettes falls within the scope of the cate gory to be reported in line 3 of Form Por.Por.30.
Neither do the sample Por.Por.30 forms completed by TTM and resellers that sell both imported and
domestic cigarettes, and other goods, answer the question before us.1248
7.698 In this connection, Thailand further relies on additional evidence to demonstrate that all
exempted sales must also be reported in Form Por. Por.30. First, Thailand relies on an excerpt from a
Textbook on the Revenue Code , published in 2006, to explain that sales exempted from VAT should
generally be reported, whereas sal es "not within the scope of VAT" (e.g. the sale of goods or the
provision of services outside Thailand) need not be reported in Form Por.Por.30. 1249 A second piece
of evidence submitted by Thailand is a 1995 DG Reve nue ruling in which it was decided that a
company that conducts agency and shipping services is "required to include income arising from the
transport of goods, which is a VAT-exempt activity, in the gross sales to be shown in item 1 of Form
7.699 On the other hand, the Philippines holds the view that businesses selling exempted domestic
cigarettes never have to report their sales in Form Por.Por.30. 1251 It relies on the expert opinion that
the sale of VAT-exempt goods, such as domestic cigarettes, must not be reported in line 3 of Form
Por.Por.30 because income from sale of VAT-exempt goods is not included either in line 1 as the
VAT base in the monthly sale or in line 3 of the Fo rm which is reserved for the item that is deducted
from the VAT base. It has also submitted a DG Revenue ruling issued in 2000 which indicates that
income from provision of VAT-exempt services need not be included as income for VAT
calculation.
1252
7.700 Regarding the two different rulings provided by DG Revenue on whether VAT-exempt sales
must be included in Form Por.Por.30 as noted above , the Philippines explains that this difference
exists because of a change in DG Revenue's a pproach to the requirements for completing Form
Por.Por.30.1253 According to the Philippines, DG Reve nue initially required that income from
VAT-exempt sales under Section 81 be included in Fo rm Por.Por.30, which explains a DG Revenue

1248 Exhibits THA-89 and PHL-181. We do not find a copy of the Form Por.Por.30 filled out by TTM
relevant because, inter alia, TTM is a domestic manufacturer of cigarettes, not a reseller of domestic cigarettes.
In any event, while the sample Por.Por.30 form f illed out by TTM shows that TTM reports certain amounts
corresponding to exempted sales in the form, it does not indicate that these amounts correspond to the retail sale
of domestic cigarettes. The sample Por.Por.30 form fill ed out by a reseller of domestic cigarettes and other
goods does not indicate either whethe r the exempted sales reported in th e form correspond to the sale of
domestic cigarettes or to other goods exempted from VAT.
1249 Exhibit THA-95.
1250 Exhibit THA-96.
1252 Exhibit PHL-253.
1253 Philippines' comments on Thailand's response to Panel question No. 142; Exhibit PHL-289.

ruling in 1995 as submitted by Thailand. DG Reve nue, however, subsequently changed the rule so
that VAT registrants need not include income from VAT-exempt sales under Section 81.
7.701 Thailand argues that the 2000 DG Revenue rulin g only addressed whether income exempted
from VAT by virtue of Article 81 should be includ ed in the calculation fo r VAT, not whether this
income should be reported in Form Por.Por.30. Th e text of this ruling, however, indicates that DG
Revenue was answering the question whether, in submitting and paying VAT by filing Form
Por.Por.30 in each tax month, the company does not have to include the income from the [sale of the
VAT-exempt service at issue] for calculation in order to pay for value added tax.
1254 Thus, we
understood that DG Revenue was not only addressing the question whether certain amounts should in
fact be included in the calculation of the total VAT liability, but also whether those amounts must be
Revenue ruling effectively clarified that income exempted under Section 81 need not be reported in
7.702 The Philippines also points out that the authors of the textbook referred to by Thailand do not
refer to this later ruling by DG Revenue and fail to explain the alleged change in DG Revenue's
approach. 1255 Specifically, this textbook states that "the VAT registrant must report all sales occurring
in a tax month in form Por.Por.30 ... and then s ubtracting ... sales exempted from VAT. ... However
sales that are not within the scope of VAT (for exam ple, the sale of goods or provision of services
outside Thailand) need not be reported on the form Por.Por.30". 1256 This excerpt therefore fails to
address specifically the sale of domestic cigarettes or other Section 81 VAT-exempt product, and does
not define "not within the scope of VAT". Accord ing to the Philippines, therefore, the textbook is
insufficient to rebut its interpretation of the 2000 DG Revenue ruling, even though it was published
later than the subject ruling. The Philippines' arguments therefore indicate that under the current
requirement relating to Form Por.Por.30, income from sales of domestic cigarettes need not be
7.703 While we are not presented with any official document issued by the Thai government, we are
nevertheless, based on our careful examination of all the evidence in its totality, convinced by the
Philippines' argument that the resellers of domestic cigarettes and other goods subject to VAT need
not report their sales of VAT-exempted domestic cigare ttes in Form Por.Por.30. This tends to further
demonstrate that an additional administrative require ment is imposed on VAT registrant suppliers by
reason of selling imported cigarettes.
7.704 We therefore conclude that resellers of imported cigarettes are subject to a heavier
administrative burden in respect of the obligation to complete and submit Form Por.Por.30 because:
(i) a supplier who carries exclusively domestic cigare ttes and therefore is not required to register for
VAT purposes, is exempted from the obligation to f ile Form Por.Por.30, whereas the same exemption
is not provided to imported cigare tte suppliers; and (ii) a supplier w ho is a VAT-registrant need not
include information on sales of domestic cigarettes in completing Form Por.Por.30.
Tax invoices and other record-keeping requirements
7.705 The Philippines' arguments relating to the requi rement to prepare and keep tax invoices are
two-fold: first, resellers of imported ciga rettes have to satisfy an additional formality 1257 ("tax
invoice"); and, second, a tax invoice to be prepar ed by resellers of imported cigarettes is more

1254 Exhibit PHL-253.
1255 Philippines' comments on Thailand's response to Panel question No. 142.
1256 Exhibit THA-95.

burdensome than the standard tax invoice that other VAT registrants must provide because the MRSP,
which allegedly requires more information, is the tax base for resellers of imported cigarettes.1258
7.706 With regards to the Philippines' first point, Thailand argues that sales receipts, which both
VAT and non-VAT registrants must equally mainta in under the Accounting Code, could serve as a
tax invoice. 1259 The Philippines has not responded to th is argument. In the absence of any
counterargument from the Philippines in this regard, therefore, resellers of imported cigarettes do not
appear to be subject to any extra burden at least with respect to the requirement to maintain tax
invoices in itself.
7.707 Regarding its second point, the Philippines has not fully explained how the use of the MRSP
as the tax base would make the requirement to prepare a tax invoice more difficult for resellers of
imported cigarettes. Even if the use of the MRSP as the tax base did make the preparation of a tax
invoice more difficult compared to other businesse s that do not use the MRSP as the tax base, we
found above that sales receipts can also be used for fulfilling the requirement to maintain tax invoices.
Various records to be maintained
7.708 Thailand argues that although domestic cigarette resellers are exempt from VAT liability,
they are still subject to the requirement to file re venue and expense reports that are linked to their
income tax liability. In response to this argume nt, the Philippines submits that domestic cigarette
resellers are exempt from income tax. As a con sequence, the Philippines ar gues that they need not
prepare and maintain revenue and expense reports. Resellers of imported cigarettes on the other hand
must prepare input/output tax reports and goods /raw material reports because of VAT liability.1260 To
support its position in this regard, the Philippines re lied exclusively on an expert opinion that an
individual who resells domestic cigarettes is ex empt from personal income tax by virtue of
Article 2(19) of the Ministerial Regulation No. 126, which in turn exempts such an individual from
the obligation to fill revenue/expenses reports under Section 17(1) of the Revenue Code and Director's
General Notification.1261
7.709 Although presentation of further evidence in add ition to its own expert's opinion would have
made the Philippines' position more convincing, we are not presented with any evidence and/or
arguments from Thailand that can rebut the expert opinion referred to by the Philippines. Thailand
submits without any supporting evidence that the expert opinion relied on by the Philippines is
incorrect and that an individual who resells exclusively domestic cigarettes is not exempted either
from income tax or from the corollary oblig ation to complete revenue/expense reports.
1262 Thailand
also argues that all corporate resellers, including r esellers of exclusively domes tic cigarettes, have to
maintain accounts under the Accounting Act (BE 2543)1263, which the Philippines does not contest.1264
However, we are not able to compare this obligation with the VAT-related record keeping
requirements because no evidence has been presente d as to the content of the accounts to be
maintained under the Accounting Act. In particular, there is no basis for us to decide whether the

1258 Philippines' second written submission, para. 474; Exhibit PHL-95.
1259 Thailand's first written submission, para. 251, re ferring to Exhibit PHL-94, Sections 105, 105 bis
and 105ter.
1260 Exhibit PHL-94, Sections 87(1) and 87(3) of the Revenue Code requires VAT registrants to
maintain input/output tax records and goods/raw material reports.
1261 Exhibit PHL-254, p. 3 (the e xpert declared "I ... can confirm that an individual who resells
domestic cigarettes is exempt from personal income tax by virtue of Article 2(19) of the Ministerial Regulation
No.126, [as this] is not assessable income") and Exhibit PHL-182, p. 9, combined; Exhibit PHL-256.
1262 Thailand's second written submission, para. 175.
1263 Thailand's first written submission, para. 251.
1264 Philippines' second written submission, para. 494, footnote 467; Exhibit PHL-182, table under
para. 15.2, p. 9.

requirement to maintain accounts would constitute a burden on resellers of domestic cigarettes which
is similar to the VAT-related requirements imposed on resellers of imported cigarettes. Finally,
Thailand also submitted a copy of an out put tax report filled by a reseller of both VAT-exempt and
VAT-subject products.
1265 Thus, as explained in paragraph 6.165 of the interim review section, this
excerpt does not address the specific situation of resellers of exclusively domestic cigarettes. We are
therefore not convinced that this report proves that resellers of exclusively domestic cigarettes bear
the same administrative burden as resellers of imported cigarettes.
7.710 Therefore, in the light of the expert opinion, considered together with the text of the
provisions, we find that resellers of domestic cigare ttes are exempt from income tax and consequently
from the obligation to file revenue /expense reports. Resellers of imported cigarettes are therefore
subject to additional administrative requirements (i.e. preparing and maintaining both input/output
reports and books and records for accounting purposes) compared to domestic cigarette resellers.
7.711 Even if domestic ciga rette resellers were not exempt from income tax liability, however, we
find that imported cigarette resellers are still subject to additional administrative requirements because
of the extent of the information to be provided in relation to the concerned reports. Input/output tax
reports for imported cigarette sales require info rmation on the VAT amount payable and the tax
invoice number, whereas revenue/expense records do not require this information.1266
7.712 Specifically, under the Notification of Directo r-General No.89, the data required for the
purpose of the input/output tax reports, to be file d monthly by imported cigare ttes resellers, is as
follows: (i) tax month and year; (ii) name, tax I.D. of the VAT business operator, and check the box if
the VAT business operator is the head office or bran ch (and the branch number, if any); (iii) tax
invoice's date and number; and (iv) name of the cost umer for the purpose of the output record (subject
to certain exceptions in respect of the requirement in (iv)) or name of the seller/ service provider for
the purpose of the input record; (v) value of goods /services being sold (output record) or purchased
(input record); and (vi) VAT amount.
7.713 The Notification of Director-General Re: Income Tax No.161, in contrast, illustrates that the
data required for the purpose of the revenue/expenses report requirement imposed on the sale of
domestic cigarettes are limited to: (i) name and I. D. number of the business operator; and (ii) date,
items and amount of each receipt of income and payments relevant to the business.1267
7.714 Furthermore, Thailand does not deny that only r esellers of imported cigarettes have to file
goods/raw material reports. These reports must contain the following data: (i) tax month and year; (ii)
name, tax I.D. of the VAT business operator, and ch eck the box if the VAT business operator is the
head office or branch (and the br anch number, if any); (iii) name, type and size of goods/materials;
(iv) number of the document that evidences the pur chase and distribution of goods or raw materials
(e.g. the tax invoice or the receipt); (v) date of goo ds/raw materials receipt and distribution; and (vi)
quantity of the goods/raw materials being received/distributed and their balance.1268
7.715 Overall, after careful examination of the evidence before us, we are of the view that resellers
of imported cigarettes have the obligation to fill and file reports that resellers of domestic cigarettes
need not file. This tends to show that an add itional VAT-related administrative burden is imposed on
the resellers of imported cigarettes.

1265 Exhibit THA-30.
1266 Thailand's second written submission, para. 175.
1267 Exhibit PHL-182, p. 10.
1268 Exhibit PHL-182, p. 10.

Preparation and maintenance of documents for auditing
7.716 The Philippines submits that resellers of im ported cigarettes must keep books and records
relating to VAT, which can be used in the context of auditing, for five years pursuant to Section 87(3)
of the Thai Revenue Act.
1269 Thailand however argues that those books consist of the sale journals and
ledgers, purchase records, and other normal accoun ting records maintained by most commercial
businesses in most countries that rely on generally -accepted accounting principles. Thailand also
noted that many businesses prepared accounts usi ng readily available accounting software to produce
both income tax and VAT reports.1270
7.717 We note that the type of documents that mu st be maintained by resellers of imported
cigarettes are normal accounting materials that commercial businesses in most countries readily
possess. We also note Thailand's argument that most of this information is processed electronically,
through accounting software. Nevertheless, to the ex tent that resellers of domestic cigarettes are
exempt from VAT liability, the books and records that resellers of domestic cigarettes must maintain
under Article 87(3) for accounting and auditing purpo ses would require less information than that
required from resellers of imported cigarettes.
7.718 In terms of auditing procedures themselves, however, the Philippines does not dispute that
resellers of both imported and dom estic cigarettes are subject to similar procedures. The expert
opinion cited to by the Philippines also recognizes that auditing procedures are "a provision of general
application" in Thailand.1271
Penalties and other sanctions
7.719 The Philippines points at various penalties and sanctions that a VAT registrant faces under
Division 13 of the Thai Revenue Act, when he fails to comply with the relevant VAT-related
administrative requirements. Thailand does not disput e that in case of failure to comply with the
relevant VAT-related administrative requirements, penalties and sanctions can indeed be imposed on
VAT registrants pursuant to Division 13 of the Thai Revenue Act. 1272 Thailand only contests the
extent of the said sanctions.1273
Overall assessment
7.720 Overall, the Philippines points to five aspect s of the Thai VAT system in support of its
position that imported cigarette resellers are s ubject to additional administrative requirements
compared to domestic cigarette resellers. The following table summarizes those specific
administrative requirements.

1269 Exhibit PHL-182, p. 9 and Exhibit PHL-94.
1270 Thailand's second written submission, para. 174.
1271 Exhibit PHL-182, p. 11.
1272 Exhibit PHL-94, p. 52.
1273 Thailand's second written submission, para. 175.

Resellers of Domestic Cigarettes Resellers of Imported Cigarettes
Filing Form Por.Por 30,
pursuant to Section 83
of the Revenue Code

No obligation to file. Obligation to file except for small
businesses. If domestic cigarettes are
also sold, obligation to report them
under item 3 of the Form.

No revenue/expense report must be
filed.
Input/output tax reports must be filed
(note: more burdensome than
revenue/expense reports).

Goods and raw materials reports do
not have to be prepared.
Goods and raw material reports must
be prepared.

Filing and maintaining
of various reports
pursuant to Section 87
of the Revenue Code
Books and records for accounting
purposes must be prepared and
maintained.

Books and records for accounting
purposes must be prepared and
maintained, including VAT-related
information.

Potential penalties,
surcharges, and
sanctions pursuant to
Divisions 13 and 14 of
the Thai Revenue Code
No risk to be sanctioned due to
general VAT exemption.

Risk of undergoing sanctions and
surcharges fro violation of VAT
related administrative requirements:
(i) monetary penalties in case of late
or incomplete filing; (ii) submission
of a supplementary form for VAT
refund purposes in case of late filing;
(iii) submission of supplementary
forms for VAT recording purposes in
case of late filing.

Auditing Procedures Obligation to submit to auditing
procedures.
Obligation to submit to auditing
procedures.

Tax Invoice pursuant to
Revenue Order No Por.
85/2542

No need to prepare tax invoices, but
sales receipts must be submitted.
The sales receipt, which must be
submitted, can also serve a tax
invoice.

7.721 In relation to the obligation to submit to audit procedures pursuant to Division 12 of the Thai
Revenue Code, and to prepare a tax invoice pursuan t to Revenue Order No Por. 85/2542, we do not
find any additional requirements imposed only on the resellers carrying imported cigarettes only.
7.722 However we agree with the Philippines that under Thai law, imported cigarettes are subject to
additional administrative requirements in the followi ng three aspects: First, resellers of imported
cigarettes must file form Por.Por 30 pursuant to Section 83 of the Revenue Code, whereas resellers
carrying only domestic cigarettes are exempted from th is obligation. Second, the obligation to file
and maintain various reports under Section 87 of the Revenue Code such as input/output reports,
goods and raw material reports, a nd books and records for accounting purposes is more complicated
for imported cigarette resellers. Specifically, we fi nd that domestic cigarette resellers are exempt
from filing revenue and expense reports and need not maintain VAT-related information for
accounting and auditing purposes. Resellers of impor ted cigarettes, on the other hand, must file both
input/output tax reports and goods/raw materials reports and must maintain books and records for
accounting and auditing purposes which include VAT-rela ted information. Fina lly, only resellers of
imported cigarettes are potentially subject to pena lties and surcharges for failure to comply with
VAT-related requirements pursuant to Division 14 of the Thai Revenue Code.
7.723 We now turn to the question of whether these additional administrative requirements
negatively affect the conditions of competition for the imported cigarettes at issue in the Thai market.

(b) Whether imported cigarettes are subject to less favourable treatment th an domestic cigarettes
within the meaning of Article III:4
(i) Main arguments of the parties
7.724 The Philippines argues that Thailand's imposition of an additional administrative burden on
suppliers of imported cigarettes violates Article III:4 because such an additional burden modifies the
conditions of competition for impor ted cigarettes in the Thai market. The Philippines relies on the
Appellate Body's statement in Korea – Various Measures on Beef that a finding of less favourable
treatment under Article III:4 "should be assessed … by examining whether a measure modifies the
conditions of competition in the relevant market to the detriment of the imported product". 1274 The
Philippines considers that government regulation is a factor that typically impacts the competitive
position of a firm1275 by influencing the terms and conditions of supply and demand.1276 According to
the Philippines, Article III:4 requires that those regula tions be neutral, which entails that they do not
influence the choice made by consumers and supp liers in favour of domestic goods competing with
imported goods. The Philippines argues that Thailand's re gulations fail to be perfectly neutral in this
regard1277, as they impose "extra-hurdles" on resellers of imported cigarettes.1278 This in turn works as
a disincentive for the supply/sale of the imported ci garettes, which is a negative modification of the
competitive conditions.
7.725 Furthermore, the Philippines underlines that resellers of any good subject to VAT are required
to complete Form Por.Por.30. 1279 As a result, stores that are not yet subject to VAT reporting
requirements avoid selling any imported cigarettes. This mechanism harms the competitive
conditions of the imported cigarettes in the Thai ma rket. As an illustration, the Philippines notes that,
out of 310,389 cigarette retailers operating in the Thai market, 68,000 have elected not to sell
imported cigarettes. One of the factors behind thei r decision is "that re-sal es of imported cigarettes
give rise to additional VAT burdens that do not arise when they sell exclusively domestic
cigarettes".
1280 The Philippines concludes that "for th ese retailers at least … the competitive
conditions [are modified] in a very tangible way".1281
7.726 Finally, the Philippines is of the view that the overall tax-related administrative burden
imposed on TTM is irrelevant to a determina tion of the consistency of VAT measures with
Article III:4. In any event, the Philippines denies that TTM bears a heavier overall burden.1282

1274 Appellate Body Report, Korea – Various Measures on Beef , para. 137 (emphasis in original). The
Philippines also relies on the Japan – Alcoholic Beverages II Appellate Body confirmation that only the
conditions of competition must be examined, not the actual market effects (Appellate Body Report, Japan –
Alcoholic Beverages II, p. 16, DSR 1997:1, 97, at 109-110).
1275 Philippines' response to Panel question No. 59. The Philippines states that

"Government regulation imposes burdens on all aspects of the development, production, and
marketing and sale of goods. The relative impact of these burdens on competing goods
influences the behaviour of suppliers and consumers of goods in the marketplace."

1276 Philippines' second written submission, footnote 459.
1278 Philippines' first written submission, para. 558, referring to Appellate Body Report, US – Section
211 Appropriations Act, para. 264.
1279 As an illustration, a seller of domestic cigarettes who would also like to sell (even marginally)
1280 Philippines' response to Panel question No. 59; Exhibit PHL-185.
1281 Philippines' response to Panel question No. 59.
1282 Philippines' second written submission, para. 494, footnote 83.

7.727 Thailand submits that the Philippines clearly failed to demonstrate that the small discrepancy
observed in VAT filing requirements between reselle rs of domestic and fore ign cigarettes had any
negative impact on the competitive conditions of the latter product. In particular, it brought no
convincing evidence to relate the assertion that 68 ,000 Thai cigarette retailers do not sell imported
cigarettes due to the VAT regulations at issue.
1283 Thailand argues that the regulatory difference
alleged by the Philippines could conceivably aff ect the conditions of competition only when a
wholesaler/retailer (i) stocks only domestic cigarette s (and other VAT exempt goods), and (ii) has an
annual turnover of over 1.8 million THB. The Philippi nes has adduced no eviden ce that there are any
wholesaler/retailer falling within this category in the Thai market or evidence that the alleged
difference in regulatory treatment creates an ince ntive for those agents to specialize in selling
exclusively VAT-exempt goods.1284
7.728 In addition, Thailand emphasizes that, looking beyond the VAT requirements, the overall tax-
related administrative burden imposed on TTM far exceeds the one imposed on resellers of imported
cigarettes. Thailand submits a table showing that TTM is subject to more demanding procedures with
regards to income tax, corporate tax, withholding tax and audit obligations.
1285 Moreover, Thailand's
reporting requirements confer clear advantages on im ported cigarette resellers with respect to the
availability of input tax credits on purchase of service and equipment.1286
(ii) Analysis by the Panel
7.729 The Philippines claims that the VAT-related measures imposing additional administrative
requirements on resellers of imported cigarettes are as such inconsistent with the obligations under
Article III:4 because they have a general impact on the conditions of competition for imported
cigarettes. The task before us is therefore to determine whether the additional administrative
requirements for imported cigarettes, as found ab ove, confer a negative impact on the competitive
conditions of imported cigarettes in the Thai market.
7.730 The Appellate Body in US – FSC (Article 21.5 – EC) states:
"The examination of whether a measure involves less favorable treatment of imported
products under Article III:4 of the GATT 199 4 must be grounded in close scrutiny of
the 'fundamental thrust of the measure itself' . This examination cannot rest on simple
assertion, but must be found on a careful analysis of the contested measure and of its
implications in the marketplace. At the same time, however, the examination need
not be based on the actual effects of the contested measure in the marketplace."
1287
The Appellate Body's statement clarifies that th e implications of the contested measure in the
marketplace can be assessed on its potential effects on the competitive conditions of the imported
product concerned.1288 Referring to this statement for the pur pose of its analysis under Article 3.1 of
the TRIPS Agreement, the Appellate Body in US – Section 211 Appropriations Act (under Article 3.1
of the TRIPS Agreement) clarified that:

1283 Thailand's second written submission, para. 172.
1284 Thailand's response to Panel question No. 62.
1285 Thailand's response to Panel question No. 63.
1286 Thailand's second oral statement, para. 66.
1287 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 215, emphasis in original.
1288 The GATT Panel in US – Section 337 Tariff Act also found in the context of Article III:4 analysis
that "to provide the complainant with the choice of forum where imported products are concerned and to
provide no corresponding choice where domestically-produced products are concerned is in itself less
favourable treatment of imported products". (GATT Panel Report, US – Section 337 Tariff Act, para. 5.18).

"The US may be right that the likelihood to overcome [both administrative] hurdles ...
may be small. But again echoing [the Panel in US – Section 337 Tariff Act ], even the
possibility that non-United States successors in interest face two hurdles in inherently
less favorable than the undisputed fact that Unite d States successors in interest face
only one"1289
7.731 The Panel in Canada – Wheat Exports and Grain Imports also elaborated that there is "no de
minimis exception to Article III:4" and therefore, even practices not "very onerous in commercial
and/or practical terms" may be banned where they are likely to put the imported product at a
competitive disadvantage.
1290
7.732 In previous disputes, therefore, a wide arra y of measures were found to impose an additional
hurdle on imported products so as to modify the competitive conditions of such products in the
marketplace in violation of Article III:4. In US – Section 211 Appropriations Act, the Appellate Body
stated that any kind of "limitation"1291 or "obstacle"1292 could be qualified as to modify the competitive
conditions of imported products.1293 The finding by the GATT panel in US – Tobacco is also relevant
to the issues presented in our dispute: "determining that damages, fines, or imprisonment, which are
imposed on persons, may accord less favorable tr eatment to imported products [in the Article III:4
context] is not a priori impossible". 1294 In this manner, (i) a simple administrative authorization
scheme1295; (ii) a differentiated distribution scheme 1296; or (iii) the mere possibility that non-US
nationals have to defend patent claims in front of two jurisdictions rather than only one were all found
to constitute additional administrative burdens trig gering a modification of competitive conditions of
imported products within the meaning of Article III:4.

1289 Appellate Body Report, US – Section 211 Appropriations Act, para. 265.
1290 Panel Report, Canada – Wheat Exports and Grain Imports, para. 6.190 and footnote 281.
1291 Appellate Body Report, US – Section 211 Appropriations Act, para. 264.
1292 Appellate Body Report, US – Section 211 Appropriations Act, para. 268.
1293 Panel Report, US – 1916 Act (EC) , para. 6.76, and GATT Panel Report, United States –
Section 337 Tariff Act, para. 5.10.
1294 Panel Report, US – 1916 Act (EC) , para. 6.76 referring to GATT Panel Report, United States –
Section 337 Tariff Act , para. 5.10. The Panel found in relevant parts that "determining that damages, fines, or
imprisonment, which are imposed on persons, may accord less favourable treatment to imported products [in the
Article III:4 context] is not a priori impossible".
1295 Panel Report, Canada – Wheat Exports and Grain Imports, paras. 6.184-6.213. Section 57(c) of
the Canada Grain Act required subjected elevator operators to a prior auth orization scheme to process imported
grain, while no similar requirement existed for domestic grain. The panel found that this modified the conditions
of competition in favour of domestic grain, notwithstanding the fact that the authorization had never been
refused by Canadian authorities, or that advance authorization schemes were available.
1296 GATT Panel Report, US – Malt Beverages , paras. 5.32 and 5.35. The panel found that "the
requirement that beer imported into the United States be distributed through in-state wholesalers and other
middlemen, when no such obligation to distribute throug h wholesalers exists with respect to in-state like
domestic products results in treatment ... less favourable than that accorded to like domestic products from
domestic producers, inconsistent with Ar ticle III:4"; Appellate Body Report, Korea – Various Measures on
Beef, paras. 143-151. Korea implemented a dual retail syst em for beef products, whereby retail distributors had
to choose between selling imported or foreign beef. The Appellate Body observed that eight years after the
measure was taken:

"the consequent reduction of commercial opportunity [for imported beef] was reflected in the much
smaller number of specialized imported beef shops (approximately 5000 shops) as compared with the number of
retailers (approximately 45 000) selling domestic beef. We are aware that the dramatic reduction in number of
retail outlets for imported beef followed from the decision of individual retailers who could choose freely to sell
the domestic product or the imported product. The legal necessity of making a choice was. however, imposed by
the measure itself. The restricted nature of that choice should be noted ..."

7.733 We consider that the findings by the Appellate Body and previous pa nels above support the
position that the VAT-related requirements under the Thai law may potentially modify the conditions
of competition for the imported cigarettes in the Thai market.
7.734 We recall our finding above that under Thai law, resellers of imported cigarettes are subject to
the additional administrative requirements for VAT liabilities such as the filing of Form Por.Por.30,
other various reporting requirements, and penalti es and sanctions in case of non-compliance.
Although those individual requirements considered separately may not themselves be found to have
an adverse effect on the conditions of competition of imported cigarettes in the Thai market, the
accumulation of all those requirements could potentially affect those conditions in a negative manner.
This, in our view, will lead to according less favourable treatment to imported cigarettes under
Article III:4 than to like domestic cigarettes.
7.735 According to the parties' submissions, 96 per cent of the market shares are divided between
five brands: two foreign a nd three domestic brands.
1297 TTM holds 78 per cent of the market shares
while imported cigarettes account for the remaining 22 per cent. 1298 Econometric evidence produced
by the Philippines suggests a certain degree of price elasticity and switching patterns between
imported and domestic cigarettes. 1299 In our view, this would also indicate that additional
administrative requirements, albeit slight, imposed only on imported cigarettes can potentially have a
negative impact on the competitive position of these cigarettes in the market.
7.736 For example, additional administrative require ments imposed on resellers of domestic
cigarettes and resellers of imported ones could affect business decisions of cigarette suppliers because
an additional administrative burden can be linked to the operating costs of their businesses. This
could in turn result in modifying the competitive conditions of the subject cigarettes in the Thai
market by limiting business opportunities for the ciga rettes concerned if certain suppliers base their
decision on which items to carry on potential operating costs associated with the additional
administrative requirements.
1300
7.737 We note Thailand's argument in this regard that despite a slight extra VAT burden imposed on
resellers of imported cigarettes, resellers of impor ted cigarettes were not treated less favourably
because the overall tax burden on the imported cigarettes was not hi gher. We do not consider that the
actual tax burden on the imported cigarettes is releva nt to the question we are examining here. As
noted above, we are obliged to scrutinize the "fundamental thrust of the measure itself", which are, for
the purpose of the Article III:4 claim, the administrative requirements associated with the fiscal
burden imposed in the form of VAT.
7.738 We therefore conclude that Thailand acted in consistently with Article III:4 by subjecting
imported cigarettes to le ss favourable treatment compared to like domestic cigarettes through the
VAT-related administrative requirements imposed only on resellers of imported cigarettes.1301

1297 Thailand's response to Panel question No. 45.
1298 Philippines' first submission, para. 480.
1299 See Section VII.D.3 above. Thailand however ob serves that switching patterns are uneven across
various pairs of domestic and foreign brands.
1300 We are, however, of the view that the Philippines has not provided sufficient evidence to
demonstrate that these additional administrative require ments were the sole factor that made the 68,000
businesses decide not to sell imported cigarettes in their stores. As Thailand points out, there could be other
bases on which these resellers are exempt from VAT and consequently the VAT-related administrative
requirements. In particular, the Philippines could not rebut Thailand's argument that many of those businesses
are exempt by virtue of their turnover falling under 1.8 million baht.
1301 Philippines' second written submission, para. 484, footnote 75.

(c) Whether an additional administrative burden can otherwise be justified under Article III:4
(i) Main arguments of the parties
7.739 Thailand refers to the Dominican Republic – Import and Sale of Cigarettes standard1302 that
Article III:4 only protects against differences of treatment based on the origin of the product. Thailand
claims that, even if the Panel concluded that th ere was modification of the competitive conditions in
favour of domestic cigarettes, this would not be related to the origin of the products.1303
7.740 Thailand argues that the alleged difference of treatment between imported and domestic
products can be explained by the unique regulatory status of TTM as the government's tax
collector.
1304 Thailand explains that subjecting importers of foreign cigarettes to VAT requirements
was aimed at combating tax evasion, fraud, and counterfeiting of foreign cigarettes. 1305 By contrast,
the Thai government underlines TTM's specific role as a state enterprise and the government's tax
collector in the cigarettes market. The Thai governme nt retains all tax income related to TTM's sales
at the source, a system which is efficient in comb ating tax evasion, fraud and counterfeiting. In this
regard, imposing VAT obligations on TTM is useless. On the other hand, Thai authorities chose to
impose VAT on importers of foreign cigarettes, sin ce taxation at the source would have been too
burdensome.1306 Thai authorities have not refered to or used the foreign origin of the product as a
basis for differential treatment. Hence, the above standard is not met.1307
7.741 Thailand also asserts that subjecting imported ci garettes to VAT is legal on the grounds that
they face "the normal tax burdens and normal VAT reporting requirements" that any other VAT liable
good is subject to. 1308 By the same token, Thailand st resses that other states impose similar
requirements on imported cigarettes.
7.742 The Philippines "fails to see TTM's unique regulatory status". 1309 But for the VAT
exemption, TTM and other entities are indeed subject to similar taxation treatment by the
government.
1310 The Philippines argues that, as illustrated in Dominican Republic – Import and Sale
of Cigarettes standard, the competitive disadvantage impo sed on imported cigarettes is exclusively
based on their foreign origin because under the rele vant Thai legislation only resellers of domestic
cigarettes benefit from a VAT exemption. 1311 Thus, the Philippines argues that the origin of the
cigarettes is the only applicable criterion in c onferring administrative advantages to resellers of
domestic cigarettes.
7.743 The Philippines claims that under Article III:4, the " normative benchmark is the treatment
currently afforded to like domestic products" 1312 on the same market. Neither the treatment of like
products in other countries, nor the treatment of unl ike products in the same country are relevant in
this regard.

1302 Thailand's first written submission, para. 249, referring to Appellate Body Report, Dominican
Republic – Import and Sale of Cigarettes, paras. 93-96.
1303 Thailand's first written submission, para. 256.
1304 Thailand's first written submission, para. 256.
1305 Thailand's response to Panel question No. 135.
1306 Thailand's response to Panel question No. 135.
1307 Thailand's first written submission, para. 256.
1311 Exhibit PHL-217.

(ii) Analysis by the Panel
7.744 Thailand asserts that the VAT regime imposed on resellers of imported cigarettes is unrelated
to their origin. Thailand argues that the approach in Dominican Republic – Import and Sale of
Cigarettes must be followed. In that case, the Panel had to evaluate a tax measure (a bond) which,
although non-discriminatory on its face, resulted in foreign products being taxed at a higher rate. This
stemmed from the fact that "the importer of [foreign ] cigarettes [had] a smaller market share than two
domestic producers
 (the per-unit cost of the bond requirement being the result of dividing the cost of
the bond by the number of cigarettes sold on the Dominican Republic market)". 1313 The Appellate
Body confirmed the Panel's findings that the diffe rence in taxation was "unrelated" to the foreign
origin of the product and therefore not in violation of Article III:4.1314
7.745 The factual circumstances in the current disput e, however, must be distinguished from those
in Dominican Republic – Import and Sale of Cigarettes . As the Philippines submits, the regulatory
exemption from the VAT requirements applies only to domestic cigarettes under the Thai law.
Therefore, it is the foreign origin of the imported cigarettes that distinguishes them from like domestic
cigarettes for the purpose of applying the VAT-related requirements at issue. For this reason, we are
not convinced by Thailand's argument.
7.746 Further, Thailand contends that the differentia ted VAT regime is legal because it serves the
legitimate purpose of combating tax evasion, fraud, a nd counterfeiting of foreign cigarettes. A state
enterprise, TTM, is subject to a specific regime which is designed to promote those objectives.
Thailand hence asserts that the grounds, motivations and purposes behind the VAT regime make the
regime legal under Article III:4. However, the cons istency of the contested measure with Thailand's
obligations under Article III:4 ca nnot be determined based on the purpose and intent behind the
measure as clarified by Thailand. 1315 As we have explained above, imported products must not be
subject to less favourable treatment through a measure that negatively modifies the conditions of
competition, regardless of the intent behind the meas ure. We consider that the alleged purposes of the
measures such as combating tax evasion, fraud an d counterfeiting of foreign products as listed by
Thailand, could be more properly addressed under Article XX of the GATT 1994.
7.747 Finally, Thailand explains that the VAT require ments applicable to imported cigarettes do not
constitute "less favourable treatment" because they mirror "normal" VAT requirements imposed on
other domestic products and similar procedures implemented by other countries in respect of imported
cigarettes. In examining the consistency of Tha iland's VAT requirements on imported cigarettes with
Article III:4, our analysis is confined to the tr eatment afforded to imported cigarettes and "like"
domestic cigarettes, not other domestic products. Likewise, measures or pr actices maintained by
other countries are irrelevant to our analysis of Th ailand's treatment of imported cigarettes. Therefore,
neither the treatment afforded by Thailand to other products, nor treatment afforded by other states to
imported cigarettes, is relevant for the purpose of our analysis.
7.748 We conclude that Thailand has failed to produ ce sufficient elements to justify that imported
cigarettes be treated less favourably than domestic cigarettes within the meaning of Article III:4 of the
GATT 1994.

1313 Appellate Body Report, Dominican Republic – Import and Sale of Cigarettes, para. 96.
1314 Appellate Body Report, Dominican Republic – Import and Sale of Cigarettes, para. 96.
1315 Panel Report, Canada – Periodicals , para. 5.37, referring to Appellate Body Report, Japan –
Alcoholic Beverages II, p.18, DSR 1996:I, 97, at 111-112. The Report states: "The purpose of Article III:1 is to
establish this general principle as a guide to understanding and interpreting the specific obligations contained in
Article III:2 and in the other paragraphs of Article III, while respecting, and not diminishing in any way, the
meaning of words actually used in the texts of those other paragraphs". We understand that Article III:4 is not an
intent test per se . However, Article III:1 serves as a contextu al element to Article III:4 so that where a
discriminatory measure is taken so as to afford protection, it is contrary to the obligations under Article III:4.

(d) Whether an additional administrative burden can be justified under Article XX(d) of the
GATT 1994
(i) Main arguments of the parties
7.749 Thailand argues that, even if the Panel found th at the VAT administrative requirements
imposed on resellers of foreign cigarettes modify th e conditions of competition to their detriment, and
therefore constitute less favourable treatment under Article III:4, those requirements would still be
GATT consistent by virtue of Article XX(d) of the GATT 1994.1316
7.750 In particular, Thailand submits that the rule s requiring resellers of imported cigarettes to
submit reports (input/output and Por.Por.30) to the Thai authorities are necessary to secure
compliance with the VAT laws.
 1317 Indeed, Thailand fails to see how it could administer its VAT
system without requiring VAT payers to maintain and submit reports.1318
7.751 The Philippines claims that Thailand's defence under Article XX(d) must fail because it
would only justify that all resellers subject to VAT must file the appropriate form. This is not
addressing the Philippines' concern that resellers of domestic cigarettes are exempt from VAT filing
requirements, and hence benefit fro m better conditions of competition.
1319 The Philippines contends
that Thailand has not demonstrated that the de jure exemption from VAT administrative requirements
is "necessary" to secure compliance with any WTO-consistent domestic law as required under
Article XX(d).1320
7.752 Thailand "notes" that Article XX(d) can justify that penalties be imposed on resellers of
imported cigarettes for failure to comply with VAT filing requirements. 1321 Thailand disagrees with
the Philippines that those penalties qualify as excess ta xation within the meaning of Article III:2, first
sentence.1322 However, were the Panel to find that those penalties fall under the scope of Article III:2,
Thailand considers that they are authorized unde r Article XX(d), as they are necessary to impose
compliance with normal reporting requirements. Thailand notes that the reporting requirements
contribute to the fight against cigarettes smuggling, and therefore fall within the scope of the
objectives contemplated under Article XX(d).
1323
7.753 The Philippines claims that Thailand fails to show how imposing an additional tax liability
on resellers of domestic cigarettes (i.e. the penalty for failure to comply with VAT filing
requirements) was necessary to combat tax evas ion and smuggling. The Philippines underlines first
that the measures implemented by Thailand ar e not properly designed to address this risk.
1324 In
particular, they fail to address the smuggling of domestic cigarettes, which is also a concern according
to newspaper and TTM issued sources. 1325 In the same vein, the Phi lippines stresses that other less

1316 Thailand's first written submission, paras. 25 8-261; Thailand's second written submission,
paras. 176 and 177.
1317 Thailand uses the definition in Appellate Body Report, Brazil – Retreated Tyres , para. 150: a
measure is necessary if it is "apt to make a material contribution to the achievement of its objective".
1318 Thailand's first written submission, para. 260.
1321 Thailand's response to Panel question No. 139.
1322 Thailand's response to Panel question No. 139.
1323 Thailand's response to Panel question No. 139.
1324 Philippines' combined comments on Thailand's responses to Panel question No. 135 and to
Philippines' question No. 1.
1325 Compare Exhibit THA-1, which includes an analysis of the risks posed by smuggling of imported
cigarettes only, to Exhibit PHL-284, p. 2 (Article Pu blished in the Economist) and Exhibit PHL-285, pp. 11

restrictive means were availabl e to Thai authorities such as tracking and tracing requirements.
1326
Overall, additional penalties imposed on resellers of imported cigarettes for failure to comply with
VAT filing requirements constitutes a dis guised restriction on trade under the chapeau of
Article XX.1327
(ii) Analysis by the Panel
7.754 Article XX provides:
"Subject to the requirement that such meas ures are not applied in a manner which would
constitute a means of arbitrary or unjustifia ble discrimination between countries where the
same conditions prevail, or a disguised restri ction on international trade, nothing in this
Agreement shall be construed to prevent the adoption or enforcement by any contracting party
of measures:

(d) necessary to secure compliance with laws or regulations which ar e not inconsistent
with the provisions of this Agreement, including those relating to customs
enforcement ..."
7.755 In US – Gasoline , the Appellate Body enunciated th e appropriate method for applying
Article XX of the GATT 1994:
"In order that the justifying protection of Article XX may be extended to it, the
measure at issue must not only come under one or another of the particular exceptions
-- paragraphs (a) to (j) -- listed under Article XX; it must also satisfy the requirements
imposed by the opening clauses of Article XX. The analysis is, in other words, two-
tiered: first, provisional justification by rea son of characterization of the measure
under XX(g); second, further appraisal of th e same measure under the introductory
clauses of Article XX."
1328 (emphasis added)
7.756 As the Appellate Body also stated in US – Gasoline, the burden of proof to show that a given
measure falls within the scope of one of the sub- paragraphs of Article XX rests on the party invoking
the defence under Article XX. 1329 Here, Thailand therefore bears the burden of proving that both the
additional VAT filing requirement on resellers of imported cigarettes and the penalties imposed on
non-compliant resellers constitute measures necess ary to secure compliance with WTO-consistent
laws within the meaning of Article XX(d).
7.757 The Appellate Body in Korea – Various Measures on Beef has stated that two elements must
be shown by the invoking party under Article XX(d ): "First, the measure must be one designed to
"secure compliance" with laws or regulations that are not themselves inconsistent with some provision
of the GATT 1994. Second, the measure must be "necessary" to secure such compliance".1330

and 22 (Excerpt from TTM's annual report 2008) which illustrate concerns related to the smuggling of domestic
cigarettes.
1326 Philippines' combined comments on Thailand's response to Panel question No. 135 and to
Philippines' question No. 1.
1327 Philippines' combined comments on Thailand's response to Panel question No. 135 and to
Philippines' question No. 1.
1328 Appellate Body Report, US – Gasoline, p. 22, DSR 1996:I, 3 at 20.
1329 Appellate Body Report, US – Gasoline, p. 20, DSR 1996:I, 3 at 21.
1330 Appellate Body Report, Korea – Various Measures on Beef, para. 157.

7.758 Regarding both the administrative requirements imposed on resellers of imported cigarettes as
well as penalties imposed in case of failure to meet such administrative requirements, Thailand alleges
that these requirements and penalty provisions are necessary to secure compliance with the Thai VAT
laws. According to Thailand, this is because the filing obligations are the only way to verify that
importers comply with the VAT laws. As addressed in Section VII.F.6(b)(ii) above, however, we
found that the Thai VAT laws that Thailand purports to secure compliance with through the
administrative requirement at issue, were not WTO consistent. Therefore, we find that Thailand has
not discharged its burden of showing that the ad ministrative requirements and the imposition of
penalties for failure to complete VAT filing require ments are necessary to secure compliance with the
Thai VAT laws within the meaning of Article XX(d) of the GATT 1994.
G.
CLAIMS UNDER ARTICLE X OF THE GATT 1994
1. Claims under Article X:1 of the GATT 1994
(a) Introduction
7.759 Under Article X:1 of the GATT 1994, the Philippi nes advances three claims: Thailand acts
inconsistently with Article X:1 by failing to publish (i) the met hodology for determining MRSPs; (ii)
the methodology for determining ex factory prices fo r TTM cigarettes; and (iii) laws and regulations
governing the release of guarantees for potential liab ility arising from health, excise and television
taxes. Thailand argues that the Philippines has faile d to discharge its burden of proving the elements
required to demonstrate a breach of Article X:1 of the GATT 1994 for each of these claims.
(b) Obligations under Article X:1 of the GATT 1994
7.760 Article X:1 of the GATT 1994 provides:
"Article X
Publication and Administration of Trade Regulations
1. "Laws, regulations, judicial decisions and administrative rulings of general
application, made effective by any contracting party, pertaining to the classification
or the valuation of products for customs purposes, or to rates of duty, taxes or other
charges ... shall be published promptly in such a manner as to enable governments
and traders to become acquainted with them ... The provisions of this paragraph shall
not require any contracting party to discl ose confidential information which would
impede law enforcement or otherwise be c ontrary to the public interest or would
prejudice the legitimate commercial interests of particular enterprises, public or
private."
7.761 The obligations under Article X:1 to publish trade regulations largely consist of the following
elements: (i) the existence of laws, regulations, judicial decisions and administrative rulings of general
application made effective by a WTO Member that pertain to, inter alia , the classification or the
valuation of products for customs purposes; and (ii) the obligation to publish such laws and
regulations promptly in such a manner as to enab le governments and traders to become acquainted
with them.
7.762 We note that depending on the particular fact ual circumstances of each case, the obligations
under Article X:1 can be considered in more detailed terms. For the purpose of this dispute, however,
the parties have focused on the above two elements, namely whether the concerned measures are laws
or regulations of general application within the meaning of Article X:1; and whether Thailand

published such laws and regulations promptly in such a manner as to enable governments and traders
to become acquainted with them.
7.763 Furthermore, Article X:1 does not require WTO Members to disclose confidential
information which would impede law enforcement or ot herwise be contrary to the public interest or
would prejudice the legitimate commercial interests of particular enterprises, public or private. In this
dispute, Thailand's argument on the disclosure of confidential business-derived data has given rise to
the additional question of whether the publication of the concerned measures would indeed result in
disclosing confidential information which would prejudice the legitimate commercial interests of
particular enterprises, public or private, within the meaning of Article X:1.
(c) Methodology for determining MRSPs
(i) Introduction
7.764 In Thailand, MRSPs for imported and domestic cigarettes are determined by DG Excise.
1331
Thailand alleges that the elements used by DG Exci se in its calculation are published in the preamble
of all MRSP notices issued after August 2007. The language used in all MRSP notices is identical
and states that:
"[T]he Excise Department therefore fixes the [MRSP] ... by making a computation as
based on the c.i.f. price, customs duty, tobacco stamp (i.e. excise tax), value added
tax, contributions to the health promotion fund, contributions to the Thai Public
Broadcasting of Sound and Picture Foundation, contributions to provincial
administration organization development, and marketing margin combined."
1332
7.765 Thailand also considers that the published inform ation enables the importers to calculate the
VAT applicable to imported cigarettes. Acco rding to Section 79/5 of the Revenue Code 1333 and
Revenue Department Notification No. Por 85/2542 1334 (relating to VAT imposed on cigarettes) the
VAT can simply be calculated as 7 per cent of all other elements of the MRSP (i.e. VAT-exclusive
price).1335
7.766 The Philippines claims that Thailand failed to sufficiently publish the methodology for
determining the tax base for domestic and imported cigarettes (i.e. the MRSP). Specifically, the
Philippines bases its claim on Thailand' s alleged failure to publish the following two elements: (i) the
overall methodology for determining MRSPs, includi ng any revision to its overall methodology; (ii)
the data relied upon in order to calculate the MRSP fo r individual cigarette brands and any revisions
to that data, including the methodology and results of price surveys conducted in various countries
that were used for determining the MRSPs for Marlboro and L&M in 2006-2007. 1336 We will
evaluate the parties' arguments concerning these two elements in turn to determine whether Thailand
acted inconsistently with Article X:1 by failing to p ublish the laws, regulations, judicial decisions and
administrative rulings of general application used to determine the MRSP.

1331 See Section VII.D.4(a) for the explanations on the establishment of the MRSP under the Thai VAT
system.
1332 Exhibit THA-45, PHL-105 (Imported Cigarettes); and PHL-77 (Domestic Cigarettes).
1333 Exhibit PHL-94.
1334 Exhibit PHL-95.
1335 Thailand's second written submission, paras. 271-272.

(ii) Methodology for determining the MRSP
Whether the methodology for determining the MRSP falls within the scope of "laws,
regulations or administrative rulings of general application" under Article X:1
Main arguments of the parties
7.767 The Philippines claims that Thailand acts inconsistently with its transparency obligations
under Article X:1 of the GATT 1994 by failing to publish the general rules governing the
determination and revision of MRSPs. 1337 The Philippines argues that the general methodology
followed by Thailand to determine and revise MRSPs falls within the scope of Article X:1 because it
involves a general rule pertaining to the determination of various tax bases.
7.768 The Philippines notes that Thailand has disclosed before the Panel a methodology which it
allegedly applies to determine and revise MRSPs. In particular, the following set of rules has been
identified as constituting Thailand's methodology to determine MRSPs: (i) the primary source for the
MRSP is the manufacturer's recommended retail price 1338; (ii) an alternative source for the MRSP is a
guarantee determined by DG Excise 1339; (iii) DG Excise exercises a review of the MRSP, and the
criteria thereof 1340; (iv) DG Excise "normally" revises the MRSP after tax changes impacting the
MRSP1341; (v) when MRSPs are revised, Thailand calculates a new MRSP computing the c.i.f. price,
the latest tax amounts and the marketing costs 1342; and (vi) the marketing costs calculation is based on
information given by the importer, unless this info rmation is doubtful, in which case it is established
by Thai Excise.1343
7.769 The Philippines underlines that this set of rul es applies generally and prospectively to the
establishment and revision of the MRSP for any brand of cigarettes, either sold or to be sold in
Thailand.1344 Therefore, it constitutes a regulation of genera l application pertaining to taxes within the
meaning of Article X:1 of the GATT 1994.
7.770 The Philippines asserts that publication of this methodology is necessary as Thailand has
punctually departed from it, leaving the importers with doubts as to how the rules applied. For
instance, Thailand has argued that it based its MRSP determinations on information provided by the
importer. But in 2006 and 2007 it periodically used guarantees as starting points, both for the
Marlboro and L&M MRSP calculation.
1345 The Philippines argues that this alternative starting point
should be published. 1346 Secondly, Thailand argues that it b ases the marketing cost calculations on
information provided by the importer and that it recycled the information provided in 2001 for the
purpose of all later determinati ons. The Philippines asserts that Thailand often departed from those
alleged rules. In particular, MRSP calculations for L&M in March 2001, and for L&M and Marlboro
in December 2005, August 2008, and May 2009 were not derived from PM Thailand's information

1337 Philippines' first written submission, paras. 456-457; first oral statement, para. 163; second written
submission, paras. 317-357; second oral statement, para. 59.
1338 Philippines' second written submission, para. 318, Table 1, referring to Thailand's first written
submission, paras. 83 and 87.
1340 Philippines' second written submission, para. 318, Table 1.
1341 Philippines' second written submission, para. 318, Table 1.
1342 Philippines' second written submission, para. 318, Table 1, referring to Thailand's first written
submission, paras. 86-88; Thailand's response to Panel question No. 41.
1343 Philippines' first written submission, paras. 166-173.
1346 Philippines' response to Panel question Nos. 157 and 158.

timely submitted before each determination.
1347 Furthermore, Thailand admits that it departed from
the 2001 data in 2006 and 2007. 1348 By the same token, the information provided by Thailand shows
that there is a divergence in marketing costs across brands. 1349 The Philippines complains that
marketing costs for international brands are system atically higher than those for domestic brands. The
Philippines argues that the publication of the me thodology followed to determine those marketing
costs is therefore necessary.1350
7.771 Thailand accepts that the overall methodology utilized by the Thai Excise Department to
calculate MRSPs for imported and domestic cigarettes can be described as a "regulation" of "general
application" within the meaning of Article X:1 be cause it is consistently used by Thai Excise to
determine binding maximum price levels and tax bases for all cigarette manufacturers.1351
7.772 Thailand however contends that the six elements listed by the Philippines1352 do not constitute
DG Excise's methodology, as the Ph ilippines argues, but rather stand as an enumeration of the
explanations given by Thailand in its submissi ons to the Panel of how MRSPs are set. Thailand
therefore argues that those elements do not constitute regulations or administrative rulings of general
application within the meaning of Article X:1. 1353 Thailand argues that Article X:1 does not require
every statement that was made before a panel to be published.1354
Analysis by the Panel
7.773 The parties agree that the methodology used to determine MRSPs for importers constitutes
"regulations ... of general appli cation" within the meaning of Article X:1. As the Appellate Body
underlined in EC – Poultry , Article X only applies to rules of "general application". 1355 I n US –
Underwear, the Appellate Body clarified that measures of general application are those which "affect
... an unidentified number of economic operators". 1356 The panel in Japan – Film found that even
"administrative rulings in individual cases [fall within the scope of Article X:1] where such rulings
establish or revise principles or criteria applicable in future cases".
1357 In this dispute, the parties do
not contest that the methodology for determining MR SPs applies prospectively and generally to all
MRSP determinations and revisions, fo r all cigarettes sold in Thailand. 1358 As the methodology
applies to all potential sales of cigarettes, we ag ree that the methodology used to calculate MRSPs
falls within the scope of Article X:1.

1347 Philippines' second written submission, paras. 333-344.
1349 Philippines' first oral statement, para. 185, referring to Exhibit THA-19.
1351 Thailand's second written submission, para. 266.
1352 Philippines' second written submission, para. 318, Table 1.
1353 Thailand's response to Panel question No. 155, referring to Philippines' second written submission,
para. 318 (Table 1).
1354 Thailand's response to Panel question No. 155, referring to Philippines' second written submission,
para. 318 (Table 1).
1355 Appellate Body Report, EC – Poultry, para. 111.
1356 Panel Report, US – Underwear , para. 7.65; Appellate Body Report, US – Underwear, p. 21, DSR
1997:I, 11, at 29.The Appellate Body upheld the Panel's reasoning, which provided in relevant parts:

"[T]he mere fact that the restraint at issue was an administrative order does not prevent us
from concluding that the restraint was a measure of general application. ... to the extent that
the restraint affects an unidentified number of economic operators, including domestic and
foreign producers, we find it to be a measure of general application."

1358 Philippines' second written submission, para. 317; Thailand's second written submission, para. 266.

7.774 The parties however disagree on the scope of th e methodology that must fall within the scope
of laws and regulations of general application under Article X:1.
7.775 The Philippines argues that all elements presente d by Thailand before the Panel to explain
how MRSP determinations were conducted form a gene ral methodology within the meaning of
Article X:1. In Thailand's view, the term met hodology only requires that im porters know what data
are taken into account towards the MRSP determination.1359
7.776 The term "methodology" is defined as "noun. 2. A body of methods used in a particular
branch of study or activity". 1360 "Method" in turn is defined as "noun. I. Procedure for attaining an
object. 2. A mode of procedure; a (defined or syst ematic) way of doing a thing, esp. (with specifying
word or words) in accordance with a particular theory or as associated with a particular person". 1361
Based on the ordinary meaning, we understand "methodol ogy" to mean a set of procedures that lay
down a defined or systematic way of doing things.
7.777 In the course of this Panel proceeding, partic ularly in the context of the Philippines' claim
under Article III:2 in respect of the determinati on of MRSPs, Thailand described to the Panel the
methodology it generally applies for the determination of MRSPs.1362 Thailand stated:
"MRSPs are determined according to genera lly-applicable criteria. For the sake of
clarity, the methodology bears repeating:
• The primary source of the MRSP is the manufacturer's/importer's
recommended retail price. When th e manufacturer/importer wants to
introduce a new brand or revise an MRSP, the manufacturer/importer informs
Thai Excise of the proposed MRSP.
• Thai Excise publishes a notice reflecting the new MRSP.
• If any of the applicable tax rates ch anges, necessitating a revision in the
MRSP, Thai Excise calculates the new MRSP by changing the relevant tax
rates and holding all other elements of the MRSP, including the so-called
'marketing costs', constant. The 'marketi ng cost' is derived by subtracting all
other elements from the existing MRSP.
• Manufacturers/importers may request changes in the MRSPs at any time to
reflect changes in their c.i.f./ex factory prices, desired retailed prices, or other
factors. In these cases also, Thai Excise calculates the new MRSP by
changing the relevant c.i.f./ex factory prices, updating the tax amounts that
are based on those figures, and holding the so-called 'marketing costs'

1359 Thailand's second written submission, paras. 355-356.
1360 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford University Press, Vol. I,
p. 1762 (2002).
1361 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford University Press, Vol. I,
p. 1762 (2002).
1362 We note that in its second written submission (para. 245), Thailand described its methodology as
comprising all the elements listed by the Philippines in its second written submission (para. 318, Table 1),
including the methods and procedures thereof, and not just the eight elements examined by Thai excise for the
purpose of the MRSP determination.

constant. Again, the 'marketing cost' is derived by subtracting all other
elements from the existing MRSP."
1363
7.778 Thailand also explained that when it rejected requests for changes in the MRSP, Thai Excise
could make adjustments consistent with the dual function of the MRSP as a maximum price to protect
consumers and as the tax base for the VAT. 1364 In our view, the general methodology, as described in
detail above, that Thailand alleges is used for de termining the MRSPs, falls within the scope of the
laws and regulations of general application under Article X:1.
7.779 We note Thailand's argument in this relation th at Article X:1 does not require every statement
that was made before the Panel to be published. In concluding that Thailand's explanation in this
proceeding of how the MRSPs are determined qua lifies as a rule of general application under
Article X:1, we are not saying that every statem ent that a party makes in a panel proceeding falls
within the scope of Article X:1. The factual circ umstances of this case, particularly the absence of
written rules and Thailand's detailed explanation of su ch rules for the first time in this proceeding,
confirm that what Thailand itself alleges to be its general methodology fo r determining the MRSPs
must be considered as a rule of general application within the meaning of Article X:1.
7.780 Moreover, we note that DG Excise relied on average price surveys conducted in neighbouring
countries to determine the marketing co st component of MRSPs in 2006 and 2007. 1365 This shows
that Thailand resorted to alternative sources of information to determine the marketing cost
component of the MRSP when information provided by the importer was rejected. In our view, to the
extent that DG Excise has the systemic discret ion to deviate from its general methodology in
determining the MRSPs as illustrated in the instan ces in 2006 and 2007, such a fact should also form
part of the general methodology under Article X:1.1366
Whether Thailand "published" the general met hodology for determining the MRSP in such a
manner as to enable governments and traders to become acquainted with it
Main arguments of the parties
7.781 The Philippines claims that in order to satisfy the transparency requirements of Article X:1,
Thailand cannot merely publish the final MRSP valu es determined by DG Excise because Article X:1
requires, inter alia , that all laws and regulations pertaining to taxes or other charges be published
promptly in such a manner as to enable government s and traders to become acquainted with them. 1367
The methodology used to determine the MRSP is cen tral to the calculation of the final MRSP and the
failure to publish the methodology does not permit governments and traders to become acquainted
with the process by which the cigarette tax base is established, nor does it allow them to verify that
taxes imposed on domestic cigarettes are appropria te in comparison with taxes imposed on imported
cigarettes.1368

1363 Thailand's second written submission, para. 245. All but the introductory sentence is also found in
Thailand's first written submission, paras. 83-89 and 135.
1364 Thailand's first written submission, para. 89.
1365 Thailand's first written submission, para. 96.
1366 We find support for our view in this regard in the Panel's analysis in Dominican Republic - Import
and Sale of Cigarettes . That panel considered that when another method of determination was used by the
Dominican Republic authorities, Article X:1 required th e publication of both the decision not to conduct the
surveys, and the alternative method used to determine the cigarette tax base (Panel Report, Dominican Republic
– Import and Sale of Cigarettes, para. 7.414).
1367 Philippines' first written submission, paras. 447-448.

7.782 The Philippines continues that none of the follo wing elements, which are part of DG Excise
methodology, were subject to publication: (i) the manufacturer's recommended retail price, which is
the primary source for the MRSP; (ii) a guarantee de termined by DG Excise, which is an alternative
source for the MRSP; (iii) DG Excise's review of the MRSP, and the criteria thereof; (iv) DG Excise's
"normal" revision of the MRSP after tax changes impacting the MRSP; (v) DG Excise's calculation of
a new MRSP, after a revision, including the c.i.f. price, the latest tax amounts and the marketing
costs; and (vi) the marketing costs calculation based on information given by the importer, or when
this information is considered doubtful, the marketing costs as established by Thai Excise.1369
7.783 The Philippines also notes that out of 38 MRSP Notices for imported cigarettes issued
between 2001 and 2009, five MR SP Notices only included a rudimentary description of the MRSP
calculation. It was only explained that DG Excise co mputed the c.i.f. price, customs duty, tobacco
stamp, VAT, contribution to the health, TV and provi ncial taxes, and marketing margin. However, it
remains unclear how the VAT or marketing costs are calculated. 1370 Moreover, none of the MRSP
notices actually sets forth the methodology that Thailand has stated it is applying.1371
7.784 Thailand argues that the overall methodology used by DG Excise to determine MRSPs has
been published in conformity with Article X:1 of the GATT 1994 through: (i) the preamble to all
MRSP notices issued after August 2007 (these notices mention all of the eight components used to
calculate MRSPs)1372, read in conjunction with (ii) Section 79/5 of the Revenue Code and Revenue
Department Notification No. Por 85/2542 (relating to VAT imposed on cigarettes). 1373
7.785 Thailand asserts that, contrary to the Philippi nes' allegations, the published rules enable
importers to correctly calculate the VAT and marketing costs. Regarding the VAT amount included in
the MRSP, Thailand submits that the VAT can simply be calculated as 7 per cent of all other elements
of the MRSP (i.e. VAT-exclusive price in this case). 1374 Thailand has published an enactment
(Section 79/5 of the Revenue Code) 1375 and a notification (Revenue department notification
No. Por 85/2542)1376 that clearly indicate that VAT on cigarettes is to be calculated in this way. 1377
Regarding the marketing costs, Thailand asserts that Thai Excise makes no "accounting choice" in its
determination. The marketing costs are calculate d by deducting all other known elements from the
MRSP. The MRSP is based on information provided by the importer. Thus, Thailand argues that DG
Excise does not make any choice which could influe nce the determination of the marketing costs.

1369 Philippines' second written submission, para. 318, Table 1, referring to Thailand's first written
submission, paras. 83 and 87 and response to Panel question No. 41.
1370 Philippines' first oral statement, paras. 164- 181; second written submission, para. 320; MRSP
Notices of the Excise Department are in Exhibits PHL-61 (18 September 2006), PHL-77 (19 August 2008),
PHL-99 (7 December 2005), PH L-100 (30 March 2007), PHL-104 (29 August 2007), PHL-106
(17 August 2007), PHL-117 (8 Ma rch 2007), PHL-118 (18 December 2007), PHL-134 (13 May 2005),
PHL-168 (14 May 2009) and PHL-204 (Overview of MRSP Notices).
1372 Exhibit THA-45, PHL-105 (MRSP Notice of 19 August 2008 for imported cigarettes), and PHL-77
(MRSP Notice of 29 August 2007 for domestic cigarettes). The language used in all MRSP notices is identical
and states that: "the Excise Department therefore fixes the [MRSP] ... by making a computation as based on the
c.i.f. price, customs duty, tobacco stamp (i.e. excise tax), value added tax, contributions to the health promotion
fund, contributions to the Thai Public Broadcasting of Sound and Picture Foundation, contributions to provincial
administration organization development, and marketing margin combined".
1373 Thailand's second written submission, para. 272; Exhibits THA-94 and THA-95.
1374 Thailand's second written submission, para. 271.
1375 Exhibit PHL-94.
1376 Exhibit PHL-95.
1377 Thailand's second written submission, para. 272.

Thailand therefore maintains that it is not under an obligation to publish or disclose anything, as it is
not DG Excise who determines the marketing costs.
1378
7.786 More generally, Thailand maintains that PM Th ailand and other importers were sufficiently
familiar with the said methodology to enable them to request and obtain changes to the MRSPs.1379 In
fact, PM Thailand requested a change to its MRSP just weeks before its request for establishment of
this Panel.1380 Moreover, the Philippines demonstrated its familiarity with determining its RRSP for
imported cigarettes, which uses the same elements as the MRSP determination.1381
Analysis by the Panel
7.787 We concluded above that the methodology used by Thai Excise for determining the MRSP, as
described and explained by Thailand in this proceed ing, constitutes rules of general application under
Article X:1. Having so determined, the next ques tion for us is whether that methodology has been
published in such a manner as to enable importers to become acquainted with it as required by
Article X:1.
7.788 It is not disputed that Thailand does not publish the methodology used by Thai Excise for
determining the MRSP, as described and explained by Thailand in this proceeding. Instead, Thailand
argues that it fulfilled its obligation to publish th e concerned rules of general application under
Article X:1 by listing in the MRSP notices the eight components comprising a given MRSP. These
eight components are: (i) c.i.f. or ex factory price; (ii) customs duties (for importers only); (iii) excise
tax; (iv) health tax; (v) television tax; (vi) local taxes; (vii) VAT; and (viii) marketing costs.
7.789 We do not find, however, the publication of these eight components sufficient to fulfil
Thailand's obligations under Article X:1. The listing of the components consisting of the MRSP
would not enable importers to become acquainted w ith the detailed rules pertaining to the general
methodology within the meaning of Article X:1. We are of the view that for importers to become
acquainted with the methodology for determining th e MRSP, it is important for them to become
familiar with, for instance, how the information th ey provide is processed. Also, they need to be
informed on how Thai Excise determines the marke ting costs where the information provided by
importers is not accepted.
7.790 We note Thailand's argument that importers , including PM Thailand, have sought, and
successfully obtained, MRSP revisions since 2007. 1382 This does not prove, however, that importers
were apprised of the specific principles and methods that Thailand explained in this proceeding as the
general methodology. On the contrary, while PM Thailand regularly requested MRSP modifications
and submitted information thereof, PM Thailand had only a limited understanding of the methodology
actually applied by DG Excise.1383

1378 Thailand's second written submission, para. 273.
1379 Thailand's second written submission, para. 269.
1380 Thailand's second written submission, para. 269; response to Panel question No. 155.
1381Thailand's comments on the Philippines' response to Panel questions, para. 134, referring to
Philippines' response to Panel question No. 120.
1382 Thailand's comments on the Philippines' response to Panel questions, para. 134, referring to
Philippines' response to Panel question No. 120.
1383 Philippines' first written submission, para. 449. The Philippines explains that, including the
September 2006 MRSPs, DG Excise has issued six MRSP Notices for PM Thailand's brands since August 2006.
PM Thailand has run numerous calculations using data available to it, but cannot reproduce the MRSPs as
calculated by DG Excise. Even with the benefit of the descriptions given by DG Excise in its administrative
ruling and rebuttal submission, PM Thailand still canno t recreate or otherwise verify the September 2006

7.791 We therefore conclude that Thailand fa iled to publish the general methodology for
determining the MRSP, and to enable governments and traders to become acquainted with it under
Article X:1.
(iii) Data used to calculate MRSPs for individual cigarette brands
Whether the data used for determining the MRSP for individual cigarette brands falls within
the scope of "laws, regulations or administ rative rulings of general application" under
Article X:1
Main arguments of the parties
7.792 The Philippines relies on the Panel's reasoning in Dominican Republic – Import and Sale of
Cigarettes to substantiate its claim that the data u sed to determine the MRSP for both imported and
domestic brands should be published, together with all laws, regulati ons and administrative rulings of
general application.
7.793 The Philippines alleges that, in Dominican Republic – Impor t and Sale of Cigarettes , the
Panel interpreted Article X:1 to require the publicati on of an imported cigarette average-price survey.
The panel explained that this survey had been used to determine the tax base for imported cigarettes,
and was essential to this determination. 1384 It reasoned that tax base decisions for imported cigarettes
were administrative rulings of general application within the meaning of Article X:1, which requires
their publication. The panel considered that all elem ents which were essential to the determination of
these tax base decisions shall also be published, so that traders and governments become acquainted
with the process of establishi ng the tax base for cigarettes. 1385 The panel added that when another
method of determination was used by the Dominican Republic authorities, Article X:1 required the
publication of both the decision not to conduct the surveys, and the alternative method used to
determine the cigarette tax base.1386
7.794 The Philippines claims that similar to the facts in Dominican Republic – Import and Sale of
Cigarettes, data used by DG Excise towards MRSP calcul ations constitute "essential elements" of the
MRSP Notice, which is an administrative ruling within the meaning of Article X:1 of the
GATT 1994.1387 In this regard, the Philippines explains that the nature and content of the MRSP
Notices are fundamentally dependent on a particular data set. According to the Panel statements in
Dominican Republic – Import and Sale of Cigarettes therefore, the data itself must be published as an
essential part of the administrative ruling, to enable importers to understand the rule properly.1388
7.795 Regarding imported cigarettes, the Philippines submits that Thailand must publish the average
retail price surveys used by DG Excise to determine the marketing costs for imported cigarettes when
it refused information provided by PM Thailand in 2006 and 2007.1389

MRSPs, because it lacks the necessary da ta, even though the data allegedly relates to one of its own cigarette
brands, Marlboro.
1384 Philippines' first written submission, paras. 451-457 referring to Panel Report, Dominican Republic
– Import and Sale of Cigarettes, paras. 7.405, 7.407 and 7.414.
1385 Philippines' first written submission, para. 453, referring to Panel Report, Dominican Republic –
Import and Sale of Cigarettes, para. 7.407.
1386 Philippines' first written submission, pa ra. 454, referring to Panel Report, Dominican Republic –
Import and Sale of Cigarettes, para. 7.414.
1388 Philippines' response to Panel question No. 69.
1389 Philippines' first oral statement, paras. 188-198 ; second written submission, paras. 358-368. The
Philippines however accepts that (i) the c. i.f. price for imported cigarettes; (ii) the customs duties and internal

7.796 Regarding domestic cigarettes, the Philippines claims that Thailand must publish the taxes
and marketing costs applicable to the determin ation of the MRSP for domestic cigarettes. The
Philippines declares that the taxes for domestic cigarettes should be published because they can
already be derived from published tax rates and published tax bases.
1390 The Philippines similarly
alleges that marketing costs for domestic ciga rettes can be derived from information already
published.1391
7.797 Thailand contests that the essential elements doc trine as set forth by the Panel in Dominican
Republic – Import and Sale of Cigarettes triggers an obligation to publish data necessary to the
determination of MRSPs.
7.798 Thailand first submits that the Panel on Dominican Republic – Impor t and Sale of Cigarettes
only required that the "results"1392 and the methodology of the marketing costs study be published, not
the underlying data. In the same manner, Article X: 1 does not require that Thailand reveal the data
used for the purpose of its marketing costs calculation, but only the results of this calculation.
7.799 In addition, and more fundamentally, Thailand is of the view that the Panel's decision in
Dominican Republic – Import and Sale of Cigarettes finds no justification in either the covered
agreements or the GATT/WTO case law. 1393 Thailand underlines that the main objective of
Article X:1 is that laws, regulations and administra tive decisions of genera l application be published
so that importers can adapt their business behaviour.1394 Article X:1 does not require other elements to
be made public. Hence, WTO Members are not requi red to publish data on which the administration
relied for its determination, even when this data is an essential element of the determination, unless
the data itself can be characterized as a law, regulation or administra tive ruling of general
application.1395
7.800 In this connection, Thailand argues that the data used by DG Excise in the MRSP
determination process is company-specific. Sinc e it lacks the level of generality required by
Article X:1, it is not covered by this Artic le, and no obligation lies on Thailand to publish it. 1396
According to Thailand, the marketing costs used by DG Excise were derived, at least in part, from
company specific information. 1397 Thailand therefore distinguishes the current set of facts from the
Dominican Republic – Import and Sale of Cigarettes case where (i) the data used to conduct the price
surveys were obtained from public external sources, not from the companies themselves 1398; and (ii)
the marketing cost studies conducted by the Domi nican Republic authorities were applied to an
unidentified number of companies generally.1399

taxes applicable to imported cigarettes; and (iii) the marketing costs for imported cigarettes when they are based
on the importer's information, cannot be published by Thai Excise for confidentiality reasons (Philippines' first
oral statement, para. 197; combined response to Panel question Nos. 157 and 158).
1390 Philippines' first oral statement, para. 194 and footnote 211.
1392 Thailand's second written submission, para. 284, referring to Panel Report, Dominican Republic –
Import and Sale of Cigarettes, para. 7.404.
1393 Thailand's second written submission, paras. 277-283.
1394 Thailand's response to Panel question No. 66.
1395 Thailand's second written submission, para. 281. Th ailand recalls the Appellate Body statements in
India – Patents , (Appellate Body Report, India – Patents , para. 45) cautioning panels against imputing into a
treaty "words that are not there", and "concepts that were not intended".
1396 Thailand's response to Panel question No. 67.
1397 Thailand's comments on the Philippines' response to Panel questions, para. 136.
1398 Thailand's response to Panel question No. 66; second written submission, paras. 276-278.
1399Thailand's first written submission, para. 322, referring to Panel Report, Dominican Republic –
Import and Sale of Cigarettes, paras. 7.404-7.408.

7.801 Thailand further asserts that price surveys used by the Thai administration in 2006 and 2007
are not covered by Article X:1 of the GATT 1994, and therefore are not required to be published.
7.802 The Philippines argues that it is doubtful that actual co mpany data were used to calculate the
marketing costs for the MRSPs, because the costs app ear to have been calculated indirectly, without
data.1400 The Philippines also submits that for the September 2006, March 2007 and August 2007
MRSPs, the marketing costs for both L&M and Marlboro were based on international price
surveys1401 regarding the cigarette markets in neighb ouring countries. These surveys were delivered
by a private, independent commercial research or ganization (i.e. PricewaterhouseCoopers Worldtrade
Management Services) and nothing indicates that it had access to information provided by
PM Thailand.1402 This suggests that for 2006-2007, the ma rketing costs used to calculate MRSPs for
both L&M and Marlboro were not derived from information provided by PM Thailand.1403
Analysis by the Panel
7.803 We now address the question of whether the data used to calculate the MRSPs constitute rules
of general application within the meaning of Article X:1.
7.804 As recalled earlier, the Ap pellate Body underlined in EC – Poultry 1404 that Article X only
applies to rules of "general application". We also found that the methodology for determining the
MRSP is a rule of general application under Article X:1.
7.805 The Philippines claims that data used by DG Excise to calculate MRSPs for both imported
and domestic cigarettes must be published because they are essential elements for the MRSP
determination and thus an administrative ruling of general application under Article X:1.
7.806 As Thailand submits, however, we find that data necessary for determining an MRSP, such as
the c.i.f. price, customs duties, and internal taxes and marketing costs, are essentially company-
specific, rather than generally applicable to a ll companies. We also note that the Philippines
acknowledges that these four specific items are busi ness-derived confidential data, which are by
definition company-specific. As such, the data used for such components of the MRSP cannot be
considered as rules generally and prospectively applicable.
7.807 Regarding the Philippines' contention that we should nonetheless follow the essential element
test adopted by the Panel in Dominican Republic – Import and Sale of Cigarettes 1405 to find that the
average price surveys conducted in 2006 and 2007 were essential to the MRSP determination, we
consider that the factual circumstances under which such a test was used in that dispute must be
distinguished from the factual circumstances presented in the current dispute. In Dominican Republic
– Import and Sale of Cigarettes , the average price surveys used by the Dominican Republic Central
Bank to determine the tax base for domestic cigarett es were based on publicly available information
and could potentially be used to determin e the tax base for all domestic cigarettes. 1406 Specifically,

1400 Philippines' first oral statement, para. 195, referring to Exhibit THA-19.
1402 Thailand's response to Panel question No. 50; Exhibit THA-44.
1403 Philippines' second written submission, para. 352, referring to Thailand's response to Panel
question No. 41.
1404 Appellate Body Report, EC – Poultry, para. 111.
1405 Panel Report, Dominican Republic – Import and Sale of Cigarettes , paras. 7.400-7.406. The panel
found that "while the [average price] surveys may have not been, in themselves, laws, regulations, judicial
decisions or administrative rulings of general application, they would constitute an essential element of an
administrative ruling: the determination of the tax base for cigarettes" (Panel Report, Dominican Republic –
Import and Sale of Cigarettes, para. 7.405).
1406 Panel Report, Dominican Republic – Import and Sale of Cigarettes, para. 7.318.

Article 367(b) of the Dominican Republic tax code authorized the central bank to resort to price
surveys for this purpose.
7.808 In this dispute, as Thailand submits, the pr ice surveys conducted in 2006 and 2007 were
tailored based on the data concerning Marlboro cigarettes in the neighbouring countries.
1407 Thus, the
surveys were conducted on a company-specific basi s, listing the average retail prices only for
Marlboro cigarettes in the neighbouring countries. Furthermore, Thai Excise used the results of the
price surveys to determine the marketing cost s applied to the calculation of the MRSPs for Marlboro
and L&M, but not the marketing costs generally applicable to the MRSPs for all cigarettes.1408
7.809 For the foregoing reasons, we find that the data used for determining the MRSPs are not an
administrative ruling of general application within the meaning of Article X:1.
7.810 Regarding the data necessary for the determin ation of the MRSP for domestic cigarettes, the
Philippines argues that Thailand must publish the taxe s and marketing costs applicable to TTM. The
Philippines alleges that publicati on of this information should not be an issue because the relevant
data was either published or could be derived from publicly available information.1409 The Philippines
however failed to demonstrate that the data curre ntly published was insufficient to satisfy the
obligations under Article X:1. In the absence of such arguments and as the data necessary for
determining the MRSPs for domestic cigarettes are already available, either directly through
publication or through simple deducti ons, we conclude that the data for domestic cigarettes are
sufficiently published. We therefore do not find it necessary to examine whether this data constitutes
"laws, regulations, judicial decisions or administra tive rulings of general application" within the
meaning of Article X:1.
Whether the publication of the data used to cal culate MRSPs for individual cigarette brands

would amount to disclosing "confidential information" within the meaning of Article X:1
Main arguments of the parties
7.811 Thailand claims that even if the data used to determine the MRSPs fall within the scope of
rules of general application under Article X:1, none of the data mentioned by the Philippines should
be published because Article X:1, third sentence carves out confidential information from the
requirements of Article X:1 first and second sentence. 1410 In response to th e Philippines' argument
that Article X:1 imposes on Thailand the obligation to publish data related to imported and domestic
cigarettes that form an essential part of the determination of specific MRSPs 1411, Thailand argues that
publication of such data would result in a confiden tiality breach, in violation of Article X:1, third
sentence.
7.812 In particular, Thailand distinguishes the price surveys at issue here from the ones examined
by the Panel in Dominican Republic – Import and Sale of Cigarettes. Thailand first underlines that

1408 In this connection, we recall our conclusion in para. 7.780 above that the use of price surveys, such
as those conducted in 2006 and 2007, and the method adopted for such price surveys may fall under the scope of
rules of general application to the extent that they form part of the general methodology for determining the
MRSP.
1409 Philippines' first oral statement, para. 194; s econd written submission, para. 367. The Philippines
declares that the ex factory price fo r domestic cigarettes is already published, and that the taxes for domestic
cigarettes could be derived from published tax rates and pu blished tax bases. The Philippines also observes that
marketing costs for domestic cigarettes can be derived from information already published.
1410 Thailand's response to Panel question No. 66 , paras. 188-190; Thailand's second written
submission, paras. 276-278.
1411 Philippines' first oral statement, paras. 188-198; second written submission, paras. 358-368.

the sources of the data respectively used for the purpose of the price surveys vary. Unlike the price
surveys at issue in Dominican Republic – Import and Sale of Cigarettes , which consisted of data
obtained from public external sources; in this dispute the data used to establish the MRSPs is provided
by the companies themselves and access to other co mpanies' confidential data is not necessary to
enable traders to become acquainted with the process of determining the MRSP.1412 Thailand explains
that Thai Excise derives marketing costs by subtracti ng the c.i.f. price and duties and taxes paid to the
government from the MRSP proposed by the manufacturer/importer.1413
7.813 Thailand also points out the consequences of publishing the price surveys used by DG Excise,
even in indexed format as required by the Philippines. Thailand names three main confidentiality risks
connected with such publication. First, the figur es in the surveys could still be used to derive
confidential information, such as previously-publishe d marketing costs, and s how trends and changes
in those costs. Second, since ex factory/c.i.f. prices and the marketing costs are the only unknown
variables in the MRSP calculation, the publication of marketing costs, even in indexed format, could
allow competing firms to back into the calculation of the c.i.f. values. Finally, the fact that some
importers had their determined marketing co sts replaced by a government-fixed proxy in itself would
show a disagreement with the government about th e tax base and could cause competitive harm to the
importer.1414
7.814 Regarding Thailand's position on the confidential nature of the data used to determine the
MRSPs, the Philippines argues that for imported cigarettes, Thailand should publish the amount of
the proxy it uses, at the very least in indexed format when the marketing cost information given by the
importer is refused by DG Excise. 1415 The Philippines however accepts that (i) the c.i.f. price for
imported cigarettes1416; (ii) the customs duties and internal taxes applicable to imported cigarettes 1417;
and (iii) the marketing costs for imported ciga rettes when they are based on the importer's
information1418, cannot be published by Thai Excise for confidentiality reasons.
7.815 The Philippines also argues that a non-confidentia l version of an administrative ruling can
still be characterized as a ruling under Article X:1 of the GATT 1994. 1419 Therefore, even though it is
in a different form than the original one, the non-confidential version of the administrative ruling must
be published. 1420 Hence, the Philippines argues that non-confidential versions of MRSP
determinations should be published, which would serve both the interests of transparency and the
need to protect confidential business information.1421
7.816 As for domestic cigarettes, the Philippines argue s that Article X:1 of the GATT requires that
taxes and marketing costs in relation to domestic ciga rettes must be published, as this information can
be drawn from data already made public.1422

1412 Thailand's second written submission, para. 283.
1413 Thailand's responses to Panel question No. 114.
1414 Thailand's comments on the Philippines response to Panel questions following the second
substantive meeting, para. 136.
1415 Philippines' combined response to Panel question Nos. 157 and 158.
1418 Philippines' combined response to Panel question Nos. 157 and 158.
1419 Philippines' combined response to Panel question Nos. 157 and 158.
1420 Philippines' combined response to Panel question Nos. 157 and 158.
1421 Philippines' combined response to Panel question Nos. 157 and 158.
1422 Philippines' first oral statement, para. 194; s econd written submission, para. 367. The Philippines
underlined that the ex factory price for imported cigarettes, and the tax rates and tax bases for imported
cigarettes are already published.

Analysis by the Panel
7.817 As we found above that the data used to dete rmine the MRSP do not fall within the scope of
administrative rulings of general application, it is not necessary for us to continue with an
examination of the question of whether the publi cation of such data would amount to disclosing
"confidential information" within the meaning of Article X:1.
7.818 However, even if we were to proceed to examin e the parties' arguments in this regard, we do
not find, for the following reasons, that the Philippines has established its prima facie case that even if
Thailand were exempted from the obligation to pub lish the relevant data based on the confidential
nature of such data, Thailand is nonetheless obliged to publish such data under Article X:1.
7.819 Thailand essentially argues that given that the th ird sentence of Article X:1 provides that the
provisions of Article X:1 shall not require any WT O Member to disclose confidential information,
Thailand is not obliged to publish the data used for determining the MRSPs because such data are
confidential information. The Philippines also appears to accept Thailand's position as it
acknowledges that data such as the c.i.f. price, inte rnal taxes, the marketing costs, even in indexed
format, are confidential information.
1423 In our understanding, the Philippines' sole remaining
argument in this connection is that a non-confidential version of an administrative ruling still must be
published. We, however, do not find such an obligation in the text of Article X:1.
(d) Methodology and data for determining ex factory prices
(i) Introduction
7.820 The Philippines claims that Thailand must pub lish the methodology and data for determining
ex factory prices, one of the components of the MRSP for domestic cigarettes, because the
methodology and data are essential elements for determ ining ex factory prices, which are themselves
administrative rulings of general application within the meaning of Article X:1. The Philippines'
claims with respect to the methodology and data used for the determination of the MRSPs for
domestic cigarettes are therefore premised on its position that ex factory prices are administrative
rulings of general application under Article X:1. Thailand argues that ex factory prices do not fall
within the scope of Article X:1.
7.821 We will therefore first examine whether ex factor y prices fall within the scope of Article X:1.
If they are found to fall outside the scope of Article X:1, the Philippines' claim with respect to the
methodology and data necessary for the establishment of ex factory prices will also fail.
(ii) Ex-factory prices – whether the ex factory price determination is an administrative ruling of
general application within the meaning of Article X:1
Main arguments of the parties

7.822 The Philippines submits that the ex factory price fa lls within the scope of Article X:1,
because it is a "regulation" or "administrative ruling" pertaining to "taxes or other charges". 1424 The
Philippines relies on the Appellate Body statement in EC – Poultry that a ruling has general

1423 Philippines' combined response to Panel question Nos. 157 and 158.

application within the meaning of Article X:1 if it establishes "principles or criteria applicable in
future cases ... [that] affect ... an unidentified number of economic operators".1425
7.823 The Philippines argues that the ex factory pr ice establishes, on a general and prospective
basis, a tax base for the imposition of the excise, health and television taxes on domestic cigarettes.1426
In addition, the ex factory price serves as a basi s for the MRSP applicable to domestic cigarettes. 1427
By impacting the tax rates applicable to domestic ci garettes, the determination of the ex factory price
prospectively "affects a large and undefined number of economic operators" within the meaning of the
EC – Poultry statement above. The affected agents include wholesalers, retailers, and consumers of
TTM's cigarettes.1428
7.824 Thailand contests that the ex factory price falls with in the scope of Article X:1. According to
Thailand, ex factory prices are not administrative rulings of general app lication. Rather, they
constitute private determinations both in their origin and application. First, ex factory prices only have
a company-specific, private applica tion. They only apply to and set the excise, heath and television
tax base for a single entity, TTM. 1429 The Appellate Body has clar ified that company-specific
measures are not measures of general applicati on within the meaning of Article X:1 of the
GATT 1994.1430 Thailand asserts that ex factory prices theref ore fall outside the scope of Article X:1.
Second, regarding their origin, Thailand underlines that TTM itself, not the Thai administration,
calculates the ex factory price. 1431 TTM is only required to maintain its accounts in accordance with
generally-accepted accounting principles ("GAAP"). 1432 Thai Excise is nowhere involved and does
not have any methodology or rules prescribing a part icular accounting method or standard for TTM in
determining the ex factory price. 1433 Thus, the determination of ex factory prices cannot be qualified
as an "administrative" act, and there cannot be an obligation to publish it, or its underlying
methodology.
Analysis by the Panel
7.825 To determine whether ex factory prices are administrative rulings of general application
within the meaning of Article X:1, we will start our analysis with the ordinary meaning of the term.
"ex factory" is defined in the ICC guide to In coterms as follows: "Ex work s means that the seller
delivers when he places the goods at the disposal of the buyer at the seller's premises or another
named place (i.e.: works, factory, warehouse) not cleared for exports and not loaded on any collecting
vehicle".1434 The ex factory price is therefore the pr ice, exclusive of customs clearance and
transportation costs, applicable to the merchandi se when the manufacturing process is completed and
the goods are ready to be handed over to a buyer.
7.826 The ex factory price, as a general concept, thus can be understood as the price of a good
being decided by each individual firm in accordance with its own costs and business strategies. 1435 In
other words, it is the result of an internal decisi on-making process, conducted on a firm-by-firm basis.

1425 Philippines' second oral statement, para. 126, referring to Appellate Body Report, EC – Poultry ,
para. 113.
1428 Philippines' response to Panel question No. 162.
1429 Thailand's second written submission, para. 287.
1430 Thailand's first written submission, para. 317 referring to Appellate Body Report, EC – Poultry ,
1431 Thailand's response to Panel question No. 160(1); Exhibit THA-24.
1432 Thailand's response to Panel question No. 160(1).
1433 Thailand's response to Panel question No. 161.
1434 Exhibit THA-23, p. 69.
1435 Thailand's second written submission, para. 288.

Therefore, unless it can be shown, by supporting evid ence, that a government is somehow involved in
determining the ex factory price of certain goods, the ex factory price cannot be characterized as an
administrative ruling of general a pplication under Article X:1 as it is a business decision made by an
individual company.
7.827 In Thailand, TTM is the only domestic ciga rette manufacturer whose MRSP determination is
based on, inter alia, the ex factory price figure. While TTM is a state enterprise, that does not in itself
constitute a proof that the Thai government determin es ex factory prices of TTM's cigarettes. Neither
are we presented with evidence suggesting that this is the case or TTM is bound by guidelines or rules
imposed by the Thai administration in making its ex factory price determination. On the contrary, the
role of the Thai administration appears to receive and process ex factory prices declared by TTM.
1436
7.828 We note the Philippines' argument that the ex factory price determination falls under
Article X:1 because it affects entities and consumers active in the cigarettes market. The concerned
determination indeed serves as a basis for the MRSP and the taxes applicable to domestic cigarettes.
We are, however, of the view that this interpre tation goes beyond the intende d scope of the Appellate
Body's statement in US – Underwear that measures of general application are those which "affect ...
an unidentified number of economic operators". 1437 The Philippines' interpretation would
impermissibly broaden the scope of this argument to virtually all administrative determinations falling
under Article X:1. In this connection, we note that the MRSP, not the ex factory price, is the basis for
taxes applicable to domestic cigarettes. The ex f actory price is only one component in the calculation
leading to the MRSP determination. The Philippin es has not clarified the consequential link between
the ex factory price and its impact on operators active in the Thai domestic market for cigarettes.
7.829 For the foregoing reasons, we conclude that ex factory prices are not administrative rulings of
general application within the m eaning of Article X:1. Having so found, we need not address the
Philippines' claim under Article X:1 that the methodology and data used for determining ex factory
prices, as essential elements to such a determin ation, must be published in accordance with the
obligations under Article X:1.
(e) Rules relating to the release of guarantees placed for health, excise and television taxes
(i) Introduction
7.830 As explained in Section VII.I.2 below, in situ ations where it becomes necessary to delay the
final determination of the customs value, Thaila nd enables an importer to withdraw its goods from
customs if the importer provides sufficient guarant ees for payment of potential customs duty and
excise, health, and television tax liabilities.
1438
7.831 The amount of these guarantees is based on a guarantee value assigned by Thai Customs to
each brand of imported cigarettes.1439 The importer pays the customs duties and internal taxes due on
the declared customs values, and provides a guara ntee for the duties and internal taxes due on the
difference between the declared transaction value and the guarantee value. 1440 The guarantees remain

1436 Clause 1 of the Excise Department Notification on the "Declared Prices of Shredded Tobacco or
Tobacco at the Tobacco Factory" states in this rega rd: "The tobacco manufacturer shall declare prices of
shredded tobacco or tobacco at [the] tobacco factory to the Director-General of the Excise Department on the
form attached hereto" (Exhibit THA-24).
1437 Panel Report, US – Underwear , para. 7.65; Appellate Body Report, US – Underwear, p. 21, DSR
1997:I, 11, at 29.
1438 Philippines' first written submission, para. 633; Exhibit PHL-20.
1440 Philippines' first written submission, para. 634; first oral statement, para. 264, referring to
Exhibit PHL-147.

in place until Thai Customs ha s assessed the customs va lue for a given shipment. 1441 The definitive
liability for customs duties, as well as for the excise, health and televisi on taxes, is then calculated on
the basis of the assessed customs value. 1442 When the assessed customs value is lower than the
guarantee value, the importer’s final liability for cu stoms duty and internal taxes will be lower than
the amount secured by the guarantee.1443
7.832 The Philippines claims that Thailand violates Article X:1 because it fails to publish its rules of
general application relating to the release of guarantees. To examine the Philippines' claim in this
regard, we must consider the following two ques tions. First, whether the Philippines proved the
existence of laws, regulations, judicial decisions or administrative rulings of general application
relating to the release of guarantees made effective by Thailand; and second, if they do exist , whether
Thailand has promptly published these rules of gene ral application in such a manner as to enable
governments and traders to become acquainted with them.
(ii) Whether Thailand maintains rules of general application relating to the release of guarantees
Main arguments of the parties
7.833 The Philippines argues that a general rule on the release of guarantees appears to exist in
Thailand.1444 The Philippines argues that although Thailand recognizes a right to a release of
guarantees placed for excise, health, and television ta xes, it fails to publish its rules of general
application relating to such a release. 1445 The Philippines points to Th ailand's admission that Thai
Customs does process the requests for the release of guarantees through a departmental practice. 1446
This, according to the Philippines, suggests that a rule of general application is generally being
followed by Thai Customs in the release process, which under Article X:1 of the GATT 1994 must be
published.
7.834 In particular, the Philippines submits that the basic procedural steps that an importer should
follow to exercise its right to the release of those guarantees should be published. 1447 Specifically, the
Philippines requests the Panel to contrast the lack of published rules and procedures on the release of
guarantees with the very detailed rules published on the refunds of customs duties which provide the
following information: (i) the customs office to which a refund request must be made; (ii) the personal
identification documents the requesting person or entity must present; (iii) the circumstances in which
the person or entity can issue a power of attorney for third person representation; (iv) the documents
and additional information that must be presented; (v) the form of the customs authority's response;
and (vi) the precise manner in which the refund is transferred to the requesting person or entity.1448
7.835 The Philippines argues that if Thai law does not provide a general rule on the release of
guarantees, Thailand would violate its WTO oblig ations for an unreasonable and non-uniform
administration.1449

1446 Philippines' response to Panel question No. 166; se cond oral statement, pa ra. 128, referring to
Thailand's second written submission, para. 296. The Philippines notes that a series of routine administrative
decisions also constitutes a "measure" within the meaning of Article 6.2 of the DSU.
1448 Philippines' first oral statement, para. 259; response to Panel question No. 72.

7.836 Thailand claims that the release of guarantees is governed by the provisions of the Customs
Act governing the final assessment of customs duties, namely Sections 112 bis and 112quater of the
Customs Act.
1450 In Thailand's view, because the release of guarantees takes place in the context of
the final assessment, there is no need for a provisi on of law other than the provisions governing final
assessment to address separately the release of guarantees.
7.837 Thailand argues that for an obligation under Article X:1 to publish a rule of general
application to arise, there must exist a rule of ge neral application. Article X:1 does not require WTO
Members to promulgate particular laws; it requir es only that WTO Members publish existing laws of
general application. Thailand submits that the Philip pines, as a complainant, must meet the standard
established by the panel in Japan – Film to "clearly demonstrate th e existence of ... unpublished
administrative rulings in individual matters which es tablish or revise principles applicable in future
cases".1451 Thailand considers that the Philippines has fa iled to identify an existing rule of general
application under Thai law that Thailand has failed to publish.1452
7.838 Thailand argues that while, "as a general matter", the guarantees are to be refunded on the
final assessment of the goods1453, the release of guarantees is not governed by detailed rules of general
application. In particular, it has not promulgated any law or regulation of general application setting
out the procedural steps that an importer must follow to claim a release of guarantees. 1454 Rather,
Thai customs administers the release of guarantees through departmental practice and through the
exercise of administrative discretion as part of the process of final assessment of duties. In the
overwhelming majority of cases, the release of guarantees occurs without incident.
1455 Thailand thus
claims that the Philippines has failed to demonstrat e the existence of a law or regulation of general
application made effective by the Thai administration.1456
7.839 In Thailand's view, the Philippines' claim rath er requires the adoption or promulgation of a
norm of general application concerning the release of guarantees. 1457 Thailand takes the position that
this claim falls outside the scope of Article X:1, which only requires the publication of existing norms
of general application.1458
Analysis by the Panel
7.840 As observed above, Article X:1 requires WTO Me mbers to promptly publish their trade laws
and regulations of general appli cation in such a manner as to enable governments and traders to
become acquainted with them.
7.841 Regarding the release of guarantees deposited by importers for excise, health, and television
taxes, the Philippines claims that Thailand shoul d publish both a rule concerning "an unambiguous
right to the release of guarantees" as well as th e specific "procedural rules providing sufficient
guidance on how guarantees are released". 1459 Thailand submits that it does not maintain specific
procedures or rules applied generally to the release of guarantees. It argues that the Philippines, as a
complainant bringing a claim under Article X:1, must first demonstrate the existence of the relevant
rules of general application in Thailand that the Philippines argues Thailand failed to publish.

1450 Thailand's first written submission, para. 325.
1452 Thailand's first written submission, para. 326; response to Panel question No. 74.
1453 Philippines' first oral statement, para. 259 referring to Thailand's first written submission, para. 111.
1454 Thailand's second written submission, para. 296.
1455 Thailand's second written submission, para. 296.
1456 Thailand's response to Panel question No. 74.
1457 Thailand's response to Panel question No. 74.
1459 Philippines' first oral statement, paras. 415-420.

7.842 We first recall the Appellate Body' statement in US – Wool Shirts and Blouses regarding the
burden of proof principle in WTO dispute settlement proceedings that " a party who asserts a fact,
whether the claimant or the respondent, is respons ible for providing proof thereof [...] If the party
adduces evidence sufficient to raise a presumption that what is claimed is true, the burden then shifts
to the other party, who will fail unless it addu ces sufficient evidence to rebut the presumption". 1460 In
the context of the Philippines' claim under Article X:3(a) relating to the release of guarantees, the
Philippines is asserting that Thailand does mainta in rules of general application governing the
procedures for the release of guarantees. Therefore, the Philippines, as a party asserting this specific
claim, must demonstrate the existence of the unpubl ished rules or procedures that Thailand generally
applies in releasing the guarantees.
7.843 First, we will address whether the Philippin es has proved that Thailand maintains a general
rule concerning a right to the release of guarantees within the meaning of Article X:1. To support its
position that Thailand maintains a general rule in this regard, the Philippines refers to, inter alia ,
Thailand's statement that the "guarantees are to be refunded on the final assessment of the goods." 1461
Thailand does not dispute the existence of this gene ral rule, namely a rule governing the right to the
release of guarantees, either. Thailand specifically submits that Sections 112 bis and 112quater of the
Customs Act constitute laws of general appli cation that govern the release of guarantees. 1462
Therefore, Thailand's contention is rather that its rules on the release of guarantees are already
"specifically" published in the provisions of th e Customs Act governing the final assessment of
customs duties. This is a question that we addres s in the subsequent part of this section regarding
whether the relevant provisions in the Thai Customs Act are sufficient to enable traders to become
acquainted with the rules on guarantee release.
7.844 We now move on to the parties' arguments on the question of whether Thailand maintains
specific procedural rules applied generally to the release of gua rantees. The Philippines submits that
basic procedural steps that an importer should follow to exercise its right to the release of those
guarantees should be published. Thailand argues that it has not promulgated any law or regulation of
general applications setting out the procedural steps that an importer must follow to claim a release of
guarantees and so consequently there are no generally applicable procedural steps to be published.
1463
7.845 The Philippines submits that PM Thailand has obtained the release of bank guarantees for
excise, health and television taxes in the past, for example, in July 2008.1464 However, the Philippines
does not explain the procedural steps that PM Thailand in fact followed in the process of obtaining the
release of guarantees in such instances, while it ex emplified the specific procedural rules that it
alleges Thailand must publish in relation to the release of guarantees. 1465 Therefore, we are not
presented with any evidence enabli ng us to identify the procedural rules of general application

1460 Appellate Body Report, US – Wool Shirts and Blouses, p. 335.
1461 Philippines' first oral statement, para. 259, referring to Thailand's first written submission,
para. 111.
1462 Thailand's first written submission, para. 325; response to Panel question No. 74.
1463 Thailand's second written submission, para. 296.
1465 The Philippines, for example, contrasts the lack of rules and procedures on the release of
guarantees with the detailed procedural rules that exist for refunds of customs duties as laid out in the
"Notification of Department of Cust oms No. 97/2542, Re: The procedures to receive the check refund, tax and
duty and other income" provides published rules governing the refund of customs duties (Philippines' response
to Panel question No. 72; Exhibit PHL-184). The Philippines notes that the above Notification sets forth rules
governing the refund of customs duties only.
The only reference by the Philippines to an actual action taken by Thai Customs in relation to the
release of guarantees for the internal taxes is the instance where Thai Cu stoms handed over to PM Thailand the
original document containing certain bank guarantees when it returned such guarantees (Philippines response to
Panel question No. 73, footnote 26).

currently maintained by Thailand regarding the re lease of guarantees that should be subject to the
publication requirement under Article X:1.
7.846 In this connection, we also take note of certa in Philippines' statements such as the following:
"there are no procedural rules providing sufficien t guidance on how guarantees are released"; "it was
instructive to contrast the lack of rules and procedures on the release of guarantees with the very
detailed procedural rules that exist for refunds of customs duties. "
1466 Expert opinions produced by
the Philippines also tend to confirm that there is no provision in Thai law that governs the process for
the release of guarantees. 1467 Although it is not entirely clear to us, we assume the Philippines'
arguments to imply that no written rules exist on the procedures governing the release of guarantees.
If that was the Philippines' position, however, it s hould have at least drawn our attention to the
"practice" relied on by Thai Customs in previous instances where the guarantees were released. This,
in our view, would have helped to establish the exis tence of procedural rules of general application
maintained by Thailand in releasing the guarantees.1468
7.847 The Philippines points to Thailand's statement that its operation of the release of guarantees is
based on departmental practice which is routine a nd applied without incident in the overwhelming
majority of cases. 1469 The Philippines considers that this statement highlights Thailand's admission
that a rule of general application is being follo wed by Thai Customs in the releasing process, which
must be published under Article X:1. 1470 Thailand did not, however, elaborate on its statement in this
regard by, for example, specifying the content of its departmental practice. Neither has the
Philippines put forth any specific ex amples of such practice. In the absence of evidence showing a
practice or repeated actions that can be considered as constituting a general rule, Thailand's reference
to a "departmental practice" appears to mean th at decisions on the release of guarantees for the
internal taxes are made, in practice, on a discretionary basis.
7.848 In our view, as the Philippines itself acknowledges, if its own claim pertains to the absence of
the specific procedural rules generally applicable to the release of guarantees for the internal taxes,
such a claim should have been brought more properl y under Article X:3(a). For instance, referring to
the procedural rules governing the refund of cust oms duties, provided in the "Notification of
Department of Customs No. 97/2542, Re: The pro cedures to receive the check refund, tax and duty
and other income", the Philippines submits that the existence of such detailed and explicit rules and
procedures for customs duty refunds further high lights the absence of equivalent provisions for

1466 Philippines' response to Panel question No. 72 (italics in original, underline omitted).
1467 Philippines' first oral statement, para. 259, referring to Exhibit PHL-151; response to Panel
question 165, referring to Exhibits PHL-183 and PHL-265. See "Revised Expert Opinion of Mr. Piphob
Verahpong", PHL-182, para.11.2 ("Based upon my review of the Tobacco Act, Heath Tax Act and Television
Tax Act, I find that there are no provisions governing the legal process by which release of guarantees for
excise, health and television tax can be secured."), and "Revised Expert Opinion of Professor Dr. Prasit
Aekaputra", PHL-183, para. 5 ("Based upon my review of the Tobacco Act, Heath Tax Act and Television Tax
Act, I find that there are no provisions governing the legal process by which release of guarantees for excise,
health and television tax can be secured.").
1468 We find support for our view in this regard in the Appellate Body's statement in US – Zeroing (EC)
that "a panel must not lightly assume the existence of a 'rule or norm' constituting a measure of general and
prospective application, especially when it is not expr essed in a form of written document." (Appellate Body
1469 Philippines' response to Panel question No. 166; comments on Thailand's response to Panel
question No. 171(2). The Philippines underlines that in the context of its defence under Article III:2 and X:3(a),
Thailand has also referred to the rules governing the rel ease of guarantees as the "n ormal practice". Thailand's
response to Panel question No. 74; second written submission, para. 296.
1470 Philippines' response to Panel question No. 166; se cond oral statement, pa ra. 128, referring to
Thailand's second written submission, para. 296. The Philippines notes that a series of routine administrative
decisions also constitutes a "measure" within the meaning of Article 6.2 of the DSU.

guarantee values. We also note the Philippines' emphasis on the need for precise published rules for
guarantee releases. The obligation under Article X:1 is, however, to promptly publish rules of general
application made effective by a Member in such a manner as to enable traders to become acquainted
with them. In fact, the Philippines submits that if the Panel finds that Thai law does not provide a
general rule on the release of guarantees, the Panel should find that Thailand violates Article X:3(a)
by failing to provide rules that allow importers to secure, on a predictable basis, the release of
guarantees collected when final liability proves to be less than the guarantee. 1471 However, the
Philippines never developed a claim under Article X:3( a) in respect of Thailand's failure to provide
rules relating to the release of guarantees.
7.849 Therefore, in respect of its claim that Tha iland failed to publish both a rule concerning "an
unambiguous right to the release of guarantees" as well as the specific "procedural rules providing
sufficient guidance on how guarantees are released", we conclude that the Philippines did not
discharge its burden of proving the existence of the specific procedural rules generally applied to the
release of guarantees within the meaning of Article X:1. Accordingly, in the following section, we
will examine only the question of whether Thailand pub lished its general rule concerning the right to
the release of guarantees consistent with Article X:1 of the GATT 1994.
(iii) Whether the rules relating to the release of guarantees were published within the meaning of
Article X:1
Main arguments of the parties
7.850 The Philippines submits that Sections 112 bis and 112 quater of the Customs Act do not
provide sufficient guidance with respect to the release of guarantees for customs duties and the
applicable taxes because these provisions, inter alia , do not establish an unambiguous right to the
release of the guarantee. 1472 The Philippines argues that the last paragraph of Section 112 quater in
particular refers only to cash guarantees, and does not refer to other forms of guarantees collected by
Thailand, such as bank guarantees. In the Philippines view, Thailand's proposition that
Sections 112bis and 112quater provide for a general rule for guarantee release undermined its own
assertion that "in order for there to be an obligation to publish a rule of general application, there must
exist a rule of general application." The Phili ppines argues that this suggests that Sections 112 bis and
112quater cannot be read to contain a general rule governing the release of guarantees.
7.851 The Philippines further contends that Tha iland has not published its rules of general
application concerning the release of guarantees as required by Article X:1. The Philippines argues
that relevant Thai laws do not include provisions duly informing importers of the rules governing the
release of guarantees once the final customs determination is reached.
1473 Publication of those rules
would have practical importance as, in this disput e, Thailand has failed to release guarantees for the
health tax regarding [[xx.xxx.xx]] out of [[xx.xxx.xx ]] transactions that occurred between August
2006 and March 2007 1474; for the same period, Thailand has clear ed a total of [[xx.xxx.xx]] entries,
but has not released the guarantee concerning [[ xx.xxx.xx]] entries whose final customs value was
lower than the guarantee posted; out of those [[xx.xxx.xx]] cases, Tha iland has also failed to release
guarantees given for health tax in [[xx.xxx.xx]] cases.1475

1471 Philippines' response to Panel question No. 166, referr ing to its statements to this effect in its first
oral statement, para. 258.
1472 Philippines' response to Panel question No. 71.
1473 Philippines' first oral statement, paras. 259-260 ; response to Panel question No. 72; second written
submission, para. 525.
1474 The Philippines submits that the health tax guarant ees for these [[xx.xxx.xx]] entries were released
by Thai Customs on 3 August 2009, after these WTO proceedings were prompted.
1475 Philippines' second written submission, paras. 526-528, referring to Exhibit PHL-195.

7.852 Thailand states that Sections 112 bis and 112 quater of the Customs Act constitute laws of
general application that govern the release of guarantees.
1476 Those Sections, which govern the final
duty assessment, also provide that the excess guarant ees are to be refunded upon final assessment of
the good.1477 Section 112bis states that upon payment of a guarantee, "where cash has been deposited
as a security and the cash deposit is sufficient to cover the amount of duty assessed, the assessed
amount of duty shall be paid from such amount immediately". Section 112 quater provides that in
cases where the "duty paid or the cash deposit is to be refunded on account of it being demanded in
excess of the amount or additional amount payable" , interest will be payable on the amount to be
refunded.1478 Thailand claims that it has also produced notices of assessment which were published,
and which show that refunds are available. For in stance, column 6 of the Notice of Assessment dated
16 March 2007 shows that amounts are to be refunded to importers upon final assessment. 1479
Thailand considers that Sections 112 bis and 112 quater of the Customs Act and those notices of
assessment together provide enough transparency on the existing rules followed by the DG Excise.1480
7.853 The Philippines contends that Sections 112 bis and 112 quater of the Customs Act do not
establish an unambiguous right to the release of guarantees, noting that the last paragraph of
Section 112quater refers only to cash guarantees, and not to other forms of guarantees, such as bank
guarantees.1481 This point is of practical relevan ce because between 11 August 2006 and 28 March
2008 PM Thailand posted bank guarantees to clear shipments of imported cigarettes.1482
Analysis by the Panel
7.854 In this section, we evaluate whether Thailand has published the general rules relating to the
right to the release of guarantees, as identified by the Philippines, consistently with its obligations
under Article X:1.
7.855 Thailand alleges that it has satisfied its ob ligations through the Thai Customs Act and
published notices of assessment. In Thailand's vi ew, these legal instruments provide sufficient
guidance to allow traders and governments to beco me acquainted with the rules governing the release
of guarantees after a final customs determination is issued by the Thai Customs administration.
7.856 The Philippines argues that Sections 112bis and 112quater of the Customs Act do not provide
sufficient guidance with respect to the release of guarantees for customs duties and the applicable
taxes because these provisions, inter alia, do not establish an unambiguous right to the release of the
guarantee. Section 112bis of the Thai Customs Act provides:
"In the case where a guarantee of the amount of duty is given under Section 112 and
the Competent Officer has assessed the amount of duty payable and notified the
importer or the exporter, as the case may be, the importer or the exporter shall pay the
notified amount of duty within thirty days after the date of receiving the notice.

1476 Thailand's first written submission, para. 325; response to Panel question No. 74.
1477 Thailand's response to Panel question No. 165.
1478 Thailand's response to Panel question No. 165, referencing Exhibit PHL-20.
1479 Thailand's response to Panel question No. 165, referring to Exhibit PHL-129.
1480 Thailand's first written submission, para. 325; Exhibit PHL-20.
1481 Philippines' response to Panel question No. 72; second written submission, para. 524.
1482 Philippines' response to Panel question No. 72, re ferring to its first written submission, footnote
145 explaining that Prior to 28 March 2007, PM Thailand posted bank guarantees for the customs duties and
excise tax due on the difference between the declared tran saction value and the guarantee value. For the health
and television taxes (first imposed in January 2008) that were due on this difference, PM Thailand posted cash
guarantees. From 28 March 2007, PM Thailand posted cash guarantees for all items, that is, customs duties,
excise tax, health tax and, after January 2008, also television tax.

In the case where cash has been deposite d as security and the cash deposit is
sufficient to cover the amount of duty assessed by the Compet ent Officer, the
assessed amount of duty shall be paid from such cash deposit immediately, and the
importer or exporter shall be deemed to ha ve paid the notified amount or duty within
the period specified in paragraph one."
1483
7.857 Section 112quater of the Thai Customs Act provides:
"In the case where the duty paid or the cash deposit is to be refu nded on account of it
being demanded in excess of the amount or additional amount payable, the interest
shall be paid together with the refund at the rate, not on compound basis, of 0.625 per
cent a month on the refund from the date of payment of duty or latest deposit of cash
to the date of approval of the refund. In the case where cash has been deposited in
substitution for guarantee after the release or exportation of goods, the interest on the
cash deposit to be refunded shall be calcula ted from the date of latest deposit of cash
to the date of approval of the refund. In the calculation of the interest under this
paragraph, a fraction of one month shall be counted as one month, and the interest to
be paid shall be treated as duty to be refunded."
1484
7.858 The text of the Customs Act, cited above, indicates that a guarantee may be requested towards
the payment of the customs duty (Section 112 bis) and that in the case of releasing cash guarantees,
interest shall be paid at a fixed rate (Section 112 quater). Therefore, they refer only to guarantees
made in cash and do not specify whether guarantees placed in other forms are also subject to these
provisions in situations warranting such a release.
7.859 The notices of assessment which Thailand alleges clarify that a refund for guarantee is
available to importers only contain a column which states the "refund(+) or shortfall(-)" amounts for
the importer. In our view, this document does not indicate whether such refunds are for guarantees
placed in relation to excise, health and televisi on taxes. Therefore, these notices of assessment
produced by Thailand do not establish a sufficient link between importers' entitlement to a "refund"
and the guarantees paid for excise, health and television taxes.
7.860 Therefore, despite Thailand's acknowledgment th at "in essence, guarantees are to be refunded
on the final assessment of the goods", the relevant documents referred to by Thailand in this dispute
do not clearly indicate a definite right to the rel ease of guarantees for the internal taxes upon final
assessment of the goods. In such circumstances, importers will not be able to become acquainted with
the exact nature of the right they have in respect of the release of guarantees for the internal taxes
within the meaning of Article X:1.
7.861 In light of the foregoing, we conclude that th e general rules on the right to the release of
guarantees as currently published by Thailand in th e Customs Act are not sufficient to satisfy the
requirements under Article X:1 in relation to the guarantees for the excise, health and television taxes.
H. ARTICLE X:3(A) OF THE GATT 1994
1. Overview of the Philippines' claims under Article X:3(a)
7.862 The Philippines advances four claims under Artic le X:3(a): (i) Thailand acts inconsistently
with the obligations under Article X:3(a) to admi nister its customs and internal tax rules in a
"reasonable" and "impartial" manner by appointing ce rtain senior Thai government officials to serve

1483 Exhibit PHL-20.
1484 Exhibit PHL-20.

on the board of directors of TTM; (ii) undue delays in the BoA's decision-making process are an
"unreasonable" administration of the customs laws u nder Article X:3(a); (iii) the determination of the
tax base for VAT (MRSP) for imported cigarettes is administered in a "non-uniform", "unreasonable"
and "partial" manner; and (iv) the establishment of the excise, health and television taxes in relation to
imported cigarettes is administered in a "non-uniform", "unreasonable" and "partial" manner.
7.863 We will first review the general nature and the scope of Article X:3(a) and then proceed to
examine the Philippines' claims with respect to th e specific Thai government's acts of administration
of its laws and regulations as described above. We recall our conclusion that the third claim
concerning the determination of the tax base for VAT is outside our terms of reference, as discussed
in Section VII.B.1(a).
2. Nature and scope of the obligations under Article X:3(a)
7.864 Article X:3(a) provides:
Each contracting party shall administer in a uniform, impartial and reasonable manner
all its laws, regulations, decisions and rulings of the kind described in paragraph 1 of
this Article.
7.865 Article X:1 in turn reads:
Laws, regulations, judicial decisions and administrative rulings of general
application, made effective by any contracting party, pertaining to the classification
or the valuation of products for customs purposes, or to rates of duty, taxes or other
charges, or to requirements, restrictions or prohibitions on imports or exports ...
7.866 To establish a violation of Article X:3(a), a co mplaining party must therefore show that the
responding Member administers the legal instruments of the kind described in Article X:1 in a manner
that is non-uniform, partial and/or unreasonable.
7.867 The obligations of uniformity, impartiality and reasonableness are legally independent and the
WTO Members are obliged to comply with all three requirements.
1485 This means that, as the Panel in
Dominican Republic – Import and Sale of Cigarettes noted, a violation of any of the three obligations
will lead to a violation of the obligations under Article X:3(a).
7.868 In this regard, it is important to recall the Appellate Body's observation that Article X:3 of the
GATT 1994 establishes certain minimum standards for tr ansparency and procedural fairness in the
administration of trade regulations. 1486 In examining the Philippines' claims under Article X:3, we
will therefore bear in mind that it is the principle of transparency, procedural fairness and due process
that underpins the obligations embodied in Article X:3(a).
7.869 Turning to the scope of Article X:3(a), it is well established that the obligations under
Article X:3(a) apply to the administration of the laws, regulations, decisions and rulings of the kind
falling within the scope of Article X:1, but not to such laws and regulations themselves.1487 T h e

1485 Panel Report, Argentina – Hides and Leather, para. 11.86.
1486 Appellate Body Report, US – Shrimp , para. 183. The Appellate Body also underlined that
"inasmuch as there are due process requirements gene rally for measures that are otherwise imposed in
compliance with WTO obligations, it is only reasonabl e that rigorous complian ce with the fundamental
requirements of due process should be required in the application and administration of a measure ... "
(Appellate Body Report, US – Shrimp, para. 182) (emphasis added).
1487 Appellate Body Reports on EC – Bananas III , para. 200; EC – Poultry , para. 115. The Panel in
Argentina – Hides and Leather also stated that "Article X:3(a) refers specifically to the method of application of

Appellate Body states that to the extent that such laws and regulations are discriminatory, they can be
examined for their consistency with th e relevant provisions of the GATT 1994. 1488 F u r t h e r
elaborating on the scope of Article X:3(a), the A ppellate Body clarified that a government's act of
administration subject to the provisions of Article X:3(a) includes not only acts of administering the
laws and regulations of the kind in Article X:1, but also legal instruments that regulate the application
or implementation of such laws and regulations. 1489 In other words, in determining the proper scope
of Article X:3(a), the relevant question is, as the Panel in Argentina – Hides and Leather correctly
noted, "whether the substance of such a measure is administrative in nature or, instead, involves
substantive issues more properly dealt with under other provisions of the GATT 1994".1490
7.870 In this connection, it has also been clarified th at the term "administer" in Article X:3(a) may
include in its scope "administrative processes", wh ich in its broadest sense may be understood as a
series of steps, actions, or events that are taken or occur in relation to the making of an administrative
decision.1491 In EC – Selected Customs Matters, the Appellate Body had an opportunity to address the
obligation to administer laws and regulations in a "uniform" manner, and it expressed the view that
the term "administer" in Article X:3(a) may include in its scope "administrative processes". However,
the Appellate Body considered that given that the term "administer" in Article X:3(a) refers to
"putting into practical effect", or "applying", a legal instrument of the kind described in Article X:1, it
is the application of a legal instrument of the kind described in Article X:1 that is required to be
uniform under Article X:3(a), but not the processes leading to administrative decisions, or the tools
that might be used in the exercise of administration.
7.871 The Appellate Body then added that the char acteristics of an administrative process were
nonetheless relevant for purposes of assessing whether a legal instrument of the kind described in
Article X:1 is uniformly applied or put into practical effect in particular cases. Specifically, it states:
"[T]he features of an administrative pro cess that govern the application of a legal
instrument of the kind described in Article X:1 may constitute relevant evidence for
establishing uniform or non-uniform administration of that legal instrument. The
probative value of such evidence will, howe ver, depend on the circumstances of each
case and will necessarily vary from case to case. Thus, we may conceive of cases
where a panel might attach much weight to differences that exist at the level of the
administrative processes, because it considers these differences to be so significant
that they have caused, or are likely to cau se, the non-uniform application of the legal
instrument at issue. On the other hand , a panel might conclude, after an overall
assessment of the evidence, that the consistent nature of the results of the application
of the legal instrument shows that the meas ure at issue is administered in a uniform

measures identified in Article X:1." (emphasis added) (Panel Report, Argentina – Hides and Leather ,
para. 11.73) The Panel in the same dispute further elaborated that "the relevant question is whether the
substance of such a measure is administrative in nature or, instead, involves substantive issues more properly
dealt with under other provisions of the GATT 1994." (para. 11,70; also referred to in the Panel Report, US –
Byrd Amendment, para. 7.143).
1488 Appellate Body Report, EC – Bananas III, para. 200.
1489 Appellate Body Report, EC – Selected Customs Matters , para. 200. The Appellate Body states,
"[u]nder Article X:3(a), a distinction must be made between the legal instrument being administered and the
legal instrument that regulates the application or implementation of that instrument. While the substantive
content of the legal instrument being administered is not challengeable under Article X:3(a), we see no reason
why a legal instrument that regulates the application or implementation of that instrument cannot be examined
under Article X:3(a) if it is alleged to lead to a lack of uniform, impartial, or reasonable administration of that
legal instrument".
1490 Panel Report, Argentina – Hides and Leather, para. 11.70 (emphasis added).
1491 Appellate Body Report, EC – Selected Customs Matters, para. 224.

manner, even though differences may exis t at the level of the administrative
process."
1492
7.872 We note that the Appellate Body's analysis a bove was made in the context of the uniformity
requirement in Article X:3(a). Although it is not entirely clear whether the Appellate Body intended
its consideration of the scope of the term "administer" in the above context to also be extended to the
obligations of reasonableness and im partiality under Article X:3(a), the subsequent statement by the
Appellate Body tends to support the view that it should also be applicable to these other two
obligations. While noting that evidence relating to the features of an administrative process can be
adduced in support of a claim of a violation of Ar ticle X:3(a), the Appellate Body made the following
concluding statement:
"[I]n order to substantiate a claim of viol ation based on an administrative process, it
is not sufficient that the complainant merely recites the features of the administrative
processes; it will also have to show how a nd why those features necessarily lead to a
lack of uniform, impartial, or reasonable administration of a legal instrument of the
kind described in Article X:1".1493 (emphasis added)
7.873 In sum, the guidance provided by the Appellate Body suggests that Article X:3(a) dictates the
disciplines governing the administration of the legal instruments of the kind described in Article X:1.
The scope of administration that is subject to a challenge under Article X:3(a) includes both the
manner in which the legal instruments of th e kind falling under Article X:1 are applied or
implemented in particular cases as well as a legal in strument that regulates such application or
implementation. Further, administrative processes leading to administrative decisions may also be
included in the scope of the term "administer" and hence Article X:3(a). However, to the extent that a
claim of violation under Article X:3(a) is based on an administrative process, the complainant must
demonstrate how and why certain features of the admi nistrative processes necessarily lead to a lack of
uniform, impartial, or reasonable administration of a legal instrument of the kind described in
Article X:1.
7.874 As a final note, we are mindful of the Appellate Body's statement that as allegations that the
conduct of a WTO Member is biased or unreasonable are serious under any circumstances, such
allegations should not be brought lightly, or in a subsidiary fashion.
1494 The Appellate Body therefore
cautioned that "a claim under Article X:3(a) of the GATT 1994 must be supported by solid evidence;
the nature and the scope of the claim, and the evid ence adduced by the complainant in support of it,
should reflect the gravity of the accusations i nherent in claims under Article X:3(a) of the
GATT 1994". Overall, our examination of the Phili ppines' claims under Article X:3 requires us to
exercise a balanced judgment between the traders' fundamental right to procedural fairness and the
sovereign right afforded to the Member governments in managing the manner in which they
administer their own laws and regulations.
7.875 Bearing the above in mind, we will begin ou r analysis of the Philippines' claims under
Article X:3(a) relating to the dual function of Thai government officials as TTM directors.

1492 Appellate Body Report, EC – Selected Customs Matters, paras. 224-225.
1493 Appellate Body Report, EC – Selected Customs Matters, para. 226.
1494 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews, para. 217.

3. Appointment of certain Thai government customs and tax officials as TTM directors
(a) Introduction
7.876 The Philippines claims that Thailand violates Ar ticle X:3(a) because Thailand administers its
customs and tax laws and regulations in a partia l and unreasonable manner by appointing government
officials responsible for administering Thailand's cu stoms and tax rules to TTM directors' position.
Thailand argues that the Philippines has not establis hed that Thailand actually fails to administer
particular laws in a reasonabl e and impartial manner given, inter alia , the existence of safeguards
against the improper use of the authority to get invo lved in relevant customs and tax decisions as well
as the improper use of confidential information on imported cigarettes.
7.877 In examining the Philippines' claim, we will first evaluate whether the Thai government act of
administration at issue, namely the appointment of dual function officials, falls within the scope of
"administration" in Article X:3(a). If so, we w ill then proceed to assess wh ether this act leads to
unreasonable and/or partial administration of the Thai customs and tax laws and regulations.
(b) Whether the appointment of selected customs and tax officials as TTM directors is an act of
"administration" under Article X:3(a)
(i) Main arguments of the parties
7.878 The Philippines claims that vesting government offi cials that are TTM directors with
decision making powers over imported and domestic cigarettes1495 and giving them access to business
confidential information1496 on TTM's direct competitors is administration contrary to Article X:3(a).
The Philippines argues that dual function officials are "directly involved" in many decisions related to
the application of the measures at issue. The Philippines cites a number of tax/customs decisions
where dual function individuals had a prominent role. 1497 The Philippines argues that those officials
who also act as TTM directors, achieve their admi nistrative mission in a way favourable to TTM.
Hence, their nomination as TTM directors has an impact on the administration of the customs/tax
measures at issue.
7.879 Thailand submits that the Philippines has failed to produce elements to show that TTM
directors are directly involved in the decision-ma king processes at issue, such as the determination of
the customs value, and the tax base for VAT im posed on cigarettes and excise, health and TV
taxes.1498 Thailand relies on Argentina – Hides and Leather to argue that the mere fact of granting
dual functions to customs officials is not conclu sive as "it all depends on what such persons are
permitted to do". 1499 Therefore, Thailand asserts that nominating customs/tax officials as TTM
directors does not constitute "administration" of th e customs/tax measures at issue within the meaning
Article X:3(a).
(ii) Analysis by the Panel
7.880 The Philippines claims that certain Thai govern ment officials serving at the same time as
TTM directors (also referred to as "dual function officials") have a decision making role in
administering the Thai customs and tax laws. Th ailand accepts that the Minister of Finance has
nominated selected government official s as members of the board of TTM.
1500 However, Thailand

1497 Philippines' second written submission, paras. 30-35.
1498 Thailand's response to Panel question No. 75; second written submission, para. 192.
1499 Panel Report, Argentina – Hides and Leather, para. 11.99.
1500 As suggested in Thailand's first written submission, paras. 18, 115 and 270; Exhibit PHL-10.

disagrees that those dual function officials are invol ved sufficiently in the administration of the tax
and customs measures for their nomination as TTM directors to qualify as "administration" under
Article X:3(a).
7.881 The first question we need to examine in r espect of the Philippines' claim regarding dual
function officials is thus whether the appointment of certain high-ranking Thai government officials
as TTM directors constitutes "administration" within the meaning of Article X:3(a).
7.882 Before beginning our analysis, we will firs t briefly address whether the Philippines, as a
complainant claiming that Thailand administers legal instruments of the kind described in Article X:1
in a manner contrary to Article X:3(a), has demonstrated that the relevant legal instruments are "of the
kind described in Article X:1". The Philippines s ubmits that the legal instruments of the kind
described in Article X:1 for its claim with respect to the dual function of Thai government officials
are Thai measures pertaining to customs valuation, VAT and other tax measures.
1501 Specifically, the
Philippines challenges the manner in which the Thai government administers the following laws and
regulations:1502
• Customs Act, B.E. 2469 (1926), includi ng all amendments; the Tobacco Act B.E.
2509 (1966), Section 5 ter; Health Promotion Foundation Act, B.E. 2544 (2001), in
particular Sections 11, 12, and 13 th ereof, and any amendments, implementing
measures or other related measures; Thai Public Broadcasting Service Act 2551
(2008), in particular Sections 12, 13, and 14 thereof, and any amendments,
implementing measures or other related measures;

• Ministerial Regulation No. 132 B.E. 2543 (1990) issued under authority of the
Customs Act B.E. 2469 (1926) and the amending Ministerial Regulation No. 145
B.E. 2547 (2004) and Ministerial Regulation No. 146 B.E. 2550 (2007); Customs
Regulation No. 2/2550 (2007) Re: amendm ent of the Customs Formalities and
Guidelines Code B.E. 2544 (2001) re: Cust oms formalities to prevent Customs value
duty evasion, and amendment of Cust oms Department Regulation No. 14/2549
(2006) re: Guideline for Fixing of Customs Value; Customs Regulation No. 14/2549
(2006), re Guideline for Fixing of Customs Value, as amended by Customs
Regulation No. 2/2550 (2007);

• Royal Decree, issued under the Revenue Code, Governing the Reduction of the Value
Added Tax Rates (No. 465), B.E. 2550 (2007); Royal Decree issued under the
Revenue Code Governing Exemption from Value Added Tax (No. 239) B.E. 2534
(1991);

• Notification No. 23/2549 (2006) of Thai Customs, containing guidelines on customs
valuation; Customs Notification No. 29/2549 (2006) Procedure in requesting duty fee
assessment; Notification of the Director-General of the Revenue Department on VAT
(No. 10);

• Sections 79/5 and 81 of the Revenue Code of Thailand;

• Order of the Revenue Department No. Por 85/2542 (1999);

1501 Philippines' first written submission. paras. 63, 65 and 67.
1502 Philippines' first written submission, paras. 61-67.

• MRSP Notices issued by the Director-General for Excise. The currently applicable
MRSPs are set out in the Notice B.E. 2550 (2007) of 29 August 2007 (for domestic
products) and in the Notice B.E. 2550 (2007) of 29 August 2007 together with Notice
B.E. 2550 (2007) of 18 December 2007 (for imported products); and

• Notices of Director-General for Excise, setting out ex factory prices of domestic
cigarettes. The currently applicable ex factory prices are set out in the Notice B.E.
2550 (2007) of 29 August 2007.

7.883 Thailand does not object to the qualification of th e above-listed Thai laws and regulations as
the legal instruments of the kind falling under Article X:3(a). We find that the subject measures do
therefore fall within the scope of the laws, regulati ons, decisions and rulings of the kind described in
Article X:1.
7.884 Now turning to the main ques tion in this section, we note that the Philippines takes the
position that the appointment of government offici als who allegedly have the authority to make
decisions relating to the subject customs and fiscal laws as TTM directors, constitutes the
administration of such laws within the meaning of Article X:3(a). The Philippines appears to base its
position on the understanding that the appointment of government officials as TTM directors affects
the administration of the Thai customs and tax ru les, such as the customs valuation of imported
cigarettes and the determination of the tax base for VAT as well as other taxes, in a manner
inconsistent with the obligati ons under Article X:3(a). Thailand disagrees with the Philippines
because, in its view, dual function officials are not sufficiently involved in the administration of the
tax and customs measures for their nomination as TTM directors to qualify as "administration" under
Article X:3(a).
7.885 We recall that Article X:3(a) governs the administration of laws and regulations, not the
substance of the laws and regulations themselve s. We also observed the Appellate Body's
clarification that "administration" within the meani ng of Article X:3(a) may also include in its scope
administrative processes.
7.886 Considered against the standard of "administr ation" under Article X:3(a) as set out by the
Appellate Body, we understand that the appointment of dual function officials as TTM directors may
not be an application of the Thai customs and fiscal laws and regulations because it is not an act of
applying the substance of the customs and tax provi sions. Nonetheless the broad scope of
administrative processes falling within the scope of Article X:3(a) suggests that the appointment of
government officials to the director position of TTM (the only domestic company competing against
imported cigarettes in the Thai market) may well be considered as part of the administrative process
leading to the application and implementation of the customs and fiscal measures insofar as these
government officials are sufficiently involved in applying or implementing the Thai customs and tax
laws.
1503
7.887 To prove the substantial involvement of these dua l function officials in the relevant decision-
making procedures, the Philippines points to the fact that in seven out of eight cases since 1995, the
Chairman of TTM has been nominated as DG Customs, DG Excise, or DG Revenue. 1504 T h e

1503 To recall, administrative processes can be defined as "a series of steps, actions, or events that are
taken or occur in relation to the making of an administrative decision" (Appellate Body Report, EC – Selected
Customs Matters, para. 224).
1504 Philippines' first written submission, para. 49. The only exception is the current chairperson,
Mrs. Chantima Sirisaengtaskin, who is an IT Consultant for the Revenue Department of the Ministry of Finance.

appointed DG Excise, DG Customs and DG Reve nue are responsible for determining and
administering customs and tax rules applicable to importers of cigarettes under the Thai law.
1505
7.888 The Philippines has also submitted evidence s howing that these dual function officials all
have a degree of influence ranging from signature to substantive contribution authority. The
following are examples of the participation by th e subject dual function officials in the matters
concerning customs and tax decisions for imported cigarettes: (i) the MRSP increase in September
2006 was signed by Mr. Utid Tamwatin, then acting both as Chairman of the TTM Board and as DG
of Excise
1506; (ii) a few days later, Mr. Tamwatin threatened to impose an import ban unless
importers raised their RSPs to the level of the new MRSPs 1507; (iii) the March 2007 and August 2007
MRSP Notices were signed by TTM Chairman Mr. Wisudh Srisuphan, who was also DG of Excise;
(iv) the August 2008 MRSP Notice was issued when TTM Chairman Mr. Wisudh Srisuphan was the
Deputy Permanent Secretary for Finance (Ministry of Finance); (v) the MRSP Notices in May 2009,
were issued when Ms. Chantima Sirisaengtaksin was both TTM Chairman and consultant for the
Revenue Department at the Ministry of Finance and when Arthon Keesiri, TTM Director, was
Director of the Audit Prevention and Suppression at the Excise Department (Ministry of Finance); (vi)
the decisions to reject the declared transaction values and to impose guarantees, concerning shipments
cleared between 11 August and 30 September 2006, were taken by Thai Customs when TTM Director
Manus Kampakdee was Deputy-Director General for Customs (Ministry of Finance); (vii) the
decisions to reject the declared transaction valu e, to impose guarantees on shipments cleared between
1 October 2006 and 13 September 2007, as well as the definitive assessments of shipments cleared
between 11 August 2006 and 13 September 2007, were taken when TTM Director Manus Kampakdee
was the "Principal Advisor on Duty Collection Management & Development" at the Customs
Department (Ministry of Finance); and (viii) the dela ys in the BoA decision-making, and in particular
the BoA's alleged inaction since July 2006, have occurred while TTM Director Manus Kampakdee
was Deputy-Director General of Customs or, alternatively, was "Principal Advisor on Duty Collection
Management & Development", at the Customs Department (Ministry of Finance).
1508
7.889 The set of evidence as listed above, in our view, suggests the dual function officials' sufficient
involvement in the process of applying and implemen ting the Thai customs laws and regulations. As
such, we consider that the appointment of govern ment officials as TTM directors constitutes an
administrative process leading to the administra tion of the Thai customs and fiscal laws and
regulations and consequently qualifies as "administration" under Article X:3(a).
(c) Whether Thailand administers the laws, regula tions, decisions and rulings of the kind
described in Article X:1 in a "partial and unr easonable" manner through the appointment of
dual function officials
(i) "Impartial" administration
Main arguments of the parties
7.890 The Philippines claims that TTM directors' dual role constitutes partial administration under
Article X:3(a) as they are given both "the right to participate in an administrative process involving

1505 Philippines' first written submission, para. 48; Exhibit PHL-20. Chapter 1 bis, Section 2 bis states
that "there should be a Customs Duty Ruling Commission composed of the under- Secretary of the Ministry of
Finance as Chairman, the Director-Gen eral of the Customs Department, th e Director-General of the Revenue
Department, the Director-Gen eral of the Excise Department, the Dire ctor- General of the Fiscal Economics
Office, the Secretary General of the Royal Decrees Commission and three other qualified persons appointed by
the Minister to be members".
1506 Exhibit PHL-86.
1508 Philippines' first written submission, para. 48, Table 1 "Overview of TTM directors 1995-2009".

TTM's competitors [and] decision making authority in that administrative process".1509 TTM directors
have the ability to affect the conditions of comp etition of PM Thailand cigarettes in many ways. 1510
In particular, they may and do request a wide range of confidential information from all market
participants.1511 Using this information, they also have the incentive to take partial decisions since
they are eligible for annual financial bonuses when TTM's net profit increases. 1512 Therefore the role
and powers they are given, rather than simply their position itself, qualify as partial administration. In
support of its position, the Philippines relies on Argentina – Hides Leather , where the Panel found
that the presence of representatives of the domestic tanning industry in the customs clearance process
was partial because it allowed administrators potential access to commercially sensitive information
and it failed to provide for adequate safeguards against inappropriate use of this information.1513
7.891 Furthermore, the Philippines contends that no safeguards against undue use of the information
obtained are put in place. 1514 In particular, the Philippines argues that the safeguards put forward by
Thailand, namely the sanctions provided for in th e Thai Civil Service Act and the Thai Criminal
Code, will not apply to TTM by virtue of the Ethical and Moral Guidebook of TTM. This guidebook
requires TTM Directors to maximise TTM benefits under all circumstances. 1515 In other words, TTM
directors are under the obligation to favour TTM, to the detriment of its direct competitors. As part of
the regulatory framework applicable to official authorities 1516, this guidebook trumps other Thai
laws1517, thereby shielding TTM directors from the sanc tions of the Civil Service Act and Criminal
Code. Regarding the evidence produced by Thaila nd to show that administrative officers were
sometimes sanctioned under the Civil Service Act an d the Thai Criminal Code, the Philippines argues
that Thailand has not explained how those sanctions could be related to the specific acts at issue
here.1518 In any event, according to the Philippines, th ey have proved inefficient in halting the flow of
confidential information to TTM directors, and do not prevent numerous acts of partial
administration.1519
7.892 The Philippines also underlines the general lack of transparency in the deliberative process
with respect to important aspects of Thailand's cu stoms and tax laws. As a result, administrative
officers generally remain unchecked. 1520 The Philippines concludes that no adequate safeguard is

1509 Philippines' response to Panel question No. 79.
information includes: pricing and expense information, de tails of PM Thailand's agreements with suppliers and
purchasers, sales data, and internal accounting records and documents.
1512 Philippines' first written submission, para. 79; Exhibit PHL-6, Section 1, p. 1.
1513 Philippines' second written submission, paras. 44-47, referring to Panel Report, Argentina – Hides
and Leather, para.11.99.
1514 In its response to Panel question No. 151, the Philippines states that "the terms reasonable and
impartial as interpreted and applied in the case-law s uggests that access to business confidential information by
TTM directors simultaneously serving as Thai Customs and tax officials makes Thailand's administration
unreasonable while the lack of safeguards to prevent the flow of such information to TTM Directors makes
unreasonable administration also impartial".
1515 Philippines' response to Panel question No. 75. The Guidebook requires that TTM Directors must
"make any determination for the utmost benefit of [TTM]"; Exhibit PHL-4.
1516 Philippines' response to Panel question No. 75; Exhibit THA-35. The Civil Service Act compels
government officials expressly to "per form official duties in accordance with laws, regulations, rules of official
authorities, Council of Ministers resolutions, government policies, and act in accordance with the regulatory
framework of official authorities." The Philippines consid ers that the Ethical and Moral Guidebook of TTM is
one of the regulations thereof.
1517 Philippines' response to Panel question No. 75.
1518 Philippines' response to Panel question No. 153.
1519 Philippines' response to Panel question No. 153; second oral statement, para. 12; second written
submission, paras. 31-34 and 48.
1520 Philippines' first written submission, paras. 81-82.

implemented by Thailand, in spite of the provisions contained in its own laws. Hence, Thailand's
administrative process applicable to imports of foreign cigarettes is partial under Article X:3(a).
7.893 Further, the Philippines points out that although the Thai Civil Service Act
1521 could provide
for an adequate safeguard as it bars government officers from holding managing positions in either
public or private companies, Thailand chose not to appl y these provisions to TTM, on the grounds
that the prohibition under the Civil Se rvice Act applies with regards to private companies only. 1522
The Philippines disagrees and alleges that the Civi l Service Act also prohibits government officers
from managing public entities, like TTM.1523
7.894 Thailand argues that the Philippines failed to prove that Thailand administers its customs and
tax rules in a partial manner contrary to the oblig ations under Article X:3(a) through the appointment
of government officials as TTM directors. Thailand recalls that under the Argentina – Hides and
Leather test for impartiality, the mere presence of individuals at potentially conflicting positions is not
enough to conclude that administration of laws is im partial within the meaning of Article X:3(a) and,
as the Panel noted in that case, "it all depends on what such persons are permitted to do". 1524 Thailand
also adds that the financial incentives for TTM dir ectors are modest and based as much on attendance
at meetings as on profits.1525
7.895 Thailand argues that the Philippines has not shown that directors were directly involved in
making decisions on customs and tax matters. Wh ile Thailand does not deny that dual function
individuals may also have access to confidential in formation on TTM's direct competitors, Thailand
nevertheless asserts that it has enacted and implem ented the relevant safeguards to prevent biased
decision making as well as improper use of confidential information by TTM directors. Further,
Thailand points out that the Philippines failed to show that the allegedly biased decisions referred to
by the Philippines are linked to the concerned government officials with a dual function.
7.896 Thailand submits that under the Thai Civil Service Act heavy sanctions are imposed on
government officials breaching their duties (incl uding confidentiality) and provides statistical
evidence of adequate implementation of these provisions. 1526 Second, civil servants are fully subject
to the disciplines and penalties of the Criminal Code 1527 while they serve on the TTM Board. These
include a possible ten years imprisonment for self-interested actions 1528 and wrongful exercise of
duties1529, as well as possible life imprisonment for di shonesty in collection of duties or taxes. 1530

1521 Exhibit THA-35. Section 83(6) of the Thai Civ il Service Act prohibits government officials from
serving as "a managing director or manager or hold any other position entailing a similar nature of work in a
partnership or a company".
1522 Philippines comments on Thailand's responses to Panel questions (second meeting), para. 369.
1523 Philippines comments on Thailand's responses to Panel questions (second meeting), para. 380.
1524 Thailand's first written submission, para. 274 referencing the Panel Report, Argentina – Hides and
Leather, para. 11.99.
1525 Thailand's second oral statement, para. 83; Thailand's second written submission, footnote 171;
Exhibits THA-3, pp. 44-45, PHL-6 and PHL-7.
1526 Thailand's response to Panel question No. 153.
1527 Thailand's second oral statement, para. 80; Exhibit THA-84.
1528 Section 152 of the Criminal Code (where "an official having the duty of managing or looking after
any activity, takes the interest for the benefit of himself", the official "shall be punished with imprisonment of
one to ten years and fine of two thousand to twenty thousand baht") (Exhibit THA-84).
1529 Section 157 of the Criminal Code (where "an of ficial, wrongfully exercise s or does not exercise
any of his functions to the injury of any person, or dishonestly exercises or omits to exercise any of his
functions" that official "shall be punished with imprisonment of one to ten years or fined of two thousand to
twenty thousand baht, or both") (Exhibit THA-84).
1530 Section 154 of the Criminal Code (where "an official having the duty … of collecting or checking
taxes, duties, fees or any other money, dishonestly colle cts … such taxes, duties, fees or money" the official

Furthermore, the Ministerial Regulation Edition 145 (B.E. 2547) 1531 provides that "the public
authorities shall not disclose the confidential info rmation or [information] which is provided on a
confidential basis for the benefit of customs valuation without the specific permission of the person or
government agency providing such information". 1532 Thailand denies that the Ethical and Moral
Guidebook of TTM should protect TTM directors from legislative sanction regimes: it is only an
internal code for the company's use, and cannot th erefore supersede any legislative or regulatory act.
Thailand asserts that the sanction regime applicab le to administrative officers provides adequate
safeguards as such, and has been implemented accordingly. Thailand concludes that as adequate
safeguards are implemented to prevent undue use of the confidential information obtained by dual
function officials, its administration of the customs and tax laws at issue is therefore not partial.
Analysis by the Panel
7.897 The Philippines claims that a dual role perform ed by certain Thai government officials as
TTM directors constitutes partial administration under Article X:3(a) because they have the authority
to make customs and fiscal determinations in respect of the cigarette imports at issue in this dispute;
have access to confidential information on TTM's co mpetitors; and are given financial incentives to
promote TTM's profits. Moreover, the Philippines ar gues that there are no safeguards appropriate to
prevent the abuse of their capacity as government officials in making these decisions pertaining to
customs and tax rules. Thailand argues that the Ph ilippines failed to prove that Thailand administers
its customs and tax rules in a partial manner contra ry to the obligations under Article X:3(a) through
the appointment of government officials as TTM directors. In particular, according to Thailand, the
Philippines has not shown that directors were dir ectly involved in making decisions on customs and
tax matters. Thailand has also enacted safeguards sufficient to prevent improper use of confidential
information by TTM directors.
7.898 In order to determine whether the Thai govern ment's act of appointing certain government
officials as TTM directors is an impartial administration of the Thai customs and tax laws, we first
recall our conclusion above that the Thai govern ment act at issue may constitute part of the
administrative processes leading to the administration of various customs and tax rules, while it may
not constitute the administration of such rules per se. In the light of the Appellate Body's guidance
concerning a claim under Article X:3(a) based on an administrative process, our task is to examine
whether the Philippines has demonstrated how and why the features of the administrative process at
issue, namely certain Thai government officials' dual role as TTM directors, necessarily leads to a
lack of impartial administration. We are also mindful of the Appellate Body's statement that given the
gravity of the accusations inherent in claims unde r Article X:3(a), a complaining party must support
its claim with solid evidence.
7.899 The term "impartial" can be defined as " adjective 1. not favouring one party or side more
than other; unprejudiced, unbiased; fair".
1533 The word "partial" means "A. adjective. I 1 a Inclined
beforehand to favour one party in a cause, or one side of a question, more than the other, prejudiced,
biased. Opp. Impartial". 1534 Based on the ordinary meaning, therefore, impartial administration
would appear to mean the application or implementati on of the relevant laws and regulations in a fair,
unbiased and unprejudiced manner.

"shall be punished with imprisonment of five to twenty years or imprisonment for life, and fine of two thousand
to forty thousand baht") (Exhibit THA-84).
1531 Exhibit THA-85.
1532 Thailand's second oral statement, paras. 84-86.
1533 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford University Press, Vol. I,
p. 1325 (2002).
1534 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford University Press, Vol. I,
p. 2107 (2002).

7.900 Argentina – Hides and Leather is the only WTO dispute to date in which the impartiality
requirement under Article X:3(a) was addressed. In th at dispute, the feature of the administrative
process at issue was the presence of a private part y with conflicting commercial interests in the
customs process. The panel considered that the consistency of the customs process with the
impartiality requirement of Article X:3(a) would depend on what that party is permitted to do
1535 That
panel found that the answer to this question wa s related directly to the question of access to
information as part of the product classification process. It was the view of the Panel that whenever a
party with a contrary commercial interest, but no relevant legal interest, is allowed to participate in the
customs process, there is an inherent danger that the customs laws, regulations and rules will be
applied in a partial manner so as to permit persons with adverse commercial interests to obtain
confidential information to which they have no right.
1536 The panel nevertheless considered that this
situation could be remedied by ad equate safeguards to prevent an in appropriate flow of one private
person's confidential information to another as a result of the administration of the implemented
customs law at issue.
7.901 We will now turn to the specific factual circum stances presented in this dispute. As noted
above, the Philippines describes the following four elem ents as the relevant f eatures of the dual roles
that the Thai government has granted to certain government officials by simultaneously appointing
them as TTM directors: (i) government officials w ith a dual function have the authority to make
decisions relating to the Thai customs and tax laws with respect to imported and domestic cigarettes;
(ii) they have access to confidential information of imported cigarette companies, which are TTM's
direct competitors in the Thai market; (iii) their ro le as TTM directors gives them financial incentives
to maximize TTM's profits; and (iv) there are no safeguards appropriate to prevent any improper use
of their capacity as government officials in making customs and tax determinations for cigarettes.
7.902 Following the approach of the Panel in Argentina – Hides and Leather , we consider that the
relevant question is what these dual function govern ment officials arguably with an interest to
promote TTM's profit level are permitted to do. As submitted by the Philippines, and illustrated in the
evidence before us, their capacity as senior government officials holding high ranking positions in
three divisions of the Ministry of Finance (i .e. DG Excise, DG Customs and DG Revenue) legally
allows them to be involved in the decision making process for customs and fiscal matters and to have
access to confidential information of imported cigare tte companies. These factors, in conjunction
with the financial incentives for TTM directors to maximize TTM's profits, as addressed below,
would initially illustrate the circumstances that may lead to a lack of impartial administration of
customs and fiscal matters in respect of imported cigarettes.
7.903 In support of its position, the Philippines point s to instances where in its view partial
administrative decisions were taken under the author ity or with the active contribution of these dual
function government officials.
1537 In these instances, the Philippi nes has cited to a number of
decisions that did not necessarily reflect the commerc ial interests of PM Thailand, which were made
while dual government officials were serving as TTM directors. 1538 The Philippines also points to
confidential information that was unveiled to the Thai press between 2006 and 2009.1539
7.904 We agree that at a theoretical level, evidence of this kind, if properly substantiated, would
help demonstrate that the administrative process at i ssue necessarily leads to a lack of an impartial

1535 Panel Report, Argentina – Hides and Leather, para. 11.99.
1536 Panel Report, Argentina – Hides and Leather, para. 11.100 (emphasis added).
1537 Philippines' second written submission, paras. 30-35; response to Panel question No. 79.
1538 Philippines' response to Panel question No. 79; second written submission, para. 34.
1539 Philippines' first written submission, para. 386; Exhibits PHL-1, 48, 54, 64, 85, 86 and 159. The
information on the c.i.f. price and the import volume for PM Thailand cigarettes was revealed to the press by
certain Thai government officials both in August- September 2007 and in June 2009. See para. 7.926.

administration. This is particularly so given th at the allegation under Article X:3(a) of a Member
government's biased administration requires the pr esentation of solid evidence. For example,
therefore, a pattern of decisions would tend to show a lack of impartial administration. 1540 However,
we are not convinced that the determinations refere nced by the Philippines can necessarily be related
to what the dual function officials do and/or what they are permitted to do in administering the Thai
customs and tax rules. In other words, unless it can be shown that these determinations are made
because of the very presence of the government officials serving also as TTM directors, we are not in
a position to find that the appointment of dual func tion officials led to a partial administration of
customs and tax rules. Moreover, it is also questionable whether these determinations can be
considered consistent enough to s how a pattern of decisions amounting to a partial administration of
customs laws and regulations.
7.905 As regards financial incentives, we understand the Philippines' position to be that in the
process of making customs and/or tax decisions, dua l function officials would act in a manner in
which TTM's profits would be maximized, for exam ple, by negatively influencing the decisions for
imported cigarettes, which in turn would incr ease the amount of bonuses granted to them as TTM
directors. We recognize that financial bonuses for TTM directors are indeed related to TTM's net
profit results.
1541 This is still the case even if, as Thailand submits, only 50 per cent of the bonus is
function of TTM's net result and the other 50 pe r cent is granted upon attending board meetings. 1542
As such, financial incentives could indicate that the dual function officials may be motivated to
maximize TTM's profit level. However, we are not presented with solid evidence suggesting that the
existence of such motivation itself would necessarily lead to an administration of the customs and tax
rules which would favour TTM's cigarettes.1543
7.906 Furthermore, the Philippines submits that Th ailand does not provide adequate safeguards
against the alleged partial administration. The Philippines bases its position on the argument that the
Ethical and Moral Guidebook of TTM shields dual function officials fro m legislative sanctions that
may be imposed when they act contrary to the di sciplines provided for in the Thai Civil Service Act
and the Criminal Code.1544 Thailand responds that the Ethical and Moral Guidebook of TTM does not

1540 Panel Report, US – Hot Rolled Steel, para. 7.268.
1541 Philippines' first written submission, para. 79; Exhibit PHL-6, Section 1, p.1.
1542 Thailand's second written submission, footnote 1 71; see also Exhibits THA-3, pp. 44-45; PHL-6
and PHL-7.
1543 In addition, we note that the Appellate Body has recognized that the good faith principle has an
implication for the Panels' interpretation of the Members obligations. (Appellate Body Report, US – Offset Act
(Byrd Amendment), para. 297). The Panel in Canada – Continued Suspension also found that one aspect of the
good faith principle applied to the context of WTO disputes was to grant members a presumption of WTO
consistency in the application of their domestic laws:

"It is implicit from the duty to perform treaty obligations in good faith that a party to an
international agreement should be deemed to have acted in good faith in the performance of its
treaty obligations. More generally, even though Article 26 provides for an obligation and not a
presumption, pacta sunt servanda is but only one expression of the principle of good faith.
Good faith is a general principle of international law that governs all reciprocal actions of
States. We are therefore inclined to agree with the European Co mmunities that every party to
an international agreement must be presumed to be performing its obligation under that
agreement in good faith. " (Panel Report, Canada – Continued Suspension, para. 7.317)

In the absence of solid evidence to prove the contrary, there is no reason to assume that TTM directors,
who are Thai government officials, would act in contradiction to their WTO obligations.
1544 Philippines' response to Panel question No. 75, para. 439. The Guidebook requires that TTM
Directors must "make any determination for the utmost benefit of [TTM]". For example, the Philippines submits
that, they would be exempt from the Thai Civil Service Act and Criminal Code provisions regarding the undue
use of confidential information and impartial administration.

supersede any law in the sense that it is inferior to all statutes and codes in the hierarchy of norms. It
is a TTM's internal document and, as such, does not carry with it any regulatory authority.
7.907 We note that the Philippines does not dispute that safeguards do exist in the form of Thai
Civil Service Act and the Criminal Code. The Philippines contention is that no sanction can be
adequately implemented under the Thai Civil Se rvice Act and the Criminal Code against dual
function officials because the TTM's Ethical Guidebook allegedly supersedes these legal instruments.
To prove that safeguards are available and eff ectively implemented, Thailand presented a table
showing the instances where sanctions were imposed on government officials under the Civil Service
Act and the Criminal Code.
1545 In our view, although these examples show that the concerned legal
instruments are indeed enforceable, they fail to clar ify the issue raised by the Philippines, namely the
applicability of the provisions under those legal instruments to dual function officials who are
simultaneously governed by TTM's Ethical Guide.1546 Nevertheless, we accept Thailand's explanation
that the Ethical Guidebook is a TTM internal document and, as such, does not carry with it any
regulatory authority to supersede legal authorities su ch as the Thai Civil Service Act and the Criminal
Code. Based on the hierarchy of norms as commonly established in states, and in the absence of any
convincing argument or evidence presented by the Phili ppines to prove otherwise, we find that the
Thai Civil Service Act and the Criminal Code are the legal instruments that provide ethical disciplines
to be respected by government officials including those with a dual function as TTM directors.
7.908 Finally, the Philippines argues that Thailand do es not apply the Thai Civil Service Act to
TTM1547, while this Act prohibits government officials from holding managing positions in companies
like TTM. Thailand submits that the said Act applies only to private companies, and not to public
companies.1548 The text of the Thai Civil Service Act does not specify whether the concerned
prohibition applies to both public and private companies. We, however, consider the parties'
arguments on this point irrelevant to our consider ation of the impartiality requirement. This is
because, even if the Thai Civil Service Act were to apply to TTM so as to prohibit the appointment of
government officials to TTM, whether Thailand comp lied with its own domestic law is not relevant
for the purpose of this dispute.
7.909 In the light of the foregoing, we are of the view that the Philippines has not proved that the
features relating to the appointment of certain gove rnment officials as TTM directors necessarily lead
to a lack of impartial administration of the Thai customs and fi scal rules. In reaching this conclusion,
we are mindful of the seriousness of the al legation concerning a sovereign government's
administration of its laws and regulations. We recognize that there may be situations where a
government's measure or act is so egregiously flawed that the unfairness inherent in such a measure or
act may be sufficient to demonstrate an impartial ad ministration without the need to illustrate it with a
concrete example(s) of decisions resulted from the concerned administration. However, under the
circumstances of this dispute, we do not find that the appointment of government officials as TTM
directors, considered in the light of the implemented safeguards present, amounted to such a situation.
7.910 At the same time, however, we wish to emphasi ze that the principle of transparency and
procedural fairness that permeates the obligations un der Article X:3(a) and consequently the trading

1545 Thailand's response to Panel question No. 153.
1546 Thailand's response to Panel question No. 153; Thailand's second written submission,
paras. 193-198; Thailand's second oral statement, paras. 77-82. Civil servants are subject to the obligations in
the Civil Service Act (i) "to perform o fficial duties faithfully, honestly and fa irly"; (ii) not to use one's position
for personal gain; and (iii) not to engage in prejudicial or unfair acts or acts that dishonour the official's position
(Sections 82-83 of the Civil Service Act).
1547 Exhibit THA-35. Section 83(6) of the Thai Civ il Service Act prohibits government officials from
serving as "a managing director or manager or hold any other position entailing a similar nature of work in a
partnership or a company".
1548 Thailand's response to the Philippines' questions Nos. 4a and b.

system in general must be respected by the Members with utmost effort. Particularly, we are aware of
the Philippines' concern that the general lack of tr ansparency in the deliberative process with respect
to important aspects of Thailand's customs and tax laws result in administrative officers generally
remaining unchecked. 1549 In the light of the unusual factual circumstances in Thailand that certain
government officials in charge of customs and tax de terminations also serve on the board of directors
for TTM, the only domestic competitor against im ported cigarettes, it would be only prudent for
Thailand to ensure that the administration of its cust oms and fiscal laws is carried out in a transparent
and impartial manner.
(ii) "reasonable" administration
Main arguments of the parties
7.911 The Philippines claims that TTM directors' dual role constitutes unreasonable administration
because they are in a position where they may gather and reveal confidential information on their
direct competitor.1550 In this regard, the Philippines relies on Argentina – Hides and Leather , where
the Panel found that the presence of representatives of the domestic tanning industry in the customs
clearance process was unreasonable because it " inherently contain[ed] the possibility of revealing
confidential business information".1551
7.912 Furthermore, the Philippines points to the actua l instances in which several customs officials
disclosed PM Thailand's declared transac tion value to the Thai media in 2006. 1552 On 29 August
2006, Mr. Varathep Ratanakorn, then Deputy Fi nance Minister, was quoted in the newspaper
Matichon as stating that "the estimated price of Marlboro cigarette has been adjusted from
Bt[[xx.xxx.xx]] to Bt[[xx.xxx.xx]] a pack". 1553 Two days later, the Finance Minister himself,
Dr. Thanong Bidaya, provided information on the basis of which the newspaper Khao Hun could
write that "L&M declared the imported price (c.i.f.) at only Bt[[xx.xxx.xx]] per pack, while Marlboro
is declared only Bt[[xx.xxx.xx]]". 1554 On 27 September 2006 Mr. Utid Tamwatin, then DG Excise,
discussed a potential import ban explaining how this threat impacted the import price of Marlboro
cigarettes which "had been at [[xx.xxx.xx]] baht per pack [and]was changed to [[xx.xxx.xx]] per pack
for the past two to three months".1555
7.913 In August 2006, three other breaches of confidentiality occurred when (i) the Daily News and
the Bangkok Post both reported statements made by V. Ratanakorn (Deputy Finance Minister)

1549 Philippines' first written submission, paras. 81-82.
1550 Philippines' first written submission, para. 85. The Philippines puts forward that the following
confidential information can be accessed by dual ro le officials: pricing and expense information
(Exhibit PHL-16); details of PM Thailand's agreements with suppliers and purchase rs (Exhibit PHL-16); sales
data (Exhibits PHL-17 and PHL-18); and internal accounting records and documents (Exhibit PHL-19). The
Notification of the Customs Department No. 23/2549 of 7 April 2006 (Exhibit PHL-21) also lists the
information to be filed upon along with the import declaration including two copies of invoice, a packing List (if
any), an insurance pr emium or other documents indicating the insu rance premium, a release order (Customs
Form 100/1 or Form 469), a Bill of Lading or air waybill as the enclosed Attachment 1, a Customs Value-
Declaration Form (Customs Form No 170), an import license if the imported goods are restricted, a certificate of
analysis, specifications of goods, material data sheet detailing sufficient information for Customs purpose,
including production processes (if any), and guidelines on application of the goods where necessary, a
certificate of origin, and other documents as required by Customs e.g. documents detailing product mixtures,
characteristics, guidelines on application of goods, catalogue, etc.
1551 Panel Report, Argentina – Hides and Leather, para.11.94 (italics added).
1552 Philippines' first written submission, paras. 387-399; response to Panel question No. 152.
1553 Exhibit PHL-85.
1554 Exhibit PHL-1.
1555 Exhibit PHL-86.

revealing that the price of imported cigarettes would be increased
1556 and discussing the impact of
this measure on DG Customs revenues 1557; (ii) the Post Today reported information provided by an
unnamed "source from Customs Department" which revealed PM Thailand's import prices and import
quantities for both L&M and Marlboro brands in 2005; and (iii) the 29 August 2006 edition of
Matichon published an Article containing the following ta ble that reveals the "c.i.f." price of three
brands of cigarettes: Marlboro, L&M, and Mild Seven.
1558
7.914 Thailand explains that it could legally grant dual functions to government officials on two
grounds. First, Thailand was not c onstrained by the prohibition under Article 83(6) of the Thai Civil
Code since it only prohibits government officials from also managing private companies.
Government officials may however be appointed to managing positions in public companies as is
common practice.1559
7.915 In addition, Thailand argues that granting dual pos itions to selected administrative officials is
relevant as it promotes legitimate administrative objectives. Thailand distinguishes the facts in
Argentina – Hides and Leather from the circumstances of this case. In Argentina – Hides and
Leather, the Panel found the appointment of private specialists as customs officials to be unreasonable
administration under Article X:3(a) because the priv ate specialists were direct competitors to the
importer and "had no legal relations hip" to the custom operations.
1560 On the other hand, Thailand
emphasizes that that Panel recognized that, the " government has a relevant legal interest in the
transaction based on the sovereign rights to regulate and tax [imports]". 1561 Accordingly, Thailand
argues, a government may appoint any public agent to the administrative process relating to cigarettes
imports.1562 Nominating the same agents as TTM directors also ma kes sense for three reasons: (i)
they "have expertise relevant to the management of a state-owned enterprise" importing tobacco and
collecting the related taxes; (ii) they can "play a role in ensuring that TTM itself complies efficiently"
with the Thai legislation 1563; and (iii) they are making sure that TTM's activities are consistent with
Thai public health policy (TTM Board includes an individual of the Ministry of Health).1564
7.916 Thailand also observes that the Philippines h as not proffered any evidence to link the 2006
confidentiality breach to an institutional "problem" of the Thai administrative system as a whole.
Thailand concludes that the Philippines has not discharged its burden of proof under Article X:3(a).
7.917 Thailand also draws the Panel's attention to th e fact that there are "several policy reasons"
why the Panel should not rule in favour of the Philippines. 1565 According to Thailand if "a mere fact
of public officials having dual roles or supervisor y authority over competing interests was sufficient
to establish a violation of Article X:3(a) [then] the regulatory capacity of governments would be
severely impaired". 1566 In particular, Thailand maintains that finding a violation of Article X:3(a)
under these facts would make it impossible for Members to continue with the relatively common
practice of having the same departments and offi cials conduct internal reviews of administrative
decisions made by those same departments and officials.
1567

1556 Exhibit PHL-64.
1557 Exhibit PHL-54.
1558 Mild Seven is a brand marketed by Japan Tobacco International (JTI).
1559 Thailand's response to Panel question No. 154; Exhibit THA-98.
1560 Panel Report, Argentina – Hides and Leather, para.11.98.
1561 Panel Report, Argentina – Hides and Leather, para.11.98 (replacing "exports" by "imports").
1562 Thailand's response to Panel question No. 151.
1563 Thailand's second written submission, para. 200.
1564 Thailand's second written submission, para. 200, footnote 175; response to Panel question No. 75.
1565 Thailand's second written submission, para. 183.
1566 Thailand's second written submission, para. 183.
1567 Thailand's second written submission, para. 183.

Analysis by the Panel
7.918 The Philippines claims that the appointment of dual function officials as TTM directors
constitutes unreasonable administration under GATT Article X:3(a) because they are in a position
where they may gather and reveal confidential in formation on their direct competitors. Thailand
argues that granting dual functions to government officials is consistent with the reasonable
administration requirement under Article X:3(a) be cause it is allowed in Thailand's domestic law 1568
and promotes Thailand's legitimate administrative objectives.
7.919 The term "reasonable" is defined as "in accordan ce with reason", "not irrational or absurd",
"proportionate", "sensible", and "within the limits of reason, not greatly less or more than might be
thought likely or appropriate".1569 The panel in Argentina – Hides and Leather considered in the light
of the factual circumstances in that dispute that "the requirement of reasonableness ... turns on the
question of information flows and whether it is reasonable to allow persons access to certain
information which is irrelevant to the stat ed purpose of the legislation in question". 1570 It added that a
feature of administration is unreasonable when it " inherently contains the possibility of revealing
confidential business information".1571
7.920 We recall the Appellate Body's consideration in US – Shrimp that the provision of Article X:3
of the GATT 1994 bears upon the chapeau of Article XX, which requires the application of a measure
justifiable under one of the Article XX provisions not to be arbitrary or unjustifiable. This may be
linked to the fact that, as the Appellate Body in Brazil – Retreaded Tyres states, the chapeau of
Article XX also deals with the manner of application of the measure at issue.
1572 As such, we do not
see why the principles underlying the requirements in the chapeau of Article XX would not equally be
relevant to Article X:3(a), a provision also governing the manner in which WTO Members administer
the legal instruments of the kind falling under Article X:1.
7.921 To the extent that the obligations under the ch apeau of Article XX and Article X:3(a) can be
considered as informing each other, the Appellate Body's clarification of the principles underlying the
chapeau of Article XX provide guidance on the analysis of the reasonableness requirement under
Article X:3(a). For example, in examining whet her an import ban provisionally justified under
Article XX(b) for the purpose of protecting human h ealth and life was applied in an unjustifiable or
arbitrary manner, the Appellate Body in Brazil – Retreaded Tyres reasoned that "the analysis of
whether the application of a measure results in ar bitrary or unjustifiable discrimination should focus
on the cause of the discrimination, or the rationale put forward to explain its existence". 1573 W e
consider that the rationale that can explain the gr anting of dual functions to selected customs and tax

1568 Exhibit THA-35. Thailand explains that Article 83(6) of the Thai Civil code only prohibits
administrative officials from also holding managing positions in private companies. They may however hold
simultaneous managing positions in public companies. Thailand also refers to Exhibit THA-98 listing 63
administrative officials holding managing position in public companies. The list is non-exhaustive.
1569 Panel Report, Dominican Republic – Import and Sale of Cigarettes, para. 7.385 referring to the The
New Shorter Oxford English Dictionary, (Fifth Edition) Oxford University Press, Vol. II, p. 2482 (2002).
1570 Panel Report, Argentina – Hides and Leather, para. 11.86.
1571 Panel Report, Argentina – Hides and Leather, para. 11.94 (emphasis added).
1572 Appellate Body Report, Brazil – Retreaded Tyres, para. 230.
1573 Appellate Body Report, Brazil – Retreaded Tyres , para. 226 (emphasis added). The Appellate
Body explains, "the assessment of whether discrimination is arbitrary or unjustifiable should be made in the
light of the objective of the measure. We note, for exam ple, that one of the bases on which the Appellate Body
relied in US – Shrimp for concluding that the operation of the measure at issue resulted in unjustifiable
discrimination was that one particular aspect of the appli cation of the measure ... was 'difficult to reconcile with
the declared objective of protecting and conserving sea turtles'" (para. 227, referring to the Panel Report, US –
Shrimp, para. 7.287).

officials is also relevant to evaluating the question of whether it is an administrative process that leads
to unreasonable administration of the Thai tax laws and regulations.
7.922 Under the factual circumstances in this case, we co nsider that all three features, not just the
information flow, of the dual function officials, as described in the context of the impartiality
requirement, are relevant to the question before us.
1574 We found that the Thai government officials
with a dual function as TTM directors have the authority to make decisions relating to the Thai
customs and tax laws with respect to imported and domestic cigarettes, not to mention access to
confidential information on imported cigarettes, whic h is information on TTM's direct competitors in
the Thai market. We also observed that their role as TTM directors gave dual function officials
financial incentives to maximize TTM's profits. These features, in our view, present an environment
in which these dual function officials, when acting in their capacity as customs and tax officers, could
affect the manner in which they administer the rules given their simultaneous position at TTM, an
entity with competing commercial interests to impo rted cigarette brands. Therefore, granting dual
function officials the power to make customs and fiscal decisions concerning cigarettes, both
imported and domestic, as well as access to confid ential information on imported cigarettes would
appear to constitute an act of inappropriate and/or not sensible administration unless there is a
particular rationale that can explain the concerned act.
7.923 Thailand nonetheless points out that granting dual positions to selected government officials
promotes legitimate administrative objectives: (i) they "have expertise relevant to the management of
a state-owned enterprise" importing tobacco and collecti ng the related taxes; (ii) they can "play a role
in ensuring that TTM itself complies efficiently" with the Thai legislation
1575; and (iii) they are making
sure that TTM's activities are consistent with Th ai public health policy (TTM Board includes an
individual of the Ministry of Health).1576
7.924 A sovereign state has the discretion and authorit y to structure its government and manage and
administer its own laws and regulations as it deems fit. Accordingly, we can envision a situation
where a government wants to utilize its resources to the maximum extent possible by, for example,
granting officials dual functions. To that extent, we are not in a position to second guess the specific
needs of the Thai government in assigning selected customs and tax officials with a dual role as a
director of a state enterprise, TTM. We therefore recognize that the Thai government officials serving
as DG Excise, DG Revenue, DG Commerce may indeed be well equipped to apply their expertise in
laws and regulations relating to customs and internal taxes to the management of TTM.
7.925 The Philippines argues that, even though those objectives were legitimate, other avenues were
available to reach identical results. We agree that there might be other means and ways to achieve
Thailand's stated administrative objectives than the cu rrent administrative process at issue. However,
as noted above, it is our view that Thailand, as a sovereign state, may administer its laws and
regulations in the way it considers most appropriate in the particular circumstances in which it is
situated. It should be noted though, that a WTO Member's discretion to administer its own laws, must
be exercised in a manner consistent with its obl igations under the WTO Agreement. Our task is,
therefore, not to find the best administrative means to achieve a Member's goal.
7.926 The Philippines also draws the Panel's attenti on to the instances in which PM Thailand's
confidential information was revealed by Thai go vernment officials. By way of example, the
Philippines points to the instances in 2006 in which several customs officials disclosed PM Thailand's
declared transaction value to the Thai media.
1577 On 29 August 2006, Mr. Va rathep Ratanakorn, then

1574 See para. 7.901.
1575 Thailand's second written submission, para. 200.
1576 Thailand's second written submission, para. 200, footnote 175; response to Panel question No. 75.
1577 Philippines' first written submission, paras. 387-399; response to Panel question No. 152.

Deputy Finance Minister, was quoted in the newspaper Matichon as stating that "the estimated price
of Marlboro cigarettes has been adjusted from Bt[[xx.xxx.xx]] to Bt[[xx.xxx.xx]] a pack". 1578 Two
days later, the Finance Minister, Dr. Thanong Bida ya, provided information on the basis of which the
newspaper Khao Hun wrote that "L&M declared the imported price (c.i.f.) at only Bt[[xx.xxx.xx]] per
pack, while Marlboro is declared only Bt[[xx.xxx.xx]]". 1579 On 27 September 2006 Mr Utid
Tamwatin, the then DG Excise discussed a potential im port ban explaining how this threat impacted
the import price of Marlboro cigarettes which "had been at [[xx.xxx.xx]] baht per pack [and]was
changed to [[xx.xxx.xx]] per pack for the past two to three months". 1580 Thailand does not dispute
these occurrences either.
7.927 However, we find that the Philippines failed to make a connection between the concerned
instances of the unauthorized publication of c onfidential information and the dual function
government officials. In other words, we are not presented with evidence indicating that such
unauthorized publication of PM Thailand's confidentia l information can necessarily be related to the
concerned government officials' dual role as TTM's directors.
7.928 Furthermore, we recall our cons ideration above that these selected government officials with
a dual function are subject to the obligations under the Thai Civil Service Code and the Criminal
Code. The Philippines argues that they are ineffective in preventing acts of unreasonable
administration on the same grounds that safeguard s could not prevent impartial administration. 1581
However, the instances of the alleged breach of c onfidentiality would not necessarily disprove of the
fact that these legal instruments can and do func tion as safeguards against the inappropriate use of
their positions, access to confidential information, and financial incentives to maximize TTM' profits.
7.929 In conclusion, given the rationale behind it, a nd considered in conjunction with safeguards in
the system, we find that the Philippines has not es tablished that the features of Thailand's granting
selected customs and tax officials with a dual fu nction as TTM directors necessarily lead to an
unreasonable administration of the Thai customs and tax laws and regulations within the meaning of
Article X:3(a).
4. Delays in the BoA's decision-making con cerning PM Thailand's appeals against Thai
Customs' determinations
(a) Introduction
7.930 In Thailand, DG Customs takes customs valuation decisions. These decisions can be
appealed, which entails a two-step process: appeal s are first examined by the Sub-Committee for
customs valuation, which then transmits the file to the Board of Appeals ("BoA") for a decision. 1582
Determinations of the BoA may then be appealed to the Tax Court.1583
7.931 The Philippines argues that undue delays are observed in the processing of a certain number
of appeals lodged by PM Thailand against Thai Cust oms' determinations. The Philippines claims that
this delay in the BoA's processing amounts to an unreasonable administration within the meaning of
Article X.3(a). Thailand claims that Article X:3( a) was not intended to impose absolute deadlines on
Members for the completion of such administrativ e proceedings, and therefore the Panel should not
interpret the term "unreasonable" to impo se specific deadlines on Members' administrative

1578 Exhibit PHL-85.
1579 Exhibit PHL-1.
1580 Exhibit PHL-86.
1581 Philippines' second written submission, paras. 42-48.
1582 Thailand's response to Panel question No. 145 citing Exhibit THA-88.
1583 Exhibit PHL-20, Section 112octuordecies.

proceedings. In addition, Thailand states that the qu estion of what is "reasonable" administration of
the law in a particular case necessarily depends on the circumstances of the case.
(b) Whether the BoA's review of customs valuati on determinations constitu tes "administration"
within the meaning of Article X:3(a)
7.932 As the Panel noted in paragra ph 7.869 above, "administration" in Article X:3(a) covers both
the manner in which the legal instruments of the kind falling under Article X:1 are applied or
implemented in particular cases as well as a legal instrument that regulates such application or
implementation.
7.933 The Philippines' claim concerns delays caused in the BoA's review of certain customs
valuation decisions for PM Thailand's cigarettes. As noted above, appeals made against customs
valuation decisions are first lodged with and examined by the BoA, which is an administrative review
body within the Ministry of Finance.
1584 Under the Thai law, the decisions of the BoA can then be
appealed at the judicial level. We consider that the review of customs valuation decisions at the BoA
level is an act of "putting into practical effect, or applying" the relevant Thai customs laws and thus
falls within the meaning of the term "administer" in Article X:3(a). Moreover, the parties do not
dispute that the appeals process of customs valua tion decisions constitutes "administration" of the
customs laws.
7.934 Therefore, we will proceed to examine whethe r the precise aspect of the Thai government's
administration at issue here, namely the delays in the BoA process of reviewing certain customs
valuation decisions at issue, resulted in an unreasonable administration of the Thai customs law.
(c) Whether Thailand administered its customs laws in an "unreasonable" manner through delays
caused in the BoA's review process
(i) Main arguments of the parties
7.935 The Philippines claims that Thailand violates Article X:3(a) by unreasonably administering
its customs laws applicable to imports of fo reign cigarettes by delaying the processing of
[[xx.xxx.xx]] custom valuation appeals before the BoA for a period of six to seven years. Those
delays constitute a pattern of unreasona ble administration under Article X:3(a) 1585 because they are
"not appropriate or suitable to the circumstances" 1586 and leave importers without a timely remedy
against decisions by Customs authorities.1587
7.936 The Philippines considers that a finding of unreasonableness under Article X:3(a) requires
that the totality of the circumstances be examined. 1588 Yet, the duration of an administrative
proceeding alone may be unreasonable administrati on, absent adequate countervailing explanations
for the delays observed. 1589 In this regard, the Philippines fi rst describes the pattern of delays

1584 As we address below in the context of our examination of the Philippines' claim under
Article X:3(b), we find that the BoA is not independent of the agency entrusted with administrative
enforcement, namely the Ministry of Finance, within the meaning of Article X:3(b).
1586 Philippines' first written submission, pa ra. 95, referring to the Panel Report, Dominican Republic –
Import and Sale of Cigarettes, para. 7.385.
1587 Philippines first written submission, paras. 95-96.
1588 Philippines' second written submission, para. 545; Philippines' response to Panel question No. 80.
"In this case, the factors to be consid ered are: (1) the duration of the proceed ings so far; (2) the nature of the
appeals; (3) the BoA's treatment of sim ilar appeals; (3) the nature and intensity of the efforts undertaken by the
BoA to resolve appeals; and (5) any explanation given by Thailand for the duration of the proceedings".
1589 Philippines' response to Panel question No. 80.

concerning [[xx.xxx.xx]] claims, and then explains th at it is exclusively due to misadministration by
the BoA.
7.937 The Philippines recalls that [[xx.xxx.xx]] claims were originally brought regarding the custom
valuation determinations of ci garettes which entered Thailand between 2000 and 2002. Of the
appeals, [[xx.xxx.xx]] related to the entries of Marlboro cigarettes in 2002. Those [[xx.xxx.xx]]
appeals were still undetermined at the time of the filing of the Philippines' second written submission
in this proceeding.
7.938 The Philippines submits a statistical table to describe how the [[xx.xxx.xx]] claims were
processed by the BoA: the processing of the [[xx.xxx. xx]] claims at issue is unduly prolonged (the
earliest and the most recent of these [[xx.xxx.xx]] appeals have been pending for almost 7.5 and 6.5
years respectively); and the processing is extremely long compared to the average time taken for
similar claims (as of the day of filing, the appeal s examination of the cases at issue had already taken
4.55 years more than the average time necessary to resolve similar appeals).1590
7.939 The Philippines relies on the Panel's statement in Colombia – Ports of Entry that Colombia's
post-importation review of customs values "appears qu ite lengthy, taking two years or more for an
importer to obtain a refund". 1591 The Philippines underlines that, on average, Thailand's review of
custom valuation decisions has taken three times longer than the period discussed in that case.1592 The
Philippines concludes that this delay constitutes unreasonable administration within the meaning of
Article X:3(a).
7.940 Moreover, the Philippines states that no counterva iling explanation justifies the BoA's delays
in processing the [[xx.xxx.xx]] appeals at issue. Fi rst, the Philippines contests that the [[xx.xxx.xx]]
appeals presented particular difficulty compared to other cases. Through the [[xx.xxx.xx]] resolved
appeals, the BoA has consiste ntly decided to apply the same company wide P&GE ratio 1593 to all
cigarettes (either L&M or Marlboro) imported by PM Thailand and cleared on the Thai market during
the 2000-2003 period. 1594 The [[xx.xxx.xx]] entries at issue al so concerned PM Thailand cigarettes
(Marlboro) entering and being cleared on the Thai market between 2002 and 2003. Hence no
additional determination should have been necessary to assess the applicable P&GE. 1595 The same
P&GE that applied to all other PM Thailand cigarettes for products entering and being cleared at the
same dates should have been applied without further deliberation.1596
7.941 Second, the Philippines disagrees that PM Thaila nd contributed to undue delays in processing
the [[xx.xxx.xx]] claims at issue. In particular, PM Thailand's 2005 request for a different adjusted
P&GE ratio cannot justify the extraordinary delays observed. 1597 The Philippines recalls that it
submitted this alternative ratio in respon se to the intent indicated by the BoA 1598 not to apply the

1590 Philippines' comments on Thailand's response to Panel questions Nos. 143-144.
1591 Panel Report, Colombia – Ports of Entry, para. 7.128.
1592 Philippines' response to Panel question No. 80.
1593 Philippines' comments on Thailand's response to Panel questions Nos. 143-144. P&GE stands for
"profit and general expenses", which equals the gross margin.
1594 Exhibit PHL-273a, BoA Ruling 4, June 19, 2006. See also the Philippines' response to Panel
questions Nos. 143-144. This even included 6 entries cleared on the same day as two of the entries concerned by
the [[xx.xxx.xx]] outstanding appeals.
1595 Philippines' response to Panel question No. 143.
1596 Philippines' comments on Thailand's response to Panel questions Nos. 143-144.
1597 Exhibit PHL-154. By a letter dated 15 December 2005, PM Thailand requested that a ratio different
from the company wide ratio be applied to entries having occurred between January 2002 and December 2002.
1598 Philippines' second oral statement, para. 145, referring to a meeting held between BoA and
PM Thailand on 28 September, 2005 where BoA allegedly stated its intent not to apply the company wide
adjusted ration of [[xx.xxx.xx]] per cent to the [[xx.xxx.xx]] claims at issue.

adjusted company-wide P&GE ratio to 2002 Marlboro entries
1599, [[xx.xxx.xx1600]]. While the BoA
could reasonably require additional information, the BoA proved dilatory in the extreme as shown by
the submitted chronology table.1601
7.942 Third, the Philippines disputes that a modifi cation in PM Thailand' s net overall financial
performance in the year 2002 can explain additional delays in the BoA's determination of the
[[xx.xxx.xx]] claims at issue. Thailand fails to explain how PM Thailand's financial performance may
influence the BoA decisions and trigger delays . Additionally, if any measure of financial
performance should be used for the purpose of cust oms valuation, the BoA should have focussed on
PM Thailand's gross margin (which deducts expens es) as provided in Article 5.1(a) of the Customs
Valuation Agreement. PM Thailand's gross ma rgin remained positive between 2000 and 2002: the
BoA was therefore not facing any new situation compar ed to already decided appeals. Finally, even
assuming PM Thailand's overall financial performance to be relevant, the BoA should have acted
more rapidly and diligently throughout the six y ears since the PM Thailand's 2002 financial record
was published.1602
7.943 Last, the Philippines also contests that PM Thailand's 2007 request that [[xx.xxx.xx]] appeals
be treated expeditiously1603 warranted that those appeals be prioritized over the [[xx.xxx.xx]] appeals
at issue, thereby triggering additional delays.1604
7.944 The Philippines fails to understa nd Thailand's argument that such a long review process was
in PM Thailand's financial interest. The Philippines insists that, even if this was accurate, it would by
no means exempt Thailand from its obligations under Article X:3(a). 1605 The Philippines concludes
that no countervailing explanation w as convincingly substantiated by Thailand. Thus, the extremely
long time taken by the BoA to process the appeals of the [[xx.xxx.xx]] customs valuation claims at
issue constitutes unreasonable administration of the relevant customs laws.
7.945 Thailand submits that it administers its customs laws in compliance with the requirements of
Article X:3(a). It first points out that the Philippines' claim covers only 23 per cent of all
PM Thailand's appeals reviewed since 2000
1606 while 77 per cent of the reviews were conducted in a
timely manner.1607 This provides for a reasonable timeline for appeals review. Thailand also alleges
that an examination of the totality of the ci rcumstances surrounding the appeals at issue does not
warrant the conclusion that they were unre asonably administered within the meaning of
Article X:3(a).1608
7.946 First, Thailand submits that PM Thailand hindered the review proceedings1609 by requiring the
BoA to apply a new P&GE calculation method 1610 to the [[xx.xxx.xx]] claims at issue. Thailand

1599 Philippines' second oral statement, paras. 145-149.
1600 [[xx.xxx.xx]].
1601 Philippines' response to Panel questions Nos. 143-144. Table submitted in the Philippines' second
written submission, para. 579. See also , Philippines' comments on Thailand's response to Panel questions
Nos. 143-144, explaining that PM Thailand's frequent requests for information through the period were not
timely answered by BoA.
1602 Philippines' response to Panel questions Nos. 143-144.
1603 Exhibit THA-58, asking for expeditious treatment of [[xx.xxx.xx]] entries filed in 2006-7.
1604 Philippines' comments on Thailand's response to Panel question No. 145.
1605 Philippines' comments on Thailand's response to Panel questions Nos. 143-144.
1606 Thailand's response to Panel question No. 82, citing EC Third Party Written Submission, para. 61.
1607 Exhibit THA-97 The average time necessary to co mplete the [[xx.xxx.xx]] reviews was 2 years, 6
months, 28 days.
1608 Thailand's response to Panel question No. 80, citing EC third party submission, para. 62.
1609 Thailand's response to Panel question No. 80; Thailand's second written submission, para. 211.
1610 Exhibit PHL-154.

declares that calculating the new ratio proved a diffi cult task since the data submitted by PM Thailand
differed substantially from the information provided in the context of other similar appeals. Hence,
Thailand disputes that the BoA h as been inactive in reviewing th e [[xx.xxx.xx]] appeals at issue. 1611
Moreover, Thailand fails to understand the Philippin es' argument that an adjusted company-wide
ratio should have been applied to the entries at issue. PM Thailand had indeed requested that a
distinct ratio be applied. 1612 Thus, it was reasonable for the BoA: (i) not to apply the
[[xx.xxx.xx]] per cent company wide ratio, and (ii) to use the time necessary to conduct an adequate
review of PM Thailand's successive propositions for alternative ratios.1613
7.947 In addition, Thailand underlines that examin ing the new ratio propos itions required that
difficult calculation issues be resolved. In partic ular, PM Thailand's financ ial statements regarding
the critical period evolved to a profit (rather than a lo ss) situation. This meant that Thailand had to
adjust its custom valuation calculation method, which proved very time consuming.
7.948 Third, Thailand argues that it was in PM Thailand's best financial interest that a different ratio
be calculated and applied. In support of its position, Thailand emph asizes that PM Thailand was then
able to submit [[xx.xxx.xx]] per cent , a higher P&GE ratio than [[xx.xxx.xx]] per cent, which would
consequently lower the final customs value.1614
7.949 Finally, the BoA could not follow its usua l timeline because PM Thailand asked it to
prioritize [[xx.xxx.xx]] other claims over the [[xx .xxx.xx]] claims at is sue. Both informal
conversations1615 and PM Thailand's letter of June 2007 show that, by requiring that [[xx.xxx.xx]]
other cases be treated expeditiously, PM Thailand unde rstood that other claims would be temporarily
set aside.1616
(ii) Analysis by the Panel
7.950 In this section, we will examine whether the a lleged delays in the BoA process of reviewing
the [[xx.xxx.xx]] appeals against the customs valua tion determinations for PM Thailand's cigarettes
resulted in an unreasonable administration of the Thai customs laws under Article X:3(a).
7.951 We recall our consideration above of the reasonableness requirement in Article X:3(a). The
term "reasonable" is defined as "in accordance with reason", "not ir rational or absurd",
"proportionate", "sensible", and "within the limits of reason, not greatly less or more than might be
thought likely or appropriate". 1617 We have also found guidance in WTO jurisprudence that the
requirement of reasonableness should be examined based on the features of the administrative act at
issue in the light of its objective, cause or the rationale behind it.1618
7.952 Before we commence our analysis, we summarize the sequence of events relevant to the
concerned appeals before the BoA as below.

1611 Thailand's response to Panel question No. 82, giving a chronology of events.
1612 Thailand's comments on the Philippines' response to Panel questions (second meeting), para. 107,
referring to the Philippines' responses to Panel question No. 143.
1613 Exhibit PHL-154 and THA-86. Two alternative P&GE ratios were proposed by the Philippines
respectively on 15 December, 2005 ([[x x.xxx.xx]] per cent instead of the company wide [[xx.xxx.xx]] per cent
ratio and [[xx.xxx.xx]] per cent on 12 March 2007).
1614 Thailand's response to Panel question No. 143.
1615 Exhibit THA-58.
1616 Thailand's response to Panel question No. 82.
1617 Panel Report, Dominican Republic – Import and Sale of Cigarettes , para. 7.385, referring to the
The New Shorter Oxford English Dictionary, (Fifth Edition) Oxford University Press, Vol. II, p. 2482 (2002).
1618 Panel Report, Argentina – Hides and Leather , para. 11.86; Appellate Body Report, Brazil –

Table 1. Facts under Article X:3(a) claim Delay in BoA appeals

Dates and time gaps PM Thailand's actions BoA acts
March 2002 (1st
appeal)1619 to March
2003 (last appeal)1620
2 years from 1st appeal

[[xx.xxx.xx]] appeals filed related to
entries of Marlboro

17 March 2004
1 month

 BoA requests supplementary evidence
to calculate the deductive value under
the 2002-2003 appeals
21 April 2004
1.5 months

PM Thailand submits supplementary
evidence related to 17 March request1621

4 June 2004
1.3 years

PM Thailand provides additional
information related to 17 March request
(information still incomplete)
1622

July 2004: PM Thailand writes a letter
requesting [[xx.xxx.xx]] per cent for
[[xx.xxx.xx]] claims.1623

July 2005: BoA grants [[xx.xxx.xx]]
per cent to 2002 L&M entries
1624
28 September 2005
2.5 months

 Meeting to discuss P&GE ratio. BoA
says it would apply the company-wide
ratio non-adjusted ([[xx.xxx.xx]] per
cent) to [[xx.xxx.xx]] claims
15 December 2005
0.9 years

Letter to BoA requesting that new ratios
be used ([[xx.xxx.xx]] per cent rather than
[[xx.xxx.xx]] per cent)1625

June 2006: BoA grants [[xx.xxx.xx]]
per cent for [[xx.xxx.xx]] 2002
Marlboro entries1626
BoA request for more information
10 November 2006
4 months

3 successive responses to BoA's request
for information

24 November and
12 December 2006;
12 March 2007
4 months

In March 2007, new P&GE ratio proposed
([[xx.xxx.xx]] per cent)1627

19 July, 2007
1 year and 8 months

Letter asking for expeditious treatment of
[[xx.xxx.xx]]other claims
( previous informal talks were held)1628
 Informal talks between November
2006 and March 2007. THA-56, dated
12 December 2006
13 March 2009
2 months

 Meetings related to [[xx.xxx.xx]] other
claims on 13 Sept. and 28 Nov. 2007.
Subsequent request for information
from BoA on 13 March 2009

May 2009

 PM Thailand answer to BoA 13 March
request

1619 Exhibit PHL-22.
1620 Exhibits PHL-23 and PHL-24.

7.953 We will first briefly summarize the factual ev ents surrounding the concerned appeals before
the BoA. The parties do not dispute that out of the [[xx.xxx.xx]] appeals lodged by PM Thailand
between 2000 and 2002, [[xx.xxx.xx]] appeals relati ng to the entries lodged between 2000 and 2002
have been decided. 1629 This suggests that, on average, it took 2 years and 6 months for the BoA to
process these [[xx.xxx.xx]] appeals. The shortest period of time taken was [[xx.xxx.xx]], while the
longest was [[xx.xxx.xx]]. 1630 On the other hand, however, the remaining [[xx.xxx.xx]] appeals at
issue, which all relate to the Marlboro shipments that entered in 2002, have now been pending for 7
years on average.1631
7.954 Although we do not consider that the obligation for a WTO Member to administer its laws
and regulations in a reasonable manner under Article X:3(a) sets a specific time limit for
administrative review processes, such as the BoA revi ew in this dispute, a review process taking over
7 years, particularly compared to the average time taken for other similar claims (i.e. 2.5 years),
would appear to be, at least in the abstract sense, rather unusual.
7.955 The Philippines argues that the BoA has consiste ntly been dilatory in all its official
communications, taking at least a year (11 months in the shortest instance) in each of its initiatives
regarding the [[xx.xxx.xx]] claims at issue.
1632 In the aggregate, the total time attributable to the BoA
in seeking information, as of the date of the submission, amounts to [[xx.xxx.xx]] from the first
appeal, and [[xx.xxx.xx]] from the last appeal.
1633 Thailand does not appear to argue that the
[[xx.xxx.xx]] duration taken for the BoA to review the [[xx.xxx.xx]] appeals at issue is not lengthy.
Nevertheless, Thailand takes the position that the time taken in reviewing these particular decisions is
justified in the light of the particular circumstan ces attributable to these appeals. Specifically,
Thailand points to the following: (i) PM Thailand contributed to the delays because it hindered the
BoA review of the claims by continuously making re quests for the use of new data (i.e. P&GE ratio),
which necessitated complicated calculations; (ii) new calculations were in PM Thailand's interest in
any event; and (iii) PM Thailand requested the BoA to prioritize other appeals. We will examine each
of these elements in turn.
7.956 First, regarding whether PM Thailand's successive requests for new calculations of the P&GE
ratio prolonged its examination, the relevant fact s concerning the P&GE ratio are as follows: in July
2004, the Philippines requested that a [[xx.xxx.xx]] pe r cent ratio be applied to the claims at issue. 1634
In July 2005, the BoA applied th e [[xx.xxx.xx]] per cent ratio to L&M 2002 entries. 1635 On 18
September 2005 the parties held a meeting, the outcome of which was "to add back the over-paid duty
paid [for 2002 entries] to the gross profit initiall y submitted". The new gross margin, as calculated by

1621 Exhibit THA-52.
1622 Exhibit THA-53.
1623 Exhibit PHL-197.
1624 Exhibit PHL-35.
1625 Exhibit PHL-154.
1626 Exhibit PHL-36.
1627 Exhibit THA-86.
1628 Thailand's response to Panel question No. 82; Exhibit THA-58.
1629 Thailand's second written submission, para. 208.
1630 Exhibit THA-97.
1631 Exhibit PHL-23.
1632 The initiatives include requesting information useful to ratio evaluations and convening meetings
with PM representatives. See Table 1 at page 355.
1634 Exhibit PHL-197.
1635 Exhibit PHL-35 and PHL-251.

PM Thailand, was [[xx.xxx.xx]] per cent.
1636 A year later, the BoA posed questions on the data used
to establish the new ratio a year later to PM Thailand. In a letter sent on 12 March 2007, PM Thailand
proposed a third adjusted ratio of [[xx.xxx.xx]] per cent. 1637 Since this date, no other communication
regarding the appeals at issue has been recorded.
7.957 Thailand's understanding of the situation in this regard is as follows. Although it had chosen
to apply a constructed P&GE ratio of [[xx.xxx.xx]] per cent for the 2002 entries in the light of the
increase in PM Thailand's profits since 2000, it considered that it was in the importers' interest to have
an opportunity to request the BoA to use a highe r P&GE ratio to resolv e the pending appeals.
Therefore, according to Thailand, to evaluate the [[xx.xxx.xx]] per cent P&GE ratio proposed by
PM Thailand by a letter of 15 December 2005, the Bo A was obliged to obtain substantive information
from PM Thailand for this newly proposed P&GE ratio. 1638 This process of obtaining the new
information continued until March 2007, when it was interrupted by PM Thailand with a new
proposal for an adjusted P&GE ratio of [[xx.xxx.xx]] per cent 1639, which required examination of new
documentation.
7.958 Particularly with respect to the P&GE ratio of [[xx.xxx.xx]] per cent, Thailand argues that
PM Thailand's letter of 15 September 2005 1640, in which this P&GE ratio of [[xx.xxx.xx]] per cent is
suggested, was not submitted in response to a request from th e BoA. Thailand argues that it was this
request from PM Thailand that precipitated the a dditional delay in the appeals of the [[xx.xxx.xx]]
entries. As such, the request for the use of this new P&GE ratio necessitated additional time for the
BoA review of the customs valuation determinati ons on the subject entries. This consequently
resulted in justifiably longer examination periods than under the usual circumstances.
7.959 The Philippines argues that the new P&GE ra tio indicated in PM Thailand's letter of
15 December 2005 was submitted as a result of the meeting with the BoA on 28 September 2005.
The Philippines focuses on its allegation that th e BoA has been extremely tardy in seeking
information from PM Thailand on the P&GE ratio of [[xx.xxx.xx]]per cent submitted by PM Thailand
in December 2005 following a request from the Bo A at the September 2005 meeting. Then it took the
BoA almost a year to request specific informati on on this new proposal. PM Thailand then provided
more information and new calculations r esulting in the [[xx.xxx.xx]] per cent ratio. 1641 T h e
Philippines has presented no specific comment in relation to the newly proposed [[xx.xxx.xx]] per
cent P&GE ratio.
7.960 The parties' disagreement on the circumstanc es surrounding PM Thailand's submission of the
new P&GE ratio of [[xx.xxx.xx]] per cent on 15 Dece mber 2005 is related to the meeting held on
28 September 2005 between the BoA and PM Thailand. The parties do not dispute that the meeting
took place and, at the meeting, issues relating to PM Thailand's P&GE ratios were discussed. The
parties present different views, however, on the re sult of the meeting. In essence, the Philippines
submits that its understanding of the meeting w as that the BoA was questioning whether it would
continue to use an adjusted P& GE ratio rather than the actual company-wide P&GE ratio. Such
understanding subsequently prompted PM Thailand to object to the use of the non-adjusted P&GE
ratio and to request an adjusted company-wide P&GE ratio through its letter of 15 December 2005.

1636 Exhibit PHL-154.
1637 Exhibit THA-86.
1638 This request was made in a letter dated 10 November 2006 (Exhibit PHL-54) and the replies
trickled in from PM Thailand by letters dated 24 November 2006 (E xhibit THA-55), 12 December 2006
(Exhibit THA-56) and 12 March 2007 (Exhibit THA-86).
1639 Exhibit THA-86.
1640 Exhibit PHL-154.

7.961 We are not presented with specific evidence th at would clarify the exact content of the
discussion that took place. However, as Thailand ar gues, PM Thailand's letter of 15 December 2005
does indicate that there was a certain understandi ng between the BoA and PM Thailand on the need
for adjusting the P&GE expense for overpaid duties. 1642 In the introductory paragraph of the
concerned letter, PM Thailand states:
"With reference to the meeting on 28 th September 2005 between Philip Morris
(Thailand) Co., Ltd. ("the company") ... in the subject of profit & general expense
(gross margin) and DDV calculation for Marlboro imported in 2002. The meeting
conclusion was to add back the over-pai d duty (based on the indicative value by
officers during import formality) into the company's profit, in order to calculate the
GM as it should be.
The company has now completed the GM and DDV calculations as per the above
conclusion. Therefore, the company would like to present the supporting reasons and
calculation result as follows:"
1643
7.962 Therefore, as Thailand submits, PM Thailand's letter of 15 December 2005 tends to show that
the conclusion of the meeting was not whether the P&GE ratio should be adjusted, but by how much.
7.963 In our view, however, this does not support Tha iland's position that PM Thailand contributed
to the delays in the BoA review process by proposi ng a new data on its own initiative. Furthermore,
we consider that what is important in this rega rd is whether the P&GE ratio newly proposed by
PM Thailand justifies in any manner the length of delays in the BoA review process of the
[[xx.xxx.xx]] entries at issue. Particularly, we note that it was not until approximately a year from
receipt of the letter from PM Thailand with the newly proposed P&GE ratio on 15 December 2005
that the BoA requested additional information from PM Thailand in this connection.
7.964 Thailand further contends that the delays ar e explained by the complexities of the new
calculations required to adjust the P&GE ratios. Thailand underlines that PM Thailand's overall
financial situation had changed, shifting from ne gative results in the years 2000 and 2001, to a
positive result in 2002. Thailand however never su fficiently explained ho w this new financial
situation complicated the necessary calculations such that it took almost a y ear for the BoA to seek
further information from PM Thailand in this regard.
7.965 Thailand further asserts that the delays tr iggered by the new calculation were in
PM Thailand's financial interest. We understand this position to be based on the view that a higher
P&GE ratio would have reduced the consequent custom s value for the entries at issue. Although that
it may actually have been in PM Thailand's inter est to conduct new calculations as requested by
PM Thailand by using the newly proposed P&GE ratio 1644; whether a higher P&GE ratio as
suggested by PM Thailand resulted in a lower customs va lue for the entries at issue is irrelevant to the
issue of assessing whether the delays caused in the review process as a whole can be justified under
Article X:3(a). At the core of the reasona bleness requirement under Article X:3(a) is the manner in
which Member governments administer relevant laws and regulations.
7.966 Finally, Thailand argues that aside from th e new calculation issues, PM Thailand itself
requested that the BoA prioritize other claims ove r the pending [[xx.xxx.xx]] claims. According to
Thailand, in 2007, PM Thailand asked the BoA to complete the [[xx.xxx.xx]] other claims

1642 Thailand's comments on the Philippines' responses to Panel questions (second meeting), para. 36.
1643 Exhibit PHL-154, p. 1.
1644 Exhibit PHL-154. In this regard, PM proposed a higher ratio than the company wide ratio when it
was given the opportunity to bring in more arguments.

expeditiously
1645 which, in its view, in the light of certa in oral communications between the BoA and
PM Thailand1646, amounted to a request that they be prioritized over the [[xx.xxx.xx]] appeals at
issue.1647 The Philippines contests that a request fo r an expeditious treatment of the other
[[xx.xxx.xx]] claims amounted to a request prior itizing those claims over the [[xx.xxx.xx]] pending
appeals.1648
7.967 The text of the letter that Thailand relies on to support its position states in relevant part that
"PMTL kindly requests the Customs Appeal sub-committee to expeditiously submit PMTL's appeals
and challenges against final assessment (Gor.S or.Gor 171) regarding the other [[xx.xxx.xx]]
claims".1649 (emphasis added) In the letter, PM Thaila nd also expresses its concerns about increasing
"financial and procedural burdens as a result of ... final assessments ... To solve this issue, PMTL
kindly request[ed] expeditious treatment of the [[xx. xxx.xx]] other claims". From a plain reading of
this letter, we cannot infer a specific request from PM Thailand that the [[xx.xxx.xx]] must be
reviewed before the [[xx.xxx.xx]] entries at issue.
7.968 Further, we note Thailand's assertion that the BoA ran into unusual difficulties in handling a
high volume of appeals lodged in 2000, which was the first year for Thailand to commence the
implementation of the disciplines under the Customs Valuation Agreement. 1650 It argues that under
these circumstances, the fact that the BoA had completed by December 2005 77 per cent of the
[[xx.xxx.xx]] appeals lodged by PM Thailand in re lation to the entries "landed" between 2000 and
2002, demonstrates that the BoA was making reasonable efforts to complete these reviews in a timely
manner. However, given that a relatively shorter period of time was taken in completing the other
[[xx.xxx.xx]] entries that were lodged around the same time as the [[xx.xxx.xx]] entries at issue and
apparently similar to these entries, it is difficult to understand why such an unusually longer period of
time was necessary to review the [[xx.xxx.xx]] claims in the absence of a convincing explanation on
some unique feature attributable only to these pending entries, which there is not.

1645 Exhibit THA-58.
1646 Exhibit THA-87. Statement from Mrs Santinyaout, who was Director of the Customs standard
procedure and valuation directorate from November 2005 to 2007, and deputy secretary to the board of appeals.
Mrs Santinyaout declares that "PM Thailand company repr esentatives also came to me et our officials and told
them, verbally, that they would prefer Thai Customs to prioritise the appeals of the [[xx.xxx.xx]] entries landed
in 2006 and 2007 ahead of the appeals of [[xx.xxx.xx]] entries landed in 2002." The Appellate Body in US –

"Article 11 requires a panel to consider evidence before it in its totality, which includes
consideration of submitted evidence in relation to other evidence."

It also considered that "the nature and scope of th e evidence that might be reasonably expected by an
adjudicator in order to establish a fact or claim in a pa rticular case will depend on a range of factors, including
the type of evidence that is made available by a Member's regulating authority" (para. 357).
Here, we are trying to the determine what the intent of PM Thailand was when it addressed a letter
asking for expeditious treatment of [[xx.xxx.xx]] claims to the BoA. We have to choose between a written piece
of evidence addressed by PM Thailand to Thai Custom s and the statements of one official contradicting both
this letter and the statements made by the Philippines in front of the Panel. In our evaluation of the weight of the
respective evidence, we find that the written letter by PM Thailand is more convincing to reveal PM Thailand's
intent.
1647 Thailand's response to Panel question No. 145.
1648 Exhibit PHL-279. Mr. [[xx.xxx.xx]], country manager for the branch office of PM Thailand since
August 2006 states that he "did not instruct any PM empl oyees or representative to make such a [prioritisation]
request verbally to Thai customs or the BoA and to, the best of [his] knowledge, no such verbal request was ever
made".
1649 Exhibit THA-58.
1650 Thailand's second oral statement, para. 89.

7.969 Overall, although we are mindful of certain challenges that the BoA might have had to face
under the circumstances, we are not convinced that the particular aspects pertaining to the review of
the [[xx.xxx.xx]] entries at issue, taken together, can justify the current delays in the BoA's review of
those claims. Particularly, we observe that the claims concerning these [[xx.xxx.xx]] entries at issue
have been pending before the BoA for close to seve n years. The overall length of the administrative
process, combined with less-than-prompt acti ons (for example requesting information from
PM Thailand) taken by the BoA, also tends to show prejudice caused to other Member governments
and traders under Article X:3(a). The overall de lays shown throughout the course of the review
process therefore are " not appropriate or proportionate" consid ered against the nature of the
circumstances concerned. We therefore find that the concerned delays in the BoA review process
resulted in the administration of the Thai customs law in an unreasonable manner and are in violation
of Article X:3(a) of the GATT 1994.
5. Determination of the excise, health and television taxes
(a) Introduction
7.970 In Thailand, importers must pay the customs du ties and excise, health and television taxes on
the imported goods. The excise tax is based on the d eclared c.i.f. price (declared transaction value),
and the health and TV taxes are calculated as a percentage of th e absolute amount of excise tax
1651, as
respectively set out in the Tobacco Act 1652, the Health Promotion foundation Act 1653, and the
Television and Public Broadcasting Act.1654
7.971 In situations where Thai Customs questions the acceptability of the importer's declared c.i.f.
price, it can examine the declared c.i.f. price be fore determining the final customs value through the
issuance of the final Notice of Assessment. Duri ng the examination process, the importer is given a
right to withdraw the goods against payment of a guarantee. This guarantee amounts to the difference
between the declared c.i.f. price and the sum of an elevated c.i.f. price (provisionally fixed by the
customs authorities) plus the excise, health, televi sion taxes calculated based on this elevated c.i.f.
price. When the Notice of Assessment is publis hed, the importer may either accept its content or
challenge it to the BoA. The importer then can appeal the BoA's determination to the Thai Tax Court.
7.972 When the final determination of the c.i.f. pri ce is lower than the provisional guarantee value
imposed by the Thai authorities, the importer is en titled to a refund corresponding to the discrepancy.
In this regard, the parties initially disagreed on wh ether the importer may also obtain a refund for the
additional excise, health and television taxes paid. Later in the proceedings, however, the Philippines
appear to agree at least that a refund mechanism does exist.
(b) Main arguments of the parties
7.973 The Philippines argues that the imposition of the excise, health and television taxes on the
basis of a guarantee value constitutes a non-unifo rm, unreasonable and partial administration under
Article X:3(a) for the following reasons: (i) two diffe rent tax bases (declared c.i.f. price or guarantee
value) are applied to the same goods; (ii) the tax ba se is not grounded in Thai law; (iii) an incorrect
customs value is only used for imported cigarett es; and (iv) no automatic refund of the overpaid
amounts is available when the final customs value determined by Thai administrative or judicial

1651 Philippines' first written submission, paras. 617, 629 and 631.
1652 Exhibit PHL-119.
1653 Exhibit PHL-121.
1654 Exhibit PHL-122.

courts is lower than the guarantee value.
1655 The Philippines submits that using a guarantee value that
is higher than the declared transaction value as th e base for the determination of excise tax, has a
significant financial impact because the effective tax rate of the excise tax is 400 per cent although the
normal excise tax rate is currently 80 per cent. 1656 Moreover, because the health and television taxes
are calculated as percentages of the excise tax, whic h is based on a guarantee value when the declared
transaction value is not accepted, the Philippines asserts that an excessive amount of health and
television taxes is also collected if the final assessed customs value is lower than the guarantee
value.1657
7.974 The Philippines' claims are based on the prem ise that no automatic refund mechanism is
available to importers for the excess payment of exci se, health and television taxes. The Philippines
points out that this can be contrasted to the exis tence of a process allowing a refund of the difference
between the customs duties paid on the incorrectly assessed customs value, and the customs duties
due on the correct customs value.1658 In this connection, the Philippines initially argued that no refund
mechanism existed. 1659 Later in the proceeding, it elaborates on its argument and submits that for
Thailand's administration of the excise, health and television taxes to be reasonable, an automatic
refund system must be available to the importer. 1660 While acknowledging Thailand's evidence
showing that other companies had received a refu nd, the Philippines argues that the refunds were
available only when there was a BoA decisi on that reduced the assessed customs value. 1661 T h e
Philippines also argues that PM Thailand could not r ecover additional excise duty paid in relation to
transactions between 2000 and 2003.1662
7.975 According to the Philippines, non-uniform administration arises because the taxes are
administered using two different tax bases with respect to the same goods, Marlboro and L&M
cigarettes, that have been imported under the sa me circumstances. Sometimes the excise tax is
administered by using the correct duty-paid c.i.f. price, and sometimes the excise tax is administered
by referring to an amount based on an incorrect customs valuation by Thai Customs. 1663 The
Philippines refers to EC – Selected Customs Matters in stating that the administration of the tax is not

1655 Philippines' first written submission, paras. 654- 684; second written submission, para. 532; second
oral statement para. 135. If the BoA re verses Thai Customs' initial assessment of the customs valuations for the
[[xx.xxx.xx]] entries at issue and rein states the declared transaction values, the excess excise taxes collected on
these entries using an incorrect assessed customs value as the tax base would amount to THB [[xx.xxx.xx]]
(USD [[xx.xxx.xx]]) (Philippines' first written submission, para. 625). In 2007, the total amount of guarantees
collected in relation with the excise, health and television taxes was USD [[xx.xxx.xx]].
1656 Philippines' first written submission, paras. 617-622 and footnote 470.
1657 Philippines' first written submission, paras. 629-623. The Philippines explains that the television
tax has been imposed since 1 January 2008. The percentages of the excise tax for the health and television taxes
are respectively 2 per cent and 1.5 per cent of the excise tax amount.
1658 Philippines' response to Panel question No. 86, citing to Customs Notification No. 97/2542, issued
under the Customs Act (Exhibit PHL-20 and PHL-184).
1659 Philippines' first written submission, para. 623; fi rst oral statement, para. 271; response to Panel
question 86; second written submission, paras. 271-272. See also Exhibit PHL-182, expert opinion of Mr.
Piphob Veraphong; and Exhibit PHL-183, expert opinion of Mr. Prasit Aekaputra, both explaining that Clause
7(3) of the Ministry of Finance Rule regarding the Deduction of Revenue Expenditure and the Refund of
Revenue ("the Rule"), taken pursuant to section 4 of the Treasury Act, did not provide for a refund mechanism
for the additional excise duty paid. Likewise, section 14 of the Health Promotion Act and section 15 of the
Thai Public Broadcasting Act both make the repayment of the Health and Television tax contingent on the
repayment of the excise tax. In its second written submission, para. 539, the Philippines notes that those
provisions are in stark contrast with other Thai law provisions providing for express right to refunds.
1661 Philippines' comments on Thailand's response to Philippines' question No. 3 (second meeting).
1663 Philippines' first written submission, paras. 663-667; first oral statement, para. 265; second written
submission, para. 532.

of "unchanging form, character, or kind", and does not conform to "one standard, rule or pattern". 1664
In addition, the Philippines points at several occurre nces in the past in which Thailand administered
the excise tax (and therefore the health and televisi on tax) on the basis of incorrect valuations. In
some of these cases the BoA found that Thai Cust oms had taxed imports in excess of the correct
value, but the Philippines had already paid excise tax on the basis of an incorrect valuation decision
and did not receive a refund of the additional tax paid.1665
7.976 The Philippines also submits that unreasonable administration arises because Thailand
collects taxes using a tax base that has no foundation in Thai law or in fact. According to the
Philippines, Thai law does not authorize the excise tax to be levied on any basis other than the
correctly assessed customs value plus customs duties. Thailand's decision to disregard the tax basis
prescribed in a tax law is not "reasonable", "appropriate", or "rational administration". 1666 The
Philippines cites to Dominican Republic – Import and Sale of Cigarettes to support its conclusion.1667
7.977 The Philippines further claims that Thailand's ad ministration of the excise tax with respect to
imported cigarettes is partial because it lacks even-handedness, a nd is prejudicial as compared with
its administration of the tax in co nnection with domestic cigarettes. 1668 This partial administration
arises because while the tax base for imported cigarett es is the c.i.f. price, which may be revised as
part of the customs process; the tax base for domestic cigarettes is always the ex factory price, and
therefore taxes on imported and domestic cigarettes are not revised in a similar fashion.1669
7.978 Thailand takes the position that all claims by the Philippines under Article X:3(a) regarding
the administration of the Thai VAT system are outside the Panel's terms of reference. 1670 However, if
the Panel decides that the claims are within its te rms of reference, Thailand contests the Philippines'
claim on factual and legal grounds.
7.979 Regarding the Philippines' allegation that no refund mechanism for excise, health and
television taxes exists, Thailand argues that refund mechanisms are available to importers and that
PM Thailand appears to have never requested refunds. 1671 Thailand submits evidence of
correspondences confirming that three other im porters obtained refunds between 2006 and 2008. 1672
Thailand disagrees with the Philippines' reading of the expert opinions of Mr. Veraphong and Mr.
Aekaputra. Instead of disputing that a refund mech anism existed, they underlined that the relevant
Acts did not include specific provisions as to "how to make a refund application".1673 More generally,
and in relation to the Philippines' argument that refunds are not automatic, Thailand considers that
there is nothing irrational or inappropriate in Memb ers administering their laws through the conferral

1664 Philippines' first written submission, pa ra. 665, referring to Panel Report, EC – Selected Customs
Matter, paras. 7.123-7.124.
1667 Philippines' first written submission, paras. 672-679; first oral statement, para. 266; second written
submission, para. 532.
1669 Philippines' first written submission, paras. 680-683; first oral statement, para. 267; second written
submission, para. 532.
1670 Thailand's first written submission, paras. 305-307 and footnote 339; second written submission,
paras. 241 and 309-314. See section VII.B.1 for the di scussion on Thailand's claims on the terms of reference
for this Panel.
1671 Thailand's first written submission, para. 331; fi rst oral statement, para. 21; second written
submission, para. 262; response to Philippines' question No. 3 (second meeting).
1672 Thailand's response to Philippines' question No. 3 (second meeting); Exhibit THA-99.
1673 Thailand's comment on the Philippines' responses to Panel questions, para. 131; Exhibit PHL-183,
paras. 6.2 and 6.3.

of discretion on administrative agencies.
1674 Thailand moreover states that it is inevitable in any
jurisdiction that customs value will be revised upwards or downwards af ter importation and that
Article X:3(a) should not be read as prohibiting such revisions. 1675 When the assessed customs value
is revised downwards, importers have the "option" to request refunds of any excess payments.1676
7.980 In response to its alleged unreasonable, non-uni form and partial administration of excise,
health and television taxes, Thaila nd contends that the use of different data sources to calculate the
c.i.f. price component of MRSPs does not amou nt to non-uniform administration because the
difference can be explained by differences in the circumstances of the case. 1677 Second, Thailand puts
forward that the use of guarantee values in September 2006 was reasonable given the legitimate
doubts expressed by Thai Customs regarding the re liability of PM Thailand's declared values. 1678
Third, Thailand's use of estimates to calculate the c.i.f. price for imported cigarettes does not indicate
partiality, because the Philippines has not established that Thai Excise would not use estimates to
calculate the domestic ex factory price if there were doubts about the reliability of the figures put
forward by TTM.1679
7.981 Finally, Thailand states that the Philippines claimed in its first written submission that
Thailand used an "unlawful" tax base to calculate the excise, health and television taxes; but it did not
claim that Thailand's laws and regulations relating to these taxes were inconsistent with Article X:3(a)
because importers cannot claim refunds. Thailand therefore holds that the Panel need not and should
not address the issues of whether refunds can be granted under Thai law and whether Article X:3(a)
requires WTO Members to confer rights to refunds of overpaid indirect taxes.
1680
(c) Analysis by the Panel
7.982 We concluded in Section VII.B.1(b) that the Philippines' claim under Article X:3(a) of the
GATT 1994 with respect to Thailand's administration of the excise, television and health taxes fell
within our terms of reference. Therefore, we will proceed to examine the Philippines' claim.1681
7.983 In Section VII.H.2 above, we explained that the obligations under Article X:3(a) apply to the
administration of the laws, regulations, decisions and rulings of the kind falling within the scope of
Article X:1, but not such laws and regulations themselves.1682 The Appellate Body clarified that to the
extent such laws and regulations are discriminatory, they can be examined for their consistency with

1674 Thailand's second written submission, para. 246.
1676 Thailand's first written submission, para. 331.
1677 Thailand's second written submission, para. 250, referring to the Appellate Body report on EC –
Selected Customs Matters, para. 261.
1678 Thailand's second written submission, para. 250.
1679 Thailand's second written submission, para. 250. The Panel notes that Thailand uses the same
arguments to explain the consistency of its MRSP methodology under Article X:3(a).
1680 Thailand's second written submission, para. 26 2, referring to the Philippines' first written
submission, paras. 672-678.
1681 The Thai laws and regulations at issue, as set out in the Philippines' request for establishment of a
Panel, are: the Tobacco Act B.E. 2509 (1966), sections 5, 5ter, and 5quinquies; Notices of Director-General for
Excise, setting out the ex factory prices; the Health Promotion and Foundation Act, B.E. 2544 (2001); and the
Thai Public Broadcasting Service Act 2551 (2008).
1682 Appellate Body Reports on EC – Bananas III , para. 200; EC – Poultry , para. 115. The Panel in
Argentina – Hides and Leather also stated that "Article X:3(a) refers specifically to the method of application of
measures identified in Article X:1" (emphasis added) (Panel Report, Argentina – Hides and Leather ,
para. 11.73). The Panel in the same dispute further elaborated that "the relevant question is whether the
substance of such a measure is administrative in nature or, instead, involves substantive issues more properly
dealt with under other provisions of the GATT 1994" (para. 11,70; also referred to in the Panel Report, US –
Byrd Amendment, para. 7.143).

the relevant provisions of the GATT 1994.1683 The relevant question for determining the proper scope
of Article X:3(a) is therefore "whether th e substance of such a measure [or act] is administrative in
nature or, instead, involves substantive issues more properly dealt with under other provisions of the
GATT 1994".1684 We further recall that the term "administe r" means "putting into practical effect", or
"applying", a legal instrument of the kind described in Article X:1.
7.984 In respect to the Thai excise, health and te levision taxes, the Philippines claims that the
determination of these taxes on the basis of a guarant ee value, instead of a declared transaction value,
leads to a non-uniform, unreasonable and partial administration within the meaning of Article X:3(a).
Further, the Philippines argues that the lack of an automatic refund mechanism of the excess tax paid
(in the form of a guarantee) also leads to an unreasonable administration of the Thai excise, health and
television tax laws and regulations.
7.985 According to the Philippines, its claim regardi ng the use of the guarantee value as a tax base
for the excise, health and television taxes is con cerned with the "very practice" of using different
starting points for the MRSP calculation (i.e. declared value or guarantee value). The Philippines
submits that this practice is not in compliance with Thai law, as Thai law, the Thai Tobacco Act,
allegedly provides that the sole excise tax base fo r imported cigarettes is the duty-paid c.i.f. price.
1685
Hence, in our understanding, the Philippines is arguing that Thailand administers certain provisions of
the Thai Tobacco Act in a non-uniform, unreasonable and partial manner way under Article X:3(a).
7.986 In the provisions of the Thai Tobacco Act, however, we do not see the requirement that the
sole excise tax base for imported cigarettes is the duty- paid c.i.f. price. Specifically, Article 5 ter 2
provides, in relevant part, that the c.i.f. price is indeed the basis for the exci se tax. Point (B) in the
same provision provide however that in cases of re -assessment of the price (of tobacco) by Thai
Customs under the customs law, th e re-assessed prices will be used as a base for the c.i.f. price. 1686
Our reading of this provision indicat es that this part of Article 5 ter 2 implies that in case of a re-
assessment of the price of the goods (tobacco, cigare ttes), Thai Customs will determine a new c.i.f.
price, which will then form the basis of the excise ta x, which in its part forms the basis for the health
and television taxes. Based on the plain text of th e provision, therefore, we consider that a guarantee
value set as a c.i.f. price pending the final determina tion of the customs value could also fall within
the type of re-assessed price envisaged under the provision. 1687 In any event, our consideration of the
Philippines' arguments leads to the conclu sion that such arguments pertain to the content of certain
provisions of the Thai Tobacco Act, which are substa ntive in nature rather th an administrative within
the meaning of Article X:3(a).
7.987 The Philippines' claim regarding the absence of an automatic re fund mechanism in situations
where the final customs value is later determined to be lower than the guarantee value initially
imposed on imported cigarettes is based on two premises: (i) if there is no automatic refund
mechanism, importers end up bearing the additional administrative burden of claiming the refund; or,
(ii) if they do not claim the refund (for whatever reason), importers end up bearing the additional cost
of the additional taxes paid on the difference betw een the final customs value and the guarantee value
in the absence of an automatic re fund mechanism. In our view, however, the object of this claim,
namely the absence of an automa tic refund mechanism, is not administrative in nature . Instead, it

1683 Appellate Body Report, EC – Bananas III, para. 200.
1684 Panel Report, Argentina – Hides and Leather, para. 11.70 (emphasis added).
1685 Philippines' first written submission, para. 617-622, referri ng to section 5 ter (2) of the Thai
Tobacco Act (Exhibit PHL-119).
1686 Exhibit PHL-119.
1687 section 112 of the Thai Customs Act authorizes Thai Customs to request a guarantee for imported
goods that are under examination by Thai Customs (Exhibit PHL-20). The Panel notes, that such a provision is
explicitly allowed by Article 13 of the Customs Valuation Agreement.

involves substantive issues relating to certain Thai laws and regulations that should be properly dealt
with under other provisions of the WTO-covered agreements.
7.988 We therefore conclude that the alleged admi nistration of the Thai Excise, Health and
Television taxes, namely the use of the guara ntee value as the tax base and the absence of an
automatic refund mechanism, concern the substantive aspects of such laws and regulations rather than
the manner in which they are put into practical e ffect. Accordingly, we find that the Philippines'
claim under Article X:3(a) in respect of the admi nistration of Thai Excise, Health and Television
taxes was improperly brought under Article X:3(a). We need not therefore proceed to examine the
consistency of the concerned act with the requirement s to administer in a "reasonable, impartial and
uniform" manner.
I. A
RTICLE X:3(B) OF THE GATT 1994
1. Appeals against custom valuation determinations
(a) Introduction
7.989 The Philippines claims that Thailand violates Article X:3(b) by failing to maintain tribunals or
procedures for the prompt review of appeals agai nst customs valuation decisions. The Philippines'
claim is based on the position that delays in the BoA's review of certain customs valuation
determinations demonstrate that Th ailand failed to ensure that proc edures for the "prompt" review of
administrative actions relating to customs matters are maintained. Thailand focuses on the argument
that as the BoA is not an independ ent tribunal within the meaning of Article X:3(b), the relevant
procedural aspects of the BoA are not subject to the disciplines under Article X:3(b).
7.990 Article X:3(b) of the GATT 1994 provides:
"Each contracting party shall maintain, or institute as soon as practicable, judicial,
arbitral or administrative tribunals or procedures for the purpose, inter alia , of the
prompt review and correction of administ rative action relating to customs matters.
Such tribunals or procedures must be i ndependent of the agencies entrusted with
administrative enforcement and their decisi ons shall be implemented by, and shall
govern the practise of, such agencies unless an appeal is lodged with a court or
tribunal of superior jurisdiction within the time prescribed for appeals to be lodged by
importers."
7.991 To establish a violation of Article X:3(b), a co mplaining party must therefore show that the
responding party has not maintained or instituted in dependent tribunals or procedures for the purpose
of the prompt review and correction of the administrative action relating to customs matters.
7.992 The parties do not dispute that customs valuati on determinations fall w ithin the scope of the
"administrative action relating to customs matters" under Article X:3(b). The parties' arguments are
focused on the following two issues: first, whethe r the BoA is an independent tribunal within the
meaning of Article X:3(b); and, second, if not, wh ether the time taken for the BoA review process, a
process prerequisite to having access to review by an independent tribunal (the Tax Court),
particularly the delays caused in the [[xx.xxx.xx]] a ppeals at issue in this dispute, should still be taken
into account in examining the requirements under Article X:3(b).
7.993 Based on the parties' arguments, we note, however , that it is not clear whether Article X:3(b)
encompasses not only an obligation for a Member to maintain or institute a system for the prompt
review and correction of administrative actions rela ting to customs matters, but also an obligation for
relevant tribunals to in fact provide for a prompt review in specific instances. As the parties'

arguments raise a question touching on the nature of the obligations imposed by Article X:3(b), we
will first address the nature of obligations under Article X:3(b).
(b) Nature of the obligations under Article X:3(b)
7.994 Article X:3(b) requires that the WTO Members maintain or institute independent tribunals or
procedures for the purpose of the prompt review and correction of administrative action relating to
customs matters. The term "maintain" can be defined as "3. verb trans. cause to continue (a state of
affairs, a condition, an activity, etc.); keep vi gorous, effective, or unimpaired; guard from loss or
deterioration".1688 Based on the ordinary meaning of the term "maintain", therefore, we understand
that Article X:3(b) mandates WTO Members to c ontinue with and keep effective independent
tribunals and procedures, if they are already in place in their domestic system, for the stated purposes.
7.995 The term "institute" in turn can be defined as " verb trans. 2. set up, establish, found; bring
into use or practice. Article X:3(b), therefore, requires those Members that did not have independent
review tribunals or procedures in place at the time of the entry into force of the GATT 1994, to set up
such review mechanisms for the prompt review of administrative actions relating to customs matters
as soon as practicable.
7.996 The text of Article X:3(b), particularly th e phrase "shall maintain, or institute as soon as
practicable, ... tribunals or procedures for the purpose, inter alia , of the prompt review and
correction ...", raises the question of whether the sc ope of Article X:3(b) can be understood to include
a Member's claim that an actual review conducted by an independent tribunal or in a specific instance
is not prompt. In particular, the phrase " for the purpose of the prompt review" suggests that the
obligations envisaged under Article X:3(b) are of normative nature, namely the obligation to maintain
or institute a system designed for the purpose of the prompt review of administrative actions. The text
of Article X:3(b), considered in the light of th e ordinary meaning of the terms "maintain" and
"institute", therefore suggests that Article X:3(b) mandates Members to keep, or create if not already
in place, in their domestic system the existing in dependent tribunals or procedures designed for the
purpose of the prompt review of administrative actions.
7.997 As such, it is our view that a claim on whether a tribunal maintained by a Member pursuant to
Article X:3(b) does in fact promptly review an administrative action is a matter falling more properly
within the scope of Article X:3(a). As addres sed above, Article X:3(a) requires that Members
administer the legal instruments of the kind in Article X:1 in a uniform, im partial and reasonable
manner. We also clarified that the term "adminis ter" under Article X:3(a) c overs the application or
implementation of the relevant legal instruments, in cluding judicial decisions. This understanding, in
our view, ensures that the distinctive disciplines embodied in Article X:3(a) and X:3(b) are not
blurred. We further consider that showing specific instances where prompt review was not provided
could nonetheless help to prove a violation of Article X:3(b) to the extent that the non-promptness in
the review process concerned can be linked to a system ic flaw in the tribunal or procedure maintained
by a Member.

1688 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford Univer sity Press, Vol. I, p.
1647 (2002). The Philippines submits that the term "maintain" means "practice habitually" (Oxford English
Dictionary online, Exhibit PHL-209), which consequently entails a dynamic obligation not only to write the
relevant procedures and tribunals into law, but also to make sure that those laws are adequately applied
(Philippines' second written submission, para. 559). We note however that this particular meaning of the term
"maintain" is preceded by an indication that that particular meaning is obsolete. We also observe that the
meaning relied on by the Philippines is absent in other authoritative dictionaries. For instance the Black's Law
Dictionary defines "maintain" as "1. to continue (something). 2. to continue in possession of (property, etc)"
Black's Law Dictionary, 7
th ed., B.A. Garner (ed.) (West Group, 1999), p. 965.

(c) Whether the BoA is an independent tribunal within the meaning of Article X:3(b)
(i) Main arguments of the parties
7.998 The Philippines argues that the BoA is independent from the customs administration.
1689 The
Philippines submits that the BoA has been establishe d as a separate entity under Thai law as specific
provisions of the Customs Act gove rn its composition and operations. 1690 While recognizing that the
BoA is composed of agents also acting as customs officials, the Philippines nonetheless considers that
independence for the purpose of Article X:3(b) must be assessed in terms of a tribunal's role and
composition, in the light of all relevant factors.
1691 Specifically, the Philippines refers to the
following factors to support its position: (i) deta iled rules under Thai law on the constitution of the
BoA, including the terms of its members; (ii) th e grounds for their removal; (iii) the number of
members required at formal meetings; and (iv) the designation of a specially assigned secretariat.1692
7.999 The Philippines also points out that Thailand has ad mitted that just because an official held a
dual function did not per se prevent independent behaviour by that official. 1693 Similarly, the fact that
customs agents involved in the customs value de termination also seat as BoA officers does not
suffice, in the Philippines' view, to deny the BoA's independence. The Philippines argues that
Thailand did not provide any other argument to show that the BoA is a dependent authority. Thus, the
Philippines considers that the BoA is the first independent authority to review appeals against customs
decisions taken by the Customs administration.
7.1000 Thailand argues that the BoA is not an independent authority within the meaning of
Article X:3(b). Thailand refers to the Panel's statement in EC – Selected Customs Matters that
"independent" in the context of Article X:3(b) means "free of control or influence from the
administrative agencies whose decisions are the subj ect of review, [so as to act] with freedom in
institutional and practical terms from interferenc e by the agencies whose decisions are being
reviewed".1694 Thailand also uses Article X:3(c) as cont ext for Article X:3(b) to assert that the
tribunals or procedures under Article X:3(b) must be " fully and formally independent".1695 Thailand
argues that the BoA is not "fully or formally" independent from Th ai Customs, in either "institutional
[or] practical terms". 1696 Thailand observes that the BoA is composed almost entirely of Customs
agents.1697 It is therefore not independent from the agency "entrusted with administrative
enforcement" within the meaning of Article X:3(b). Thailand considers, as the Panel in EC – Selected
Customs Matters found, that a "review [by such a dependent entity] would not qualify under
Article X:3(b)". Thailand cites this Panel:
"The Panel understands that, in some WT O Members, administrative action relating
to customs matters may be reviewed by the same administrative authority that

1690 Philippines' first oral statement, para. 23; s econd written submission, para. 550, referring to
sections 112sexies to section 112undevicies of the Customs Act (Exhibit PHL-20).
1691 Philippines' first oral statement, para. 23; response to Panel question No. 146.
1692 Philippines' first oral statement, para. 23, referring to section 112 septies to section 112decies of the
Customs Act (Exhibit PHL-20).
1693 Philippines' second written submission, paras. 551-552. The Philippines refers to Thailand's
argument that dual function TTM directors could exercise both their functions independently.
1694 Panel Report, EC – Selected Customs Matters, para. 7.520.
1695 Thailand's second oral statement, para. 93 (empha sis added). Thailand explains that Article X:3(c)
provides a limited exception to the obligation to maintain independent tribunals, referring to procedures that are
not "fully or formally independent of the agencies entrusted with administrative enforcement".
1696 Thailand's second oral statement, para. 95 ; footnote 123, referring to the Panel Report, EC –
Selected Customs Matters, para. 7.520.
1697 Thailand's first written submission, para. 289.

originally took the action. For example, two of the third parties to this dispute –
namely, Japan and Chinese Taipei – indicated that administrative action may first be
reviewed by the same administrative aut hority that took the action originally … Such
review would not qualify under Article X:3( b) of the GATT 1994 because, in such
cases, the reviewing body is not independe nt of the administrative authority whose
decision is the subject of review".
1698 (emphasis added)
7.1001 Thailand argues that the BoA falls under the description above and, as a result, does not
conduct an independent review of appeals against cu stoms value determinations . As a consequence,
the BoA delays cannot be assessed in the context of Article X:3(b).
(ii) Analysis by the Panel
7.1002 The parties disagree on whether the BoA is an independent tribunal within the meaning of
Article X:3(b). We first recall the Panel's statement in EC – Selected Customs Matters that
"independent" in the context of Article X:3(b) means "free of control or influence from the
administrative agencies whose decisions are the subj ect of review, [so as to act] with freedom in
institutional and practical terms from interferenc e by the agencies whose decisions are being
reviewed".1699
7.1003 The legal authority for the BoA is set forth in Section 112 of the Thai Customs Act.
Section 112sexies provides that the importer or the exporter shall have the right to appeal against the
duty assessment of the competent officer to the BoA. The BoA, headed by DG Customs as chairman,
comprises a representative from the Ministry of Fina nce, a representative from the Office of Juridical
Council, and five to seven members appointed by DG Customs. It is also provided that the BoA shall
appoint a civil servant attached to the Customs De partment as secretary and as assistance secretary,
and that the secretary shall be a committee member as well. 1700 DG Customs, as chairman of the
BoA, may vote and exercise the deciding vote in case of a tie in a given appeal.1701
7.1004 The BoA is therefore at least partly staffed with agents from the Customs Department with
the possibility that some of those agents might be involved in deciding customs determinations that
are subject to the BoA's review. This means that mo st of the agents in charge of reviewing customs
decisions are those involved in taking the very custom s decisions that are the subject of review by the
BoA. The specific aspects of the BoA as descri bed above therefore show a close link between
customs officials making decisions on customs matters and the BoA – the entity reviewing such
decisions. As recalled above, for tribunals or pro cedures to be independent of the agencies entrusted
with administrative enforcement, they should be " free of control or influence from the administrative
agencies whose decisions are the subject of review". The characteristics of the BoA, in particular, its
composition, in our view are insufficient for it to be considered free of control or influence from the
Thai Customs Department – the Thai agency entr usted with customs determinations – within the
meaning of Article X:3(b).
7.1005 In this relation, as the Panel in EC – Selected Customs Matters noted, some Members require
an initial appeal of an administrative action relating to customs matters to be made to an authority
within the agency entrusted with enforcement pr ior to an independent body and/or a judicial

1698 Philippines' first written submission, para. 288, citing Panel Report, EC – Selected Customs
Matters, footnote 894.
1699 Panel Report, EC – Selected Customs Matters, para. 7.520.
1700 section 112septies of the Customs Act (Exhibit PHL-20).
1701 section 112decies of the Customs Act (Exhibit PHL-20).

authority.
1702 In the context of the Philippines' claim under Article X:3(b) here, our analysis is
confined to the question of whether the BoA is i ndependent within the meaning of Article X:3(b).
This question therefore does not relate to the issue of whether a non-independent authority within the
agency entrusted with enforcement can provide for an objective review within the meaning of
Article X:3(b). We note Thailand's argument that under the above standard, the BoA is not an
independent tribunal, but rather constitutes an ad ministrative tribunal for the purpose of the initial
review of the administrative action, as envisaged by the Panel in EC – Selected Customs Matters.1703
7.1006 For the foregoing reasons, we conclude that the BoA cannot be considered as a tribunal
independent of the agencies entrusted with admi nistrative enforcement within the meaning of
Article X:3(b).
(d) Whether an independent tribunal or procedure ma intained by Thailand within the meaning of
Article X:3(b) provides for the prompt review of customs value determinations
(i) Main arguments of the parties
7.1007 The Philippines submits that, even if the BoA is not considered an independent entity, the
Thai procedures for the review of customs decisions are still not "prompt" under Article X:3(b). 1704
The Philippines argues that Article X:3(b) requires the Panel to evaluate how much time is necessary
after the administrative decision subject to appeal is taken for an appeal against this decision to be
heard by an independent authority.1705 Should interposing administrative steps be necessary to have
the decision reviewed by an independent authority, then the duration of those interposing steps would
have to be taken into account. 1706 Under Thai law, the Tax Court can only exercise jurisdiction after
any applicable appeal pro cedures have been exhausted. 1707 As Section 112 sexies of the Customs Act
provides for such an appeal of assessments of cu stoms value to the BoA, the BoA review of the
appeals is a necessary interposing step between the administrative decision and the first review by an
independent tribunal, the Tax Court. The Phili ppines argues that as a consequence, the delays
triggered by the BoA review must be fully take n into account when examining whether Thailand
maintains a prompt review mechanism for customs decisions within the meaning of Article X:3(b).
1708
7.1008 The Philippines argues that th e BoA has been reviewing [[xx.xxx.xx]] appeals against
customs value decisions on PM Thailand cigarettes for more than seven years. 1709 The Philippines
underlines that in Colombia – Ports of Entry , the Panel held that a two-year review process involved

1702 In fact, Article 11.2 of the Customs Valuation Agreement provides that an initial right of appeal
without penalty may be to an authority within the customs administration or to an independent body although
the legislation of each Member must provide for the right of appeal without penalty to a judicial authority. The
panel in EC – Selected Customs Matters noted in this regard as follows:
"The Panel understands that, in some WTO Members, administrative action relating to
customs matters may be reviewed by the same administrative authority that originally took the
action. ... Such review would not qualify under Article X:3(b) of th e GATT 1994 because, in
such case, the reviewing body is not independent of the administrative authority whose
decision is the subject of review." (footnote 894)
1703 Thailand's second written submission, para. 224, referring to Panel Report, EC – Selected Customs
Matters, para. 7.520.
1704 Philippines' response to Panel question No. 84.
1705 Philippines' comments on Thailand's response to Panel question Nos. 149 and 169.
1706 Philippines' response to Panel question No. 149.
1707 Philippines' response to Panel question No. 149; Exhibit PHL-281.
1708 Philippines' comments on Thailand's response to Panel question Nos. 149 and 169.

"a lengthy delay".1710 In this regard, a 7-year delay is not prompt within the meaning of Article X:3(b)
since it is neither "ready, quick ,... performed without delay, [or] immediate".1711
7.1009 Thailand submits that to the extent that the firs t independent court within the meaning of
Article X:3(b) is the Tax Court 1712, the interposing administrative steps between the initial
administrative decision (here the customs value decision) and the first review by an independent court
(here the tax court) may not be taken into account towards fulfilling the requirements under
Article X:3(b). This is because non-independent interposing steps qualify as administration of the
customs laws, and are therefore governed by Article X:3(a). Article X:3(b) on the other hand applies
only to independent review procedures. 1713 The only delays which can be assessed under
Article X:3(b) are therefore those which separate the last non-independent administrative decision
(here the BoA order) from the first independent review procedure (here the Tax Court decision).
(ii) Analysis by the Panel
7.1010 We concluded in the previous section that the BoA is not an independent tribunal within the
meaning of Article X:3(b). The parties agree that if the BoA is not found to be an independent
tribunal, it is the Thai Tax Court that is the firs t independent authority to review customs decisions
under the Thai system. 1714 In this section, we will examine whether the Thai Tax Court, as an
independent tribunal or procedure within the meaning of Article X:3(b), provides for the prompt
review of customs value determinations consistently with the obligations under Article X:3(b).
7.1011 The term "prompt" can be defined as " adjective. 2 Of action, speech, etc.: ready, quick; done,
performed, etc., without delay". 1715 Article X:3(b) requires that Members maintain or institute
independent tribunals or procedures for the pur pose of the prompt review and correction of
administrative action relating to customs matters. We understand that Article X:3(b) purports to
ensure that Members maintain a revi ew system that can provide for the prompt redress of adverse
impacts caused by administrative actions on traders. Therefore, the review of administrative actions
relating to customs matters by an independent tribuna l or process must be considered in the light of a
given review system in its entirety from the mo ment when the process required to reach such a
tribunal or procedure commences until the review by the independent tribunal or process is
completed. This means that any interposing ad ministrative steps between the initial administrative
decision and the first review by an independent trib unal must also be taken into account in assessing
the fulfilment of the promptness requirement under Article X:3(b). As such, a violation of
Article X:3(b) will be found if the process that a Member maintains for review of administrative
actions relating to customs matters, when viewed in its entirety, presents a flaw that systemically
prevents such actions from being reviewed by an inde pendent tribunal without delay. In this regard,
as noted in paragraph 7.1014 below, by stating that we need to consider a Member's review system in
its entirety, including any interposing administrative steps, we do not mean that the existence of
interposing steps prior to an independent review in itself constitutes a systemic flaw that prevents the
concerned Member from maintaining procedures for the prompt review of administrative actions
under Article X:3(b). Bearing this in mind, we will review the review system maintained by Thailand
for the purpose of Article X:3(b).

1710 Philippines' first oral statement, para. 26, referring to Panel Report, Colombia – Ports of Entry ,
para. 7.128.
1711 Philippines' second written submission, para. 553, referring to Oxford English Dictionary , J.A.
Simpson and E.S.C. Weiner (eds.) (Clarendon Press, 1989, 2nd ed.).
1712 Thailand's response to Panel question No. 148.
1713 Thailand's response to Panel question Nos. 84 and 149.
1714 The parties' responses to Panel question No. 148.
1715 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford Univ ersity Press, Vol. II, p.
2366 (2002).

7.1012 Under Thai law, specifically according to Secti on 7(1) and Section 8 of the Act of the Tax
Court, the Tax Court can review an appeal against an administrative decision only once any
applicable internal appeal pr ocedures have been exhausted.
1716 Concerning customs valuation
decisions, Section 112 sexies of the Customs Act provides for the right of appeal against customs
officials' decisions to the BoA. This means th at the Tax Court cannot re view an appeal against
customs decisions unless an importer first brought the customs decision to the BoA.
7.1013 The Philippines argues that as importers are unable to seek review by the Tax Court until they
have exhausted the review process at the BoA, wh ich the Philippines alleges is unjustifiably slow,
Thailand fails to maintain procedures for prompt review and correction of action by Thai Customs.1717
Thailand submits that because Article X:3(b) app lies only to independent review, interposing steps
prior to independent review ca nnot be taken into account in de termining whether a WTO Member
complies with its obligation under Article X:3(b) to maintain independent tribunals or procedures for
prompt review and correction of administ rative action relating to customs matters. 1718 In Thailand's
view, interposing steps leading to independent review are subject to the disciplines of Article X:3(a).
7.1014 As noted above in paragraph 7.1005, Member s may have a system under which an initial
appeal of an administrative action must be made to an authority within th e agency entrusted with
enforcement prior to an independent body. We do not therefore consider that the existence of
interposing steps prior to an independent review in itself is a systemic flaw that prevents Thailand
from maintaining procedures for the prompt review of administrative actions under Article X:3(b).
7.1015 However, under the factual circumstances of the current dispute, the delays caused in the BoA
appeal process concerning the [[xx.xxx.xx]] claims brought by PM Thailand clearly illustrate that the
interposing process leading to the review by the Thai Tax Court has the systemic capacity to impede a
prompt review by an independent tribunal of admini strative actions. As we found above, whether the
review process maintained by a Member under Article X:3(b) is prompt or not requires the scrutiny of
the entirety of the review process from the moment an administrative action is taken until the review
by an independent tribunal is completed. We do not consider the review system maintained by
Thailand, when considered in its entirety in the light of the factual circumstances as presented to us, to
be prompt within the meaning of Article X:3(b). In our view, the excessive delays that have been
caused in the [[xx.xxx.xx]] appeals before the BoA (the prerequisite step necessary to even reach the
Thai Tax Court) are so significant in terms of their duration and frequency that these specific
instances can be considered as an indication of the ca pacity for delays in the system. Therefore, we
conclude that Thailand failed to maintain an inde pendent tribunal for the prompt review of customs
value determinations inconsistently with Article X:3(b).

1716 Exhibit PHL-281; Philippines' response to Panel question No. 149.
section 7(1) of the Act of the Tax Court provides:
"The tax courts have jurisdiction over the following civil matters: (1) Cases in respect of
appeals against any decision of the competen t official or the committee relating to any
taxation law; ..."
section 8 of the Act of the Tax Court then provides:
"In the case specified in section 7(1), where taxa tion law provided that an objection or appeal
against a competent official or committee shall be initially proceeded under the prescribed
rules, methods and period, the case may be submitted to the tax court unless such proceeding
has been performed and that objection or appeal has already decides."
1717 Philippines' first oral statement, para. 28; response to Panel question No. 149.
1718 Thailand's response to Panel question No. 149.

2. Appeals against the guarantee decisions
(a) Introduction
7.1016 The Philippines claims that Thailand violates Article X:3(b) of the GATT 1994 by failing to
maintain or institute tribunals or procedur es for the purpose of the prompt review of guarantees
imposed by Thai Customs on imported cigarettes. 1719 Thailand argues that a decision to impose a
guarantee does not constitute an "administrative action relating to customs matters" within the
meaning of Article X:3(b) and, even if they fall within the scope of Article X:3(b), Thailand is
complying with the obligations under Article X:3(b) because a prompt appeal against guarantees is
available before the Thai Tax Court.
7.1017 Section 112 of the Thai Customs Act authori zes customs officials to proceed to further
examination when they have doubts as to the amount of duty applicable to one specific good.
1720 In
those cases, the customs officers may release the goods pending de termination provided that the
importer pays "the amount of the duty declared in th e entry by the importer or the exporter [and], as
the case may be, ... an additional sum of mone y covering the maximum duty payable on the
goods".1721 In situations where an importer is required to provide a guarantee, in ternal taxes such as
VAT, excise, health and television taxes will also be calculated on the basis of such a guarantee.1722
7.1018 As explained in the previous section, in orde r to establish a violation of Article X:3(b) a
complainant must show that the respondent member has not maintained or instituted tribunals or
procedures, independent from the agency entrus ted with administrative enforcement of customs
matters, for the purpose of the prompt review and co rrection of such administrative actions. In the
present dispute, the parties' arguments concerning the Philippines' claim with respect to the imposition
of a guarantee raises the following two issues: first, whether the imposition of a guarantee falls within
the scope of "administrative action relating to cu stoms matters" under Article X:3(b); second, if so,
whether Thailand maintains or instituted tribunals or procedures for prompt review and correction of
the amount of a guarantee imposed by Thai Customs. We will address these two issues in turn.
(b) Whether the imposition of a guarantee falls within the scope of "administrative action relating
to customs matters" under Article X:3(b)
(i) Main arguments of the parties
7.1019 The Philippines argues that the imposition of a guarantee is, in itself, an "administrative
action" within the meaning of Article X:3(b), and that Thailand admits this. 1723 The Philippines

1720 Exhibit PHL-20.
1721 Exhibit PHL-20.
1722 Philippines' first written submission, para. 102; Thailand's first written submission, paras. 39-43.
The excise, health and television taxes are set out in the Tobacco Act (Exhibit PHL-119), the Health Promotion
Foundation Act (Exhibits PHL-121 and THA-33) and the Television and Public Broadcasting Act
(Exhibit PHL-122). section 5 ter of the Tobacco Act provides that "i n the case of cut tobacco or tobacco
imported into the Kingdom, c.i.f. prices of the cut tobacco or tobacco plus duties on imports, differential duty in
accordance with the law governing inve stment promotion and other taxes an d fees to be specified by royal
decree, excluding value added tax specified in Chapter 4, Title 2 of the Revenue Code." section 11 of the
Health Promotion Act states that the Health tax shall be 2% of the Excise Tax. section 12 of the Thai
Broadcasting Act establishes the TV tax at 1.5% of the Excise Tax.
1723 Philippines' comments on Thailand's response to Panel question No. 167, referring to Thailand's
first written submission, para. 296, stating that "Article 42 of Thailand's Act on Establishment of Administrative
Court and Administrative Court Procedures, BE 2542 (1999) provides a right to challenge all Thai government
administrative actions, that fall under Article 9, including orders requiring guarantees. " Article 9 states in

considers that guarantee decisions are distinct prejudi cial acts, not merely intermediary steps towards
final customs determinations. In this regard, the Philippines relies on the Panel's statement in
Colombia – Ports of Entry that "'payment of [customs duties]' and 'guarantee' are two different legal
concepts that may not be equated lightly. This is true irrespective of the form that the guarantee may
take".
1724
7.1020 The Philippines considers that a guarantee order constitutes a complete and final act having
adverse effects on traders, and that it is not merely an intermediary step towards the final customs
determination.1725 The Philippines emphasizes that guarantee decisions entail immediate and
independent financial consequences. 1726 The Philippines underlines that the amount of guarantees
required by Thai Customs for the import of cigarette s is substantial and often excessive compared to
the value of the imported goods. Hence, the effectiv e excise tax rate is 400per cent, which means that
for every baht of uplifted guarantee value, the importer must post a 4-baht guarantee. 1727 I n t h i s
manner, the guarantee amount initially required from PM Thailand was estimated at US$[[xx.xxx.xx]]
million in 2006. Therefore, guarantee decisions pot entially bear two prejudicial consequences: (i)
they immobilize capital or cash which coul d have otherwise been productively employed 1728; or (ii) in
the most severe cases, they dissuade importations altogether, as in August 2006 when PM Thailand
refused to clear goods until guara ntees were revised downwards. 1729 This shows that guarantee
decisions themselves impose a burden on the importer, which is independent from the final customs
determination. They therefore constitute final administrative actions within the meaning of
Article X:3(b), which commends that a separate appeal against them be available to the importer.1730
7.1021 Moreover, in any event, in the Philippines' view, the scope of Article X:3(b) is not restricted
to final administrative acts. Rather, it covers all administrative action related to customs matters,
which "on its face, could capture any type of administrative action" not just final action.1731
7.1022 Thailand submits that administrative decisions to require a guarantee do not constitute an
"administrative action" within the meaning of Article X:3(b) because those decisions are only
administrative steps of a provisional nature towards the final determination of customs value. 1732
According to Thailand, Article X:3(b) requires only final determinations to be subjected to appeal.
7.1023 Thailand argues that Article 11.1 of the Cust oms Valuation Agreement, which serves as lex
specialis to Article X:3(b) concerning customs matters, makes it clear that Members must provide

relevant part: [The] administrative court has competence to try and adjudicate or give orders over the following
matters: ... (2) the case involving a dispute in relation to an administrative agen cy or official neglecting official
duties required by the law to be performed or performing such duties with unreasonable delay; (3) the case
involving a wrongful act or other liabilities of an administrative agency or State official arising from the
exercise of power under the law or from a law, administrative order or other orders, or from the neglect of
official duties required by the law to be performed or the performance of such duties with unreasonable delay.
Exhibit THA-34.
1724 Philippines' second written submission, pa ra. 293, referring to the Panel Report, Colombia – Ports
of Entry, para. 7.88.
1725 Philippines' combined response to Panel question Nos. 87 and 89. The Philippines also uses the
language "final manifestation of the application of a law to a particular case" as the Panel states in EC – Selected
Customs Matters, para. 7.105.
1726 Philippines' combined responses to Panel question Nos. 87 and 89.
1729 Philippines' combined responses to Panel question Nos. 87 and 89.
1730 Philippines response to Panel question Nos. 87 and 89, referring to the Panel Report, EC – Selected
Customs Matters, para. 7.536.
1731 Philippines' response to Panel question Nos. 87 and 89.
1732 Thailand's first written submission, para. 298; response to Panel question No. 89; second written
submission, para. 239.

appeal procedures against final customs determinati ons only. Article 11.1 does not require that an
appeal be available against intermediary decisi ons taken in the process of determining the final
customs value.1733 Article 11.1 therefore implicitly restricts the scope of Article X:3(b). By the same
token, Thailand notes that Article 13 of the Anti- Dumping Agreement, which applies Article X:3(b)
in the anti-dumping context, establishes that prompt appeal shall be available against final duty
determinations only.1734 A contrario, Article 13 of Customs Valuation Agreement, which specifically
deals with guarantees in the customs context, does not mention a right to appeal.1735 Finally, Thailand
refers to the Appellate Body's finding in US – Shrimp (Thailand)/US – Customs Directive that
"generally speaking a security is accessory or anc illary to the principal obligation that it guarantees
[and is] intrinsically linked to that obligation". 1736 Given their provisional and ancillary nature, the
decisions to impose guarantees on imports of ciga rettes do not constitute "administrative action"
under Article X:3(b), and there is no obligation to provide for their prompt review.
7.1024 The Philippines contends that Article 11.1 of the Customs Valuation Agreement cannot serve
as lex specialis to Article X:3(b) of the GATT 1994 as both provisions can be applied together in a
harmonious manner. There is no conflict between th e right to appeal a determination of customs
value under Article 11.1 of the Customs Valuation Ag reement and the right to a prompt review of
administrative actions relating to customs matters under Article X:3(b) of the GATT 1994 and
therefore Members must provide both rights. 1737 Further, the Philippin es considers that Thailand's
reference to Article 13 of the Anti-Dumping Agreement is not convincing as this Article expressly
restricts its scope to final determinations, while Article X:3(b) adopts the wider notion of
"administrative action relating to customs matters".
(ii) Analysis by the Panel
7.1025 The Philippines' claim under Article X:3(b) with respect to the alleged absence of a right to
appeal against the amount of a guarantee in Thailand , presents us with the initial question of whether
the guarantee decisions fall within the scope of an "administrative action relating to customs matters"
under Article X:3(b). We will begin our analysis by examining the term "administrative action
relating to customs matters".
7.1026 The word "action" can be defined as "the pr ocess or condition of acting or doing ... a thing
done, a deed, an act". 1738 The ordinary meaning of the term "action" indicates that its scope includes
not only an act or thing done, but also the process or condition of acting or doing. The term
"administrative" means "pertaining to the management of affairs; executive".
1739 We also noted
earlier in the context of Article X:3(a) that the term "administer" in Article X:3(a) means "putting into
practical effect", or "applying", a legal instrument. 1740 The scope of the term "administrative action"
therefore appears to cover a broad range of acts as well as the process of applying legal instruments.
7.1027 Taken together with the subsequent term in Ar ticle X:3(b) "customs matters", "administrative
action relating to customs matters" would mean an act or the process of applying legal instruments
pertaining to customs matters. Although the Custom s Valuation Agreement does not define the term
"customs matters", the Black's Law Dictionary de fines "customs" as "duties imposed on imports or

1733 Thailand's first written submission, para. 299.
1734 Thailand's response to Panel question No. 89.
1735 Thailand's first written submission, para. 299.
1736 Appellate Body Report, US – Shrimp (Thailand)/US – Customs Bond, para. 231.
1737 Philippines' second written submission, paras. 305-309.
1738 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford Univer sity Press, Vol. I, p. 22
(2002).
1739 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford Univer sity Press, Vol. I, p. 28
(2002).
1740 See para. 7.870.

exports. The agency or procedure for collecting such duties".
1741 The Revised Kyoto Convention on
the simplification and harmonisation of customs pr ocedures defines "customs matters" as all actions
by customs authorities "relating to the importati on, exportation, movement or storage of goods". 1742
Furthermore, Article X:1 of the GATT 1994, while not directly mentioning customs matters, sets out
various trade regulations that may fall under the scope of Article X, for example, by referring to the
classification or the valuation of goods for customs purpose as well as rates of duty.
7.1028 We also recall that, in the context of an Ar ticle XX of the GATT 1994 analysis, the Appellate
Body clarified the term "related to" as meaning th at a rational relationship must exist between the
measure and the objective pursued. In US – Shrimp , the Appellate Body stated that a measure was
related to the conservation of natural resources when it "was not disproportionately wide in its scope
and reach in relation to [its] policy objective. Th e means and end relationship [between the measure
and the objective was] observably a close and real one".
1743 This suggests that all administrative
actions that have a rational relationship to cust oms matters can be considered as "administrative
actions relating to customs matters".
7.1029 The above considerations as a whole suggest th at "administrative action relating to customs
matters" in Article X:3(b) of the GATT 1994 include s a wide range of acts applying legal instruments
having a rational relationship with cu stoms matters, which clearly includes valuation of goods being
imported.
7.1030 We further note that the underlying objective of Article X:3(b) is the preservation of due
process rights for affected parties.1744 The panel in EC – Selected Customs Matters stated:
"[A] due process theme underlies Article X of the GATT 1994. In the Panel's view,
this theme suggests that an aim of the revi ew provided for under Article X:3(b) of the
GATT 1994 is to ensure that a trader who has been adversely affected by a decision
of an administrative agency has the ability to have that adverse decision
reviewed."1745
7.1031 The Appellate Body in the same dispute also stated:
"We believe this due process objective is not undermined even if first instance review
decisions do not govern the practice of all the agencies entrusted with customs
enforcement throughout the territory of a WTO Member, so long as there is a
possibility of an independent review and correction of the administrative action of
every agency."
1746
7.1032 These findings by the Panel and the Appellate Body in EC – Selected Customs Matters help
to support the view that the object and purpose of Article X:3(b) is broad and covers a wide range of
actions by domestic administrative agencies concerning customs matters.
7.1033 In this regard, we note the parties' disagreem ent on whether the scope of "administrative
action" under Article X:3(b) includes only final administrative actions, as opposed to intermediary

1741 Black's Law Dictionary, 7th ed., B.A. Garner (ed.) (West Group, 1999), p. 390.
1742 Kyoto Convention on the Simplification and Harmonisation of Customs Procedures, Chapters 2
and 10 of the General Annex.
1744 Panel Report, EC – Selected Customs Matters, para. 7.536.
1745 Panel Report, EC – Selected Customs Matters , para. 7.536. See also Appellate Body Report, US –
Shrimp, para.183: "It is also clear to us that Article X:3 of the GATT 1994 establishes certain minimum
standards for transparency and procedural fairness in the administration of trade regulations".
1746 Appellate Body Report, EC – Selected Customs Matters, para. 302.

steps leading to a final administrative action. Th e broad scope of the term "administrative action"
under Article X:3(b) as discussed above, however, does not appear to confine "administrative action"
to final administrative actions. Taking into account in particular, the due process principle as
underlined by the Panel in EC – Selected Customs Matters , we are of the view that if a certain
administrative action can cause a direct and immediat e impact on an individual trader, the trader
should be able to have the concerned action reviewed and, as necessary, corrected by an independent
body as envisaged under Article X:3(b). If only final administrative actions were to fall within the
scope of "administrative action" under Article X:3(b), as advocated by Thailand, Article X:3(b) would
not be able to fully serve its intended purpose of providing a mechanism through which traders can
seek review and, if necessary, appropriate correction of administrative actions that are not necessarily
final, but nonetheless have immediate adverse impact on traders.
7.1034 Further, the absence of the word "final" precedi ng "administrative action" in Article X:3(b)
would also tend to manifest the drafters' intention to have the obligations under Article X:3(b) applied
to a broad range of "administrative action pertaini ng to customs matters" and that this administrative
action is not necessarily confined to final admini strative actions. For example, Article 13 of the
Customs Valuation Agreement states, "if, in the course of determining the customs value of imported
goods, it becomes necessary to delay the final determination of such customs value, the importer of
the goods shall nevertheless be able to withdraw them from customs if where so required the importer
provides sufficient guarantee". This shows that when the drafters intended to distinguish final actions
or determinations from provisional actions or determinations, they did specifically add the term
"final".
7.1035 At the same time, however, we can think of a situation where the provisional characteristic of
an administrative action or determination would render such an action or determination to fall outside
the scope of Article X:3(b). For example, this woul d be the case if subjecting the concerned action or
determination to an independent review would result in unduly interfering with a domestic agency's
decision-making process mainly due to the provisiona l nature of the action. In this connection,
therefore, we must underscore that our mandate for the purpose of resolving this particular dispute is
not to define the precise types of the measures falling under Article X:3(b).1747 It is sufficient for us to
clarify that the term "administrative action relatin g to customs matters" in Article X:3(b) is not
necessarily limited to final administrative determinations where the so-called intermediary actions
taken prior to final determinations result in an immediate adverse affect on traders.1748
7.1036 Certain third parties appear to share the sa me view. For example, the European Union
considers that an appeal should be provided agains t all acts by the customs administration which have
a direct and material effect on the importer su ch as, for instance, the actual collection of a
guarantee.1749 The United States considers that as Article X:3(b) requires Members to provide for
review only of, first, "administrative action" and, second, "relating to customs matters", the extent to

1747 We agree with the United States' view in this relation that the Panel need not identify each
intermediate step in the customs valuation process as to which an independent right to appeal should exist.
(Unites States' response to Panel question No. 16).
1748 We recall the Appellate Body's consideration in US – Shrimp (Thailand)/US – Customs Bond
Directive that under certain circumstances a security take n for guaranteeing the payment of a lawfully
established duty may constitute "specific action against dumping. In relevant part, the Appellate Body states:
"We do not, however, consider that a security taken for guaranteeing the payment of a
lawfully established duty liability would n ecessarily constitute a specific action against
dumping"; rather, whether a particular security constitutes a "specific action against dumping"
should be evaluated in the light of the nature and characteristics of the security and the
particular circumstances in which it is applied. We wish to emphasize that, in any event, an
impermissible specific action agai nst dumping cannot be taken in the guise of a security."
(Appellate Body Report, US – Shrimp (Thailand)/ US – Customs Bond Directive, para. 230).
1749 European Union's response to Panel question No. 16.

which an intermediate step in the valuation pro cess gives rise to the right to appeal depends on
whether it is such an action.
1750 The United States also points out that the meaning of "administrative
action relating to customs matters" should not be equa ted with "a determination of customs value" in
Article 11 of the Customs Valuation Agreement that sets out an obligation to provide for an appeal of
the determination of customs value.1751
7.1037 We will now turn to the question of whet her the imposition of a guarantee is an
"administrative action relating to customs matters" under Article X:3(b). The concept of "guarantee"
in relation to customs valuation is referred to in Article 13 of the Customs Valuation Agreement:
"If, in the course of determining the customs value of imported goods, it becomes
necessary to delay the final determination of such customs value, the importer of the
goods shall nevertheless be able to wit hdraw them from customs if, where so
required, the importer provides sufficient guarantee in the form of a surety, a deposit
or some other appropriate instrument, covering the ultimate payment of customs
duties for which the goods may be liable. The legislation of each Member shall make
provisions for such circumstances."
1752 (italics added)
7.1038 The Philippines submits that the imposition of a guarantee is, in itself, an "administrative
action" within the meaning of Article X:3(b). The Philippines considers that the imposition of a
guarantee is a distinct prejudicial act, not merely an intermediary step towards the final customs
determination as it is the culmination of an admi nistrative process, the final manifestation of the
application of a law in a particular case. The Philippines is of the view that although a guarantee
order is not the final determination of a customs va lue, it is the final determination of a guarantee.
Thailand takes the position that the decision to impose a guarantee on imported cigarettes does not
constitute an "administrative action" within the m eaning of Article X:3(b) because that decision is
only administrative step of a provisional nature towards the final determination of a customs value.
7.1039 We will first examine the nature of a guarantee im posed in the context of customs valuation.
The determination to impose a guarantee under Article 13 of the Customs Valuation Agreement is not
a mandatory procedural step that needs to be taken to arrive at a final customs value. Rather, as the
text of Article 13 stipulates, a guarantee is a tool in the form of a surety or a deposit that enables
importers to withdraw their goods from customs wh en it becomes necessary for a customs office to
delay the final determination of the customs value of the imported goods. A guarantee should also be
sufficient to cover the ultimate cust oms duties for which the goods may be liable. In this context, we
consider that the imposition of a guarantee is a dis tinct decision purported to play a specific role,
namely to secure the payment of final customs duty. We find helpful the Appellate Body's statement
in US – Customs Bond Directive/US – Shrimp (Thailand ) in understanding the specific purpose of a
guarantee:
"As in many other cases in customs administration, a Member may require reasonable
security (bond or cash deposit) for the payment of anti-dumping or countervailing
duty pending final determination of the facts in any case of suspected dumping or
subsidization." In this connection, the Appe llate Body explains the nature of security
as follows: '[t]he Ad Note also suggests that the reas onable security envisaged by it
fulfils the same function as the securities taken 'in many other cases in customs
administration'. ...in most other cases in customs administration, security is required

1750 United States' response to Panel question No. 16.
1751 United States' third party oral statement, para. 20.
1752 The Black's Law Dictionary defines "guarantee" as "something given or existing as security, such
as to fulfil a future engagement or a condition subsequent." Black's Law Dictionary , 7th ed., B.A. Garner (ed.)
(West Group, 1999), p. 711.

upon entry of merchandise when there is some uncertainty about the actual amount of
liability that may be lawfully owed by the importer . Such a security is intended to
provide a protection against the non-payment risk that might arise from the difference
between the amount collected at the time of importation and the liability that may be
finally determined."1753 (emphasis added)
7.1040 Overall, we consider that the imposition of a guarantee in the context of the customs valuation
process is a decision that is intended to serve the distinct purpose of securing the payment of the
ultimate actual amount of customs duty pending final determination by customs.
7.1041 We recall our clarification above that the term "administrative action pertaining to customs
matters" in Article X:3(b) includes a wide ra nge of administrative actions having a rational
relationship with customs matters, including the valuation of goods being imported. In our view,
therefore, a customs administration's guarantee decision under the circumstances as stipulated in
Article 13 of the Customs Valuation Agreement falls within the scope of "administrative action
pertaining to customs matters" as a guarantee indeed has a rational relationship with the valuation of
imported goods.
1754 The fact that the imposition of a guarantee is not the final determination of a
customs value of a good does not affect this understanding because, as explained above, a guarantee is
a distinct decision by customs that is intended to secure the payment of a final customs duty for which
an importer will ultimately be liable.
7.1042 Furthermore, we observed above that the purpo se and objective of Article X:3(b) highlights
the view that "administrative actions" under Ar ticle X:3(b) should cover the acts by domestic
agencies, which have an immediate adverse imp act on importers and expor ters. To establish the
direct adverse effect resulting from the imposition of an excessive guarantee value, the Philippines
presents situations where the amount of a guarant ee imposed an immediate financial burden on the
importer because posting guarantees entailed bank fees and collateral instruments. Cash guarantees
represent capital that the importer could have used otherwise. For the years 2006, 2007 and 2008, for
example, PM Thailand posted US$[[xx.xxx. xx]] million, US$[[xx.xxx.xx]] million and
US$[[xx.xxx.xx]] million respectively as guarantees. 1755 The Philippines also refers to the instance in
2006 where PM Thailand had been unable to comply with Thai Customs' decision to impose a
US$[[xx.xxx.xx]] million as a guarantee.
1756 PM Thailand had to wait until those guarantees were
revised downwards to clear its goods.1757

1753 Appellate Body Report, US – Shrimp (Thailand) / US – Customs Bond Directive, para. 221.
1754 Regarding the relationship between the determination of a final customs value and the
determination of a guarantee, we note the Appellate Body's following statement in US – Customs Bond
Directive/US – Shrimp (Thailand):
"Generally speaking, a security is accessory or ancillary to the princi pal obligation that it
guarantees. A security that is taken to guarantee the obligation to pay anti-dumping or
countervailing duties is intrinsically linked to that obligation. Thus, taking security for the full
and final payment of duties should be viewed as a component of the imposition and collection
of anti-dumping or countervailing duties. Th erefore, a reasonable security taken in
accordance with the Ad Note for potential additional anti-dumping duty liability does not
necessarily, in and of itself, constitutes a fourth autonomous category of response to
dumping."
(Appellate Body Report, US – Customs Bond Directive/US – Shrimp (Thailand), para. 231).
1755 Philippines first written submission, paras. 103-104.
1756 Philippines' combined response to Panel ques tion Nos. 87 and 89; second written submission,
para. 295. This corresponds to guarantees placed at a level which was, respectively, 344 and 265 per cent higher
than the declared transaction value for Marlboro and L&M.
1757 Philippines' combined response to Panel question Nos. 87 and 89.

7.1043 According to the Philippines, therefore, under the most extreme situation, the imposition of an
excessive guarantee may dissuade the importer from importing altogether, which would constitute a
considerable commercial loss.
1758 The Philippines argues that in the absence of an appeal against
guarantee decisions, this loss cannot be compensated. We also understand that there is no refund
mechanism for VAT if it is calculated based on a gua rantee that is subsequently determined to be
higher than the final customs duty. The evidence before us as a whole therefore shows that a
guarantee can cause an immediate commercially a dverse impact on importers by imposing on
importers a burdensome financial obligation if the level of a guarantee is excessive compared to the
value of the imported good concerned.
7.1044 Thailand however takes the position that there are very strong policy reasons why appeals
should not be provided against intermediate determinations such as guarantee decisions. In Thailand's
view, this would annul the importer's right to w ithdraw his goods pending the determination of the
final customs value and would modify the Thai system of administration by giving the prerogative to
determine this customs value to the courts rather than to the customs administration. The Philippines
argues that the policy reasons put forward by Tha iland are insufficient because providing a right of
appeal against guarantee decisions would only ensure that the rights of the importer are protected
through the customs procedures.
1759
7.1045 In our view, providing importers with a right of appeal against guarantee decisions would not
infringe upon their right to withdraw the goods pend ing final determination of customs values. As
pointed out by the Philippines above, on the contrary, the right of appeal provided under
Article X:3(b) will ensure that in a situation wher e an importer cannot withdraw the goods due to an
excessive amount of a guarantee imposed, the importer can have the guarantee at issue reviewed and,
if necessary, revised downwards so as to be able to withdraw the goods by providing the required
guarantee. In any event, we do not see how a ri ght of appeal against guarantee decisions would
"annul" the importers' right to withdraw the goo ds unless it somehow deprives the importer of the
discretion either to choose to pay the guarantee a nd withdraw the goods or to appeal against the
guarantee even if that would mean a delay in the withdrawal of the goods pending the appeal process.
7.1046 Thailand further submits that, even if guarant ee decisions constitute an administrative action
pertaining to customs matters under Article X:3(b), there is no obligation to provide a possibility of
appeal to the importer because Article 11.1 of the Customs Valuation Agreement, which lays down an
obligation to provide for a right to appeal against "a determination of customs value", should be read
as lex specialis to Article X:3(b) in customs value matte rs. Accordingly, Article 11.1 specifies the
requirements in Article X:3(b) such that only final determinations of customs value, not intermediate
steps towards those decisions, would be subject to appeal. Likewise, Article X:3(b) should be
interpreted in the light of Article 13 of the Anti- Dumping Agreement which restricts the obligation to
provide prompt review against administrative action to final duty determinations.
7.1047 The lex specialis principle has been defined by the International Law Commission ("ILC") as
"a generally accepted technique of interpretation a nd conflict resolution in international law. It
suggests that whenever two or more norms deal with the same subject matter, priority should be given
to the norm that is more specific".
1760 It is our understanding that Thailand's lex specialis argument

1758 Philippines' second written submission, paras. 294-295.
1759 Philippines' second written submission, paras. 294-295.
1760 Report of the International Law Commission, Fifty-eighth session (1 May-9 June and 3 July-11
August 2006) General Assembly Official Records Sixty-first session Supplement No. 10 (A/61/10), p 408.
(Italics added) As an illustration, the ILC refers to two decisions. It first referred to the in Bankovic v. Belgium
and others by the European Court of Human Rights, which held that "the Convention [here the specific law]
should be interpreted as far as possible in harmony with other principles of international law [here the general
law] of which it forms part" (ECHR, Bankovic v. Belgium and others , Decision of 12 December 2001,
 It also cited to the Panel statement in Korea – Measures

with respect to the relationship between Article X:3(b) and Article 11.1 is therefore made on the
premise that the obligations under these two provisi ons concern the same subject matter. Although
both provisions address an obligation to provide for the right of appeal concerning customs issues,
namely "administrative action relating to customs matters" under Article X:3(b) and "a determination
of customs value" under Article 11.1, we do not cons ider that these two matt ers can necessarily be
considered as the same subject matter such that they would trigger the application of the lex specialis
principle. For one, as the parties seem to agree, the scope of the subject matter under Article X:3(b)
("administrative action relating to customs matters ") is broader than that under Article 11.1 ("a
determination of customs value"). We recall our understanding above in this regard that the
imposition of a guarantee is an administrative action th at is distinct from the final determination of a
customs value and considered as falling under the sc ope of "administrative action relating to customs
matters".
7.1048 Furthermore, Article 11.2 provides that "an initia l right of appeal without penalty may be to
an authority within the customs administration or to an independent body, but the legislation of each
Member shall provide for the right of appeal without penalty to a judicial authority". The obligation
under Article 11.1 to provide for the right of appeal against a determination of customs value, read in
the light of Article 11.2 as context, t hus focuses on the right to appeal to a judicial authority. This
should be contrasted to Article X:3(b) that sets forth the obligation to maintain or institute tribunals or
procedures independent of the agencies entrusted with admini strative enforcement, whether judicial,
arbitral or administrative, for the prompt review and correction of administrative action relating to
customs matters. Therefore, insofar as a determin ation of customs value is concerned, Members are
obliged under Article 11 of the Customs Valuation Agreement to provide for the right of appeal to a
judicial authority although an initial right of a ppeal may be to an authority within the customs
administration or to an independent body. We note that to the extent "a determination of customs
value" can also fall within the scope of "adminis trative action relating to customs matters", Members
must maintain or institute independent tribunals or procedures for the prompt review and correction of
the concerned determination, which could simultaneous ly be satisfied if the right to appeal to a
judicial authority is already provided under Article 11.1. This, however, does not affect the Members'
obligation under Article X:3(b) with respect to "administrative action relating to customs matters".
7.1049 As discussed above, Article X:3(b) provides importe rs with the right to have a wide range of
administrative actions relating to customs matters that immediately cause an adverse impact on

Affecting Government Procurement that "to the extent that there is no conflict or inconsistency, or an expression
in a covered WTO agreement [here the specific law] that applies differently, we are of the view that the
customary rules of international law [here the general law] apply to the WTO treaties and to the process of treaty
formation under the WTO." (Panel Report, Korea – Measures Affecting Government Procurement, para. 7.96).
 We note that the Appellate Body has extensively relied on general principles of international law to interpret
member's obligations. See for instance, Appellate Body Report, US – Cotton Yarn , para. 120, applying the
general principle of proportionality as found in Ar ticle 51 of the International Law Commission Draft
Articles on State's Responsibility;
In EC — Hormones , the Appellate Body referred to "the interpretative principle of in dubio mitius" as a
supplementary means of interpretation "widely recognized in international law" (Appellate Body Report, EC —
Hormones, footnote 154); in US — Shrimp , the Appellate Body held that

"The chapeau of Article XX is, in fact, but one expression of the principle of good faith.
This principle, at once a general principle of law and a general principle of international
law, controls the exercise of rights by states . One application of this general principle, the
application widely known as the doctrine of abus de droit, prohibits the abusive exercise of
a state's rights and enjoins that whenever the assertion of a right ‘impinges on the field
covered by [a] treaty obligation, it must be exercised bona fide, that is to say,
reasonably."(Appellate Body Report, US — Shrimp , para. 158).

importers, reviewed and corrected. In this light, the right to appeal a determination of a customs value
to a judicial authority provided under Article 11.1 would not address the obligations envisaged under
Article X:3(b), namely to maintain an independent tribunal or procedure for the prompt review and
correction of administrative actions that adversely affect importers concerning customs matters.
Considered together, if Thailand's position were to be accepted, the rights and obligation of the WTO
Members under Article X:3(b) of the GATT 1994 would lose their raison d'être.
1761
7.1050 We also find support for our view in the discussions on a similar matter in previous disputes.
In Canada – Periodicals, for example, regarding the respondents' argument that since a set of rules on
services exists in the GATS, the provisi ons of Article III:4 of the GATT 1994 on distribution and
transportation are obsolete, the Appellate Body found that the scope of Article III:4 was not
diminished by the entry into force of the GATS. 1762 Similarly, in Indonesia – Autos , as regards the
argument that a subsidy could not be found inconsis tent with the obligations under Article III of the
GATT 1994 as the SCM Agreement acted as lex specialis to Article III of the GATT 1994 and
therefore became the exclusive norm applicable to subsidies before WTO panels, the Panel considered
that Article III of the GATT 1994 and the SCM Agreement had different coverage and did not impose
the same type of obligations. The panel considered that the existence of the SCM Agreement, did not
mean that Article III would never be applicable to subsidies. 1763 Accordingly, the Panel found that a
subsidy could alternatively fall under Article III of the GATT 1994 or the SCM Agreement within its
coverage.1764
7.1051 Finally, we recall that the general interpre tative note to Annex 1A of the WTO Agreement
provides that "[i]n the event of conflict between a provision of the General Agreement on Tariffs and
Trade 1994 and a provision of another agreement in [the WTO Agreement], the provision of the other
agreement shall prevail to the extent of the conf lict". In our understanding, however, Thailand is not
arguing that there is a conflict between Article X:3(b) of the GATT 1994 and Article 11.1 of the
Customs Valuation Agreement. In any event, our reading above of both provisions in their specific
context does not indicate a conflict between these tw o provisions either. Accordingly, we do not
consider the principles under the general interp retative note to Annex 1A as applicable to the
relationship between Article X:3(b) of the GATT 1994 and Article 11.1 of the Customs Valuation
Agreement.

1761 The Appellate Body in US – Gasoline states, "One of the corollaries of the general rule of
interpretation in the Vienna Convention is that interpretation must give meaning and effect to all the terms of the
treaty. An interpreter is not free to adopt a reading that would result in reducing clauses or paragraphs of a treaty
to redundancy or inutility" (Appellate Body Report, US – Gasoline, p. 23, DSR 1996:I, 3 at 21. The Appellate
Body referred to the effet utile doctrine of interpretation in previous disputes such as Japan – Alcoholic
Beverages II, p. 12, DSR 1996-I, 97, at 110; US – Underwear , p. 16, DSR 1997:I, 11, at 24; EC – Asbestos ,
para. 115. The Panel in Turkey – Textiles also stated: "Finally we would also like to recall the principle of
effective interpretation whereby all provisions of a treaty must be, to the extent possible, given their full
meaning so that parties to such a tr eaty can enforce their rights and obliga tions effectively. ... We understand
that this principle of interpretation prevents us from r eaching a conclusion on the clai ms of India or the defence
of Turkey, or on the related provisions invoked by the parties, that would lead to a denial of either party's rights
or obligations" (Panel Report, Turkey – Textiles, para. 9.96).
1762 Appellate Body Report, Canada – Periodicals , p. 19, DSR 1997:I, 449, at 464. The ILC also
underlined that "the scope of special laws is by defi nition narrower than that of general laws. It will thus
frequently be the case that a matter not regulated by special law will arise in the institutions charged to
administer it. In such cases, the relevant general law will apply" (Report of the International Law Commission,
Fifty-eighth session (1 May-9 June and 3 July-11 August 2006) General Assembly Official Records Sixty-first
session Supplement No. 10 (A/61/10), p 412).
1764 Panel Report, Indonesia – Autos, paras. 14.35-14.36.

7.1052 Therefore, we are not, persuaded by Thailand' s argument that as Article 11.1 of the Customs
Valuation Agreement, as lex specialis to Article X:3(b), specifies the requirements in Article X:3(b),
no obligation under Article X:3(b) exists for Memb ers to provide a possibility of appeal to the
importer for guarantee decisions.1765
7.1053 For the foregoing reasons, we conclude th at the imposition of a guarantee is an
"administrative action relating to customs matters" within the meaning of Article X:3(b) of the
GATT 1994.
(c) Whether Thailand maintains tribunals or pro cedures for prompt review and correction of
guarantee decisions
(i) Main arguments of the parties
7.1054 The Philippines claims that Thailand does not maintain independent tribunals or procedures
for the prompt review of guarantee decisions. 1766 In support of its claim, the Philippines relies on the
decisions of the Thai Administrative Court and the Thai Supreme Administrative Court, and the Thai
Supreme Court that allegedly show the lack of th e right for importers to appeal guarantee decisions
directly to the Thai Court.1767
7.1055 Specifically, the Philippines refers to the Supreme Administrative Court decision in 2007 in
which upheld the decision of the Administrative Court of First Instance that it did not have
jurisdiction to rule on PM Thailand's appeal agai nst guarantee decisions. The Philippines further
submits that no right of appeal against guarantee d ecisions exists independently from the notice of
assessment. The Philippines refers to various Thai c ourt decisions that allegedly ruled to this effect,
namely the 1989 and 1991 decisions by the Thai Supreme Court and the 2007 decision by the Thai
Supreme Administrative Court.
7.1056 In 1989, the Thai Supreme Court held:
"[I]n the case of the requirement of the gua rantee by the competent official according
to Section 112, if the Court allows the Pl aintiff to file the lawsuit [against the
guarantee]such as in this case, ... before the Defendant's competent officer assessed
the duty and notified the Plaintiff, it would cu rtail the power of the competent official
to assess the duty pursuant to Section 112 bis, paragraph one and would completely
curtail the right of the Plaintiff to appeal against such assessment. .... [I]n this case,
because the Defendant's competent official had not yet assessed the duty and notified
the Plaintiff to pay the duty pursuant to Section 112 bis, paragraph one, the Defendant
has not according to Section 55 of the Civ il Procedure Code infringed upon the right

1765 We note that this conclusion is in line with relevant international instruments. For instance,
standard 10.2 of the Kyoto convention on the harmonization and simplification of customs procedures provides
that "any person who is directly affected by a decision or omission
 of the Customs shall have a right of appeal."
Similarly, Council Regulation (EEC), No 2913/92 of 12 October 1992 establishing the Community Customs
Code, as amended provides that goods may be released wh en the customs debt is secured (Article 74). The act
by which a security is imposed qualifies as a decision by customs authorities under Article 4(5). A possibility of
Appeal is therefore provided against this decision under Article 243. Appeal may be first to a customs authority.
Appeal to an independent judicial authority must be provided (Article 243.2).
1767 Exhibit PHL-132. (Central Administrative Court order No.1740/2549 of 19 October 2006),
confirmed by Exhibit PHL-133 (Supreme Administrative Court order No 417/2550 of 27 June 2007). Both are
in line with Supreme Court decisions No. 509/2532 (1989) S.K.W steels v. Customs (Exhibit PHL-136) and
Saereewattana Industry v. Customs (Exhibit PHL-288).

or duty of the Plaintiff
 and, therefore, the Plaintiff has no power to file such lawsuit in
this case."1768
7.1057 In 1991, the Supreme Court confirmed that:
"[I]n order to wait for the results of the cr iminal case to be finalised, the Defendant
has not issued the notice of assessment to no tify the plaintiff. As such, the plaintiff
did not have the right to request the defe ndant to return the cash guarantees or bank
guarantees to the plaintiff."1769
7.1058 In the 2007, the Supreme Administration Court also considered that:
"Although the Plaintiff views that the determination of such [guarantee] prices caused
damage to the Plaintiff and the Plaintiff had no opportunity to provide an explanation,
it is the process or procedure for assessment of the prices of products for collection of
duty and excise tax. Upon payment of import duty as assessed by the 1 st Defendant, if
the Plaintiff thinks that such assessment w as not accurate, the Plaintiff shall then be
entitled to appeal to the BOA according to Section 112 (f) of the Customs Act."1770
7.1059 The Philippines also refers to Professor A sawaroj's commentary on the Supreme Court
decision No. 509/2532 (1989) S.K.W steels v. Customs in which he emphasizes that at the time of
writing (2006), "a lawsuit could no t be brought unless the importer or the exporter has first appealed
the assessment of the competent official to th e Board of Appeal pursuant to Section 112 sexies".1771
The Philippines asserts that these co urt decisions recognize that there is no right of direct appeal
against guarantee decisions as only notices of assessment, which are distinct acts, may be
challenged.
1772
7.1060 The Philippines further points out that under Thai law, an administrative act must specify the
nature of any right to appeal against the act. 1773 Therefore, if Thai Customs believed that there was a
right to appeal against the guarantees, for instance to the Tax Court, the Thai Customs letter of 11
August 2006 imposing the guarantee order should have informed PM Thailand of that right. The
Philippines explains that the letter in fact inform s PM Thailand that, "once the Customs Department
has issued the assessment letter, the Company can appeal against su ch assessment in accordance with

1768 Exhibit PHL-136.
1769 Exhibit PHL-288.
1770 Exhibit PHL-133, p. 6.
 section 112 (f) of the Customs act states: "the importer or the exporter shall have the right to appeal
against the duty assessment of the competent officer" (italics added) (Exhibit PHL-20).
1771 Exhibit PHL-135.
1773 Philippines' response to Panel question No. 168, referring to section 40 of the Administrative
Procedure Act (Exhibit PHL-130). section 40 provides:
"[t]he administrative order against which appeal or an objection may further be filed, the
circumstances in which the appeal or objection may be filed, the filing of the appeal or
objection and period of time for the filing of said appeal or objection must be specified.

 In the event of violation of the provisions under para. 1, the period of time required
for filing appeal or objection shall re-commence on the date of receipt of the notification of
the criteria pursuant to para. 1. But if no new notification is given and such period of time is
shorter than one year, such period of time is to be extended to one year of date of receipt of
the administrative order."

the law". 1774 PM Thailand was not informed of any right to appeal the guarantee itself without
awaiting final assessment.1775
7.1061 Thailand argues that it does not violate Article X:3(b) because guarantee decisions can be
appealed to the Tax Court independently of the notice of assessment. 1776 In support of its position,
Thailand cites to a letter from its Attorney General stating that direct appeals to the Tax Court against
guarantee decisions are also available as "it is consid ered to be a dispute case in respect to rights or
duties under an obligation made for tax collection's purposes under Section 7(4) of the Establishment
of Tax Court and Tax Court procedure Act B.E.2528 [hereinafter "Tax Court Act"]". 1777 Thailand in
addition references a Thai Supreme Court decisi on in which the Court decided that the Thai
administration could bring a court case against a company which had unduly obtained a corporate tax
refund in front of the Tax Court. The Supreme Cour t then held that such cl aim concerned a "case in
respect to rights and duties incurred under an obl igation made for tax collection purposes" and
therefore fell within the Tax Court's competence by virtue of Section 7(4) of the Tax Court Act.
Thailand cites to the court's statement that "a refund of taxation before an audit is not an absolute
refund but a conditional refund ... [T]he plaintiff has the right to sue for tax".1778
7.1062 Regarding the right of appeal against guarant ee decisions before the Thai Administrative
Court, Thailand initially argued that the Thai Administrativ e Courts are competent to hear appeals
against guarantees. However, it agreed at a late r stage of the proceedings, specifically after the
reference by the Philippines to the Supreme Administ rative Court's decision, that its opinion had not
been endorsed by the courts.1779
7.1063 The Philippines argues that the evidence put forward by Thailand allegedly showing that the
Tax Court does have jurisdiction to review guarantee decisions inde pendently of final customs value
decisions, is irrelevant. The letter from the Attorney General explaining that Section 7(4) of the Tax
Court Act provides an appeal against guarantee d ecisions contradicts the decisions of the Thai
Supreme Administrative Court and the Thai Supreme Court. 1780 Similarly, the decision of the Thai
Supreme Court produced by Thailand to this effect has no link to guarantees in the customs context,
and rather deals with refunds of company taxes.1781
7.1064 Thailand submits that even if there was no direct appeal to the Thai Tax Court, importers
have, at a minimum, the right to challenge the imposition of guarantees to the Thai Tax Court upon
the exhaustion of alternative remedies. Thailand po ints out that even the Philippines' own experts

1774 Philippines' response to Panel question No. 168.
1775 Philippines' response to Panel question No. 168. Professor C. Asawaroj, Collection of Customs
and Law relating to Customs Tariff (Duentula Publishing House, Bangkok, 2006). Exhibit PHL-135, stating that
an administrative act must specify the nature of any right to appeal under Thai law.
1776 Thailand's response to Panel question No. 167.
1777 Exhibit PHL-281, section 7 of the Act for Establishment and Procedures for Tax Court B.E. (2528)
provides:

The tax courts have jurisdiction over the following civil matters:
(1) Cases in respect of appeals against any decision of the competent official or the committee relating
to any taxation law;
(2) Cases in respect of disputes over right of claim on tax debts;
(3) Cases in respect of taxes refund;
(4) Cases in respect of debts incurred in connection with [an] obligation made for collecting taxes;
(5) Cases that are prescribed to be under the jurisdiction of the tax courts.

1778 Exhibit THA-101 (italics added).
1779 Thailand's second written submission, para. 231, footnote 206.
1780 Philippines' comments on Thailand's response to Panel question No. 167.
1781 Philippines' comments on Thailand's response to Panel question No. 167; Exhibit THA-101.

accept that importers have rights to appeal decisi ons imposing guarantees to the Thai Tax Court once
the notice of assessment is issued . Specifically, Thailand refers to the statement by Mr Veraphong
that "the importer cannot appeal against a gua rantee directly, but must wait until a notice of
assessment is issued under Section 112 bis of the Customs Act and the Board of Appeal renders its
decision under Section 112 octodecim".
1782 Further, Thailand also mak es a reference to the statement
by Mr Aekaputra that "the Customs Act does not di rectly provide a process to challenge guarantees
but it states that, pursuant to Section 112 sexies, appeals against a final notice of assessment shall be
made within 30 days of receipt of the notice". 1783 In Thailand's view, therefore, appeals against
guarantee decisions are available before the Thai Tax Court as the issuance of the notice of
assessment is only a procedural pre-requisite to bring such appeals to the Tax Court. As such, unless
the obligation under Article X:3(b) to maintain independent tribunals for the purpose of prompt
review requires WTO Members to provide importers with "independent and immediate" rights to
appeal, the Philippines' claim must fail.
1784
7.1065 Thailand argues that Article X:3(b) does not require that WTO Members provide "immediate
and independent" rights of appeal to affected importers. 1785 Rather, the WTO Members are permitted
to impose requirements to await the completion of internal proceedings and the exhaustion of
alternative remedies before rights of appeal can be exercised. Thailand counters that an appeal under
Article X:3(b) needs not be "immediate" as the Philippines argues, but only "prompt". 1786 W T O
Members often require the exhaustion of internal ad ministrative procedures before an appeal can be
lodged against administrative decisions. In this re gard, Thailand can lawfully require that a notice of
assessment be issued and appealed before guarantee decisions are reviewed by the Tax Court.1787
7.1066 Furthermore, Thailand submits that there are very strong policy reasons why Article X:3(b)
should not be considered as requiring Members to pr ovide an immediate right of appeal against the
imposition of guarantees. Thailand draws on the curre nt dispute to underline two elements in this
regard: first, the right of the importer to withdr aw the goods pending customs value determinations
would be impaired, which would be contrary to Article 13 of the Customs Valuation Agreement; and,
second, the judicial authorities would, in effect, pre-empt the authority of the customs administration
in the area of customs valuation as the judicial authorities would be required to consider the
appropriate customs value of the goods at the same time or even before the customs administration
had addressed or resolved the issue.1788
7.1067 The Philippines argues that in many cases, a guarantee will be revoked when goods are
finally assessed, and domestic courts may not wish to rule upon such a measure at that stage of the
process.1789 The Philippines argues that, in any event, Thailand does not provide for prompt appeals
of guarantee decisions as there is no timeframe governing the issuance of notices of assessment,
which recently took up to 10 months. 1790 Because, as described by Thailand, the issuance of a notice

1782 Exhibit PHL-182, para. 10.3; Exhibit PHL-20, Customs Act section 112 octuordecies states "the
Appellant has the right to appeal [in front of the tax court] a decision of the Appeals Committee, [i.e. the BoA]".
1783 Exhibit PHL-183, Philippines' response to Panel question No. 4.1.
1784 Thailand's second oral statement, para. 100.
1785 Thailand's second written submission, paras. 233-236; second oral statement, para. 101.
1786 Thailand's second written submission, para. 233.
1787 Thailand's second written submission, para. 234.
1788 Thailand's response to Panel question No. 89.
1790 Philippines' first written submission, para. 107; Exhibit PHL-27, rows 128-132, for shipments
entered on 3, 10 and 17 September 2007.

of assessment is a procedural pre-requisite to th e examination of guarantee decisions by the Tax
Court, no prompt appeal right is provided to the importer.1791
7.1068 Moreover, according to the Philippines, the policy reasons put forw ard by Thailand are
unconvincing: neither the right of the Thai admi nistration to impose guarantees under Article 13 of
the Customs Valuation Agreement nor the Thai Customs' responsibility in determining customs
values would be defeated. Subjecting the guaran tees to review would only ensure that those
prerogatives and rights are carried out in accordance with WTO law.1792
(ii) Analysis by the Panel
7.1069 The Philippines claims that Thailand fails to maintain tribunals or procedures for prompt
review of guarantee decisions inconsistently with Article X:3(b) of the GATT 1994. Thailand argues
that the Philippines' claim must fail as under the Thai System, guaran tee decisions are challengeable
before the Thai Tax Court.
7.1070 At the outset, we note that the parties do not dispute that the Thai Administrative Court does
not have jurisdiction over Thai Customs' guarantee decisions. Though Thailand initially argued that
an appeal can be brought before the Administrativ e Court regarding guarantee decisions. It, however,
acknowledged later in the proceeding after the Philippines' reference to the Thai Supreme
Administrative Court's ruling to this effect that its initial view is not endorsed by the Thai
Administrative Court. The ruling provides, in relevant part:
"Once the Plaintiff considered the Notifica tion or order unlawful, it shall be deemed
to be an appeal against the decision of the official under the law relating to taxation,
which is under the jurisdiction of the Tax Court pursuant to Section 7 (1) of the Tax
Court Act and not within the jurisdiction of the Administrative Court pursuant to third
paragraph of Section 9 (3) of the Admin Court Act."1793
7.1071 As such, the question of whether independent tribunals or procedures are available in
Thailand for the prompt review and correction of guarantee decisions is linked to two questions: first,
whether Thailand maintains an independent tribunal or procedur e for the prompt review of guarantee
decisions. The main contention between the parties w ith respect to this question is whether importers
can appeal guarantee decisions either directly or i ndirectly to the Thai Tax Court; and, second, if so,
whether the existing right of appeal ag ainst guarantee decisions provides for a prompt review and
correction of guarantee decisions.
7.1072 In examining the first question, we understand the Philippines' claim to be that no right of
appeal against a guarantee decision exists independe ntly from a notice of assessment. In other words,
the Philippines is not arguing that guarantee decision s can never be challenged before an independent
tribunal. Particularly, in the light of the Phili ppines' statements in the course of the proceeding 1794,

1791 Philippines' second written submission, para. 304; combined responses to Panel questions Nos. 87
and 89.
1792 Philippines' second written submission, paras. 313-314.
1793 Exhibit PHL-133. Supreme Administrative Court Case No 417/2550 (2007), PM Thailand Ltd-
Customs and Excise Departments.
1794 Philippines' second written submission, paras. 302-303. The Philippines considers that providing an
appeal against a guarantee decision together with the final customs determination is insufficient because: (i) if
the guarantee is fixed at a sufficiently high level, th ere may never be an assessed customs value because goods
may not be cleared. In this situation, no remedy w ould be available against guar antees entirely foreclosing
market access; (ii) even when some imports occur, a guarantee may undermine co mpetitive opportunities, as
[t]he delay before an assessed customs value is issued can run to many months – as this dispute shows – with

considered in conjunction with the relevant cour t decisions and expert opinions, the Philippines does
not appear to be contesting that pursuant to Sec tion 112 of the Customs Act, guarantee decisions can
be appealed to the Tax Court once a notice of assessment on a final customs value is issued.
1795
Thailand, however, submits that aside from this appeal under Section 112 of the Customs Act, a direct
appeal to the Thai Tax Court is also available to the importers against guarantee decisions by virtue of
Section 7(4) of the Tax Court Act.1796
7.1073 Based on the evidence before us, we find that gua rantee decisions can be appealed to the Thai
Tax Court once the importer has been provided with a notice of assessment regarding a final customs
value of the good concerned. In respect of app eals against notices of assessment, however, we recall
that under Thai law, an importer must lodge its complaint against a notice of assessment first to the
BoA for it to be able to bring its appeal to the Tax C ourt. Therefore, to the extent that an appeal of a
guarantee decision is also conditioned upon the issuance of a notice of assessment, the same process is
equally applicable to the appeal process for a guarantee decision.
1797
7.1074 Thailand, however, takes th e position that direct appeals against guarantee decisions
independently of final customs value decisions are al so available before the Tax Court by virtue of
Section 7(4) of the Tax Court Act.1798 In this connection, Thailand relies on two pieces of evidence to
demonstrate that guarantee decisions can be appeal ed to the Tax Court independently of a notice of
assessment. First, Thailand submitted a letter from the Attorney General dated August 2009 stating
that guarantee decisions can directly be appealed to the Tax Court as they fall within the scope of
Article 7(4) of the Tax Court Act. 1799 Thailand also relies on the Supreme Court decision
No 819/2540, which also refers to Section 7(4) of the Tax Court Act 1800, to support its position that
guarantee decisions can be appealed to the Ta x Court independently of final customs value
determinations.
7.1075 The Philippines argues that the ev idence put forward by Thailand does not show that the Tax
Court has jurisdiction to review guarantee decisions independently of final customs value decisions.
The Philippines submits that the letter from the Atto rney General explaining that Section 7(4) of the
Tax Court Act provides for a direct appeal against guarantee decisions before the Tax Court
contradicts the decisions of the Thai Supreme Administrative Court and the Thai Supreme Court. 1801

market access impaired throug hout that time [and] (iii), in many cases, the guarantee will be revoked when
goods are finally assessed, and domestic courts may not wish to rule upon such a measure.
1795 Thailand's second written submission, para. 231. Based on the experts' opinions submitted by the
Philippines, Thailand also notes that "it appears not to be in dispute that importers may challenge guarantees
after notices of assessment are issued" (Thailand's response to Panel question No. 88) The affidavit by Mr. P.
Veraphong also clarifies this point : "In other words, th e importer subject to a guarantee value must (1) wait for
a definitive assessment notice and (2) obtain a ruling from the Board of Appeals, before he can submit an
appeal to the Tax Court." (Exhibit PHL-150, para. 10.3, emphasis added).
1796 Thailand's response to question No. 167.
1797 Thailand's second written submission, para. 231, referring to Aekaputra Affidavit, Response to
Panel question 4.1, Exhibit PHL-183 and Veraphong Affidavit, Response to Question 10, paragraph 10.3,
Exhibit PHL-182.
1798 Thailand's response to Panel question No. 167.
1799 section 7 of the Tax Court Act provides in relevant part:
"section 7. The tax courts have jurisdiction over the following civil matters:
(1) Cases in respect of appeals against any decision of the competent official or the committee
relating to any taxation law;

(4) Cases in respect of debts incurred in connection with obligation made for collecting
taxes..."
1800 Exhibit PHL-281. section 7(4) of the Tax Court Act states that tax courts have jurisdiction over
cases in respect of debts incurred in connection with obligation[s] made for collecting taxes.
1801 Philippines' comments on Thailand's response to Panel question No. 167.

Similarly, in the Philippines' view, the Thai Supr eme Court decision produced by Thailand to this
effect has no link to guarantees in the customs context, and rather deals with refunds of company
taxes.
1802
7.1076 We will examine the evidence provided by Tha iland in turn to determine whether direct
appeals against guarantee decisions independently of final customs value decisions are also available
before the Tax Court by virtue of Section 7(4) of th e Tax Court Act. First, Thailand refers to a letter
from the Attorney General dated August 2009. The le tter shows that the Attorney General Office's
opinion was provided upon request from the Custom s Department regarding the importers' right of
appeal against a guarantee decision. In relevant part, the letter states:
"Office of the Attorney General is of the opinion that an importer has two options to
appeal regarding a guarantee placement order made by the Customs official under the
law. First option, appeal such order to the Customs officials, as the appeal to an
administrative order under Article 44 of th e Administrative Procedure Act B.E. 2539,
if not satisfied, an importer is entitled to bring the case to the Tax Court, since such
claim is considered to be a case in resp ect to appeal against any decision of any
competent officials relating to taxation that is under Article 7(1) of the Establishment
of Tax Court and Tax Court Procedure Act B.E. 2528. Second option, an importer
may bring the case to the Tax Court directly, since this matter is considered to be a
dispute case in respect to rights or duties under an obligation made for tax collection's
purpose under Section 7(4) of the Esta blishment of Tax Court and Tax Court
Procedure Act B.E. 2528. Therefore, it can be concluded that Thai law has already
provided fair channels for an importer to appeal regarding guarantee placement
order."
1803
7.1077 Therefore, according to the letter, the Office of the Attorney General is of the opinion that
guarantee decisions can be directly appealed to the Tax Court as those decisions fall within the scope
of Article 7(4) of the Tax Court Act.
7.1078 The Philippines, however, points to the decision of the Thai Supreme Court, which, in its
view, contradicts the Attorney General's opinion as provided in the letter. 1804 In 1989, the Thai
Supreme Court held:
"In the case of the requirement of the guara ntee by the competent official according
to Section 112, if the Court allows the Pl aintiff to file the lawsuit [against the
guarantee] such as in this case, ... before the Defendant's competent officer assessed
the duty and notified the Plaintiff, it would cu rtail the power of the competent official
to assess the duty pursuant to Section 112 bi s, paragraph one and would completely
curtail the right of the Plaintiff to appeal against such assessment. ... [I]n this case,
because the Defendant's competent official had not yet assessed the duty and notified
the Plaintiff to pay the duty pursuant to Section 112 bis, paragraph one, the Defendant
has not according to Section 55 of the Ci vil Procedure Code infringed upon the right

1802 Philippines' comments on Thailand's response to Panel question No. 167; Exhibit THA-101.
1803 Exhibit THA-91.
1804 The Philippines' comments on Thailand's response to Panel question No. 167. As described in
paras. 7.1054-7.1060, the Philippines also referred to the decisions of the Thai Administrative Court and the
Thai Supreme Administrative Court in which it was clarified that the Thai Administrative Court did not have
jurisdiction over guarantee decisions. We note, however, that the Thai Supreme Administrative Court was of
the view that guarantee decisions were a subject matter that falls within the scope of jurisdiction of the Thai Tax
Court.

or duty of the Plaintiff and, therefore, the Plaintiff has no power to file such lawsuit in
this case."
1805
7.1079 In this connection, we also note expert opinions submitted by the Philippines. In his
commentary to this Thai Supreme Court decision, Professor Asawaroj underlines that at the time of
writing (2006), "a lawsuit could no t be brought unless the importer or the exporter has first appealed
the assessment of the comp etent official to the Board of Appeal pursuant to Section 112 sexies". 1806
Further, Mr Piphob Veraphong provides the view that the Customs Act does not directly provide a
process for challenging the guarantees.
1807
7.1080 Moreover, the Philippines refers to the 1991 Thai Supreme Court decision in which the Court
addressed a criminal case involving false customs value declaration under the Customs Act. The
company concerned initially brought the case before the Tax Court to recover the guarantee pending
the finalisation of the criminal prosecution. 1808 In relevant part of the decision, the Supreme Court
states:
"[I]n order to wait for the results of the crim inal case to be finalised, the Defendant
[DG Customs] has not issued the notice of assessment to notify the plaintiff. As such,
the plaintiff did not have the right to request the defendant to return the cash
guarantees or bank guarantees to the plaintiff."1809
7.1081 We consider that the Thai Supreme Court decisi ons cited above clarify the Court's view that
importers do not have the right to appeal guarantee decisions to the Thai Tax Court independently of
the issuance of a notice of assessment. Both Suprem e Court decisions indicate that the issuance of a
notice of assessment is a prerequisite for acquiring th e right to appeal an administration's decision.
Although Thailand put forward the opinion of the Office of the Attorney General in this regard, which
differs from the rulings in the Supreme Court's deci sions, we are not in a position to blindly accept
such an opinion in the absence of a specific and convincing explanation by Thailand on how such an
opinion should supersede or can be reconciled with the Supreme Court decisions.
7.1082 Thailand also refers to the Thai Supreme Cour t decision in which the Court rules that Thai
Customs could bring a case against a company before th e Tax Court for the purpose of obtaining a
corporate tax refund. According to Thailand, because both the customs guarantee and the refund of
company taxes are "conditional" obligations 1810, the Supreme Court's ruling on the competence of the
Tax Court to hear a tax refund case is equally appli cable to appeals against guarantee decisions. The
Supreme Court's ruling as relied upon by Thailand, however, does not appear to present the set of
circumstances that would prove th at the ruling is equally applicab le to Thai Customs' guarantee
decisions. As the Philippines points out, we do not see how the Thai Supreme Court decision on a tax
refund dispute as cited by Thailand can effectivel y be linked to the importers' right to appeal
guarantees in the customs context despite the Supreme Court's previous ruling to the contrary on the
latter question.
7.1083 Therefore, we are not presented with sufficient evidence to conclude that a guarantee decision
can be appealed to the Thai Tax Court independently of the notice of assessment. This raises the

1805 Philippines' first oral statement, para. 152, re ferring to the Supreme Court Case No. 509/2532
(1989), S.K.W. Steels Product Co., Ltd., - Customs Department, p. 2 (Exhibit PHL-136).
1806 Professor Chuchart Asawaroj, Collection of Customs Law and Law relating to Customs Tariff , p. 4
(Duentula Publishing House, Bangkok, 2006) (Exhibit PHL-135).
1807 Exhibit PHL-182, para. 10.3.
1808 Philippines' comments on Thailand's response to Panel question No. 167.
1809 Supreme Court Decision 119/2534, (1991) Saereewattana Industry Co., Ltd v. Customs
Department, (Exhibit PHL-288).
1810 Thailand's response to Panel question No. 167.

question of whether the availability of appeals agains t a guarantee before the Thai Tax Court after an
initial review by the BoA upon the issuance of the no tice of assessment satisfies the requirement to
provide for the prompt review by an independent body within the meaning of Article X:3(b).
7.1084 The Philippines claims that Thailand does not provide for prompt appeals of guarantee
decisions as there is no time-frame governing the issuance of Notices of As sessment, which recently
took up to 10 months. Thailand argues that Article X:3(b) does not require that WTO Members
provide "immediate and independent" rights of appeal to affected importers.
7.1085 We noted above that the term "prompt" was defined as " adjective. 2 Of action, speech, etc.:
ready, quick; done, performed, etc., without delay". 1811 In the context of Article X:3(b), Members are
required to maintain the internal review system "for the prompt review and correction of
administrative action relating to customs matters". Considered in its context, therefore, the word
"prompt" concerns the review as well as the correction of administrative actions.
7.1086 We have found that a guarantee could, de pending on the situation, bring about a heavy
financial burden on importers. This was shown in the situation where PM Thailand, for example, was
not able to post guarantee amounts necessary to withdraw the imported cigarettes pending final
determination of a customs value due to an unusua lly high level of guarantee amount set by Thai
Customs.1812 Given the possibility that a guarantee immediately and adversely may affect the
importers' ability to withdraw imported goods , the obligation imposed on Members under
Article X:3(b) must be interpreted such that an appeal mechanism maintain ed by a Member enables
the concerned administrative action to be promptly reviewed and corrected. Whether a Member's
appeal system maintained pursuant to Article X:3(b) provides for the prompt review and correction of
an administrative action as required under Article X: 3(b), in our view, therefore would have to be
considered, inter alia, in the light of the nature of the specific administrative action concerned.1813
7.1087 In challenging a guarantee decision, an impor ter seeks to have the amount of a guarantee
reviewed and, if warranted by the circumstances, revised downwards, for example, to the level in
line with the value of the imports and similar im port, so as to enable it withdraw the goods from
customs. Considered in the light of this, if a system does not make available the review of a guarantee
decision until the final determination has made in respect of a customs value, an importer can face a
situation where it will not be able to withdraw imported goods due to a guarantee value set at an
excessively high level. In our view, this is not comp atible with the obligation under Article X:3(b) to
maintain independent tribunals for the prompt review of the concerned administrative action.
VIII. CONCLUSIONS AND RECOMMENDATIONS
8.1 We first summarize our conclusions on the part ies' claims on the scope of our terms of
reference in this dispute. For the reasons set forth in Section VII.B.1, we conclude that:

1811 The New Shorter Oxford English Dictionary , (Fifth Edition) Oxford Univer sity Press, Vol. I, p.
2366 (2002).
1812 Philippines' combined response to Panel question Nos. 87 and 89.
1813 In this regard, we note the statement by the Ap pellate Body that the word "immediately" in
Article 12.1 of the Agreement on Safeguards must be given meaning on a case by case basis. (Appellate Body
Report, US – Wheat Gluten , para. 105, "As regards the meaning of th e word "immediately" in the chapeau to
Article 12.1, we agree with the Panel that the ordinary meaning of the word "implies a certain urgency". The
degree of urgency or immediacy requ ired depends on a case-by-case assessment, account being taken of the
administrative difficulties involved in preparing the notifi cation, and also of the character of the information
supplied. As previous panels have recognized, relevant factors in this regard may include the complexity of the
notification and the need for translation into one of the WTO's official languages. Clearly, however, the amount
of time taken to prepare the notification must, in all cases, be kept to a minimum, as the underlying obligation is
to notify "immediately".)

(a) the Philippines' claim under Article X:3(a) w ith respect to the Thai VAT system is
outside the Panel's terms of reference because the Philippines failed to plainly
connect the challenged measure with Article X:3(a) in its panel request;
(b) the Philippines' claim under Article X:3(a) with respect to the excise, health and
television taxes are within the Panel's terms of reference;
(c) Thai Customs' valuation determinations for the imported cigarettes at issue that were
cleared between 11 August 2006 and 13 September 2007 are within the Panel's terms
of reference and appropriately presented for the Panel's examination; and
(d) the December 2005 MRSP Notice, the September 2006 MRSP Notice, the
March 2007 MRSP Notice, and the August 2007 MRSP Notice are within the Panel's
terms of reference.
8.2 With respect to the Philippines' claims under the Customs Valuation Agreement, we conclude
that:
(a) Thailand does not maintain or apply a gene ral rule requiring the rejection of the
transaction value and the use of the deductive valuation method;
(b) Thailand's rejection of PM Thailand' s declared transaction values for the
[[xx.xxx.xx]] entries at issue is inconsistent with Articles 1.1 and 1.2;
(c) Thailand acted inconsistently with Articl e 1.2(a) by failing to communicate within
the meaning of Article 1.2(a) the Thai Customs "grounds" for considering that the
relationship between PM Thailand and PM Philippines influenced the price;
(d) Thailand acted inconsistently with Article 16 by failing to provide an adequate
explanation on how Thai Customs determined the customs values for imported
cigarettes;
(e) Thailand acted inconsistently with Article 7.1 by improperly assessing the deductive
value of the imported cigarettes concerned;
(f) Thailand acted inconsistently with Artic le 7.3 by failing to properly inform
PM Thailand in writing of the customs value determined under Article 7 and the
method used to determine such value; and
(g) Thailand acted inconsistently with Artic le 10 by disclosing confidential customs
valuation information provided by PM Thailand to Thai Customs in the Thai media.
8.3 With respect to the Philippines' claims under the GATT 1994, we conclude that:
(a) regarding the determination of the MRSPs for VAT on imported cigarettes, Thailand
acted inconsistently with Article III:2, first sentence by subjecting imported
cigarettes to a VAT liability in excess of that applied to like domestic cigarettes with
respect to the MRSPs for the December 2005 MRSP Notice, the September 2006
MRSP Notice, the March 2007 MRSP Notice, and the August 2007 MRSP Notice;
(b) regarding the VAT exemption for domestic cigarette resellers, Thailand acted
inconsistently with Article III:2, first sen tence by subjecting imported cigarettes to a

VAT liability in excess of that applied to like domestic cigarettes by granting the
exemption from the VAT liability only to domestic cigarettes resellers; and
(c) regarding the VAT exemption for domestic cigarette resellers, Thailand acted
inconsistently with Article III:4 by subj ecting imported cigarettes to less favourable
treatment compared to like domestic cigarettes by imposing additional administrative
requirements, connected to VAT liabilities, on imported cigarette resellers.
8.4 With respect to the Philippines' claims under Article X of the GATT 1994, we conclude that:
(a) Thailand acted inconsistently with Artic le X:1 of the GATT 1994 for failing to
publish the methodology used to determine the tax base for VAT;
(b) Thailand did not act inconsistently with Article X:1 by failing to publish the
methodology and data necessary to determine ex factory prices for domestic
cigarettes;
(c) Thailand acted inconsistently with Artic le X:1 of the GATT 1994 by failing to
properly publish the general rule pertaining to the release of guarantees;
(d) Thailand did not act inconsistently with Article X:3(a) by appointing certain
government officials to the Board of Directors for TTM;
(e) Thailand acted inconsistently with Article X:3(a) because of the delays caused in the
BoA decision-making process;
(f) Thailand acted inconsistently with Article X:3(b) by failing to maintain or institute
independent review tribunals or processe s for the prompt review of customs
valuation determinations; and
(g) Thailand acted inconsistently with Article X:3(b) by failing to maintain or institute
independent review tribunals or pro cess for the prompt review of guarantee
decisions.
8.5 Regarding the Philippines' claim under Article 4 of the Customs Valuation Agreement, we
conclude that the Philippines' claim cannot form part of the Philippines' request for findings and
recommendations because the Philippines' request was not made in a timely manner.
8.6 We conclude that the Philippines' sequenc ing claim under Article 7.1 of the Customs
Valuation Agreement cannot form part of the Ph ilippines' request for findings and recommendations
because it was not presented in a timely manner. We also consider that Article 7.1 of the Customs
Valuation Agreement does not constitute the basi s for an independent sequencing claim under the
Customs Valuation Agreement.
8.7 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. The Panel concludes that , to the extent that the measures listed above are
inconsistent with the Customs Valuation Agre ement and the GATT 1994, they have nullified or
impaired benefits accruing to the Philippines under those Agreements.
8.8 Accordingly, the Panel recommends that the Dispute Settlement Body request Thailand to
bring these inconsistent measures as listed above into conformity with its obligations under the
GATT 1994 and the WTO Agreement. Regarding our findings in paragraphs 7.509-7.566 above in

respect of the September 2006 MRSP Notice, th e March 2007 MRSP Notice, and the August 2007
MRSP Notice, as explained in paragraph 6.24 of the In terim Review section, it is not entirely clear to
us whether and, if so, to what extent, these MR SP Notices will have effects on the subsequent MRSP
Notices. Our recommendations with respect to th ese MRSP Notices, therefore, apply only to the
extent they continue to have effects. We do not make a recommendation for the December 2005
MRSP Notice as it is not disputed that it has expired and does not continue to exist for purpose of
Article 19.1 of the DSU.

ANNEX A-1

WORKING PROCEDURES FOR THE PANEL

1. The Panel will provide the parties to the di spute (hereinafter "parties") and third parties
(hereinafter "third parties") with a timetable fo r panel proceedings and shall follow the relevant
provisions of the Dispute Settlement Understanding (DSU). In addition, the following working
procedures shall apply.

2. The Panel shall meet in closed session. The pa rties, and the third parties, shall be present at
the meetings only when invited by the Panel to appear before it.

3. The deliberations of the Panel and the documen ts submitted to it shall be kept confidential.
Nothing in these procedures shall preclude parties or third parties from disclosing statements of their
own positions to the public, provided that such party or third party does not thereby disclose any
confidential information from the other party or th ird parties. Parties shall treat as confidential
information submitted by the other party or third pa rty to the Panel where such information has been
so designated. As provided in Article 18.2 of the DSU, where a party to a dispute submits a
confidential version of its written submissions to th e Panel, it shall also, upon request of a Member,
provide a non-confidential summary of the informa tion contained in its subm issions that could be
disclosed to the public. Non-confidential summaries sh all normally be submitted no later than one (1)
week after the written request is presented to the Pa nel, unless a different deadline is granted by the
Panel where good cause is shown.

4. The Panel has adopted additional procedures for the protection of certain BCI as an annex to
these working procedures, taking into account the procedures proposed by the parties and their
comments on each other's proposals.

5. Before the first substantive m eeting of the Panel with the parties and third parties, the parties
shall transmit to the Panel written submissions in which they present the facts of the case and their
arguments. The third parties may transmit to the Panel written submissions, but only after the first
written submissions of the parties have been submitted.

6. At its first substantive meeting with the par ties, the Panel shall ask the Philippines and then
Thailand to present their cases.

7. All third parties shall be invited to present th eir views during a session of the first substantive
meeting of the Panel set aside for that purpose. All such third parties may be present during the
entirety of this session. Each party and third party shall serve its written submissions made in
advance of the first substantive meeting of the Panel on the other party and third parties.

8. Formal rebuttals shall be made at the second substantive meeting of the Panel. Thailand shall
have the right to take the floor first to be followe d by the Philippines. The parties shall submit, prior
to that meeting, written rebuttals to the Panel.

9. The Panel may at any time put questions to the parties and third parties and ask them for
explanations either during the course of a meeting w ith the parties and third parties or in writing.
Written replies to questions sha ll be submitted in accordance with the timetable established by the
Panel. Third parties shall not be permitted to ask questions to the parties or to the other third parties.

10. The parties and any third party invited to pr esent orally their views to the Panel shall make
available to the Panel and to the other party, an d where appropriate to the third parties, a written
version of their oral statements by 5:30 pm of the first working day following the last day of the
substantive meetings in which the statement was ma de. The parties and third parties are encouraged
to provide a provisional written version of their oral statements at the time the oral statement is
presented.

11. The parties and third parties shall make all s ubmissions in an official WTO language. Where
the original language of exhibits or of text quoted in the submissions or responses to questions is not
an official WTO language, the party or third party sha ll submit the original language version of that at
the same time. In the case of exhi bits, parties may submit them in the original language provided that
a translated version in an official WTO language is submitted at the same time. The Panel may grant
extensions of time for the translation of such e xhibits into an official WTO language where good
cause is shown.

12. Any objection as to the accuracy of a transla tion should be raised in writing and at the earliest
possible moment, preferably no later than the next regular filing or meeting (whichever occurs earlier)
following the submission which contains the tran slation in question. Any objection shall be
accompanied by a detailed explanation of the grounds of objection and an alternative translation.

13. The presentations, rebuttals and statements referr ed to in paragraphs 5, 6, 7 and 8 shall be
made in the presence of the parties. Moreover, each party's written submissions, written answers to
questions and comments thereon, co mments on the descriptive part of the report, and written request
for review of precise aspects of the Interim Pane l Report and comments on the other party's request
shall be made available to the other party and, where appropriate, to the third parties.

14. Any request for a preliminary ruling (including rulings on jurisdictional issues) by the Panel
shall be submitted at the earliest possible moment, a nd in any event no later than in a party's first
written submission. If a party requests such a preliminary ruling, the other party shall submit its
response to such request within a time limit specified by the Panel. Exceptions to this procedure will
be granted where good cause is shown.

15. The parties shall submit all factual evidence to the Panel no later than the first substantive
meeting, except with respect to factual evid ence necessary for purposes of rebuttals, answers to
questions or comments on answers provided by each other. Exceptions to this procedure will be
granted where good cause is shown. In such cases, th e other party shall be accorded a period of time
for comment, as appropriate.

16. To facilitate the maintenance of the record of the dispute, and for ease of reference to exhibits
submitted by the parties, the parties are requested to number their exhibits sequentially throughout the
stages of the dispute. For example, exhibits submitted by the Philippines could be numbered PHI-1,
PHI-2, etc, and exhibits submitted by Thailand co uld be numbered THA-1, THA-2, etc. If, for
example, the last exhibit in connection with the first submission was numbered PHI-5, the first exhibit
of its next submission thus would be numbered PHI-6.

17. The parties and third parties shall submit executive summaries of their written submissions
(excluding any separate requests for a preliminary ruling and responses thereto) and oral statements
within twenty days of the original submission or statement concerned. Each executive summary of
the written submissions to be provided by each pa rty shall not exceed 10 pages in length and each
executive summary of the oral statements shall not exceed 5 pages in length. The summary to be
provided by each third party shall not exceed 5 pag es. The Panel may revise these page limits upon
request of a party. Paragraph 22 shall apply to the service of executive summaries.

18. The executive summaries shall not in any way ser ve as a substitute for the submissions of the
parties and third parties in the Panel's examination of the case. However, the Panel intends to use
them solely for the purpose of preparing the descriptiv e part of its report, subject to any modifications
deemed appropriate by the Panel. The replies of the parties and third parties to questions and the
parties' comments on each other's replies to quest ions will not be attached to the Panel report as
annexes. They will be reflected in the findings section of the Panel report where relevant. The parties
may, however, make a request in their comments on th e descriptive part of the report for the inclusion
in that part of their replies to questions and/or th eir comments on each other's replies to questions. In
making such request(s), the parties shall specify th e precise parts of their replies and/or comments on
each other's replies that they wish to have included in the specific sections of the descriptive part.

19. The parties and third parties to these proceed ings have the right to determine the composition
of their own delegations. The parties and third pa rties shall have responsibility for all members of
their delegations and shall ensure that all member s of their delegations act in accordance with the
rules of the DSU and the Working Procedures of this Panel. The parties and the third parties shall
provide a list of the participants of their delegatio n at least one day before each meeting, to the
Secretary of the Panel, Mrs. Tessa Bridgman (e-mail: tessa.bridgman@wto.org).

20. Following issuance of the Interim Panel Report, the parties shall have three weeks to submit
written requests to review precise aspects of the Inte rim Panel Report and to request a further meeting
with the Panel. The right to request such a mee ting must be exercised no later than at the time the
written request for review is submitted. Following r eceipt of any written requests for review, in cases
where no further meeting with the Panel is request ed, the parties shall have the opportunity within
one-and-a-half weeks to submit written comments on the other party's written request for review.
Such comments shall be strictly limited to responding to the other party's written request for review.
The parties are also reminded that the Interim Panel Report shall be kept strictly confidential and shall
not be disclosed.

21. The Panel will do its utmost to provide the par ties with electronic versions of the descriptive
part of its report, its Interim Panel Report and its final report. Hard copies will be provided to the
parties in any event. In case of inconsistency be tween the electronic and hard copy version of these
documents, the hard copy version shall prevail.

22. The following procedures regarding service of documents apply:

 (a) Each party and third party shall serve its written submissions (including any separate
requests for preliminary ruling and res ponses thereto), executive summaries and
written versions of oral statements, dir ectly on the other party, including, where
appropriate, the third parties, and confirm it has done so at the time it provides its
submissions to the Panel.

 (b) The parties and third parties should provide the Panel and the other party with their
submissions, written answers to questions and comments invited by the Panel by
5:30 p.m.
 of the date referred to in the dead lines established by the Panel, unless a
different time is set by the Panel.

 (c) The parties and third parties shal l provide the Panel with 10 hard copies
 of all their
submissions. All these copies shall be file d with the Dispute Settlement Registrar,
***** ***** (office 2052).

 (d) At the time they provide a hard copy of their submissions, the parties and third parties
shall also provide the Panel with electr onic copies of all their submissions on a

diskette or as an e-mail attachment in a format compatible with the Secretariat's
software. E-mail attachments shall be sent to the Dispute Settlement Registry
(DSRegistry@wto.org) with a copy to ***** ***** (e-mail: *** **.*****@wto.org)
and ***** ***** (e-mail: *****.*****@wto.org). If the electronic version is
provided by diskette or CD, four c opies should be delivered to ***** *****
(office 2052).

23. The Panel reserves the right to modify these procedures at any time following consultations
with the parties.

Annex

ADDITIONAL PANEL WORKING PROCEDURES
CONCERNING BUSINESS CONFIDENTIAL INFORMATION

The following procedures apply to all business confid ential information (BCI) submitted in the course
of the Panel process. These procedures are inte nded to supplement but not replace the provisions of
Article 18.2 of the DSU.

1. BCI is defined as financially or commercially sensitive information submitted to the Panel in
the course of these proceedings that is (i) not otherw ise available in the public domain, and (ii) clearly
designated as BCI by the Philippines or Thailand in their submissions to the Panel.

2. Access to BCI shall be restricted to Appr oved Persons. No later than Monday, 16 March
2009 (close of business, Geneva time) , each Party shall submit to the other Party, and to the Panel a
list of Approved Persons including the job title of the listed persons. This list shall also include any
outside legal advisers in the delegations of the pa rties as well as clerical or support staff who need
access to BCI submitted by the other Party and/or Th ird Parties. In no circumstances shall persons
that serve, on a permanent, part-time or occasional basis, as an employee, officer or agent of an
enterprise, including a State-owned enterprise, engage d in the production, distribution, export, import
or sale of the products concerned in this dis pute be included among the Approved Persons. Each
Party shall keep the number of Approved Persons as limited as possible.

3. Unless a Party objects to the designation of an individual as an Approved Person by
Wednesday, 18 March 2009 (close of business, Geneva time)
, the Panel shall designate these
individuals as Approved Persons. Where a Party objects, the Panel shall decide on the objection
promptly.

4. An objection may only be based either on th e failure to exclude from the list of Approved
Persons an employee, officer or agent of an enterp rise, including a State-owned enterprise, engaged in
the production, distribution, export, import or sale of the products concerned in this dispute or on a
conflict of interest.

5. The Parties may submit amendmen ts to their lists at any time.

6. Nothing in these procedures shall be construed as limiting the right of government officials of
either party to have access to information submitte d to a government prior to the establishment of the
Panel and reviewed by those officials in the normal course of their duties.

7. Nothing in these procedures shall be constr ued as limiting the access of Panel members or
employees of the Secretariat to BCI submitted during these proceedings.

8. Only designated representatives of Third Pa rties may have access to BCI. Such access shall
be restricted to Parties' submissions for the first me eting of the Panel, and shall be used solely for the
purpose of preparing third party submissions and oral statements in the dispute. The Third Parties
will provide the name(s) and title(s) of the designated representative(s) to the Parties and the Panel no
later than Monday, 16 March 2009 (close of business, Geneva time)
. The procedures of paragraphs 2,
3, 4 above shall apply mutatis mutandis with respect to third parties.

9. A Party or Third Party submitting BCI in any written submission (including in any exhibits)
shall mark the cover and/or first page of the document containing any such information with the
words "Contains Business Confidential Information" . The specific information in question shall be
enclosed in double brackets, as follows: [[xx.xxx.xx]] and the notation "Contains Business
Confidential Information" shall be marked at the top of each page containing the BCI. A non-
confidential version, clearly marked as such, of any written submission (including any exhibits)
containing BCI, shall be submitted to the Panel with in three working days after the submission of the
confidential version containing the BCI. In the case of an oral statement containing BCI, the Party or
Third Party making such a statement shall inform the Panel before commencing that the statement
will contain BCI, and the Panel will ensure that only persons authorized to have access to BCI
pursuant to these procedures are in the room to hear that statement. A written non-confidential
version of an oral statement containing BCI sha ll be submitted within two working days after the
statement has been made. Non-confidential versi ons of both oral and written statements, including
exhibits, shall be redacted in such a manner as to convey a reasonable understanding of the substance
of the BCI deleted therefrom.

10. Any BCI information that is submitted in bina ry-encoded form shall be clearly marked with
the statement "Business Confidential Information" on a label on the storage medium, and clearly
marked with the statement "Business Confidential Information" in the binary-encoded files.

11. As required by Article 18.2 of the DSU, a Party or Third Party having access to BCI
submitted in this Panel process shall treat it as conf idential and shall not disclose that information
other than to those persons authorized to receive it pursuant to these pro cedures. Any information
submitted as BCI under these procedures shall only be used for the purposes of this dispute and for no
other purpose. Each Party and Third Party is re sponsible for ensuring that its employees and/or
outside advisers comply with these procedures to protect BCI.

12. The Panel agrees not to disclose in its Re port any information designated as BCI under these
procedures. The Panel may, however, make statements of conclusion based on such information.

13. After the conclusion of the Panel process, a nd within a period fixed by the Panel, each Party
shall return all documents in its possession submitte d as BCI in the Panel process to the Party that
originally submitted the BCI. Alternatively, a Part y may certify in writing to the other Party that all
such documents have been destroyed. The Secr etariat may retain one copy of the documents
containing the BCI for the archives of the WTO.

14. Submissions containing information d esignated as BCI under these procedures will be
included in the record forwarded to the Appellate Body in the event of any appeal of the Panel's
Report.

15. At the request of a Party, the Panel may a pply these procedures or an amended form of these
procedures, to protect information that does not fall within the scope of the information set out in
paragraph 1. The Panel may, with the consent of the parties, waive any part of these procedures.