PH open to arbitration on cigarette tax case lodged against Thailand

Published July 13, 2020, 10:00 PM

by Bernie Cahiles-Magkilat

The Philippines said it was open to arbitration to make Thailand compensate for discriminatory tax treatment on the cigarette exports of Philip Morris Philippines Manufacturing Inc., but also stressed it fully reserved its right to retaliatory measure against its fellow ASEAN country, which consistently ignored WTO’s rulings in favor of Manila.

In its positing, the chair of the World Trade Organization Dispute Settle Body (DSB) reported to members that consultations with the Philippines and Thailand were still ongoing with regards to resolving their differences in a dispute over the next steps in the DS371 proceedings.

According the DSB report, the Philippines has remained open to finding a solution which could involve arbitration under Article 25 of the Dispute Settlement Understanding (DSU), a hybrid approach, or a mutual agreement on compensation. While remaining constructive, DSB said the Philippines also fully reserved its right to seek authorization to retaliate under Article 22.2 of the DSU.

Article 25 of the DSU provides that expeditious arbitration within the WTO as an alternative means of dispute settlement can facilitate the solution of certain disputes that concern issues that are clearly defined by both parties.

Except as otherwise provided in this Understanding, resort to arbitration shall be subject to mutual agreement of the parties which shall agree on the procedures to be followed. Agreements to resort to arbitration shall be notified to all members sufficiently in advance of the actual commencement of the arbitration process.

Other members may also become party to an arbitration proceeding only upon the agreement of the parties which have agreed to have recourse to arbitration. The parties to the proceeding shall agree to abide by the arbitration award. Arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement where any Member may raise any point relating thereto.

It could be recalled that on February this year, the Philippines requested the WTO for retaliation against Thailand to force it to align its tax treatment on the country’s cigarette after WTO’s first favorable ruling in 2011 and winning subsequent appeals from Thailand. Specifically, the Philippines requested the WTO a suspension of concessions covering $594 million in trade.

Thailand, however, countered saying it was improper for the Philippines to request for retaliation because its appeals of both compliance rulings, filed last January and September, respectively, were still pending.

Thailand was also using the fact that the WTO Appellate Body ceased to function in December last year for lack of quorum to hear cases due to a prolonged US blockade of nominations over longstanding systemic concerns.

Thailand claimed that if the Philippine request is accepted and unilateral action is authorized, the outcome of the dispute will lack credibility and is precedent setting.

But Thailand has consistently lost in their appeals before the WTO on the favorable decisions the court had earlier granted to the Philippines. Still Thailand continued to ignore the WTO decisions.