ARMENIA – MEASURES AFFECTING THE IMPORTATION AND INTERNAL SALE OF CIGARETTES AND ALCOHOLIC BEVERAGES
Document: Request for the Establishment of a Panel by Ukraine Revision
Date: 8 October 2010
Document codes: WT/DS411/2/Rev.1
Complainant: Ukraine
Respondent: Armenia
Dispute stage: Panel
Agreements cited: Art. III:1, III:2, III:4, II:1  GATT 1994  Protocol of Accession

ARMENIA – MEASURES AFFECTING THE IMPORTATION AND
INTERNAL SALE OF CIGARETTES AND ALCOHOLIC BEVERAGES

Request for the Establishment of a Panel by Ukraine

Revision

 The following communication, dated 6 October 2010, from the delegation of Ukraine to the
Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the DSU.

 On 20 July 2010, Ukraine requested consulta tions with the Government of the Republic of
Armenia ("Armenia") pursuant to Article 4 of the Understanding on Rules and Procedures Governing
the Settlement of Disputes ("DSU") and Article XXII of the General Agreement on Tariffs and Trade
1994 ("GATT") with respect to:

– The imposition of higher tax rates on importe d cigarettes than on like domestic products,
pursuant to Armenia's "Law on Fixed Charg es on Tobacco Products" of 31 March 2000
("Tobacco Charges Law");
– The collection of customs duties on imported cigarettes pursuant to the Tobacco Charges Law
in excess of those set forth in Armenia's Schedule of Concessions; and
– The imposition of higher excise tax rates on imported alcoholic beverages than on like
domestic products, pursuant to the Law "On Excise Tax" of 7 July 2000 ("Excise Tax Law").
 Armenia failed to reply to Ukraine's request for consultations, such that no consultations
could be held. Thus, it was impossible to resolve the dispute through consultations.

I. THE PRESUMPTIVE TAX ON CIGARETTES
 For a small number of products, including cigarettes, Armenia imposes a single, fixed charge
(the "presumptive tax") which includes both inte rnal taxes such as VAT and excise tax and the
applicable customs duty. Armenia applies this so -called "presumptive tax" at the fixed rates of
AMD6,500 per 1,000 imported cigarettes and AM D4,750 per 1,000 like domestic cigarettes
(HS 2402 20) pursuant to Article 3 of the Tobacco Charges Law.

 This presumptive tax on cigarettes at the above fixed rates for imported and domestic
cigarettes is in violation of Armenia's obligations of providing national treatment to imported products
and leads to the imposition of customs duties in excess of Armenia's tariff binding of 15 per cent
ad valorem for cigarettes as set forth in Armenia's Schedule of Concessions.

A. T
HE PRESUMPTIVE TAX VIOLATES GATT ARTICLE III – NATIONAL TREATMENT
 Pursuant to the Tobacco Charges Law, Armenia is subjecting imported cigarettes to VAT and
excise taxes at rates that exceed rates for domestic cigarettes. The VAT for imported cigarettes is
15 per cent of the total fixed charge, while 76.5 per cent of the fixed charge represents the excise tax
that is due on imported cigarettes. This is so becau se the fixed charge covers VAT, excise tax and the
customs duty for imported cigarettes. The proporti on of Customs Duty of the fixed charge is
8.5 per cent, which implies that 76.5 per cent of the fi xed charge represents the excise tax. It is clear
that the VAT of 15 per cent of a fixed charge for imported cigarettes of 6,500 AMD (i.e. 975 AMD) is
higher than the VAT of 20 per cent of the fixe d charge for domestic cigarettes of 4750 AMD
(i.e. 950 AMD). Similarly, the excise tax of 76.5 pe r cent of the fixed charge for imported cigarettes
of 6,500 AMD (i.e. 4,972.50 AMD) is higher than the ex cise tax of 80 per cent of the fixed charge for
domestic cigarettes of 4750 AMD (i.e. 3800 AMD). In sum, the different taxable base used for the
determination of the VAT and the excise taxes l eads to the imposition of internal taxes on imported
cigarettes that are in excess of those imposed on domestic cigarettes.

 Thus, Armenia imposes internal taxes on imported cigarettes in excess of those imposed on
like domestic cigarettes. In addition, Armenia is not similarly taxing imported cigarettes and
domestic directly competitive or substitutable produc ts, and this so as to afford protection to the
domestic production of cigarettes.

 Ukraine therefore considers that Armeni a's Tobacco Charges Law and any relevant
amendments, replacements, and related or subs equent measures implementing such law, are
inconsistent with Armenia's oblig ations under Articles III:1, III:2, first and second sentence, and III:4
of the GATT 1994 and paragraph 1.2 of the Pr otocol of Accession of Armenia to the WTO
(WT/L/506, 17 December 2002), that incorporates by reference the commitments set out in
paragraph 72 of the Report of the Working Party on the Accession of the Repub lic of Armenia to the
World Trade Organization (WT/ACC/ARM/23, 26 November 2002), which provides as follows:

"From the date of accession, Armenia w ould apply its domestic taxes, including
value-added and excise taxes, in a non- discriminatory manner consistent with
Articles I and III of the GATT 1994 … . The Working Party took note of these
commitments."
B. T
HE PRESUMPTIVE TAX LEADS TO THE COLLECTION OF CUSTOMS DUTIES ON IMPORTED
CIGARETTES IN EXCESS OF ARMENIA'S BOUND TARIFF RATES
 Armenia bound its tariffs for cigarettes (HS 2402 20) at 15 per cent pursuant to its Schedule
of Concessions. Nevertheless, under the Tobacco Ch arges Law, Article 3, Armenia collects customs
duties of 8.5 per cent of the fixed charge of 6500 AMD (i.e. 552.50 AMD) which equals the
imposition of a customs duty on imported cigarettes of up to 24 per cent.

 By imposing customs duties in excess of t hose provided in its Schedule of Concessions
reproduced in the Annex to the Protocol of Acces sion of Armenia to the WTO, Armenia's Tobacco
Charges Law and any relevant amendments, repl acements and related or subsequent measures
implementing such law are inconsistent with Ar menia's obligations under Article II:1 of the
GATT 1994.

 In addition, Armenia's imposition of specifi c duties on cigarettes under the Tobacco Charges
Law is inconsistent with paragraph 1.2 of the Pr otocol of Accession of Ar menia to the WTO which
incorporates by reference the commitments set out in paragraph 53 of the Report of the Working Party
on the Accession of the Republic of Armenia to the World Trade Organization, which provides that:

"The representative of Armenia stated that the rates of customs duty would not be
applied in excess of the levels bound in Armenia's WTO Schedule of Concessions on
Goods, which is annexed to the Protocol of Accession of Armenia. In addition, upon
request, Armenia would consult with WTO Me mbers to address any concerns related
to the application of specific duties to imports where Armenia had adopted bound
ad valorem tariff rates. The Working Party took note of this commitment."
 The imposition of this presumptive tax on imported cigarettes constitutes a specific duty
which exceeds the bound ad valorem rate. Furthermor e, Armenia has refused to consult with Ukraine
in order to address the concerns of Ukraine relate d to the application of specific duties to imports
where Armenia had adopted bound ad valorem tariff rates. Both constitute clear breaches of
Armenia's accession commitments set forth above.

II. THE EXCISE TAX ON ALCOHOLIC BEVERAGES
 Pursuant to its Excise Tax Law, Armenia applies an excise tax on alcoholic beverages
(HS 2203, 2204, 2205, 2206, 2207, and 2208) at rates th at are substantially higher than those applied
on domestic like products or directly competitive or substitutable products.

 Armenia imposes a lower excise tax on domestic products than on products imported from
Ukraine so as to afford protection to domestic production and to accord imported products treatment
less favourable than that accorded to like products or directly competitive or substitutable products of
national origin. Ukraine considers that Armenia' s Excise Tax Law, any amendments, replacements,
and any related or subsequent measures implementi ng such law are inconsistent with Articles III:1,
III:2, and III:4 of the GATT as well as with the pa ragraph 1.2 of the Prot ocol of Accession of
Armenia to the WTO that incorporates the comm itments set out in paragraphs 70 and 72 of the
Report of the Working Party on the Accession of the Republic of Armenia to the World Trade
Organization which provides that:

"In response, the representative of Armenia st ated that legislation had been enacted
by Armenia's Parliament in Law No. HO-415-N on 21 October 2002 and would be
implemented before the date of accession to equalise the level of excise duties applied
to all distilled beverages, vodka, cognac, li quor, etc. (HS 2208) and to equalise the
level of excise duties applied to champagne, sparkling wines, wines, etc. (HS 2204).
The Working Party took note of these commitments."
 Accordingly, Ukraine respectfully requests, pursu ant to Article 6 of the DSU, that the Dispute
Settlement Body establish a panel to examine these ma tters, with the standard terms of reference set
out in Article 7.1 of the DSU. Ukraine asks that this request be placed on the agenda of the next
meeting of the WTO Dispute Settlement Body that will take place on 25 October 2010.