Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Thai Cigarette WTO Report Will Provide Answers About Related Party Transaction Value

There is a World Trade Organization (WTO) dispute that has been flying under world radar because it is between two developing countries, the Philippines and Thailand and a "sin product", being cigarettes. "Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines" (DS 371) is an interesting case to watch because a portion of the dispute between the parties relates, in part, to the WTO Customs Valuation Agreement. In particular, according to the Philippines, Thailand did not use transaction value in connection with a related party importation. The background facts of the case has been described as follows:

"The dispute started in August 2006 when Thai authorities disregarded declared transaction amounts and charged higher duties, suspecting that exports from Philip Morris' Philippines Manufacturing Inc., the country’s largest cigarette manufacturer and exporter, were undervalued.

Thailand suspected that since the cigarette exporter, Philip Morris Philippines Manufacturing, Inc., and the importer, Philip Morris Thailand, are related parties, the declared prices may have been artificially low to reduce tax payments."

The key problem is that the use of an alternative valuation method resulted in a higher customs valuation and, consequently, higher customs duty, VAT, excise tax, etc. This is a situation that customs lawyers around the world see on a regular basis. The calculation of customs duties and taxes is not a sexy trade issue, but certainly adds up to a significant amount of money when you add up he importations of all affected.

In addition, the Philippines is challenging aspects of the application of Thailand's value-added tax, ad valorem excise tax, health tax and TV tax on imported goods. The allegations include lack of transparency, discriminatory treatment, unfairness & protectionism.

The interim report of the WTO DSB panel is expected to be released to the parties in March 2010 and the final WTO DSB panel report is expected to be released to the public in May 2010.

This case will be important to watch as the WTO DSB Panel may review valuation methods carefully and present approaches to the task. This one case may have significant practical application - unlike so many WTO cases, which are often limited to a narrow set of facts.

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