Taking the floor at the resumption of plenary session on Monday, Santiago warned fellow senators that “one aspect of the so-called sin-tax bill appears to violate international trade law.”
She recalled that the Philippines was earlier made to appear before a dispute settlement body of the World Trade Organization (WTO), which administers the GATT, citing, for instance, Case 396/403 entitled “Philippines-Distilled Spirits.”
“In that case, the WTO ruled that the Philippines is bound to observe its national treatment obligations and, therefore, the Philippines should remove discriminatory features of any Philippine law,” Santiago said. In compliance with the ruling, the senator added that she would support the revised excise-tax structure for distilled spirits.
“My basis is that the proposed combination of ad valorem and specific taxes on distilled spirits applies uniformly to all distilled spirits,” Santiago explained. She said that under the Senate version of the sin-tax bill, the approved tax structure made no distinction “in law or in fact, as to origin and raw material.”
Santiago pointed out that because of the same WTO ruling, she is was raising an alarm that the Senate-approved provision in the sin tax on local content requirement (LCR) for tobacco “appears to be inconsistent with the WTO ruling.”
She zeroed in on Section 145 on cigars and cigarettes of the Senate’s sin-tax version, which states that “of the total volume of cigarettes sold in the country, any manufacturer and/or seller of tobacco products must source at least 15 percent of its Virginia leaf raw materials locally.”
“I humbly recommend to the Senate that this local content requirement should be reviewed,” Santiago said, warning that “the Philippines might be brought before the WTO Dispute Settlement Body on the grounds that it violates GATT 1994 Article 3, which deals with the National Treatment on Internal Taxation and Regulation.”
She added that Article 3 specifically provides that “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 specific amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.”
It also provides that “no contracting party shall establish or maintain any internal quantitative regulation relating to 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,” Santiago said.
She asked Drilon, chairman of the Senate panel in the bicameral talks on the sin-tax reform bill, to require Domingo to appear before the senators for an explanation, saying the issues she raised was “a valid concern of the [bicameral committee].”