Press Release
November 20, 2012

Sen. Santiago's statement on the GATT and the Sin Tax Bill

At this point of the debate on the sin tax bill, we are compelled to study whether the bill might constitute a violation of the General Agreement on Tariffs and Trade (GATT). Although the original GATT came into force in 1948, the present GATT came into force in 1995. The 1995 GATT, as an institution, has been superseded by the World Trade Organization (WTO).

According to its preamble, the main direction of the GATT is substantial reduction of tariff and other barriers to trade, and the elimination of discriminatory treatment in international commerce. Therefore, the GATT is not about free trade, but about liberalization toward open trade, based on nondiscrimination. Its main constitutional principle is the principle of nondiscrimination. GATT has 128 parties, while WTO has 153 members, including the Philippines. The WTO is not a specialized agency of the UN system.

International trade law is so complicated that WTO includes a Dispute Settlement Body, and a WTO Appellate Body, where one Filipino has served with distinction as a judge.

GATT 1948 has been supplemented by 12 international agreements dealing with trade in goods. These multilateral agreements deal with, among others, technical barriers to trade. Although the general rule is liberalization, GATT provides certain exceptions such as emergency action; safeguarding the balance of payments; protection of public morals; protection of human, animal, or plant life or health; and protection of national security. But in my humble opinion, our present case does not fall under any of the exceptions.

The various agreements are very complicated. But the GATT is basically a simple agreement. The key disciplines are:

  • Nondiscrimination, which involves the principle of national treatment and the principle of the most-favored nation clause.

  • The prohibition of quantitative restrictions, and

  • A variety of rules that aim to prevent circumvention of the nondiscrimination principle and negotiated market access liberalization, also known as tariff bindings. Over time, attempts - often successful - have been made to exert disciplines on non-tariff measures, thus increasing the scope to bring complaints that market access conditions are being violated.

It appears that such a local content requirement may run contrary to our WTO obligations. More specifically, a 20% local content requirement may contravene the provisions of The General Agreement on Tariffs and Trade 1947 (GATT 1947) Article III, paragraphs 1 and 5, to wit:

Article III

National Treatment on Internal Taxation and Regulation

1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production

x x x

5. No contracting party shall establish or maintain any internal quantitative regulation relating to the mixture, processing or use of products in specified amounts or proportions which requires, directly or indirectly, that any specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources. Moreover, no contracting party shall otherwise apply internal quantitative regulations in a manner contrary to the principles set forth in paragraph 1.

The purpose of GATT 1947 Article III as interpreted by the WTO Appellate Body in Japan – Alcoholic Beverages II is as follows:

“The broad and fundamental purpose of Article 111 is to avoid protectionism in the application of internal tax and regulatory measures. More specifically, the purpose of Article III ‘is to ensure that internal measures “not be applied to imported or domestic products so as to afford protection to domestic production.” Towards this end, Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products. ‘The intention of the drafters of the Agreement was clearly to treat the imported products in the same way as the domestic products once they had been cleared through customs. Otherwise indirection could be given.’”

News Latest News Feed