By Bernie Cahiles-Magkilat
The Philippine government is seriously studying a possible trade remedy, most possibly punitive tariffs, on car exports from Thailand before end this year in retaliation to its fellow ASEAN country’s continued refusal to comply with the WTO ruling to correct its discriminatory cigarette tax treatment on Philippine tobacco products.
Trade and Industry Undersecretary Ceferino S. Rodolfo said the DTI has already instructed the Philippine Mission to WTO in Geneva to request the dispute settlement body secretariat to a meeting with Thailand to lay the Philippine position last week.
Rodolfo said the process can be fast saying the Philippine government may exercise its “retaliatory rights by December or before end of this year.”
In a chance interview, Trade and Industry Secretary Ramon M. Lopez said he had tried to convince Thailand to comply with the WTO. “If they would not still comply, then we will be forced to move for the retaliatory,” Lopez said.
Lopez said he support the review towards the exercise of a retaliatory trade remedy, but stressed, “we have to study well,” noting there will still be negotiation and hopefully Thailand would compensate for the injury caused on cigarette exports.
If Thailand still refuses, Lopez, said he would prefer the use of tariffs over quantitative restrictions (QR) noting that QR would be subject to regulations with no revenue impact but at the end there will be higher prices on the affected products.
“But the with tariff, there is a clear protection and revenue from the imposition of the tariff rate that is why tariff is usually preferred over QR as a trade remedy,” he said.
Rodolfo further said that the Philippine government has followed all the sequencing agreement with Thailand signed in 2012 over the cigarette dispute settlement or DS 371 before the WTO. The Philippines won in all of its cases against Thailand with favorable WTO ruling, but Thailand remained uncompliant.
Under the WTO rules, the Philippines has the right to retaliate. Generally, the complainant may seek suspension of concession or obligation in the same sector in which the violation or impairment was found. However, if the complainant considers it impracticable or ineffective to remain within the same sector, the sanctions can be in a different sector or the so-called sector retaliation.
Rodolfo explained that since the Philippines does not import much tobacco from Thailand, a retaliation on that same product would not do justice to the economic injury caused by Thailand’s illegal imposition of sanctions on the Philippine export.
“That is why we looked at automobiles because that is our biggest import from Thailand,” he said.
Thailand is Philippines number one source of automobile imports. From 2014 to 2018, the Philippines imported 428,000 units from Thailand. These are products covered under HS Codes 8703 and 8704 or the tariff lines for automobiles used for the transport of persons and goods. The country’s third biggest import from Thailand is rice.
“We are seriously calculating retaliatory rights on automotive product exports from Thailand,” said Rodolfo. Under the ASEAN Trade in Goods Agreement, automotive products produced within the region and traded among the 10 ASEAN member countries have zero duty.
The DTI is looking at two retaliatory options: quantitative restrictions on CBU imports from Thailand or imposition of safeguard measure. Rodolfo was leaning more towards the imposition of quantitative restrictions on car imports from Thailand.
Under a QR option, the volume may be based on the volume of imports in the last three years. In many cases, imports above the threshold may face a prohibitive “out-of-quota” tariff rate. Under that regime, the quota component combines with a specified tariff level to provide the desired level of protection. Aside from the limited volume of imports, the punitive tariff would definitely translate to higher prices for the product under QR.
To stop the Philippines from exercising its right to retaliate, all that Thailand has to do is lift all their non-compliant measures, including unfair tax treatment on Philippine tobacco exports, as ordered under the WTO ruling of DS371. In addition, Thailand must also withdraw the criminal proceedings (technical smuggling issue) that they filed against Philip Morris which had been proven that the company officials involved followed the proper protocol.
On July 12, 2019, the WTO upheld the Philippines claims that Thailand unfairly treated its cigarette exports in violation of WTO law on customs valuation. That was the latest decision handed down by the WTO on the last compliance filed by the Philippines against Thailand, nut Thailand has again appealed the ruling last October.
At that time, Trade Secretary Ramon Lopez urged Thailand to comply once and for all the WTO ruling by treating the country’s cigarette exports Philippines.
“This WTO dispute has been going on for more than 10 years now, Thailand has lost all three panel and appellate rulings, and it is about time that Thailand accepts the rulings and implement the customs valuation reforms called for by those rulings,” Lopez said.
The cigarette tax dispute started in 2008 when the Philippines, on behalf of Philip Morris Philippines Manufacturing Inc., asked the WTO panel to look into the discriminatory tax treatment the Thai government imposed on imported cigarettes, particularly on customs valuation.