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Source(s) of the information:
Source(s) of the information:

Final Report of the Panel

TABLE OF WTO AND GATT CASES CITED IN THIS REPORT

Short TitleFull case title and citation
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, 515
Argentina – Hides and Leather Panel Report, Argentina – Measures Affecting the Export of Bovine Hides and Import of Finished Leather, WT/DS155/R and Corr.1, adopted 16 February 2001, DSR 2001:V, 1779
Argentina – Textiles and Apparel Panel Report, Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, WT/DS56/R, adopted 22 April 1998, as modified by Appellate Body Report WT/DS56/AB/R, DSR 1998:III, 1033
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, 1527
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning Periodicals, WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, 449
Canada – Periodicals Panel Report, Canada – Certain Measures Concerning Periodicals, WT/DS31/R and Corr.1, adopted 30 July 1997, as modified by Appellate Body Report WT/DS31/AB/R, DSR 1997:I, 481
Canada – Wheat Exports and Grain Imports Panel Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain, WT/DS276/R, adopted 27 September 2004, upheld by Appellate Body Report WT/DS276/AB/R, DSR 2004:VI, 2817
Chile – Price Band System Panel Report, Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/R, adopted 23 October 2002, as modified by Appellate Body Report WT/DS207AB/R, DSR 2002:VIII, 3127
Colombia – Ports of Entry Panel Report, Colombia – Indicative Prices and Restrictions on Ports of Entry, WT/DS366/R and Corr.1, adopted 20 May 2009
Dominican Republic – Import and Sale of Cigarettes Appellate Body Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/AB/R, adopted 19 May 2005, DSR 2005:XV, 7367
Dominican Republic – Import and Sale of Cigarettes Panel Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/R, adopted 19 May 2005, as modified by Appellate Body Report WT/DS302/AB/R, DSR 2005:XV, 7425
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos‑Containing Products, WT/DS135/AB/R, adopted 5 April 2001, DSR 2001:VII, 3243
EC – Bananas III(Article 21.5 – Ecuador II) / EC – Bananas III(Article 21.5 – US) Appellate Body Reports, European Communities – Regime for the Importation, Sale and Distribution of Bananas – Second Recourse to Article 21.5 of the DSU by Ecuador,WT/DS27/AB/RW2/ECU, adopted 11 December 2008, and Corr.1 / European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the DSU by the United States, WT/DS27/AB/RW/USA and Corr.1, adopted 22 December 2008
EC – Poultry Appellate Body Report, European Communities – Measures Affecting the Importation of Certain Poultry Products, WT/DS69/AB/R, adopted 23 July 1998, DSR 1998:V, 2031
EC – Poultry Panel Report, European Communities – Measures Affecting the Importation of Certain Poultry Products, WT/DS69/R, adopted 23 July 1998, as modified by Appellate Body Report WT/DS69/AB/R, DSR 1998:V, 2089
EC – Selected Customs Matters Appellate Body Report, European Communities – Selected Customs Matters, WT/DS315/AB/R, adopted 11 December 2006, DSR 2006:IX, 3791
EC – Selected Customs Matters Panel Report, European Communities – Selected Customs Matters, WT/DS315/R, adopted 11 December 2006, as modified by Appellate Body Report WT/DS315/AB/R, DSR 2006:IX-X, 3915
India – Autos Panel Report, India – Measures Affecting the Automotive Sector, WT/DS146/R, WT/DS175/R and Corr.1, adopted 5 April 2002, DSR 2002:V, 1827
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1 and 2, adopted 23 July 1998, and Corr. 3 and 4, DSR 1998:VI, 2201
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97
Japan – Alcoholic Beverages II Panel Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/R, WT/DS10/R, WT/DS11/R, adopted 1 November 1996, as modified by Appellate Body Report WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, DSR 1996:I, 125
Japan – Film Panel Report, Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, 1179
Korea – Alcoholic Beverages Appellate Body Report, Korea – Taxes on Alcoholic Beverages, WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, 3
Korea – Various Measures on Beef Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I, 5
Korea – Certain Paper Panel Report, Korea – Anti-Dumping Duties on Imports of Certain Paper from Indonesia, WT/DS312/R, adopted 28 November 2005, DSR 2005:XXII, 10637
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, 3
Turkey – Rice Panel Report, Turkey – Measures Affecting the Importation of Rice, WT/DS334/R, adopted 22 October 2007, DSR 2007:VI, 2151
US – Anti-Dumping Measures on Oil Country Tubular Goods Appellate Body Report, United States – Anti-Dumping Measures on Oil Country Tubular Goods (OCTG) from Mexico, WT/DS282/AB/R, adopted 28 November 2005, DSR 2005:XX, 10127
US – Certain EC Products Appellate Body Report, United States – Import Measures on Certain Products from the European Communities, WT/DS165/AB/R, adopted 10 January 2001, DSR 2001:I, 373
US – Cotton Yarn Appellate Body Report, United States – Transitional Safeguard Measure on Combed Cotton Yarn from Pakistan, WT/DS192/AB/R, adopted 5 November 2001, DSR 2001:XII, 6027
US – Countervailing Duty Investigation on DRAMS Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/AB/R, adopted 20 July 2005, DSR 2005:XVI, 8131
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, 1619
US – Hot-Rolled Steel Panel Report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/R, adopted 23 August 2001 modified by Appellate Body Report WT/DS184/AB/R, DSR 2001:X, 4769
US – Lamb Appellate Body Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia, WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, DSR 2001:IX, 4051
US – Section 211 Appropriations Act Appellate Body Report, United States – Section 211 Omnibus Appropriations Act of 1998, WT/DS176/AB/R, adopted 1 February 2002, DSR 2002:II, 589
US – Section 337 Tariff Act GATT Panel Report, United States Section 337 of the Tariff Act of 1930, L/6439, adopted 7 November 1989, BISD 36S/345.
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, 2755
US – Shrimp Panel Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/R and Corr.1, adopted 6 November 1998, as modified by Appellate Body Report WT/DS58/AB/R, DSR 1998:VII, 2821
US – Shrimp (Thailand) / US – Customs Bond Directive Appellate Body Report, United States – Measures Relating to Shrimp from Thailand / United States – Customs Bond Directive for Merchandise Subject to Anti‑Dumping/Countervailing Duties, WT/DS343/AB/R, WT/DS345/AB/R, adopted 1 August 2008
US – Stainless Steel (Korea) Panel Report, United States – Anti-Dumping Measures on Stainless Steel Plate in Coils and Stainless Steel Sheet and Strip from Korea, WT/DS179/R, adopted 1 February 2001, DSR 2001:IV, 1295
US – Stainless Steel (Mexico) Panel Report, United States – Final Anti-Dumping Measures on Stainless Steel from Mexico, WT/DS344/R, adopted 20 May 2008, as modified by Appellate Body Report WT/DS344/AB/R
US – Steel Safeguards Panel Reports, United States – Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248/R / WT/DS249/R / WT/DS251/R / WT/DS252/R / WT/DS253/R / WT/DS254/R / WT/DS258/R / WT/DS259/R, and Corr.1, adopted 10 December 2003, as modified by Appellate Body Report WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R, DSR 2003:VIII, 3273
US – Tobacco GATT Panel Report, United States Measures Affecting the Importation, Internal Sale and Use of Tobacco, DS44/R, adopted 4 October 1994, BISD 41S/131.
US – Underwear Appellate Body Report, United States – Restrictions on Imports of Cotton and Man‑made Fibre Underwear, WT/DS24/AB/R, adopted 25 February 1997, DSR 1997:I, 11
US – Upland Cotton (Article 21.5 – Brazil) Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the DSU by Brazil, WT/DS267/AB/RW, adopted 20 June 2008
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton, WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, 3
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/AB/R, adopted 19 January 2001, DSR 2001:II, 717
US – Zeroing (EC) Appellate Body Report, United States – Laws, Regulations and Methodology for Calculating Dumping Margins ("Zeroing"), WT/DS294/AB/R, adopted 9 May 2006, and Corr.1, DSR 2006:II, 417
US – Zeroing (EC) (Article 21.5 – EC) Appellate Body Report, United States – Laws, Regulations and Methodology for Calculating Dumping Margins ("Zeroing") – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS294/AB/RW and Corr.1, adopted 11 June 2009

ABBREVIATIONS

AbbreviationDescription
ACC Appeals Consideration Committee, now the Board of Appeals
AFTA Association of South East Asian Nations (ASEAN) Free Trade Agreement
Anti-Dumping Agreement Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
ASEAN Association of South-East Asian Nations
B baht
BoA Thai Board of Appeals within the Ministry of Finance
CEPT Common Effective Preferential Tariff
c.i.f. cost, insurance and freight
Customs Valuation Agreement Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994
Customs Value Decision Decision Regarding Cases where Customs Administrations Have Reasons to Doubt the Truth or Accuracy of the Declared Value
CVA Customs Valuation Agreement
DDG Deputy Director-General
DG Director-General
DG Customs Director-General of Customs
DG Excise Director-General of Excise
DG Revenue Director-General of Revenue
DG Treasury Director-General of Treasury
DSB Dispute Settlement Body
DSI Department of Special Investigations
DSU Dispute Settlement Understanding
Duty-Paid c.i.f. Price c.i.f. prices of the cut tobacco or tobacco plus duties on imports
FY financial year
GAAP generally accepted accounting principles
GATT 1994 General Agreement on Tariffs and Trade 1994
GM gross margin
MFN Most Favoured Nation
MRSP Maximum Retail Selling Price
OFAC U.S. Office of Foreign Assets Control
PG&E Profit and General Expenses
PMI Philip Morris International Inc.
PM Philippines Philip Morris Philippines Manufacturing Inc.
PM Thailand The Thailand branch office of Philip Morris (Thailand) Limited
PMTL The Thailand branch office of Philip Morris (Thailand) Limited
PWC PricewaterhouseCoopers
RPT Reasonable Period of Time
RRSP Recommended Retail Selling Price
RSP Retail Selling Price
SCM Agreement Agreement on Subsidies and Countervailing Measures
Thai Customs The Customs Department of the Kingdom of Thailand
TNS Market Study Taylor Nelson Sofres Market Study
TTM Thailand Tobacco Monopoly
TTM officials Thailand Tobacco Monopoly Board of Directors
TV transaction value
VAT Value Added Tax
Vienna Convention Vienna Convention on the Law of Treaties
WCO World Customs Organization
WTO Agreement Marrakesh Agreement Establishing the WTO

I. INTRODUCTION

A. COMPLAINT OF THE PHILIPPINES

1.1.
On 7 February 2008, the Philippines requested consultations with Thailand pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), Article XXII:1 of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994"), and Article 19 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the "Customs Valuation Agreement") with respect to the measures and claims set out below.1
1.2.
Consultations were held on 23 April 2008 and on 9 September 2008, but failed to produce a mutually agreed solution.

B. ESTABLISHMENT AND COMPOSITION OF THE PANEL

1.3.
On 29 September 2008, the Philippines requested the establishment of a panel. At its meeting on 17 November 2008, the Dispute Settlement Body ("DSB") established a panel in accordance with Article 6 of the DSU (WT/DSB/M/259), with standard terms of reference, to examine the matter referred to the DSB by the Philippines in document WT/DS371/3.
1.4.
The Panel's terms of reference are the following:

"To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by the Philippines in document WT/DS371/3 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

1.5.
On 16 February 2009, the parties agreed to the following composition of the Panel:2

Chairman: Mr Roberto Carvalho de Azevedo

Members: Mr Richard Gottlieb

Mr Alvaro Hansen

1.6.
Australia, China, the European Union3, India, Chinese Taipei and the United States have reserved their rights to participate in the Panel proceedings as a third party.

C. PANEL PROCEEDINGS

1.7.
The Panel held the first substantive meeting with the parties on 10 and 12 June 2009. The session with the third parties took place on 11 June 2009. The second substantive meeting with the parties was held on 4-6 November 2009.
1.8.
On 16 December 2009, the Panel issued the descriptive part of its Panel Report. The Panel issued its Interim Panel Report to the parties on 30 June 2010. The Panel issued its Final Report to the parties on 4 August 2010.

II. FACTUAL ASPECTS

A. THE MEASURES AT ISSUE

2.1.
This dispute concerns Thailand's customs and fiscal measures on cigarettes imported from the Philippines.
2.2.
The Philippines identified the following as the measures at issue in this dispute:

(a) Measures pertaining to customs valuation:

· the general rule and/or methodology providing for the systematic rejection of transaction value and the systematic use of a deductive valuation method;

· individual determinations made by Thai Customs for entries of cigarettes exported from the Philippines and entered between 4 August 2006 and 19 March 2008, including:

o the Notices of Assessment for the entries listed in Annex I to the Philippines' request for the establishment of a panel; and

o the assessment of value for purposes of setting the guarantee or cash deposit at the time of entry for the entries listed in Annex II to the Philippines' request for the establishment of a panel;

· Customs Act, B.E. 24694 (1926), including all amendments;

· Ministerial Regulation No. 132 B.E. 2543 (1990) issued under authority of the Customs Act B.E. 2469 (1926) and the amending Ministerial Regulation No. 145 B.E. 2547 (2004) and Ministerial Regulation No. 146 B.E. 2550 (2007);

· Notification No. 23/2549 (2006) of Thai Customs, containing guidelines on customs valuation;

· Customs Regulation No. 2/2550 (2007) Re: amendment of the Customs Formalities and Guidelines Code B.E. 2544 (2001) re: Customs formalities to prevent Customs value duty evasion, and amendment of Customs Department Regulation No. 14/2549 (2006) re: Guideline for Fixing of Customs Value;

· Customs Regulation No. 14/2549 (2006), re Guideline for Fixing of Customs Value, as amended by Customs Regulation No. 2/2550 (2007);

· Customs Notification No. 29/2549 (2006) Procedure in requesting duty fee assessment; and

· any amendments, implementing measures, or other related measures.

(b) Measures pertaining to Thailand's Value-Added Tax ("VAT") regime:

· Sections 79/5, 81, 82/7, 88, 88/2, 88/5, 88/6, 89(4), and 89/1 of the Revenue Code of Thailand;

· Section 23 of the Tobacco Act B.E. 2509 (1966);

· Royal Decree, issued under the Revenue Code, Governing the Reduction of the Value Added Tax Rates (No. 479), B.E. 2551 (2008);

· Royal Decree issued under the Revenue Code Governing Exemption from Value Added Tax (No. 239) B.E. 2534 (1991);

· Order of the Revenue Department No. Por 85/2542 (1999);

· Notification of the Director-General of the Revenue Department on VAT (No. 10);

· MRSP Notices issued by the Director-General for Excise. The currently applicable MRSPs are set out in the Notice B.E. 2550 (2007) of 29 August 2007 (for domestic products) and in the Notice B.E. 2551 (2008) of 19 August 2008 (for imported products); and

· any amendments, implementing measures, or other related measures.

(c) Thailand's VAT‑related requirements on wholesale and retail sellers of cigarettes that are contained in the following measures:

· Sections 81 and 82/7 of the Thai Revenue Code;

· Royal Decree issued under the Revenue Code Governing Exemption from Value Added Tax (No. 239) B.E. 2534 (1991);

· Order of Revenue Department Por 85/2542; and

· any amendments, implementing measures, or other related measures.

(d) Measures pertaining to Thailand's other fiscal measures:

· Thailand's excise tax regime operated through the following measures:

o the Tobacco Act B.E. 2509 (1966), Sections 5, 5 ter, and 5 quinquies;

o Notices of Director-General for Excise, setting out the ex factory prices. The currently applicable ex factory prices are set out in the Notice B.E. 2550 (2007) of 29 August 2007; and

o any amendments, implementing measures, or other related measures.

· Thailand's health tax regime operated through the following measures:

o the Health Promotion and Foundation Act, B.E. 2544 (2001), in particular Sections 11, 12, and 13 thereof; and

o any amendments, implementing measures or other related measures.

· Thailand's television tax regime operated through the following measures:

o the Thai Public Broadcasting Service Act 2551 (2008), in particular Sections 12, 13, and 14 thereof; and

o any amendments, implementing measures, or other related measures.

(e) Thailand's administration of its customs and fiscal measures as listed in (a)‑(d) above

(f) Thailand's administration of its legal provisions pertaining to guarantees, including the following:

· the provisions of the Customs Act B.E. 2469 (1926) (as amended) in respect of guarantees (specifically, Sections 112, 112 bis, 112 ter, and 112 quater);

· Customs Regulation No. 2/2550 (2007) Guideline to determine customs price valuation; and

· any amendments, implementing measures, or other related measures.

(g) An investigation by Thailand's Department of Special Investigation ("DSI") of the Thailand branch office of Philip Morris (Thailand) ("PM Thailand") in relation to the declared customs value of imports from the Philippines

(h) Undue delay in Thailand's administrative decision making:

· delays in decision making by the Board of Appeals ("BoA"), which operates under Section 112 sexies to Section 112 undevicies of the Customs Act; and

· failure to meet the 90-day deadline set in Thai law in Section 45 of the Administrative Procedure Act B.E. 2539 (1996) for administrative decisions in appeals against the maximum retail selling prices ("MRSPs") set by the Thai Excise Department.

(i) Failure to provide for judicial or administrative review of the customs authorities' decisions relating to the imposition and collection of guarantees, pending the issuance of a notice of assessment, covering the customs duties and excise, health and television taxes that may become payable

B. PROCEDURAL HISTORY

1. Additional procedures for the protection of business confidential information ("BCI" procedures)

2.3.
On 19 February 2009, the Philippines submitted a letter to the Panel requesting it to establish special procedures to protect BCI. In the Annex to this letter, the Philippines proposed a draft of suggested BCI procedures. Following an exchange of views on issues relating to BCI procedures at the organizational meeting held on 25 February 2009, the parties submitted their comments in writing on 27 February 2009. Thailand also provided the Panel with its own draft of suggested BCI procedures on the same day. The Philippines submitted, on 2 March 2009, its comments on Thailand's written comments of 27 February 2009. In response, Thailand provided additional comments on the Philippines' comments on 3 March 2009. On the same day, the Philippines made further comments on Thailand's comments of 3 March 2009. Having considered, inter alia, the draft versions of the BCI procedures submitted by the parties, their comments on each other's draft BCI procedures and the BCI procedures adopted in previous disputes, the Panel adopted additional working procedures concerning BCI on 11 March 2009. These procedures are set forth in Annex A-1.
2.4.
In accordance with paragraph 2 of the BCI procedures, on 16 March 2009, the parties submitted Approved Persons lists to the Panel and the other party. In the absence of objection from the parties to the designation of an individual, included in the list submitted by the other party, as an Approved Person, the Panel designated these individuals as Approved Persons on 18 March 2009.

2. Amicus curiae briefs

2.5.
On 27 March 2009, the Panel received a request from a private entity wishing to submit information to the Panel with regard to this dispute. On 17 April 2009, the Panel responded by requesting that such amicus curiae briefs be addressed directly to the parties and third parties to the dispute. Upon receiving such briefs, the parties and third parties would decide whether and how to use such briefs and/or any information contained therein in their submissions and arguments to the Panel in these proceedings.

3. The Philippines' request to the Panel to seek certain documents from Thailand pursuant to Article 13 of the DSU

2.6.
The Philippines requested in its first written submission5 that, pursuant to Article 13 of the DSU, the Panel seek certain documents from Thailand to facilitate the Panel's objective assessment of the claims, arguments and evidence before it. The Panel informed the parties on 1 April 2009 of its decision to render its ruling in this regard after it has had an opportunity to review Thailand's first written submission. Thailand noted at the first substantive meeting with the Panel, that some of the documents on the Philippines' document list had already been submitted by the parties as part of their first written submissions. Thailand further provided the Panel with a number of other documents on the Philippines' list as part of its first oral statement. Further, Thailand also commented on the relevance of several other documents on the Philippines' list. During the first substantive meeting, the Panel asked the Philippines to clarify the remaining documents on its list and any other additional documents that it still considered necessary for the Panel to seek from Thailand. The Philippines submitted an updated list of documents on 15 June 2009.
2.7.
The Panel considered the parties' views on the documents/information requested by the Philippines in the light of the matters presented in this dispute. Pursuant to the authority vested in panels under Article 13.1 of the DSU, the Panel sent a letter on 24 August 2009, requesting the parties to submit certain documents/information as indicated in the Annex to the letter. The parties submitted the requested documents/information on 4 September 2009. Pursuant to these submissions, comments were received from the Philippines on 16 September 2009 and from Thailand on 25 September 2009.

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

A. THE PHILIPPINES

3.1.
The Philippines requests that the Panel find that:

(a) with respect to the administration of customs and fiscal rules, Thailand violates:

· Article X:3(a) of the GATT 1994 because persons responsible for administering Thailand's customs and tax rules are officers of Thailand Tobacco Monopoly ("TTM");

· Articles X:3(a) and X:3(b) of the GATT 1994 because of delays in its administrative decision-making, particularly undue delays in the BoA's decision-making; and

· Article X:3(b) of the GATT 1994 because Thailand provides no legal mechanism whatsoever for the administrative or judicial review of decisions taken by Thai Customs to collect guarantees for customs duties and internal taxes potentially due of the finally assessed customs value.

(b) with respect to customs valuation issues, Thailand violates:

· Articles 1.1 and 1.2 of the Customs Valuation Agreementby maintaining and applying a general rule requiring the rejection of transaction value;

· Articles 1.1 and 1.2 of the Customs Valuation Agreementby improperly rejecting PM Thailand's declared transaction values for [[xx.xxx.xx]] entries;

· Article 1.2(a) of the Customs Valuation Agreement by failing to communicate "grounds" before rejecting transaction value;

· Article 16 of the Customs Valuation Agreement by failing to provide an adequate explanation as to how the customs value was determined;

· if the Panel finds that Thailand valued PM Thailand's goods under Article 7 of the Customs Valuation Agreement:

o Thailand improperly applied Article 5 of the Customs Valuation Agreement by declining to use that provision for impermissible reasons;

o Thailand violated Article 7.1 of the Customs Valuation Agreementby improperly incorrectly assessing the deductive value of PM Thailand's transactions, specifically by failing to deduct three claimed items and by deducting incorrect amounts for VAT and excise tax for certain transactions; and

o Thailand violated Article 7.3 of the Customs Valuation Agreementby failing to inform PM Thailand in writing of the customs value determined under Article 7 and the method used to determine such value;

· if the Panel finds that Thailand valued PM Thailand's goods under Article 5 of the Customs Valuation Agreement, Thailand violated Article 5 of the Customs Valuation Agreementby improperly incorrectly assessing the deductive value of PM Thailand's transactions; and

· Article 10 of the Customs Valuation Agreement by disclosing in the Thai media confidential customs valuation information provided by PM Thailand to Thai Customs.

(c) with respect to VAT, Thailand violates:

· Article X:1 of the GATT 1994 by failing to publish the methodology and data that it uses to determine the tax base for VAT, i.e., the government-fixed MRSP;

· Article III:2 of the GATT 1994 by imposing a higher VAT burden on imported products than on like domestic products as a result of the level of the MRSPs;

· Article III:2 of theGATT 1994by exempting resales of domestic cigarettes from VAT liability;

· Article III:4 of the GATT 1994 by imposing more onerous administrative requirements for VAT in connection with the resale of imported cigarettes; and

· Article X:3(a) of the GATT 1994 by failing to administer the VAT system in a uniform, reasonable and impartial manner.

(d) with respect to excise, health and television taxes, Thailand violates:

· Article X:1 of the GATT 1994 by failing to publish the methodology and data that it uses to determine the excise tax base for domestic cigarettes, i.e., the government-fixed ex factory price;

· Article X:1 of the GATT 1994 by failing to publish laws and regulations governing the release of guarantees for potential liability for health, excise and television taxes; and

· Article X:3(a) of the GATT 1994 by failing to administer the excise, health and television taxes in a manner that is uniform, reasonable and impartial.

3.2.
The Philippines requests that the Panel recommend that Thailand bring its measures found to be WTO-inconsistent into conformity with its WTO obligations.

B. THAILAND

3.3.
Thailand requests the Panel to find that with respect to the measures within the Panel's terms of reference, the Philippines has failed to establish that Thailand has acted inconsistently with its obligations under any of the provisions of the covered agreements cited by the Philippines.
3.4.
Thailand notes that this dispute is unusual in that the Philippines is complaining about individual completed acts (including, inter alia, the valuation of the [[xx.xxx.xx]] entries listed in the panel request, the alleged breach of Article 10 of the Customs Valuation Agreement, and the use of guarantee values in determining superseded MRSPs allegedly in breach of Article X:3(a)), rather than measures that have ongoing effect as of the date of establishment of the Panel.6 In the event that the Panel makes findings that Thailand has acted inconsistently with its WTO obligations with respect to any of these completed acts, the Panel should, consistent with the guidance provided by prior panels and the Appellate Body,7 refrain from making recommendations with respect to those completed acts.

IV. ARGUMENTS OF THE PARTIES

4.1.
The arguments presented by the parties in their written submissions and oral statements are reflected below.8

A. EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION OF THE PHILIPPINES

1. Introduction

4.2.
This dispute concerns a series of inter-related customs and internal tax measures taken by Thailand regarding cigarettes imported into Thailand from the Philippines by PM Thailand. These customs and tax measures have been both formulated and applied by Thailand in ways that serve to protect the interests of the State-owned monopoly producer of cigarettes, TTM. In addition to protecting TTM's domestic cigarettes, these measures are characterized by a lack of transparency that deprives the importer of the most basic information regarding the regulatory treatment of its goods, and also by chronic delays in decision-making.
4.3.
The Philippines in no way questions Thailand's prerogative to regulate its domestic cigarettes market, including through health measures, and labelling and advertising restrictions. No such regulations or policies are at issue in this dispute.

2. Thailand violates Article X:3(a) of the GATT 1994 by failing to administer its customs and internal tax rules in a "reasonable" and "impartial" manner

(a) The dual role of TTM Officials as Senior Thai Government Officials is inconsistent with Article X:3(a) of the GATT 1994

4.4.
Thailand violates Article X:3(a) because of pervasive institutional and personal links between the Government of Thailand and TTM, which is a "State Enterprise" under Thai law. Since at least 1995, persons responsible for managing TTM's commercial activities as members of the TTM Board of Directors, have also held senior government positions in the Ministry of Finance as Director-General ("DG") of Customs, DG Excise and DG Revenue.
4.5.
These individuals have been responsible for administering the customs and tax rules to which imported and TTM's own cigarettes are subject. Through their governmental functions, these individuals: improperly rejected PM Thailand's declared transaction values; imposed non-reviewable guarantee values; substituted PM Thailand's transaction values with higher assessed customs values; subjected imported cigarettes to discriminatory VAT treatment; levied excise, health and television taxes on a tax basis that is inconsistent with the prescribed tax basis and that is without foundation in Thai law; systematically failed to meet basic transparency requirements, failing to publish rules governing decision-making and explanations for decisions in relation to the customs and tax measures; and systematically delayed decision-making.
4.6.
Even in the context of a public monopoly, this involves an unacceptable conflict of interest. By definition, the TTM officials' public powers profoundly influence the relative competitive situation of domestic and imported cigarettes. Yet, the officials in question, as part of the domestic producer's senior management, have incentives, including personal financial incentives – and, moreover, are obliged by Thai law – to promote the domestic producer's interests, maximizing its market share, revenues, and profits. Furthermore, the Minister of Finance himself has made public statements that TTM should be protected to prevent imported cigarettes from eroding TTM's market position and expressed concerns that PM Thailand's brands would "snatch all of TTM's share if the volume of imports is not reduced".9
4.7.
The dual role of senior Government officials as senior TTM executives constitutes "unreasonable" and "partial" administration of Thailand's customs and tax laws under Article X:3(a). First, it is not "reasonable" – "appropriate" or "suitable" – or "impartial" to vest government officials that are TTM Directors with decision-making power over imported and domestic cigarettes, and over domestic producers and importers of these goods. Doing so creates an "inherent danger"10 that the TTM Directors could use their governmental powers in a manner that confers a competitive advantage on their own company, TTM, and its products. By any standard, such administration is neither "reasonable" nor "impartial", as confirmed by the panel report in Argentina – Hides and Leather.
4.8.
Second, Thailand's administration of its customs and tax laws is unreasonable and partial because, in their capacity as government officials, TTM Directors have access to BCI provided by PM Thailand in connection with the importation of cigarettes. Wearing a government "hat", the TTM officials are vested with the power to request and, indeed, routinely request, sensitive BCI from their competitors. This state of affairs creates an unacceptable risk – an "inherent danger"11 – that TTM could derive an unfair advantage from information that should not be in TTM's hands. The situation in this dispute is, again, similar to the situation in Argentina – Hides and Leather.

(b) Thailand violates Articles X:3(a) and X:3(b) of the GATT 1994 because of undue delays in the BoA's administrative decision-making

4.9.
Thailand has failed to ensure that administrative appeals against customs valuation decisions are resolved promptly, as required by Articles X:3(a) and X:3(b) of the GATT 1994. Administrative appeals filed by PM Thailand to the BoA between March 2002 and March 2003 have still not been resolved, more than seven years later. It is not "reasonable" within the meaning of Article X:3(a) to fail to decide customs valuation appeals for a period of six to seven years, thereby leaving an importer without a prompt remedy against decisions taken by the customs authority. These delays are especially unreasonable given that the BoA has not convened for over a year to consider PM Thailand's appeals. Moreover, these delays are inconsistent with Article X:3(b), which requires a WTO Member to maintain "tribunals or procedures" to ensure "prompt review and correction of administrative action relating to customs matters" (emphasis added). By any standard, a process in which the first administrative step towards the "review and correction" of valuation decisions lasts for more than six years is not "prompt".

(c) Thailand fails to respect Article X:3(b) because no mechanism exists under Thai law for the review of guarantee values

4.10.
Thailand fails to respect Article X:3(b) of the GATT 1994 because it provides no legal mechanism whatsoever for the administrative or judicial review of decisions taken by Thai Customs to collect guarantees for customs duties and internal taxes potentially due on the finally assessed customs value. Article X:3(b) requires a WTO Member to maintain "tribunals or procedures" to ensure "prompt review and correction of administrative action relating to customs matters". Under Thai law, an importer is unable to seek any "review and correction" of the imposition of guarantee values, let alone a prompt "review and correction". Therefore, Thailand violates Article X:3(b) of the GATT 1994.

3. Thailand violates numerous provisions of the Customs Valuation Agreement

(a) Thailand acted inconsistently with Articles 1.1 and 1.2 of the Customs Valuation Agreement by improperly rejecting PM Thailand's declared transaction values for a number of entries

(i) Thailand violated Article 1.1 by improperly rejecting PM Thailand's transaction values as the basis for customs values

4.11.
Thailand acknowledged that PM Thailand's declared transaction values were the "price paid or payable".12 However, Thailand rejected PM Thailand's declared transaction value for two reasons, namely because: (1) the importer and exporter are related; and, (2) another, unspecified importer imports "the same type of goods" at "3 – 4 times" the value of PM Thailand's declared transaction value.
4.12.
Article 1 of the Customs Valuation Agreement provides that the customs value is, in principle, the transaction value declared by an importer. An authority may disregard the transaction value, and apply other valuation methods under the Customs Valuation Agreement, only if a valid basis is available to do so. Neither of the two reasons relied on by Thailand provides such a valid basis.
4.13.
Thailand's first reason – that the importer and exporter are related – is expressly excluded in Article 1.2(a) as the sole reason for rejecting transaction value. Thus, the existence of a relationship between the buyer (PM Thailand) and the seller (Philip Morris Philippines Manufacturing Inc ["PM Philippines"]) is not, in itself, a legitimate ground for rejecting declared transaction values. Moreover, this relationship has been known to the Thai authorities for a number of years before Thailand began rejecting PM Thailand's declared transaction values.
4.14.
Thailand's second reason – that another, unspecified importer imports "the same type of goods" at "3-4 times" higher prices – is also flawed. The price declared by one importer cannot, in itself, be the grounds for rejecting the declared transaction value of another importer. Thailand's reliance on this benchmark is also logically inconsistent, because Thailand relied on the other operator's prices to reject PM Thailand's declared transaction value, but then assessed PM Thailand's customs value at a much lower value than the other operator's prices.
4.15.
The Philippines believes that the unspecified "[]other importer" is a duty-free operator. However, the purchase prices of the operator at issue are not a permissible benchmark because this operator: does not import goods into the Thai customs territory; is exempt from internal taxes, which influences the selling price to the duty-free operator; and, is in a very different position in the value chain than PM Thailand. Importantly, an Opinion by the World Customs Organization, requested by Thailand itself before it began rejecting PM Thailand's declared transaction values in August 2006, confirms that values declared by a duty-paid importer and a duty-free operator are not comparable, without extensive adjustments. Thailand did not perform any such adjustments.

(ii) Thailand violated Article 1.2(a) because it failed to inform PM Thailand of the grounds for considering that the relationship between PM Philippines and PM Thailand influenced the price

4.16.
Thailand failed to comply with its duty under Article 1.2(a) of the Customs Valuation Agreement to communicate the "grounds" for considering that the relationship between PM Thailand and PM Philippines influenced the price. First, Thailand failed to communicate adequate grounds. As previously explained, Thailand's stated grounds for rejecting the declared transaction values are inconsistent with Article 1.1. The communication of WTO-inconsistent grounds for doubting transaction values cannot satisfy the requirement under Article 1.2(a).
4.17.
Second, when Thailand provided a statement in December 2006 to PM Thailand why it was doubting the declared transaction value, it failed to state that PM Thailand's prices were 3-4 times lower than the prices declared by another operator. There is evidence showing that Thailand relied on the other operator's prices in doubting PM Thailand's transaction values before December 2006. Nonetheless, Thailand informed PM Thailand of that ground only 5 months later, in April 2007.
4.18.
Third, Thailand failed to inform PM Thailand of its doubts in a timely fashion. Thai Customs began rejecting transaction values on 4 August 2006, and PM Thailand requested a statement of grounds on 8 August 2006. Thailand did not respond to that request until 19 December 2006, i.e., four-and-a-half months later. During this extended period, PM Thailand was required to provide onerous bank and cash guarantees, and had no opportunity to defend its declared transaction value. Thus, for almost two thirds of the time that Thailand took to assess PM Thailand's customs values, PM Thailand was given no indication as to why its declared transaction values were being rejected. During this time, PM Thailand was deprived of any opportunity to respond effectively to the authority's concerns and to inform its decision-making process.

(iii) Thailand violated Article 16 of the Customs Valuation Agreement by not providing an adequate explanation of its customs value determination for entries at issue

4.19.
Thailand's 12 April 2007 letter also violated Article 16 of the Customs Valuation Agreement. First, Thailand failed to explain adequately why it rejected PM Thailand's declared transaction values. Thailand's stated ground was that PM Thailand and PM Philippines are related, but it did not explain how this relationship allegedly influenced the price between the parties. Moreover, Thailand's one-sentence reference to imports from another importer "with 3-4 times price difference" is vague and unclear, and failed to explain: who that "importer" is; from where it imports its goods; why its prices serve as an indicator of what PM Thailand declared transaction values should be; and what adjustments, if any, were made for that comparison.
4.20.
In addition, the other "importer" appears to be a duty-free operator. PM Thailand informed Thailand in August 2006 that a comparison of its prices with those of a duty-free operator was not relevant or appropriate. In its April 2007 communication, Thailand failed to explain, in the light of that comment, why it nevertheless considered that the prices of a duty-free operator were pertinent. Thailand also failed to explain why the "3-4 times" higher values of the other operator served as a benchmark to reject PM Thailand's transaction values, but not as a benchmark to assess the customs values.
4.21.
Second, the communication's bald reference to the use of a "Fall Back" valuation method, based on a deductive method, failed to explain precisely how and on what basis Thai Customs calculated the assessed values. Third, Thailand also failed to explain why the assessed values are internally inconsistent. Thailand assessed at different values shipments entered at the same time, sometimes on the same day, and under the same circumstances. This erratic and arbitrary decision-making demonstrates the crucial importance of adequate explanations.

(iv) Thai Customs violated Article 5 of the Customs Valuation Agreement by declining to use a deductive valuation methodology without an adequate reason

4.22.
Assuming that Thailand was entitled to reject PM Thailand's declared transaction values under Article 1 of the Customs Valuation Agreement (quod non), Thailand violated Article 5 of the Customs Valuation Agreement because it had no valid reasons for declining to use the deductive valuation method under this provision. Thailand's reason was that PM Thailand could not submit audited financial statements for 2006. However, Article 5 does not require that the importer's "profits and general expenses" be based on the audited financial statement for the year of importation. Indeed, in an internal government document, Thai Customs stated on 6 March 2007 that PM Thailand's audited financial statement for 2005 – which were available to Thai Customs – provided a reliable statement of profit and general expenses and could be used for valuation purposes. As a result, Thailand violated Article 5 of the Customs Valuation Agreement by failing to value PM Thailand's goods using the deductive method under that provision.

(v) Thailand violated Article 7 of the Customs Valuation Agreement by failing to apply "reasonable means" to value PM Thailand's cigarettes and instead relying on "arbitrary and fictitious values"

4.23.
Thailand valued PM Thailand's imports using the "Fall Back" method under Article 7 of the Customs Valuation Agreement, although it failed to disclose the specific methodology used. Under Article 7, customs value must be determined using "reasonable means", which requires the use of objective criteria that generate transparent, consistent, and predictable results. Thailand failed to use "reasonable means" in its valuation of PM Thailand's entries as evidenced by its inconsistent and erratic decisions for PM Thailand's entries. Although these entries were made under the same circumstances, Thailand valued the entries differently, including entries that were cleared on the same day.
4.24.
Further, Thailand's inconsistent and erratic decision-making demonstrates that Thailand violated Article 7.2(g) by using "arbitrary or fictitious values". For example, in a situation where two entries cleared on the same day, Thailand accepted the transaction value for one of these entries, but rejected it for the other entry, and then assessed a value above the transaction values.
4.25.
Thailand also violated Article 7.3 by failing to provide an adequate explanation of the valuation method used. Although Thailand disclosed that it had used a deductive method, Thailand did not disclose: the starting point of the deductive calculations, the nature or amount of the deductions made, the data sources used, and how the deductive method differed from deductive valuation under Article 5.

(vi) Thailand violated Article 10 of the Customs Valuation Agreement by disclosing in the Thai media confidential customs valuation information provided by PM Thailand

4.26.
During August 2006 and for some weeks thereafter, Thai Government officials repeatedly disclosed to the Thai Press, PM Thailand's declared transaction values. These repeated disclosures of highly confidential information violated Article 10 of the Customs Valuation Agreement, which requires that all information which is by nature confidential, or which is provided on a confidential basis for purposes of customs valuation, be treated as "strictly confidential". Authorities must "not disclose [that information] without the specific permission of the person" providing the information. PM Thailand never authorized the disclosure of this information.

4. Claims pertaining to VAT

(a) Thailand violates Article X:1 of the GATT 1994 by not publishing the methodology used to determine the tax base for VAT, i.e., the government-fixed MRSP

4.27.
Under Thai law, the tax basis for VAT is a government-fixed MRSP determined for each domestic and imported brand. To comply with Article X:1 of the GATT 1994, and consistent with the Dominican Republic – Import and Sale of Cigarettes, Thailand must publish the "essential information" concerning (a) the overall methodology used to determine the MRSPs for each brand; (b) the methodology used to obtain data, including price surveys in Thailand and other countries, and (c) the data relied upon by DG Excise in making its regulations or rulings, including the results of any surveys. Contrary to Article X:1 of the GATT 1994, Thailand has not published laws or regulations addressing any of this information.

(b) Thailand imposes higher VAT on imported products than on domestic products, thereby violating Article III:2 of the GATT 1994

4.28.
Thailand violates Article III:2 of the GATT 1994 because it imposes VAT on imported cigarettes "in excess" of VAT imposed on "like" domestic cigarettes. Imported and domestic cigarettes are "like products" within the meaning of Article III:2 for the following reasons. They have the same essential physical characteristics consisting of a paper tube, a mix of tobacco and additives, and a filter. They have the same "end uses", and Thai consumers treat and perceive imported and domestic brands as substitutable products satisfying the same demand. There is also market-based evidence demonstrating that consumers "switch" between domestic and imported brands. The cigarettes also fall under the same tariff heading, and Thailand makes no regulatory distinctions between different types of manufactured cigarettes.
4.29.
Imported cigarettes are taxed "in excess" of domestic cigarettes because MRSPs are higher for imported than for domestic cigarettes. Considering the totality of the Thai cigarette market, over 90 per cent of imported cigarettes have a higher MRSP than over 95 per cent of domestic cigarettes. Excess taxation of imported cigarettes also arises because Thailand established the MRSPs for domestic cigarettes at the level of the retail selling price ("RSP"), whereas the MRSPs for imported cigarettes are typically above the RSP. Because of this "gap" between the MRSP and RSP, imported cigarettes are subject to a higher relative VAT burden than domestic cigarettes.
4.30.
Thailand has not published the general rules used to calculate the MRSPs. Nonetheless, the methodology used to calculate the September 2006 and March 2007 MRSPs has been disclosed and involves discrimination prejudicial to imported brands. The methodology involved the addition of a gross margin, which was 250 per cent higher for imported brands (Marlboro and L&M) than for domestic brands. For these imports, Thailand declined to use the importer's actual gross margin, even though Thai Customs expressly found that this margin was "reliable" and, instead, Thailand constructed a margin based on alleged and undisclosed price surveys. In contrast, for domestic brands, Thailand used TTM's actual gross margin.

(c) Thailand's de jure exemption of resellers of domestic cigarettes from VAT violates Articles III:2 and III:4 of the GATT 1994, because the same exemption is not afforded to resellers of imported cigarettes

4.31.
Thailand also violates Article III:2 of the GATT 1994 by exempting resellers of domestic cigarettes from VAT liability but not so exempting resellers of imported cigarettes. Thus, resales of imported products are subject to VAT, whereas resales of domestic products are not. This constitutes less favourable treatment, and excess taxation, of imported products that are "like" domestic products.
4.32.
Thailand's exemption from VAT of domestic cigarettes also results in a violation of Article III:4 of the GATT 1994. There are two elements to this violation. First, because resellers of imported cigarettes are liable to pay VAT, they are also subject to VAT‑related administrative requirements from which resellers of domestic cigarettes are exempt. These administrative requirements include the requirement to prepare and deliver a tax invoice; to maintain VAT records; and to accept tax audits. These administrative requirements constitute less favourable treatment for imported cigarettes than for domestic cigarettes.
4.33.
Second, if a reseller of imported cigarettes wishes to eliminate its VAT liability on resales, it must claim a tax credit for VAT paid by the entity from which it bought the cigarettes. To obtain the tax credit, the reseller is subject to an administrative procedure. Resellers of domestic cigarettes are not subject to VAT, and are therefore not subject to this procedure. Again, this constitutes less favourable treatment for imported cigarettes than for domestic cigarettes.

(d) Thailand administers the VAT system for one set of MRSPs for imported cigarettes in a manner that is not uniform, reasonable and impartial, as required by Article X:3(a) of the GATT 1994

4.34.
Thailand fails to administer its VAT system in a uniform, reasonable and impartial manner, as required by Article X:3(a) of the GATT 1994. The Philippines' claim focuses on the VAT base, i.e., the MRSP. Thailand's administration of the VAT system has not been "uniform", because the MRSP tax base for imported cigarettes has been administered using different criteria and different calculation inputs. Sometimes the calculations have been notional amounts, never actually paid, based on a guarantee value. At other times, the calculations have been actual amounts based on the assessed customs value. The guarantee value and the assessed customs value are legally different and serve different purposes. Thailand's use of these different approaches has had an impact on the level of the tax base and, hence, the tax burden. Because the MRSP lies at the heart of Thailand's VAT system, the calculation of the MRSP using different criteria means that a key component of Thailand's VAT system is not uniformly administered.
4.35.
Thailand's administration of the VAT system is also not "reasonable" and "impartial". Specifically, the September 2006 MRSPs evidence unreasonable and partial administration, because Thailand used a guarantee value as the starting-point for the MRSP calculation. This guarantee value was described by Thailand as the "highest rate to which the products would be subject [to customs duties]". It is not "reasonable" within the meaning of Article X:3(a) to use an estimate of the "highest" possible customs value to calculate a definitive tax. Indeed, even in Thai law, the guarantee value is not treated as having a definitive character, and is instead used only to collect guarantees for customs duties, as well as the excise, health and television taxes that may become due following the assessment of the customs value.
4.36.
Thailand's administration is also not "reasonable", because the amounts added in the MRSP calculation are purely notional, and not the actual amounts ultimately paid on the basis of the assessed customs value. To the extent that domestic law calls for the tax base to be established by the addition of amounts for customs duties and internal taxes, reasonable administration under Article X:3(a) precludes the addition of speculative, notional amounts. Moreover, Thailand also engages in "partial" administration, because the starting-point for the MRSP calculation for domestic cigarettes is not based on a "highest" estimated value but is, instead, the actual ex factory prices published in MRSP Notices.
4.37.
Finally, Thailand's administration of its VAT system is not "reasonable" because Thailand fails to establish and apply generally applicable criteria for determining the MRSP. Reasonable administration of a tax requires that generally applicable rules be established to regulate the way in which a tax base is determined with respect to subject products. The need for such rules has particular importance in the case of taxes because they impose a direct pecuniary charge on subject persons and goods.

5. Claims pertaining to the excise, health, and television taxes

(a) Thailand violates Article X:1 of the GATT 1994 by failing to publish the rules regarding the determination of the ex factory price

4.38.
Under Thai law, the government-determined ex factory price is the basis for the excise, health and television tax on domestic cigarettes. The determination of ex factory prices falls within the scope of Article X:1, because it is a "regulation" or "administrative ruling" pertaining to "taxes or other charges". Thailand publishes only the amount of the ex factory price, without providing any further information on how that price is determined. However, as the Panel found in Dominican Republic – Import and Sale of Cigarettes, Article X:1 requires Thailand to publish the methodologies, formulae and data used to determine the ex factory prices. Because Thailand has not done so, it violates Article X:1.

(b) Thailand violates Article X:1 by failing to publish laws and regulations governing the release of guarantees for potential liability for health, excise and television taxes

4.39.
When Thailand delays the assessment of customs value, an importer may withdraw its cigarettes from customs if it provides guarantees for its potential liability for customs duties, and for excise, health and television tax. The guarantees are based on a guarantee value determined by Thai Customs. If the subsequently assessed customs value is lower than the guarantee value, the importer's liability for customs duty, excise, health and television tax is lower than the guaranteed amount. In that case, as occurred in July 2008, Thailand releases the guarantees to the extent that they exceed the customs duties and taxes payable on the customs value. However, Thailand has published no laws or regulations governing the release of these guarantees. This is contrary to Article X:1 because rules concerning the release of guarantees are "[l]aws" or "regulations" "pertaining to … the valuation of products for customs purposes", within the meaning of that provision.

(c) Thailand violates Article X:3(a) of the GATT 1994 by administering its excise, health and television taxes in a non-uniform, unreasonable and partial manner

4.40.
Thailand's administration of its excise, health, and television taxes is not uniform, reasonable and impartial, contrary to the requirements of Article X:3(a) of the GATT 1994. Under Thai law, for imported cigarettes, the base for the imposition of these taxes is the assessed customs value plus the applicable customs duties ("Duty-Paid c.i.f. Price"). In some circumstances, however, Thailand administers the taxes using a tax base that is without foundation in Thai law.
4.41.
Specifically, in cases where: (1) Thai Customs rejects the declared customs value and assesses a higher value, and subsequently (2) that assessment is reversed and reduced following an administrative or judicial ruling, Thailand does not collect the excise, health and television taxes on the basis of the Duty-Paid c.i.f. Price. Instead, Thailand uses an unlawful tax base to collect the excise tax, because it collects the tax on the basis of an initial incorrect valuation decision by Thai Customs, which is then revised downwards on appeal. By definition, following administrative or judicial reversal, the authorities' incorrect valuation decision has no basis in Thai law and is not warranted by the facts.
4.42.
Thailand's administration is not uniform within the meaning of Article X:3(a), because the excise tax is sometimes administered on the basis of the assessed customs value (where that assessment is correctly made by Thai Customs) and sometimes on the basis of another value that is not the correctly assessed customs value (where Thai Customs has been found to have incorrectly assessed the customs value). Thailand's administration is also not reasonable. As the Panel in Dominican Republic – Import and Sale of Cigarettes found, it is not reasonable, under Article X:3(a), to administer a consumption tax using a tax base that has no foundation in domestic law.
4.43.
Finally, Thailand's administration of the excise, health and television taxes on imported cigarettes is not impartial, because it lacks even-handedness. In particular, whereas imported cigarettes are sometimes taxed in excess of the lawful tax base, domestic cigarettes are taxed on the basis of the ex factory price, and never taxed in excess of that price.

6. Request to the Panel to seek specific documents from Thailand pursuant to Article 13 of the DSU

4.44.
The Philippines requests the Panel to exercise its authority to seek 21 specifically identified documents (or categories of documents) from Thailand, pursuant to Article 13 of the DSU. Access to these documents will facilitate the Panel's objective assessment of the arguments and evidence presented by the Philippines

B. EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION OF THAILAND

1. Introduction

4.45.
This executive summary of Thailand's first written submission of 11 May 2009 responds to the claims set out in the Philippines' first written submission of 23 March 2009.
4.46.
The Philippines argues at length that Thailand improperly structures its governmental operations, including the state-owned enterprise, TTM, and, as a result, acts inconsistently with its obligations under the WTO Agreements, including under the Customs Valuation Agreement and Article III of the GATT 1994. The real question before this Panel, however, is whether the Philippines has proven that Thailand has applied its customs valuation and domestic taxation laws improperly to cigarettes from the Philippines. This question must be addressed by reference to Thailand's WTO obligations with respect to customs valuation, under the Customs Valuation Agreement, and with respect to national treatment, under Article III of the GATT 1994

2. Legal argument

(a) Claims under the Customs Valuation Agreement

(i) Thai Customs acted consistently with Articles 1.1 and 1.2 of the Customs Valuation Agreement

Thai Customs had "doubts about the acceptability of the price"

4.47.
The Customs Valuation Agreement does not explain or qualify what kind of information constitutes "doubts" about the acceptability of the price. Thai Customs had legitimate doubts about the acceptability of the transfer price between PM Thailand and PM Philippines as the customs value. These doubts were based on the information that another importer was importing the same Philip Morris brand cigarettes at c.i.f. prices approximately three times PM Thailand's transfer price. Thai Customs communicated these doubts to PM Thailand in August 2006, when it first ceased to accept automatically the transaction value and began to require guarantees on imports of PM Thailand.

PM Thailand failed to establish that the relationship did not influence the price

4.48.
The Philippines argues that "the rejection of customs value is based on speculation that the relationship might have influenced the price, and it has not been proved otherwise".13 However, the importer, not the customs administration, bears the burden of establishing that the relationship between buyer and seller did not influence the price. As the WCO informed Thai Customs, "since the acceptance of the transaction value is prima facie based on the condition that the buyer and seller are not related, the burden of proof is generally considered to be on the importer to demonstrate that the transaction value is otherwise acceptable in spite of the fact that the buyer and seller are related".14 In addition, in response to the question "is the importer responsible for ensuring that the price has not been influenced by the relationship...?", the WTO Technical Committee stated, "[y]es. When declaring the customs value under the transaction value method the importer has an obligation to ensure to the greatest extent possible that the price is not influenced".15
4.49.
When Thai Customs communicated its doubts regarding the transfer price to PM Thailand, PM Thailand bore the burden of establishing that the relationship did not influence the price. However, in the period between 4 August 2006, when Thai Customs notified PM Thailand of its doubts as to the acceptability of the transfer price, and 6 March 2007, when Thai Customs met with PM Thailand's representatives to resolve en bloc outstanding issues regarding the valuation of PM Thailand's imports, PM Thailand presented no evidence or otherwise took no steps to discharge its burden of proving that the relationship did not influence the price. In addition, even after the 6 March 2007 meeting, PM Thailand failed to establish that the relationship had not influenced the price. For example, in a letter to Thai Customs dated 14 March 2007, PM Thailand asserted that it "negotiates with the exporter in the foreign country on an arm's basis in a manner consistent with the normal practice in the cigarette industry...".16 However, PM Thailand offered no supporting evidence whatsoever for this assertion. In these circumstances, Thai Customs could not rely on the transaction value as the basis for customs value for the [[xx.xxx.xx]] entries listed in the Philippines' panel request, because the importer had failed to resolve the doubts about the acceptability of the price.

Because PM Thailand failed to establish that the relationship did not influence the price, Thai Customs properly declined to use the transaction value as the customs value

Thai Customs properly informed PM Thailand of the grounds for not using PM Thailand's transfer price as the customs value

4.51.
By letters dated 19 December 2006 and 12 April 2007, Thai Customs clearly explained in writing to PM Thailand that the transaction values were not being used as the basis for customs value "because the importer has yet to prove if the said relationship influences the customs value determination or not" and "it cannot be proven whether the relationship has an influence on the determination of customs value or not".17 The minutes of the 6 March 2007 meeting also make clear that Thai Customs acted because the importer "could not prove" that the relationship did not affect the price.18 In addition, as indicated in the notice of assessment provided in Exhibit THA-15, Thai Customs informed PM Thailand that the entry at issue was being valued pursuant to the "price assessment methodology number 6 deductive value pursuant to the minutes of the meeting dated 6 March". Thus, Thailand acted consistently with Article 1.2 of the Customs Valuation Agreement by informing PM Thailand of the grounds.

(ii) Thai Customs acted consistently with Article 16 of the Customs Valuation Agreement

4.52.
The Philippines claimed that Thai Customs acted inconsistently with Article 16 of the Customs Valuation Agreement by failing to provide an adequate explanation of the determination of the customs value of the [[xx.xxx.xx]] entries at issue.19 As noted above with respect to the Philippines' claim under Article 1.2, Thai Customs fully informed PM Thailand of the grounds on which it was acting.
4.53.
In addition, Thai Customs fully informed PM Thailand how the customs value was actually determined. In the 12 April 2007 letter, Thai Customs explained that "in the determination of customs values, Method 6, which is the 'fall back' method, using the deductive method, was used (according to the Ministerial Regulation no. 132/2545, Clause 3) under Article 7 of the GATT 1994... Please be informed accordingly". In addition, PM Thailand was also provided with a detailed explanation of why the deductive value was used and how it was calculated at the 6 March 2007 meeting, at which it was represented by its accountants.20

(iii) Thai Customs acted consistently with Articles 5 and 7 of the Customs Valuation Agreement in using the deductive method to determine the customs value for PM Thailand's imports

4.54.
Thailand used the "deductive method" under Article 5 of the Customs Valuation Agreement to determine the customs value of PM Thailand's imports. Thailand explained this clearly to PM Thailand at the meeting of 6 March 2007 and in its letter of 12 April 2007.21 In the minutes of the 6 March 2007 meeting, Thai Customs stated that it was using the deductive value method pursuant to Method 6 of Thai Customs' regulations, which corresponds to the "fall back" method of Article 7, rather than pursuant to Method 4 of its regulations22, which would correspond to Article 5 of the Customs Valuation Agreement.23
4.55.
Thai Customs considered that its own regulations prevented it from using the deductive value under Article 5 of the Customs Valuation Agreement where current financial information was not available but permitted it to use the deductive value under Method 6 using the most recent available financial information. It is largely irrelevant how that method was described under municipal law24: the question is whether the deductive value method actually used by Thai Customs was consistent with Article 5 of the Customs Valuation Agreement. The Philippines argues that Article 5 of the Customs Valuation Agreement does not require that the customs administration use company data from the year of importation in determining the deductive value.25 This means that Thai Customs' determination of the deductive value using the most recent available financial information was consistent with Article 5 of the Customs Valuation Agreement.
4.56.
Since this is the only ground on which the Philippines challenges Thai Customs' determination of customs value as inconsistent with Article 5, the Panel should reject the Philippines' claim under that article.26 Because Thai Customs acted consistently with Article 5 in using the deductive method, the Philippines' claim under Article 7 of the Customs Valuation Agreement is moot.

(b) Claims under Article III of the GATT 1994

4.57.
Thailand's VAT system for cigarettes was designed so that Thailand would be able to ensure collection of taxes on all sales of all cigarettes, both domestic and imported, thereby furthering Thailand's revenue and public health objectives with respect to the sale of cigarettes in the Thai market. For these reasons, Thailand decided to use a fixed price for each brand of cigarettes as the tax base for VAT purposes. This fixed price is the MRSP, which is determined and used in the same manner for both domestic and imported brands.
4.58.
The Panel's terms of reference with respect to the use of MRSPs as the tax base for VAT are limited to the MRSP notices in effect at the time of the establishment of the Panel, as listed in the Philippines' request for the establishment of a panel. Previous MRSP notices (including those for imported cigarettes in 2006 and 2007) that had been superseded and had ceased to have legal effect as of the date of the establishment of the panel and that were not listed in the panel request are not within the Panel's terms of reference.

(i) Thailand acted consistently with Article III:2 by using the MRSP as the VAT tax base

The Philippines has failed to establish that all imported cigarettes and all domestic cigarettes are "like products"

4.59.
The Philippines argues that all imported cigarettes and all domestic cigarettes are "like products" within the meaning of the first sentence of Article III:2.27 The Philippines does not make the claim that imported and domestic cigarettes are "directly substitutable or competitive" under the second sentence of Article III:2. The concept of "like products" under Article III:2, first sentence, must be distinguished from products that are merely "directly substitutable or competitive". The Appellate Body has clarified that the definition of "like products" in Article III:2, first sentence, should be construed narrowly28; and only "perfectly substitutable products fall within Article III:2, first sentence".29
4.60.
There are a total of 19 domestic brands30 and 86 imported brands31 in the Thai market. However, the evidence on consumer preferences supplied by the Philippines relates only to three domestic brands and two imported brands. The Philippines has, thus far, failed to supply the evidence on consumers preferences regarding all of these brands necessary to discharge its burden of proof.
4.61.
The Philippines' evidence regarding the five "major cigarette brands" consists primarily of data on so-called "switch in" and "switch out" ratios32, which are poor indicators of consumer perceptions of substitutability. The switch in and switch out ratios between Marlboro and domestic brands also appear to be relatively low. This evidence does not support a finding that the five "major cigarette brands" are "perfectly substitutable" "like products" within the meaning of the first sentence of Article III:2. Also, the fact that there are significant price differences between cigarette brands indicates that all of these brands cannot be deemed to be "like" products.33 Thus, the Philippines has failed to discharge its burden of proving that all imported cigarettes and all domestic cigarettes are "perfectly substitutable" and, therefore, "like products".

The Philippines has failed to establish that Thailand discriminates against imported cigarettes

4.62.
The Philippines claims that imported cigarettes are taxed "in excess" of domestic cigarettes because the MRSPs for virtually all imported cigarettes are above the MRSPs for virtually all domestic cigarettes. However, it does not matter whether the MRSPs of imported cigarettes exceed those of domestic cigarettes. The determination of whether an internal tax discriminates against imported goods within the meaning of Article III:2 depends on whether the tax base for imported and domestic cigarettes is established and applied in a manner that affords protection to domestic cigarettes. The fact that the tax base for some cigarettes may be higher than the tax base for other cigarettes does not reveal anything about whether the tax base is discriminatory within the meaning of Article III:2.
4.63.
The Philippines also argues that imported cigarettes are taxed "in excess" of domestic cigarettes because the MRSP for imported brands exceeds the actual retail price while "such gaps have never arisen for domestic cigarettes".34 Actually, the Philippines' evidence does not support this assertion with respect to domestic cigarettes. Even if it did, it would not establish that the MRSPs are established in a discriminatory manner. First, Article III:2 does not prescribe a particular system of internal taxation and it is not inconsistent with Article III:2 to use a fixed price as the VAT tax base. A comparison between the tax base chosen by a Member (e.g., the MRSPs) and a tax base that was not chosen by the Member (e.g., the retail price) cannot in itself establish that a Member's tax base is applied inconsistently with Article III:2. Both ad valorem and specific taxes (and a mix of the two) are permissible under Article III:2. Thus, the Philippines' argument simply attempts to show that there is a difference between the MRSP and the retail price for one imported brand and not for domestic brands. It is not evidence of discrimination. Finally, Marlboro cigarettes are being sold at below the MRSP because PM Thailand took a business decision to do so.35 The business decisions of private companies cannot give rise to violations by Members of their GATT obligations. Article III:2 does not require Thailand to change its tax base simply because PM Thailand chooses to reduce its prices.
4.64.
Finally, the Philippines argues that imported cigarettes are taxed "in excess" of domestic cigarettes because there were differences in the methodologies used to determine the 2006 and 2007 MRSPs. As noted, the MRSPs for 2006 and 2007 (for imported cigarettes) are not within the Panel's terms of reference. For these reasons, the Philippines has failed to make a prima facie case that, under Thailand's VAT system, imported cigarettes are taxed "in excess" of domestic cigarettes within the meaning of Article III:2 of the GATT 1994 and the Panel should reject the Philippines' claims.
4.65.
In any case, the MRSPs are calculated in the same manner for both imported and domestic brands. The starting points for imported (the duty paid c.i.f. price) and domestic brands (the ex factory price) are equivalent as each is the price at which the cigarettes are first introduced to the Thai market. The MRSP is initially based on the MRSP proposed by the manufacturer and updated whenever the applicable tax rates are changed, or to reflect changes in the manufacturer's c.i.f. or ex factory price or where the manufacturer proposes a change in the light of market circumstances.36
4.66.
The Philippines argues that because MRSPs are periodically adjusted, the VAT burden is sometimes increased for imported cigarettes but left unaltered for domestic cigarettes. This is because the MRSPs may be adjusted in response to a request by the manufacturer (of either domestic or imported brands), and is not evidence of any discrimination in the setting of the MRSPs. In these circumstances, nothing in the use of the MRSPs as the tax base in Thailand's chosen VAT system gives rise to discrimination between imported and domestic cigarettes and hence a violation of Article III:2.

(ii) Thailand acted consistently with Article III:2 of the GATT 1994 with respect to the taxation of resales of cigarettes

4.67.
The Philippines claims that by [allegedly] taxing the resale of imported cigarettes, but not taxing the resale of domestic cigarettes, Thailand acts inconsistently with Article III:2.37 However, the Philippines has failed to make a prima faciecase. As illustrated in Exhibit THA-20, the tax burden on imported and domestic cigarettes is exactly the same. The Philippines' explanations of the Thai VAT system also reach the same conclusion, i.e., that the amount of VAT paid is exactly the same for both imported and domestic cigarettes.38 In addition, in practice, wholesalers and retailers incur no net VAT liability with respect to resales of either imported or domestic cigarettes.39 Accordingly, the Panel should reject this claim.

(iii) Thailand acted consistently with Article III:4 of the GATT 1994 with respect to the administrative requirements for its VAT system

4.68.
The Philippines claims that Thailand acts inconsistently with Article III:4 because a reseller of imported cigarettes is subject to administrative requirements that are not imposed on resellers of domestic cigarettes.40 However, the Philippines has failed to establish that any differences between the reporting requirements modify the conditions of competition in favour of domestic cigarettes or results in "less favourable" treatment of imported cigarettes. First, any differences are minimal: wholesalers and retailers are required to include sales of imported cigarettes (as well as all other domestic and imported products subject to VAT) on their monthly VAT return and to maintain tax invoices and input/output reports with respect to sales subject to VAT while wholesalers and retailers that deal exclusively in VAT‑exempt domestic cigarettes are not required to submit and maintain these documents. However, these wholesalers and retailers must maintain equivalent revenue/expenses reports with respect to sales of domestic cigarettes. In addition, wholesalers and retailers generally buy and sell both domestic and imported cigarettes. Since there are no different chains of distribution with wholesalers and retailers dedicated uniquely to either domestic or imported cigarettes, all wholesalers and retailers are subject to the same administrative requirements.
4.69.
The reason for this minor difference in treatment is that because TTM is legally responsible for all taxes on the cigarettes they sell and, as a government entity subject to government control and audit, presents no risk of tax underpayment, there is no need to submit resellers to the normal VAT reporting, collection and enforcement mechanisms. Since importers such as PM Thailand are not legally responsible for all taxes on their cigarettes, the resellers of those cigarettes present the same risk of underpayment as any other sale of a product – domestic or imported – subject to VAT. The resales of the imported cigarettes are, therefore, subject to the same normal VAT reporting, collection and enforcement mechanisms as other products subject to VAT. The Philippines fails to explain how this difference "modifies the conditions of competition in the relevant market to the detriment of imported products".41
4.70.
If the Panel considers that the minor differences in reporting requirements for sales of imported and domestic cigarettes modify the conditions of competition to the detriment of imported products, Thailand submits that these differences are justifiable under paragraph (d) and the chapeau of Article XX of the GATT 1994. Imported cigarettes are subject to the basic reporting, collection and enforcement mechanisms of Thailand's VAT law. These measures are necessary to secure compliance with VAT law in that it is difficult to see how Thailand could administer its VAT system without requiring VAT payers to maintain and submit the requested documents. Given that these measures are applied to all products, imported or domestic, subject to VAT, they are not applied in a manner that constitutes an arbitrary or unjustifiable discrimination or a disguised restriction on international trade. Thailand's VAT reporting requirements represent a minimal level of bureaucracy for any tax system and, therefore, fall squarely within the scope of Article XX(d) and the chapeau to Article XX.

(c) Claims under Article X of the GATT 1994

(i) Thailand acted consistently with Article X:3(a) with respect to its ownership of TTM

4.71.
The Philippines asserts that Thailand acts inconsistently with Article X:3(a) because government officials that are TTM directors also have decision-making power over imported and domestic cigarettes.42 The Philippines argues that this creates an inherent danger that those officials "could use their governmental powers in a manner that confers a competitive advantage on their own company, TTM, and its products".43 However, Article X:3(a) must be interpreted to address only how Members actually administer their laws and not to address perceptions or risks as to how Members could administer their laws.
4.72.
The Philippines' claim does not refer to the manner in which Thailand actually administers any of its "laws, regulations, decisions, and rulings". The Philippines' claim relates exclusively to how Thailand could administer its customs laws and regulations rather than to how Thailand actually does so. Moreover, the only evidence provided by the Philippines is two quotes from Thailand's Minister of Finance in the press. These statements are not sufficient evidence to support a claim that Thailand has failed to administer its customs and tax laws in a reasonable and impartial manner under Article X:3(a).
4.73.
The Philippines' proposed interpretation of Article X:3(a) to address "risks" of how Members "could" administer their laws would broaden the scope of that provision to impose additional obligations with which Members, including the Philippines, could not possibly comply. Article X:3(a) was intended to address situations in which the risk of improper action by governments became a reality, not to eliminate entirely the possibility of such risk.
4.74.
Under Article XVII of the GATT 1994, Thailand enjoys the right to maintain and operate state-owned enterprises such as TTM. Article X:3(a) does not regulate the manner in which Members exercise their sovereign rights with regard to the structure of their state enterprises or, indeed, their customs and excise departments. In this sense, the Philippines' claim is, in effect, an attack on the sovereign right of the Thai government to maintain and operate a state-owned enterprise. The Panel should not read into that provision additional obligations limiting the rights of Members to maintain state enterprises and to decide for themselves how they will exercise control over those enterprises.
4.75.
The panel report on Argentina – Hides and Leather does not support the Philippines' position. That case involved the presence of private sector individuals at the export clearance process. As that Panel noted, however, the government has a relevant legal interest in the transaction. In addition, that case involved actual access to information rather than the risk of access. Finally, there are several controls requiring Thai government officials to act consistently with the law in the course of their duties.

(ii) Thailand acted consistently with Article X:3(a) and X:3(b) with respect to "administrative tribunals for the purpose of prompt review"

4.76.
The Philippines claims that Thailand acted inconsistently with Articles X:3(a) and X:3(b) of the GATT 1994 "because Thailand has failed to ensure that administrative appeals against customs valuation decisions are resolved promptly".44 However, the Philippines does not explain how the text of Article X:3(a) imposes a specific time limit on the completion of administrative proceedings. Article X:3(a) was not intended to impose absolute deadlines on Members within which to complete such administrative proceedings. Absent any such deadline in Article X:3(a), the Panel should not interpret the term "reasonable" to impose specific deadlines on Members' administrative proceedings where none is prescribed in the text.
4.77.
Even if Article X:3(a) could be interpreted to contain standards governing the completion of administrative proceedings, the Philippines has failed to establish that any delays in Thailand's administrative proceedings are "unreasonable" in the context of the time taken by other similarly-situated WTO Members to complete similar proceedings or in the context of the backlog of appeals faced by Thailand following the coming into effect of the Customs Valuation Agreement. Moreover, the Philippines has failed to provide any guidance as to how the Panel should determine what timeframes would be inconsistent with Article X:3 based on any of the methods of interpretation provided in Articles 31 and 32 of the Vienna Convention. Accordingly, the Philippines has failed to establish that the BoA's processing of PM Thailand's appeals is "unreasonable" conduct within the meaning of Article X:3(a).
4.78.
The Philippines also argues that the time taken to process these appeals constitutes a violation of Article X:3(b). However, Article X:3(b) applies only to tribunals or procedures "independent of the agencies entrusted with administrative enforcement".45 Article X:3(b) does not apply to the BoA as it is not "independent" of Thai Customs.

(iii) Thailand acted consistently with Article X:3(b) with respect to appeals against the imposition of guarantees

4.79.
The Philippines argues that Thailand acted inconsistently with Article X:3(b) of the GATT 1994 by failing to provide for an appeal against the imposition of guarantees pending the final assessment of duties.46 However, the Philippines offers no evidence whatsoever in support of its claim, which therefore must be rejected. In fact, Article 42 of Thailand's Act on Establishment of Administrative Court and Administrative Court Procedures, BE 2542 (1999) provides a right to challenge all Thai government administrative actions (as described in Article 9), including orders requiring guarantees. Therefore, contrary to the Philippines' assertion, Thai law provides importers with ways to contest guarantees.
4.80.
In any event, Article X:3(b) of the GATT 1994, read in the light of the provisions of the Customs Valuation Agreement, does not confer a right to appeal regarding amounts of guarantees required pending final assessment of customs duties on imports. While Article 11.1 of the Customs Valuation Agreement provides a right to appeal with respect to "a determination of customs value", Article 13 does not contain any provision for an appeal of guarantees similar to that provided in Article 11.

(iv) Thailand acted consistently with Article X:3(a) in its administration of the VAT system

4.81.
The Philippines claims that Thailand fails to administer its VAT system consistently with Article X:3(a).47 According to the Philippines, this is inconsistent with Article X:3(a), because the use of different starting points in determining MRSPs in different periods does not constitute uniform, reasonable and impartial administration of the law. This claim is not within the Panel's terms of reference because it is not made in the Philippines' panel request. There is nothing in the Philippines' panel request to suggest that it intended to make a claim under Article X:3 regarding how Thailand calculated the MRSPs. The Philippines has not "plainly connect[ed]" the use of guarantee values to calculate MRSPs with obligations under Article X:3(a) of the GATT 1994 in a manner that "presents the problem clearly".48 In addition, the factual basis for this claim consists primarily of the September 2006 and March 2007 MRSP notices, which are not within the Panel's terms of reference. Accordingly, the Panel should find that it cannot address this claim because it is not within the Panel's terms of reference. However, even if the Panel were to address this claim, it should find that it lacks legal merit.
4.82.
The Philippines claims that Thailand was compelled under Article X:3(a) to use the transaction value as the basis for the MRSP even when Thai Customs had doubts about the transaction value and thus was requiring guarantees from PM Thailand pending final determination of the customs value.
4.83.
Article X:3(a) is not intended to limit the discretion of administrative agencies to apply their rules on a case-by-case basis where different entities present different factual circumstances. As the Appellate Body has stated, "[d]ifferent results in the application of a law or provision do not necessarily reflect non-uniform administration of the law itself, but may stem as well from the exercise of discretion in the application of the law or circumstances of the case".49 The Appellate Body has also noted that "Article X:3(a) of the GATT 1994 does not require uniformity of administrative processes".50 Accordingly, if the Panel considers this claim, it should find that the Philippines has not established as a matter of either fact or law that Thailand acted inconsistently with Article X:3(a) with respect to the administration of its VAT system.

(v) Thailand acted consistently with Article X:1 with respect to rules relating to VAT and ex factory prices

4.84.
The Philippines claims that Thailand acted inconsistently with Article X:1 of the GATT 1994 by failing to publish the methodology for determining MRSPs51 and rules regarding the determination of the ex factory price (which are used in the determination of MRSPs).52 However, the Appellate Body has said that "Article X:1 of the GATT 1994 makes it clear that Article X does not deal with specific transactions, but rather with rules 'of general application'".53 For this reason, "the particular treatment accorded to each individual shipment cannot be considered a measure 'of general application' within the meaning of Article X".54
4.85.
The Philippines argues that Thailand must publish both the "overall methodology" used and "data relied upon" in the determination of the MRSPs and the ex factory price that is used as the basis for the excise, health and television taxes for domestic cigarettes. With respect to the "overall methodology" used to determine the MRSPs, this methodology is stated in the beginning of every published MRSP notice. Regarding the "overall methodology" used to determine the ex factory price, Thailand has published Sections 5ter and 5quater of the Tobacco Act BE 2509 and the Notice of Tobacco and Chew Tobacco Ex Factory Price that describe how the ex factory price is to be calculated. Thus, the Philippines' claim that Thailand has not published the "overall methodology" used to determine MRSPs and ex factory prices must be rejected.
4.86.
In addition, the Philippines claims that "the published rules and data must enable traders to understand how a particular ex factoryprice has been established and to verify the calculations underpinning that price"55 and that Thailand must publish the "methodologies, formulae and data used to determine the MRSPs".56 However, Article X:1 does not require the publication of company- or transaction-specific determinations such as the determination of a particular ex factory price or the calculation of brand-specific MRSPs. The Philippines' claim with respect to the publication of detailed, company-specific or confidential aspects of these calculations must be rejected.

(vi) Thailand acted consistently with Article X:1 with respect to rules relating to guarantees

4.87.
The Philippines claims that Thailand acted inconsistently with Article X:1 of the GATT 1994 by failing to publish laws or regulations governing the release of guarantees for potential liability for health, excise and television taxes.57 The release of guarantees is governed by the provisions of the Customs Act governing the final assessment of customs duties (i.e., Sections 112bis and 112quad of the Customs Act). Because the release of guarantees takes place in the context of the final assessment, there is no need for a provision of law other than the provisions governing final assessment to address separately the release of guarantees. As the Philippines in effect acknowledges, this is what happens under Thai Customs' practice.
4.88.
Article X governs the publication and administration of rules, not the substantive content of the rules themselves.58 The Philippines fails to identify an existing rule of general application under Thai law that Thailand has failed to publish. Instead, the Philippines argues that Thailand should have a rule of general application regarding the release of guarantees and should publish it. The Panel should not permit the Philippines to convert the publication obligation in Article X:1 into an obligation to have particular substantive laws. Accordingly, the Panel should reject the Philippines' claim.

(vii) Thailand acted consistently with Article X:3 in its administration of the excise, health and television taxes

4.89.
The Philippines claims that Thailand acted inconsistently with Article X:3(a) of the GATT 1994 in its administration of its excise, health, and television taxes59, arguing that in cases in which Thai Customs rejects the declared customs value and assesses duties based on a higher c.i.f. value and, subsequently, the customs value is reduced on administrative or judicial appeal, the basis on which the taxes were initially assessed allegedly becomes "unlawful".60 If the Philippines is arguing that Thailand administers its laws inconsistently with Article X:3(a) simply because the c.i.f. value is sometimes revised, this cannot be a violation of a WTO obligation. In any event, exporters may request refunds whenever the c.i.f. value used as the basis for the excise, health and television taxes is revised downward. The Philippines also argues that the administration of these laws is not "impartial" under Article X:3(a) because while the tax base for imported cigarettes may be revised as part of the customs process, the tax base for domestic cigarettes may not be revised in a similar fashion. However, the Philippines presents no evidence for this claim.

3. Conclusion

4.90.
Thailand requests the Panel to find that the Philippines has failed to establish that Thailand has acted inconsistently with its obligations under any of the provisions of the covered agreements cited by the Philippines. This dispute is unusual because the Philippines is complaining about individual completed acts (including, inter alia, the valuation of the [[xx.xxx.xx]] entries listed in the panel request and the alleged breach of Article 10 of the Customs Valuation Agreement), rather than measures that have ongoing effects as of the date of establishment of the Panel. In the event that the Panel makes findings that Thailand has acted inconsistently with its WTO obligations with respect to any of these completed acts, the Panel should, consistent with the guidance provided by prior panels and the Appellate Body61, refrain from making recommendations with respect to those completed acts.

C. EXECUTIVE SUMMARY OF THE ORAL STATEMENT BY THE PHILIPPINES AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL

1. Conflicting roles of TTM directors violate Article X:3(a)

4.91.
Thailand violates Article X:3(a) of the GATT 1994 because senior Thai Government officials administering customs and tax rules for cigarettes are simultaneously Directors of TTM. These positions require them to promote TTM's commercial interests in competition with foreign cigarettes and rewards them with a personal financial bonus based on TTM's performance. Excise Director-General and TTM Chairman Mr. Tamwatin asserted publicly that, inter alia, government powers should be exercised to protect TTM by banning imported cigarettes unless prices were raised to the level of the new maximum RSPs announced by his department. Further, Mr. Tamwatin publicly disclosed, in violation of Article X:3(a) and Article 10 of the Customs Valuation Agreement, PM Thailand's confidential declared transaction values.
4.92.
This pattern of administration is neither "reasonable" nor "impartial" and could negatively impact the competitive situation of imported cigarettes through higher customs duties and taxes. Article X:3(a) requires that decision-makers have no commercial or personal financial interests in the decisions they are making. Contrary to Thailand's arguments, the manner of structuring and organizing government is the very essence of "administration" under Article X:3(a) as found by the Panel in Argentina – Hides and Leather. Thailand also incorrectly claims that Article X:3(a) requires a showing of trade damage; rather, it calls for "an examination of whether there is a possible impacton the competitive situation [of imports] due to alleged partiality, unreasonableness or lack of uniformity in the application of customs rules".

2. Appeal delays violate Articles X:3(a) and X:3(b) of the GATT 1994

4.93.
Thailand also violates Articles X:3(a) and X:3(b) by failing to maintain independent tribunals that promptly review customs decisions. Thailand unreasonably delayed deciding a large number of appeals filed with the BoA, between March 2002 and March 2003. In fact, the last BoA meeting on these appeals occurred in September 2005. These extensive 6-7 year delays establish prima facie that Thailand has not satisfied its obligation to maintain procedures that achieve the required goal of "prompt review" under Article X:3(b) consistent with the panel report in Colombia – Ports of Entry. And even if the BoA is not an independent tribunal within the meaning of Article X:3(b), the claim under Article X:3(b) still stands because of the delay in permitting independent review of an initial decision. In that case, these 6-7 year delays and counting in reaching an initial valuation decision capable of being appealed to an independent tribunal is also all the more unreasonable under Article X:3(a).

3. Customs Valuation Agreementviolations for rejected declared transaction values

4.94.
Thailand rejected validly declared transaction values for a large number of entries without satisfying the conditions of Customs Valuation AgreementArticles 1.1, 1.2, 1.2(a) and 16. Thailand failed to provide sufficient "grounds" under Article 1.2(a) to reject such declared values when it relied on PM Thailand's alleged failure to meet its "burden" to prove that its relationship with PM Philippines did not influence the price of its cigarettes. Further, Thailand's new argument that "PM Thailand presented no evidence or otherwise took no steps to discharge its burden of proving the relationship did not influence the price" is contradicted by the considerable evidence that PM Thailand provided to Thailand to support its declared transaction values. And even assuming that Thai Customs had legitimate "doubts" about PM Thailand's declared transaction values in August 2006, several factors show that Thai Customs failed to examine the circumstances of sale in violation of Article 1.2(a) of the Customs Valuation Agreement, including the minutes of the 6 March 2007 meeting; an analysis of Thai Customs deductive testing; and Thai Customs acceptance of transaction value for [[xx.xxx.xx]] entries that occurred at or around the same time as entries for which transaction value was rejected.
4.95.
The evidence also shows that prior to taking a final decision, Thailand failed to inform PM Thailand of its "grounds for considering that the relationship influenced the price", as required by Article 1.2(a). Contrary to Thailand's arguments, neither the 12 April 2007 letter nor the minutes (which were never given in writing) provided the required notice of such grounds enabling PM Thailand to respond. The authority's finding that the burden of proof had not been satisfied does not qualify as "grounds" under Article 1.2(a). Instead, the "grounds" must address the specific facts and evidence before the authority, and explain the deficiencies the authority has found to exist in the evidence. Moreover, the Philippines disputes Thailand's assertion that PM Thailand was represented at the 6 March 2007 meeting. Finally, the evidence shows that, after taking a final decision, Thailand did not provide PM Thailand with an "explanation in writing … as to how the customs value of the importer's goods was determined", or provide a sufficiently detailed and reasoned explanation of its final decision to permit the importer to understand how and why the authority determined the assessed customs values, as required by Article 16 of the Customs Valuation Agreement.

4. Thailand's violations of Articles 5 and 7 of the Customs Valuation Agreement

4.96.
Having rejected the transaction values, Thailand violated Articles 5 and/or 7 of the Customs Valuation Agreement. Although Thailand argues that it used Article 5 to value PM Thailand's goods, the evidence suggests it used Article 7. If Thailand used Article 5, it violated that provision by failing to deduct: sales allowances, internal transportation costs, and amounts paid for the Provincial Tax. If Thailand used Article 7, it violated Article 5 by failing to use that provision when it should have, and also Article 7.1 because it failed to assess the customs value using "reasonable means".

5. Thailand's violation of Article X:3(b) of the GATT 1994

4.97.
Thailand violates Article X:3(b) of the GATT 1994 because, under Thai law, an importer is not afforded a right to appeal a decision by Thai Customs imposing a "guarantee value" on imported goods. The order imposing a guarantee is a final and complete action relating to customs matters, and has an immediate impact on the competitive situation and market access for imports. Thai judicial decisions, legal opinions from experts in Thai law, and scholarly writings, establish that an importer has no independent right to seek review of orders imposing a guarantee value.

6. Article X:1 claims pertaining to VAT

4.98.
Thailand violates Article X:1 of the GATT 1994 by not publishing the calculation methodology and data used to calculate MRSPs, which serve as the tax base. The Philippines takes issue with evidence submitted by Thailand on the calculation of MRSPs.
4.99.
MRSP notices are administrative rulings of general application within the meaning of Article X:1 because they establish prospective rules governing the maximum price and VAT paid on future cigarettes sales. The protection of confidential data under Article X:1 does not provide an excuse for not publishing non-confidential data constituting an "essential element" of an administrative ruling.

7. Thailand violates Article III:2 of the GATT 1994

4.100.
The evidence demonstrates that all domestic and imported cigarettes in Thailand are "like" products based on evidence of physical characteristics; end uses; consumers' tastes and preferences; and tariff classification. Further, all cigarettes are subject to identical regulatory treatment. The evidence of consumers switching between differently priced cigarette brands, predominantly in response to price changes, shows the products are substitutable. The evidence also shows a strong correlation between changes in consumer demand for domestic and imported brands, and changes in the prices of these brands. This confirms that all cigarettes are "like".
4.101.
Discrimination within the meaning of Article III:2 exists because imported cigarettes bear a higher tax burden than like domestic cigarettes due to the Thai Government's decision to fix a higher tax base for imports coupled with the same tax rate. Further, the Thai Government systematically values imports higher than the market, while systematically valuing domestic products at the market level. The MRSP calculation methodology discriminates in favour of domestic products because it systematically adds a higher amount for marketing costs of imported products.
4.102.
Additionally, Thai law exempts resellers of domestic cigarettes from VAT, but does not so exempt resellers of imported cigarettes. Such de jure discrimination against imports is not a "basic feature of any VAT system", as Thailand argues, but rather is a text-book case of discrimination under Article III:2, first sentence.

8. Thailand violates Article III:4 of the GATT 1994

4.103.
Thailand imposes more onerous administrative requirements in connection with resales of imported cigarettes than with resales of domestic cigarettes. This is because resales of imported cigarettes are subject to VAT, whereas resales of domestic cigarettes are not. An expert legal opinion confirms the more onerous requirements imposed on imported cigarettes than domestic cigarettes which, if not met, results in the denial of tax credits for VAT paid on imported cigarettes and penalties. Finally, Thailand has offered no valid justification under Article XX(d) for this discriminatory VAT exemption or lesser reporting requirements for domestic cigarettes.

9. Thailand's VAT system violates Article X:3(a) of the GATT 1994

4.104.
There is no basis for Thailand's procedural claim under Article 6.2 of the DSUconcerning the Philippines' panel request. There was no obligation for the Philippines to explain why various VAT measures are administered contrary to Article X:3(a). Consistent with Appellate Body jurisprudence, such a statement is not required by Article 6.2 as it sets out an argument, and not a measure or claim.
4.105.
Thailand fails to administer VAT in a uniform, reasonable and impartial manner. Its alternative use of both the assessed customs value and a guarantee value as the starting point for the MRSP calculation results in non-uniform administration. Thailand's use of a guarantee value, which is a provisional estimate of potential liability for customs duties, is not a "reasonable" basis for calculating a definitive MRSP tax base. Under this approach, a guarantee value is treated as having a definitive character that is inconsistent with its provisional legal status. Further, Thailand's failure to calculate the MRSPs using generally applicable criteria set forth in domestic law is also unreasonable. Finally, Thailand's calculation of the MRSP using guarantee values, and notional customs duties and internal taxes, results in partial administration. Evidence demonstrates that imported cigarettes alone are subject to an MRSP calculated using a provisional value as the starting-point for the calculation.

10. Failure to publish basis for ex factory price violates Article X:1

4.106.
Thailand violated Article X:1 of the GATT 1994 by failing to publish the methodology and data used to calculate the ex factory price – the tax base for domestic cigarettes under the excise, health and television taxes. The remarkably consistent determinations of TTM's ex factory prices over the past eight years highlights the need for, and impact of, Thailand's failure to publish the rules.
4.107.
Thailand also violates Article X:1 by failing to publish rules governing the release of guarantees collected for excise, health and television taxes. Expert testimony confirms, as a matter of Thai law, that the provisions of the Customs Act cited by Thailand do not include rules and procedures on the release of guarantees. Thus, although Thailand argues that "guarantees are to be refunded", it has failed to publish rules addressing the basic procedural questions surrounding a refund.
4.108.
Thailand violates Article X:3(a) of the GATT 1994 because, where the customs value initially assessed by Thai Customs is reduced on appeal, Thailand engages in (a) non-uniform administration by using two different tax bases with respect to the same goods: sometimes the correct duty-paid c.i.f. price and sometimes an amount based on an incorrect customs valuation; (b) unreasonable administration by collecting taxes using an incorrect customs value as a tax base, which is without foundation in Thai law; and (c) partial administration by administering the excise, health and television taxes with respect to imported cigarettes on an inflated basis that has no foundation in Thai law; in contrast, domestic cigarettes are never taxed on a base in excess of the ex factory price.
4.109.
The expert legal opinions explain that the legal provisions cited by Thailand do not afford importers a right to secure a refund of excise, health and television tax where the tax base is reduced, as Thailand alleges. They note that the Tobacco Act, which imposes the excise tax, also provides no such right. Further, no published rules set forth procedures governing an excise tax refund. The statutory right to a refund of health and television tax is contingent on a refund of excise tax, and there are also no procedures for refunds of these taxes. Thailand's defence is, therefore, not supported by the facts.

11. Requested fact-finding under Article 13 of the DSU

4.110.
The Philippines reiterates its request that the Panel seek information listed in paragraph 712 of its first written submission pursuant to Article 13 of the DSU.

D. EXECUTIVE SUMMARY OF THE ORAL STATEMENT BY THAILAND AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL

1. Introduction

4.111.
Thailand questions the extent to which dispute settlement proceedings may be fruitful to address issues that, in effect, have already been resolved. To the extent that the Philippines had concerns regarding actions taken in the past by Thailand, those concerns had been resolved by the time the Philippines requested the establishment of a panel. For example, Thai Customs has used PM Thailand's declared entered values as the customs value since September 2007, well over a year before the request for the establishment of a panel. Similarly, to the extent that the Philippines' claims regarding the MRSPs are based on the MRSPs for 2006 and 2007, those MRSPs were revised and replaced before the panel request.

2. Claims under the Customs Valuation Agreement

4.112.
In resolving the claims under the Customs Valuation Agreement, the Panel will need to address the question of which party, the importer (in this case, a major multinational corporation) or the customs administration bears the burden of establishing the reliability of a transfer price as the basis for the customs value. The text of the Customs Valuation Agreement and, indeed, supplemental sources such as the WTO Technical Committee on Customs Valuation make clear that when doubts arise, this burden lies with the importer. As Thailand explained in its first submission, in this case, the importer failed to discharge that burden.
4.113.
The importer's failure to discharge its burden means that the customs administration is no longer required to accept the transaction value as the customs value. In addition, this failure may affect the kind of information that is before the customs administration and can be relied on to determine the customs value under the alternative methodologies provided for in the Customs Valuation Agreement. In considering how a customs administration must proceed when a multinational corporation fails to discharge its burden of establishing that its transaction value is reliable, the Panel should ensure that it does not adopt interpretations that would limit the right of Members' customs administrations to seek and obtain information from importers or that would provide importers with incentives not to cooperate with customs administrations in resolving doubts about the reliability of a transfer price as the customs value.

3. Claims under Article III of the GATT 1994

4.114.
Thailand uses the same methodology to establish the VAT tax base for both domestic and imported cigarettes. Because there is no discrimination against imports inherent in that methodology, Thailand cannot be found to be acting inconsistently with Article III:2 as long as the methodology is applied even-handedly to both domestic and imported products. Moreover, the Philippines bears the burden of proving that that methodology is not applied even-handedly and in a manner such as to discriminate against imports. In its first submission, the Philippines did not discharge this burden. The Philippines' core argument was that the MRSPs are discriminatory because the MRSP for Marlboro cigarettes was greater than the actual retail price of those cigarettes. This does not show that the methodology for determining MRSPs is applied in a discriminatory manner. Thailand is not required under Article III:2 to use the actual selling price of the cigarettes as the tax base. And Thailand is not required to reduce the tax base simply because PM Thailand – or even a wholesaler or retailer – makes a business decision to sell PM cigarettes at prices below the MRSP.
4.115.
The MRSPs for both domestic and imported cigarettes are based initially on the manufacturer's own recommended retail price for each brand. Thus, the determination of the MRSP is necessarily a company-specific and, indeed, brand-specific determination. The MRSPs are updated to reflect changes in any of the tax rates applicable to cigarettes, changes in the c.i.f. or ex factory price, or other requests for changes by the manufacturer. This system is not in any way discriminatory. The mere fact that PM Thailand would like to reduce its tax liability and is not able to do so does not constitute discrimination against imported products or a prima faciecase of a violation of Article III:2.

4. Claims under Article X of the GATT 1994

(a) Article X:3 claim relating to TTM's Board of Directors

4.116.
Article X:3 does not regulate the manner in which Members exercise their sovereign rights with regard to the structure of their state enterprises. Moreover, the Philippines' claim appears to be based entirely on the risk of how Thailand might administer its laws, rather than the actual administration as contemplated under Article X:3(a). Even assuming that the scope of Article X:3 should be expanded to cover the risk of improper administration, the factual basis of the Philippines' claim remains vague and unsubstantiated. For example, the Philippines alleges a conflict of interest because two officials of the Revenue and Excise Departments currently serve on the board of TTM, but fails to show that either official has any responsibility in the course of their duties in the Revenue or Excise Departments for determining the tax bases or customs values for imported cigarettes. In fact, neither Mrs. Sirisaengtaksin, who works for the Revenue Department and is currently seconded to the Bureau of the Permanent Secretary of the Ministry of Finance, nor Mr. Keesiri, who works at the Excise Department, has any direct responsibility for tax policy affecting imported cigarettes.

(b) Article X:3 claim relating to appeals

4.117.
The Philippines claims that Thailand acts inconsistently with Articles X:3(a) and X:3(b) of the GATT 1994 because [[xx.xxx.xx]] appeals filed by PM Thailand before the BoA have not been resolved promptly. In accepting Article X:3, Members of the WTO hardly anticipated that Articles X:3(a) and X:3(b) would be interpreted to require them to conclude internal administrative processes "promptly" and, therefore, to reallocate resources away from other priorities to meet deadlines derived from Article X:3. In any event, these appeals have not been resolved in part because PM Thailand has presented revised data relating to these appeals that must be reviewed for accuracy and sufficiency.

(c) Article X:3 claims relating to the uniform administration of VAT, excise, health and television tax laws

4.118.
Both of the Philippines' claims under Article X:3(a) regarding non-uniform administration of Thailand's VAT laws62 and its excise, television and health taxes63 are outside the Panel's terms of reference. The Philippines' panel request contains no mention of a failure to administer laws and regulations "uniformly". In addition, both of these claims are based on the unworkable premise that WTO Members can never change their administrative policies. This premise could be interpreted to mean that in order to achieve "uniform" administration, Thailand should stick with its approach in the period September 2006 to March 2007 of using guarantee values to calculate MRSPs.
4.119.
The Philippines also claims that by using guarantee values to calculate the September 2006 MRSPs, Thailand failed to administer its laws reasonably and impartially within the meaning of Article X:3(a).64 Here again, the Philippines' interpretation is unworkable. Administrators do not operate in situations of perfect and complete information and, therefore, must be able to use reasonable estimates or proxy information when they have valid grounds to doubt the reliability of information on which they would normally rely. Article X:3(a) should not be interpreted to prevent Members from making reasonable decisions in this manner.
4.120.
The Philippines argues that Thailand must administer its laws through "transparent, objective and generally applicable criteria"65, that it must create "generally applicable rules"66 and that "[a]bsent such rules, the administration of the tax cannot be justified under the rule of law".67 Thailand has explained that the MRSPs are determined according to generally-applicable criteria. Accordingly, the Philippines' claim lacks the requisite factual basis. Also, Article X:3 is not intended to prevent governments from conferring discretion on relevant officials to administer the laws. Many WTO Members choose to implement their laws and policies through the conferral of discretion on administrative agencies and officers rather than through the adoption of explicit rules that attempt to address every possible contingency. Article X:3(a) should not be interpreted so as to make this method of administration GATT-inconsistent.
4.121.
The Philippines also claims that Thailand violates Article X:3(a) because, in the event that the originally-assessed c.i.f. value is later revised on appeal, the tax base for the excise, television and health taxes would become retroactively incorrect.68 The Philippines has not provided any evidence indicating that in the circumstances to which it refers in paragraph 659 of its first written submission, Thai officials actually did or would collect excise, health and television taxes using a tax base that is "unlawful"69 and "has no basis"70 as a matter of Thai domestic law. To the extent that the Philippines is complaining about what may occur in the event that duty assessments are revised in the future, the Philippines' claim is not ripe and cannot be addressed by the Panel. Even if the factual basis of this claim were clear, it would not suffice to establish a breach of WTO law. Article X:3(a) should not be interpreted in a manner that converts every failure to comply with domestic law into a breach of WTO law.71
4.122.
Also, as a matter of fact, Thai law provides for refunds of overpaid excise, television and health taxes, although PM Thailand appears never to have requested such refunds from the Excise Department. The Philippines has not explained how Article X:3(a) compels WTO Members to create mechanisms to refund indirect taxes. Several Members refuse to grant refunds of indirect taxes that would confer windfall benefits on producers and sellers that have already collected the larger tax amount from their consumers and, therefore, have not suffered any loss. Article X:3 should not be interpreted to impose an obligation on Members to grant such windfall gains.

(d) Article X:1 claims

4.123.
Thailand considers that the general methodologies for MRSPs have been published. Thailand also notes that the last sentence of Article X:1 clarifies that there is no obligation to disclose confidential information. The data used to determine MRSPs and ex factoryprices are clearly confidential. The laws or regulations governing the release of guarantees collected by Customs have also been published, and the Philippines has not explained precisely which existing laws and regulations relating to this matter remain unpublished.

5. Claims relating to completed acts and expired measures

4.124.
Many of the Philippines' claims relate to completed acts and measures that no longer exist.72 This raises the question of whether the Panel can make recommendations with respect to these claims. These expired measures and past acts include the valuation and assessment of duties with respect to the [[xx.xxx.xx]] entries listed in the panel request, the setting of MRSPs for 2006, and the alleged violation of Article 10 of the Customs Valuation Agreement. A list of the relevant claims is set out in Exhibit THA-36.
4.125.
Under Article 19.1 of the DSU, where a panel concludes that a measure "is" inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement. The Panel cannot issue recommendations pursuant to Article 19.1 that Thailand bring expired measures or completed acts into conformity with the covered agreements. As the Appellate Body has clarified, it amounts to legal error for a panel to make an Article 19.1 recommendation with respect to measures which no longer exist.73 Following the Appellate Body's guidance, numerous panels have refrained from making Article 19.1 recommendations regarding measures that are no longer in force.74 This rule applies with equal force to "measures" that consisted of individual, completed governmental acts.
4.126.
By adopting Articles 19.1 and 21.3 of the DSU, WTO Members accepted that they would not have to undo past actions in response to a finding of violation of the covered agreements and are required only to cease the WTO-inconsistent conduct by the end of the reasonable period of time for implementation. For this reason, remedies under the DSU are generally described as being "prospective", rather than retrospective, in nature.75 It would serve no purpose to allow a WTO Member to obtain recommendations from panels with respect to past and consummated actions.
4.127.
Because the conduct on which the relevant claims of the Philippines, as listed in Exhibit THA-36, are based took place entirely in the past and has ceased or been completed, in the event that the Panel were to find violations with respect to these claims, there would be nothing further that Thailand could do in order to achieve compliance with its WTO obligations. The Panel should not issue recommendations under Article 19.1 of the DSU that Thailand bring itself "into conformity" with its WTO obligations with respect to any of the claims listed in Exhibit THA-36.
4.128.
In addition, because the Panel cannot make any recommendations with respect to the claims listed in Exhibit THA-36, it is not clear whether any purpose at all is served by making findings regarding these claims. Panels have a responsibility to prevent the WTO's dispute settlement procedures from being used to obtain purely declaratory judgments or to address matters that are completely moot by the time the panel is established. The Panel should decline to make findings with respect to the claims listed in Exhibit THA-36 that would serve no clear purpose and would not contribute to the resolution of any current and concrete dispute between the Philippines and Thailand regarding these matters.

6. Claim under Article 10 of the Customs Valuation Agreement

4.129.
Regarding the Philippines' claim under Article 10 of the Customs Valuation Agreement, Thailand is still studying this claim and reserves the right to provide further information at a later date. This claim is one of those relating to past completed acts discussed above and listed in Exhibit THA-36. The Panel should not make recommendations with respect to this claim and, in the circumstances, Thailand questions whether there is any purpose to be served in making any findings with respect to this claim.

7. Request for documents

4.130.
In paragraph 712 of its first written submission, the Philippines requested the Panel to seek certain documents or categories of documents. Thailand's first written submission contained most of the documents and categories of documents referred to by the Philippines. Two of the documents requested by the Philippines were actually provided by the Philippines itself in its first submission. These were item 6, Memorandum 0519/1605, dated 14 March 2007, which was the cover memo for the minutes of the 6 March 2007 meeting, and item 9, the minutes of that meeting. Both of these documents were attached as Exhibit PHL-74 to the Philippines' first written submission. Thailand notes that those minutes were revised and re-circulated one week later, on 21 March 2007. The revised minutes, which Thailand now submits as Exhibit THA-37, make clear that the customs value for the [[xx.xxx.xx]] entries listed in the Philippines' panel request was determined using the deductive value method in accordance with Article 5 of the Customs Valuation Agreement.
4.131.
Thailand has reviewed the Philippines' list to see whether there were any remaining listed documents that might assist the Panel. Accordingly, Thailand is submitting as Exhibit THA-38 the documents referred to in items 1 and 8 of the Philippines' list. Item 1 contains instructions for customs officers to act carefully in making customs valuation determinations and item 8 relates to the approval of the amounts of guarantees used for PM Thailand's imports. Several other documents on the Philippines' list, including items 2-5, relate to products other than cigarettes and have no relevance to this case. Thailand will, of course, be happy to provide any other information the Panel considers necessary.

E. EXECUTIVE SUMMARY OF THE SECOND WRITTEN SUBMISSION OF THE PHILIPPINES

1. Violation of Article X:3(a) of the GATT 1994 because of dual role of TTM directors

4.132.
Thailand violates Article X:3(a) through the act of vesting governmental power to apply Thai customs and tax rules concerning domestic and imported cigarettes in individuals who simultaneously serve as Directors of TTM and as senior officials in DG Excise, DG Customs, and DG Revenue. This pattern of administration is an act that, in and of itself, creates an inherent conflict of interest and constitutes partial and unreasonable administration, contrary to Article X:3(a).
4.133.
In administering Thai customs and tax rules, these Thai Government officials are responsible for, inter alia, assessing the customs value of imported cigarettes and fixing the tax base for VAT, excise, health, and television taxes. As a matter of fact, TTM Directors have been directly involved in the application of Thai customs and tax measures to cigarettes, inter alia, by signing the orders imposing decisions, and by participating in and supervising the decision-making process. Their decisions, therefore, have a considerable influence on the tax burden of imported and domestic cigarettes and, as a result, the relative competitive situation of these cigarettes. The TTM Directors also have access to BCI regarding imported cigarettes.
4.134.
In fulfilling their role as TTM Directors, the same Thai Government officials have a financial incentive and legal obligation to maximize TTM's competitive advantage and to "make any decision for the utmost benefit of" TTM. In making such decisions, they can rely on BCI about TTM's competitors, available to them because of their role in the Thai Government.
4.135.
The manner of structuring and organizing government is the very essence of "administration" under Article X:3(a), as found by the Panel in Argentina – Hides and Leather. In this dispute, the Philippines has provided quantitative and qualitative evidence of the unreasonable and impartial pattern of administration, as well as of acts by individuals serving both as TTM Directors and Thai Governmental officials resulting in unreasonable and impartial administration. Thailand also mischaracterizes the decision in Argentina – Hides and Leather in arguing that the partiality and unreasonableness in its administration must be balanced against safeguards adopted to avoid abuses. In fact, the safeguards asserted by Thailand neither remedy the conflict of interest facing Thai Government officials simultaneously serving on the Board of TTM, nor prevent abuses such as the inappropriate flow of importers' BCI to the domestic industry.

2. Claims pertaining to customs valuation

(a) Standard of review with respect to customs valuation decisions

4.136.
In reviewing a series of Thai customs valuation decisions under the Customs Valuation Agreement, the Panel must make an objective assessment of the facts, and apply the appropriate standard of review. The appropriate standard of review is neither de novo review, nor total deference. Instead, panels are required to conduct a critical review of a national authority's determination to see whether the authority explained how the facts support its decision. In reviewing an authority's decision to reject transaction value, a panel cannot simply accept the authority's conclusion that the importer failed to show that the relationship between buyer and seller did not affect the price, nor can a panel decide for itself, on a de novo basis, whether the transaction value should be accepted. Instead, a panel must review whether the authority has provided an objective and coherent explanation as to how it complied with its WTO obligations, and how the underlying facts support its decision.

(b) Violation of Articles 1.1 and 1.2 of the Customs Valuation Agreement by maintaining and applying a general rule requiring the rejection of transaction value

4.137.
Thailand violates Articles 1.1 and 1.2 by maintaining and applying, from 4 August 2006 until 19 March 2008, a general rule regarding the rejection of transaction value, consisting of (1) the systematic refusal, at the time of importation, to accept transaction value for entries of imported cigarettes, with the collection of guarantees as a condition for allowing customs clearance; and, (2) the systematic valuation of imported cigarettes using the deductive valuation methodology, instead of transaction value, at the time of final assessment.
4.138.
By maintaining such a general rule, Thailand violated the obligation to use "transaction value" as the "primary basis for customs value", provided for in Article 1.1 and paragraph 1 of the General Introductory Commentary of the Customs Valuation Agreement. A WTO Member may depart from its primary valuation obligation solely in the circumstances set forth in paragraphs (a) to (d) of Article 1.1. Under Article 1.1(d), where the buyer and seller are related, the customs value "shall be" the transaction value, "provided" that the transaction value is acceptable under Article 1.2. Article 1.2(a) provides that the "fact" that the parties are related is insufficient "grounds" to reject the transaction value. In such a case, the customs authority must examine the circumstances of sale to establish whether other "facts", besides the relationship, demonstrate that the relationship influenced the price. Thailand's general rule violates Articles 1.1 and 1.2 by providing for the systematic rejection of transaction value without examination of the circumstances of sales.

(c) Violation of Articles 1.1 and 1.2 of the Customs Valuation Agreement by improperly rejecting PM Thailand's declared transaction values in [[xx.xxx.xx]] transactions

4.139.
Thailand violates Articles 1.1 and 1.2 by rejecting PM Thailand's declared transaction values for [[xx.xxx.xx]] entries, without: (1) examining the circumstances of sale; and, (2) identifying adequate grounds, other than the relationship, warranting the rejection of transaction value.
4.140.
The Philippines' claim that Thailand failed to examine the circumstances of sales is supported by: (1) the minutes of the 6 March 2007 meeting; (2) Thailand's failure to examine PM Thailand's evidence, including annual filings with deductive calculations showing that the declared transaction values enabled it to earn a sufficient amount to cover its usual costs and profits, and an amount for costs and profits similar to the amount earned by similarly-situated distributors in transactions with unrelated suppliers; (3) Thailand's failure to seek information concerning PM Philippines' costs and profits – information which PM Thailand had identified as being relevant if Thai Customs were to apply a cost-plus testing methodology under Article 1.2(a); (4) Thailand's incoherent and arbitrary deductive methodology to test the declared transaction values for all of PM Thailand's transactions throughout 2006 and 2007; and, (5) Thai Customs' acceptance of the transaction values for [[xx.xxx.xx]] entries in March and September 2007 highlights the arbitrariness of the rejection of transaction values for other entries occurring at the same time.
4.141.
Thailand makes certain rebuttal arguments. On issue (1), Thailand's argument that the minutes address sales in 2003 is contradicted by the express terms of the minutes, which state that Thai Customs did not examine the circumstances of sale with respect to entries "since 1 August 2006". On issue (2), Thailand's ex post argument is that PM Thailand's calculations were not in the proper form and not supported by other evidence. However, Thai Customs never informed PM Thailand of these points, and never gave PM Thailand an opportunity to respond to them, contrary to Article 1.2(a). In any event, the calculations were in the proper form and PM Thailand could have provided additional support upon request. On issue (5), the Philippines provides documentary evidence to counter Thailand's argument that [[xx.xxx.xx]] of the entries never occurred; and it shows that Thailand's asserted clearance date for the other [[xx.xxx.xx]] entries was just three days before an entry for which Thailand rejected the transaction value.
4.142.
Thailand also violated Articles 1.1 and 1.2 by rejecting PM Thailand's declared transaction values without valid reasons, as evidenced by Thai Customs' letter of 12 April 2007, which informed PM Thailand of Thai Customs' decision to reject transaction value. The letter states two invalid grounds of rejection and evidences Thai Customs' failure to critically examine all of the relevant evidence. First, the "fact" that "another importer" purchases cigarettes at a higher price than PM Thailand is not a valid ground for considering that the relationship between PM Thailand and PM Philippines influenced the price because, for a variety of reasons, the prices of the other party are not comparable. During these panel proceedings, Thailand has accepted that this first "ground" for rejecting transaction value was flawed, and not relied upon by Thai Customs.
4.143.
Second, Thai Customs' statement that PM Thailand has not proven whether the relationship had influenced the price is not a "ground" for rejecting transaction value because: (1) the Customs Valuation Agreement does not establish a legal presumption and burden of proof against the transaction value; (2) even if doubts could trigger a presumption and burden of proof against the transaction value, the doubts must be reasonable at the time when the alleged burden of proof is invoked as the basis to reject transaction value, which was not the case here; and, (3) even if a burden of proof on the importer were to apply, the customs authority should explain its decision rejecting transaction value, and why the submitted evidence was insufficient to allow the importer to meets its burden of proof, which Thai Customs failed to do.

(d) Violation of Article 1.2(a) of the Customs Valuation Agreement by failing to communicate "grounds" before rejecting transaction value

4.144.
Thailand violated Article 1.2(a) by failing to inform PM Thailand of its "grounds for considering that the relationship influenced the price" prior to Thai Customs' final decision to reject transaction value. PM Thailand submitted evidence that allowed Thai Customs to establish that the transaction values enabled PM Thailand: (1) to earn a sufficient amount to cover its usual costs and profits; (2) to earn an amount for costs and profits similar to the amount earned by unrelated distributors.
4.145.
Under Article 1.2(a), Thailand was obliged to communicate the objective facts that supported Thai Customs' conclusions on the burden of proof in the light of this evidence. Such communication would have offered PM Thailand "a reasonable opportunity to respond" to the customs authority's dissatisfaction with the evidence. Absent an explanation, PM Thailand is deprived of a reasonable opportunity to address whatever deficiencies the authority perceived in the evidence.
4.146.
Contrary to Thailand's assertion, Thai Customs' 19 December 2006 letter failed to inform PM Thailand of the grounds for considering that the relationship influenced the price. An unexplained, unsubstantiated, and conclusory statement that PM Thailand failed to meet its burden of proof does not satisfy the requirement to communicate "grounds". Until prompted by the Panel, Thailand had never communicated its reasons for disregarding the evidence submitted by PM Thailand.

(e) Violation of Article 16 of the Customs Valuation Agreement by failing to provide an adequate explanation as to how the customs value was determined

4.147.
Thailand violated Article 16 by failing to provide PM Thailand with an "explanation in writing … as to how the customs value of the importer's good was determined" in its final assessment decision. Under Article 16, Thailand is required to explain why it rejected the declared transaction value, and to provide a sufficiently detailed and reasoned explanation permitting the importer to understand how and why the authority determined the assessed customs value.
4.148.
Thailand failed to explain the objective basis for rejecting transaction value and how it proceeded in valuing PM Thailand's goods. Without an explanation of how the authority reached its decision, importers and foreign governments are unable to exercise their respective rights under Articles 11 and 19 of the Customs Valuation Agreement, and domestic courts and WTO panels are deprived of a basis to review the authority's decisions.
4.149.
Contrary to Thailand's assertion, the 12 April 2007 letter does not sufficiently explain the basis for Thai Customs' rejection of the declared transaction values because it contains an unexplained statement that the burden of proof was not met. Furthermore, this letter does not explain how Thai Customs determined the assessed customs values, because, for example, it does not reveal the starting point of the deductive calculation allegedly used by Thai Customs, the specific elements and amounts deducted; the sources of the data used; and other supporting calculations for the assessed values. The minutes of the 6 March meeting also failed to satisfy the requirement under Article 16 because they were insufficiently detailed.

(f) Violation of Articles 5 and/or Article 7 of the Customs Valuation Agreement by incorrectly assessing the deductive value of PM Thailand's [[xx.xxx.xx]] transactions

4.150.
The Philippines' primary claim is that, if the Panel finds that Thailand used Article 7 to value PM Thailand's goods, Thailand improperly declined to use Article 5 for impermissible reasons, i.e., a lack of contemporaneous financial information, and improperly applied Article 7.1 because Thai Customs failed to make deductions for sales allowances, internal transportation costs, and Provincial taxes. Thailand admits that PM Thailand claimed deductions for sales allowances and Provincial taxes, but contests that the information available to Thai Customs justified a deduction for either amount. With respect to the deduction for internal transportation costs, Thailand disputes that PM Thailand claimed such a deduction, and also contends that the available evidence did not support the deduction. A proper deduction of these three items would have resulted in significantly lower customs values than the values applied by Thai Customs.
4.151.
PM Thailand submitted all information required to make the requested deductions. Although Thai Customs requested additional information on certain issues, it requested no such information regarding sales allowances and Provincial taxes, suggesting that Thai Customs was satisfied that it had all necessary supporting information available to make these deductions.
4.152.
Before this Panel, Thailand now makes certain ex post arguments regarding the sufficiency of the information PM Thailand provided. If Thai Customs had raised these concerns at the time of its valuation, PM Thailand easily could have responded to them. The criticisms focus on information on sales allowances and Provincial taxes provided with PM Thailand's letter of 7 March 2007. However, the information with this letter responded to requests regarding the greatest aggregate quantity ("GAQ") sales price, and not sales allowances and Provincial taxes. Again, if Thai Customs had requested additional information on sales allowances and Provincial taxes, PM Thailand would have provided it. Indeed, on 12 March 2007, PM Thailand provided information to the BoA on Provincial taxes paid in 2002.
4.153.
With respect to internal transportation costs, Thailand incorrectly argues that PM Thailand did not claim a deduction for these costs, overlooking that each of PM Thailand's annual filings for financial years 2003, 2004, 2005 and 2006 included a deduction for either inland freight or domestic transportation. Even if PM Thailand's letter of 21 February 2007 did not mention transportation costs, Thai Customs was put on notice that deductions for such items were required, and, in doubt, could have requested further information in its letter of 27 February 2007.
4.154.
Thailand argues that PM Thailand should have provided information to show that the claimed deductions were made in connection with the sales on which the GAQ price was based. However, Article 5 permits a deduction for the amounts "usually" incurred on sales in general, not least because the transaction being valued is not the GAQ sale. It is also the approach adopted by the BoA in its decisions on the 2000-2002 appeals. In any event, if Thai Customs insisted on information showing the deductions to be made from the sales on which the GAQ price was based, it was required to request this information.
4.155.
With respect to the alleged significance of PM Thailand's letter of 7 March 2007, Thailand's arguments on the meeting of 6 March 2007 show that, by 6 March, Thai Customs had already finalized its deductive calculation. Thus, before the 7 March letter arrived, Thailand had already decided not to deduct sales allowances, internal transportation costs, and Provincial taxes. As a result, the sufficiency of the information submitted by PM Thailand in its 7 March letter was not the decisive factor in Thai Customs' decision.
4.156.
If the Panel finds that Thailand used Article 7 to value PM Thailand's goods, Thailand acted contrary to Article 7.3 by failing to inform PM Thailand in writing "of the customs value determined under the provision of this Article and the method used to determine such value".
4.157.
Alternatively, if the Panel finds that Thailand used Article 5 to value PM Thailand's goods, Thailand violated Article 5 because it failed to make the required deductions for sales allowances, internal transportation costs, and Provincial taxes. The arguments in support of the Philippines' alternative claim are the same as the arguments in support of its primary claim under Article 7 because the methodology and elements in a deductive calculation under Articles 5 and 7 do not, in principle, differ.

(g) Violation of Article 10 of the Customs Valuation Agreement by disclosing business confidential data

4.158.
Thailand violated Article 10 because Thai Government officials disclosed PM Thailand's business confidential data, in particular its declared transaction value and import volumes. PM Thailand never gave "specific permission" to the Thai Government to allow such disclosure and repeatedly opposed the disclosures. As a result, the Philippines has made a prima facie case of a violation of Article 10.

3. Violation of Article X:3(b) of the GATT 1994 by failing to provide a right to challenge guarantees

4.159.
Thailand violates Article X:3(b) by failing to provide for a right to seek the prompt review and correction of administrative action by Thai Customs to impose guarantees on imported goods. Pursuant to Article X:3(b), Thailand is obliged to provide, inter alia, for the prompt review and correction by an independent tribunal of guarantee orders, which are administrative actions relating to customs matters. An order imposing a guarantee is a complete and final legal act that is conceptually distinct from the final assessment of customs value. It imposes a definitive guarantee, and its imposition is the culmination of an administrative process to establish the appropriate level of the guarantee and, as such, is "the final manifestation of the application of a law in a particular case".
4.160.
The obligation to furnish a guarantee is linked to, though conceptually distinct from, the obligation to pay duties. A guarantee establishes an immediate legal obligation to furnish cash or security, and thus imposes an immediate financial burden on importers, producing also immediate repercussions on market access and competitive opportunities. Allowing a challenge to an assessed customs value cannot repair the harm caused in the interim by a guarantee, and may undermine competitive opportunities. The severity of a guarantee may even completely exclude imported goods from the market or delay clearance. This underscores the need to provide for an independent right to challenge a guarantee. Under Thailand's interpretation, market access would be permanently lost as a result of the guarantee, because the guarantee order could only be challenged as part of a challenge against the final assessed customs value. If no final assessment follows, the importer would be stripped of any opportunity to challenge the guarantee.
4.161.
The Philippines also submits that Thailand is mistaken in its understanding of the relationship between Article X:3(b), on the one hand, and the Anti-Dumping Agreement and the Customs Valuation Agreement, on the other hand. First, guarantees collected in anti-dumping cases may be challenged under Article X:3(b), and the WTO proceedings initiated by Thailand in US – Shrimp (Thailand) confirm that a WTO Member can challenge a guarantee order at the WTO. The domestic law of WTO Members should likewise provide for a right to challenge guarantees. Second, Article 11 of the Customs Valuation Agreement, which provides for a right to appeal against "a determination of customs value", and Article X:3(b) of the GATT 1994 can be applied together in a harmonious fashion, which is consistent with the Interpretative Note to Annex 1A and settled WTO law.
4.162.
Furthermore, obliging WTO Members to provide a right of appeal against a guarantee order would neither interfere with a Member's right to collect a guarantee pending the assessment of the customs value, nor would it interfere with the responsibility of customs authorities to determine customs value.

4. Claims pertaining to VAT

(a) Violation of Article X:1 of the GATT 1994 by failing to publish the methodology and data used to determine and revise MRSPs

4.163.
Thailand violates Article X:1 by failing to publish the methodology and data used to determine the MRSPs, which is the base for VAT. The Philippines has demonstrated that none of the key features of Thailand's MRSP methodology, as described by Thailand, has been published. These elements are: (1) "the primary source for the MRSPs is the manufacturer's recommended retail price" ("RRSP"); (2) DG Excise reviews the proposed MRSP/RRSP to decide whether to accept it as the MRSP; (3) DG Excise "normally" revises MRSPs following tax changes impacting the MRSP; (4) when MRSPs are revised, DG Excise calculates a new MRSP adding: (a) the ex factory/c.i.f. price; (b) the latest tax amounts; and (c) marketing costs, which are "derived from information provided by the manufacturers themselves".
4.164.
Thailand also violates Article X:1 by failing to publish any data that forms an integral or essential element of the determination of specific MRSPs. As the Panel in Dominican Republic – Import and Sale of Cigarettes stated, Article X has a due process objective and the "essential elements" or "essential parts" of an administrative ruling must be published. This interpretation is consistent with the text of Article X:1, requiring publication "in such a manner as to enable governments and traders to become acquainted with them", and gives effect to the transparency obligations in Article X:1. In this dispute, Thailand should have published the price surveys it relied on to determine the marketing costs for imported brands in 2006 and 2007. It could also have published indexed data, to protect the confidential character of certain information.

(b) Violation of Article III:2 of the GATT 1994 by taxing imported cigarettes in excess of like domestic goods as a result of the MRSP levels

4.165.
Thailand violates Article III:2 by imposing a VAT on imported cigarettes "in excess" of VAT imposed on like domestic cigarettes.
4.166.
The Philippines has demonstrated that all domestic and imported cigarettes are like. This evidence pertains to physical characteristics, end uses, consumers' tastes and preferences, tariff classification, and identical regulatory treatment. So far, Thailand has not put forward argument or evidence to dispute the Philippines' overall assessment, based on the evidence as a whole.
4.167.
Thailand incorrectly requires that the Panel perform 1,634 separate comparisons between each domestic and imported brand to establish likeness on a brand-by-brand basis. This approach lacks support in the text of Article III:2 or the case law. Thailand also misinterprets the Appellate Body report in Canada – Periodicals. In that report, the Appellate Body did not establish perfect substitutability as the decisive legal standard under Article III:2, first sentence, as Thailand alleges. Instead, it merely explained that perfectly substitutable products fall within the scope of Article III:2, first sentence.
4.168.
Even if the Panel were to find that not all imported and domestic cigarettes are like, the Philippines maintains that imported and domestic cigarettes within a particular price segment are like. Although price is not a decisive criterion in establishing likeness, the Philippines has demonstrated likeness within price segments.
4.169.
Thailand imposes VAT on imported cigarettes in excess of VAT imposed on like domestic cigarettes because (1) the MRSPs for imported cigarettes are higher than for like domestic cigarettes, and (2) the MRSPs for imported cigarettes are systematically higher than the RRSPs for imported cigarettes, whereas the MRSPs for like domestic cigarettes are systemically equal to the RRSPs. Thus, the tax burden on imports is higher in absolute terms and also higher relative to the retail price.
4.170.
Thailand has attempted to offer an explanation for the excess tax burden imposed on imported cigarettes. The essence of this explanation is that DG Excise is not responsible for the level of the MRSP, because the MRSP is based on information provided by the importer. However, the facts contradict this explanation. Among others, the evidence shows that the MRSPs for Marlboro and L&M have systematically been higher than they would have been if based on PM Thailand's information.
4.171.
Thailand is also mistaken in arguing that the key question before the Panel is whether the design, structure, and architecture of the measure discriminate against imported cigarettes. The Philippines' claim in this dispute is brought under the first sentence of Article III:2. Under that sentence, the issue is whether imported products are subject to any taxation "in excess" of the tax applied to like domestic products.

(c) Violation of Article III:2 of the GATT 1994 by exempting resales of domestic cigarettes from VAT liability

4.172.
Thailand violates Article III:2 because it exempts resales of domestic cigarettes from VAT, but grants no such exemption to resales of like imported cigarettes. Thailand does not dispute this different fiscal treatment but responds that resellers of imported cigarettes can offset their additional VAT liability with a tax credit, leaving a zero "net" liability.
4.173.
Thailand's defence fails. First, Thailand's compliance with Article III:2 cannot depend on private parties' action. The fact that a reseller of imported cigarettes is given an opportunity to mitigate the impact of a discriminatory tax through a tax credit does not cure the discriminatory character of Thailand's VAT regime. Second, the tax credit granted to resellers of imported cigarettes will not always match perfectly their tax liability. A reseller may incur a "net" liability of greater than zero if the volume of cigarettes sold in a given month exceeds the volume of cigarettes bought in that month. Even if in certain months the tax credit might exceed the tax liability, it is well established in the case law that more favourable treatment of imported products in some instances does not justify less favourable treatment in other instances. Third, the tax credit is not granted automatically but is subject to legal conditions concerning VAT administrative requirements. The grant of a non-automatic tax credit cannot ensure equal treatment where domestic cigarettes are automatically subject to no tax liability. This is particularly so because penalties may be imposed on resellers for a failure to comply with the administrative requirements regarding resales of imported cigarettes.

(d) Violation of Article III:4 of the GATT 1994 by imposing more onerous VAT administrative requirements on resales of imported cigarettes

4.174.
Thailand violates Article III:4 by subjecting resales of imported cigarettes to more onerous VAT administrative requirements, set out in Chapter IV of the Thai Revenue Code, than are imposed in connection with resales of like domestic cigarettes. The detailed evidence showing the likeness of imported and domestic cigarettes within the meaning of Article III:2, first sentence, also supports that the products are like for purposes of Article III:4.
4.175.
Under Thai law, VAT registrants are subject to different obligations depending on the particular goods or services supplied. Chapter IV includes obligations to prepare and maintain detailed tax invoices, tax input records, tax output records, goods and raw materials records, and alternative records; filing VAT Form Por.Por.30; and accepting an audit process and sanctions in case of non-compliance. None of these requirements apply in connection with resales of domestic cigarettes. This is because Section 3(1) of Royal Decree No. 239 exempts resales of domestic cigarettes from VAT. As a result, pursuant to Section 81/2 of the Revenue Code, wholesalers and retailers are exempt from the administrative requirements in Chapter IV in connection with their resales of domestic cigarettes.
4.176.
The more onerous VAT administrative requirements imposed in connection with resales of imported cigarettes "affect" the sale and distribution of cigarettes within the meaning of Article III:4, because they impose regulatory burdens on all selling parties in the distribution chain.
4.177.
Thailand fails "to provide equality of competitive conditions for imported products in relation to domestic products" – which is the general thrust of the principle in Article III:4. Thailand's maze of administrative procedures, requirements, and sanctions modifies the conditions of competition by imposing extra hurdles in connection with resales of imported cigarettes. The resulting additional costs and risks must be taken into account by a commercial operator in deciding which cigarettes to supply and promote. Given the regulatory environment, retailers selling only domestic cigarettes – of which there are around 68,000 – have a disincentive to start supplying imported cigarettes, because they would then be subject to additional costs and risks. The Philippines adds that, in an Article III:4 analysis, the Panel need not determine the actual trade and competitive effects of the more onerous VAT administrative burdens.

(e) Thailand's failed defence under Article XX(d) of the GATT 1994

4.178.
Thailand has failed to justify its exemption of resales of domestic cigarettes from the VAT administrative requirements in Chapter IV, under Article XX(d). Thailand has not demonstrated that the de jure exemption of resales of domestic cigarettes from VAT administrative requirements is "necessary" to secure compliance with any domestic laws and regulations, WTO-consistent or otherwise.

(f) Violation of Article X:3(a) of the GATT 1994 by failing to administer its VAT regime in a uniform, reasonable, and impartial manner

4.179.
Thailand violates Article X:3(a) by failing to administer its VAT regime in a uniform, reasonable, and impartial manner.
4.180.
First, Thailand does not apply its VAT regime on the basis of generally-applicable criteria set forth in Thai law, in particular the determination of the MRSPs. It is unreasonable to administer taxes on an ad hoc, case-by-case basis, without criteria set forth in law. By way of example, in 2006 and 2007, DG Excise decided to calculate (discriminatory) marketing costs for imported cigarettes using an international price survey and by using guarantee values as the starting point for its MRSP calculations for imported cigarettes. These decisions were not grounded in Thai law, but were merely the product of DG Excise's discretion.
4.181.
Second, Thailand's use of a guarantee value, and not a customs value, as the starting point for the calculation of MRSPs results in non-uniform and unreasonable administration. The practice of administering VAT through two different starting points lacks uniformity because sometimes actual tax amounts are added based on the actual duty-paid customs values, and sometimes notional amounts based on the guarantee values are added. This also involves unreasonable administration because the notional amounts added for excise, health, and television taxes are "the highest" possible and based on a provisional estimate of potential liability for customs duties. Furthermore, it constitutes partial administration because such notional amounts are added only to the MRSPs for imported cigarettes given that only those cigarettes are subject to provisional guarantee values. The starting point for the MRSPs for domestic cigarettes, by contrast, is the ex factory price. Because provisional guarantees can be collected to preserve the ability to collect taxes, there is no justification for transforming a provisional guarantee into a definitive tax base.

5. Claims pertaining to the excise, health, and television tax

(a) Violation of Article X:1 of the GATT 1994 by failing to publish the methodology and data used to determine the ex factory price

4.182.
Thailand violates Article X:1 by failing to publish the methodology and data used to calculate the ex factory price, which is the tax base for the excise, health, and television taxes imposed on domestic cigarettes and the starting point for the MRSP calculation. The methodology must address the manner by which costs are calculated for purposes of determining the ex factory price, including which costs are included and how costs are allocated, among others, across different brands and business activities. Concerns regarding the confidentiality of data may be met by publishing indexed data.

(b) Violation of Article X:1 of the GATT 1994 by failing to publish rules concerning the release of guarantees for excise, health, and television taxes

4.183.
Thailand violates Article X:1 by failing to publish rules concerning the release of guarantees collected to cover potential liability for excise, health, and television taxes. Thailand has asserted that, as a general matter, guarantees are released. However, it has failed to publish rules addressing the basic procedural questions surrounding the release of a guarantee, such as: to which authority an importer can apply for a guarantee release and within what deadline; what documents are required to obtain such release; how and when the authority communicates its decision; how the guarantees are released; whether interest is payable on cash guarantees; and, which Thai courts have jurisdiction to hear appeals regarding the release of guarantees.

(c) Violation of Article X:3(a) of the GATT 1994 by failing to administer the excise, health, and television taxes in a uniform, reasonable, and impartial manner

4.184.
Thailand violates Article X:3(a) by failing, in some circumstances, to use a tax base for the excise, health, and television taxes that has a basis in Thai law. Under Thai law, the tax base for the excise tax on imported cigarettes is the duty-paid c.i.f. price; the health and television taxes are a percentage of the excise tax payable. Thailand does not rely on this tax base for imported cigarettes if the customs value assessed by Thai Customs is reduced on appeal. In that event, the incorrectly assessed customs value serves as the tax base.
4.185.
Such administration is non-uniform because the taxes are administered using two different tax bases for the same goods: sometimes the correct customs value and sometimes an incorrect customs value. Such administration is also unreasonable because it has no basis in Thai law. Finally, it is partial because Thailand only collects taxes using an incorrect customs value for imported, and not domestic, cigarettes.
4.186.
Thailand's WTO-inconsistent administration is not rendered WTO-consistent by an alleged right to seek a refund, because it is not reasonable to subject importers to an additional procedure to secure a refund of a tax imposed on a base that has already been found to be improper. In any event, Thailand merely alleges that a refund is available. It has not provided evidence of the legal basis for that right in Thai law. The opinions of two Thai legal experts confirm the lack of such right under Thai law.

6. Violation of Articles X:3(b) and X:3(a) of the GATT 1994 because of undue delays in the BoA's decision-making

4.187.
Thailand violates Article X:3(b) by failing to maintain procedures for the prompt review and correction of customs decision by the BoA. So far, the BoA has taken more than seven years, and counting, to resolve [[xx.xxx.xx]] appeals filed by PM Thailand regarding entries landed in 2002. The considerable delays are caused by the BoA's own tardiness in administering the appeals, and not PM Thailand, which has consistently responded promptly to the BoA's requests for information.
4.188.
Even if the BoA is not an independent tribunal within the meaning of Article X:3(b), as Thailand alleges, the claim under Article X:3(b) stands because Thailand prevents the prompt review and correction of Thai Customs' decision by an independent tribunal by interjecting a very slow review process by a non-independent agency between Thai Customs' decision and the independent tribunal.
4.189.
Thailand also violates Article X:3(a) because the delays of more than seven years in the BoA's decision-making give rise to unreasonable administration. The duration of the process gives rise to administration that is not appropriate or suitable to the circumstances. The Philippines rejects the view that the word "reasonable" in Article X:3(a) imposes no obligations whatsoever on the duration of the administrative process. Thailand has not explained why the drafters would attach importance to "prompt review" of administrative decisions in Article X:3(b) but impose no disciplines on the time taken to reach the initial decision.

F. EXECUTIVE SUMMARY OF THE SECOND WRITTEN SUBMISSION OF THAILAND

1. Introduction

4.190.
This executive summary of Thailand's rebuttal submission of 20 July 2009 responds to the arguments put forward by the Philippines in its first written submission of 23 March 2009, its opening statement at the first meeting of the Panel with the parties on 10 June 2009 and in its responses to the Panel's questions, submitted on 1 July 2009.

2. Legal argument

(a) Standard of review

4.191.
The correct standard of review means that Thai Customs' determinations must be reviewed only in the light of the evidence provided by PM Thailand at the time at which Thai Customs made the determinations at issue in this review.

(b) Claims under the Customs Valuation Agreement

4.192.
The Philippines' claims under the Customs Valuation Agreement can be summarised in two simple propositions: first, Thai Customs should not have inquired into PM Thailand's transaction values and, second, when it did, Thai Customs should have accepted the transaction values. Based on the evidence and argument now before the Panel, neither of these propositions can be sustained.

(i) Thai Customs acted consistently with Articles 1.1 and 1.2(a) of the Customs Valuation Agreement in rejecting the transaction value for the [[xx.xxx.xx]] entries at issue

The obligation under Article 1.1 to use the transaction value is dependent on it being established that the relationship between buyer and seller did not influence the price

4.193.
The use of the transaction value is legally dependent on the proviso in Article 1.1(d) and the second sentence of Article 1.2(a) being satisfied. Thus, the transaction value shall be accepted only "provided the relationship [between buyer and seller] did not influence the price".

Thai Customs acted consistently with Article 1.2(a) with respect to its "doubts" regarding the reliability of the transaction value

4.194.
Paragraph 2 of the Interpretative Note to Article 1.2(a) provides that an examination of the circumstances of sale and the reliability of the transfer price "will only be required where there are doubts about the acceptability of the price".

The legal standard governing "doubts"

4.195.
The Customs Valuation Agreement does not define or limit the quality or quantity of "doubts" that the customs administration must have in order to initiate an examination of the reliability of the transfer price. The reason why the term "doubts" as used in Article 1.2(a) and its Interpretative Note is not qualified by a standard such as "reasonable" is that the purpose of the "doubts" is, at first, simply to initiate an examination of whether the relationship between the buyer and the seller influenced the price, as happened in this case.
4.196.
Under the Decision Regarding Cases Where Customs Administrations Have Reasons to Doubt the Truth or Accuracy of the Declared Value (the "Decision"), the customs administration need have "reasonable" doubts only when, under the second sentence of paragraph 1 of the Decision, "if, after receiving further information, or in the absence of a response, the customs administration still has reasonable doubts about the truth or accuracy of the declared value, it may [reject the transaction value]". Thus, under the Decision, the doubts need only be "reasonable" at the time of a final decision to reject the transaction value.

PM Thailand did notprovide any evidence to dispel Thai Customs' doubts

4.197.
PM Thailand did not provide any evidence to dispel the doubts generated by the difference of over 300 per cent between the c.i.f. prices for PM Thailand's imports and imports by another importer.
4.198.
It is a fact that another importer was bringing Marlboro cigarettes into Thailand at c.i.f. Bangkok prices more than three times PM Thailand's c.i.f. prices. This objectively-grounded fact (Exhibit THA-7) clearly raises a doubt as to whether PM Thailand's c.i.f. prices were affected by the relationship between buyer and seller.
4.199.
Merely pointing out that there are some differences between the circumstances of sale for two different sales that affects price comparability between the two does not establish that doubts based on a price difference of over 300 per cent are "groundless". Any differences in circumstances of sale might have accounted for only, for example, half of the price difference between the other importer and PM Thailand, which would still leave legitimate doubts as to whether PM Thailand's price was at arm's length. But PM Thailand provided no information or proof in this regard and, therefore, did not dispel the doubts that had arisen or otherwise satisfied the proviso in Article 1.2(a).

Thai Customs fulfilled the obligation in Article 1.2(a) that the "circumstances surrounding the sale shall be examined"

The nature of the obligation to examine the circumstances surrounding the sale

4.200.
The customs administration's examination of the circumstances of sale must be based on a claim and allegations by the importer. It is for the importer, not the customs administration, to decide by what means it wishes to establish that the relationship did not influence the price. This is because the importer, not the customs administration, possesses the necessary information and evidence to enable the importer to select its preferred method of establishing that the relationship did not influence the price. Once the importer makes its claim, the importer bears the burden of proof with respect to evidence relating to that claim.
4.201.
If the burden were on the customs administration to establish that the relationship influenced the price, the customs administration would have to collect evidence regarding all of the methods contemplated in Article 1.2(a) and the Interpretative Notes. This would be a completely unworkable burden to place on the customs administration and would have repercussions for Members' practices far beyond this case.

How Thai Customs examined the circumstances surrounding the sales at issue

4.202.
In the circumstances summarised below, Thai Customs fully complied with its obligations under Article 1.2(a) of the Customs Valuation Agreement in initiating and conducting its examination of the circumstances of sale and, ultimately, in rejecting the transaction value for the [[xx.xxx.xx]] entries at issue in this case:

· Thai Customs had doubts regarding the reliability of those doubts and notified PM Thailand that additional information was required.

· Between August 2006 and mid-February 2007, PM Thailand provided no new or additional information to establish that the relationship did not influence the price other than to rely on its past [[xx.xxx.xx]] filings.

· The [[xx.xxx.xx]] filings did not provide a deductive value calculation or provide any supporting evidence for the GAQ price and other adjustments referred to therein.

· To the extent that the [[xx.xxx.xx]] filings advanced a "cost plus" approach, they did not provide information regarding the seller's (i.e., PM Philippines') cost plus profits.

· Information about the importer's profits on the resale does not establish the reliability of the transfer price between exporter and related importer (though it may be one element in the deductive value calculation).

· When Thai Customs wrote to PM Thailand on 19 December 2006, it had no evidence before it to establish the reliability of the transfer price.

· After PM Thailand indicated in its letter of 5 February 2007 that it wanted the valuation expedited, Thai Customs continued its examination of the circumstances surrounding these sales.

· Thai Customs sought and received information from PM Thailand in extensive correspondence, phone calls, and meetings between 16 February and 6 March 2007.

· This information was used to determine deductive values for the entries at issue that were ultimately used to arrive at the customs value for these entries.

Thai Customs properly communicated the "grounds for considering that the relationship influenced the price"

4.203.
Article 1.2(a) of the Customs Valuation Agreement means that the customs administration must give the importer preliminary notice if it considers that the proviso in the second sentence of Article 1.2(a) has not been met. This notice must be provided in writing and an opportunity to respond must be given before final valuation takes place. Thai Customs provided this written notice when it informed PM Thailand on 19 December 2006 that it had "yet to prove" that the relationship did not influence the price.
4.204.
Thailand disagrees with the Philippines' interpretation that the term "grounds" is limited to the factual basis on which the customs administration acts. It would make no sense that the customs administration would not be required to inform the importer how that factual basis provided a sufficient legal basis for the customs administration to act. Furthermore, contrary to the Philippines' argument, the absence of evidence also constitutes a factual basis on which the customs administration may act. A notification that the factual record does not contain sufficient evidence clearly communicates information regarding the "information or otherwise" on which the customs administration is considering rejecting the transaction value.
4.205.
PM Thailand's response on 5 February 2007 to the notification by Thai Customs on 19 December 2006 makes clear that the importer was fully informed and that its due process requirements were fully respected.

It was not established that "the relationship did not influence the price"

4.206.
PM Thailand failed to discharge its burden to establish that the relationship between itself and PM Philippines did not influence the transfer price between the two. In these circumstances, Thai Customs properly concluded that the proviso in the second sentence of Article 1.2(a) had not been met and PM Thailand had failed to establish that its relationship with PM Philippines did not influence the price. Accordingly, Thai Customs' decision to reject the transaction value was fully consistent with the obligations in Articles 1.1 and 1.2 of the Customs Valuation Agreement.

(ii) Thai Customs acted consistently with Articles 5 and 7 of the Customs Valuation Agreement

4.207.
For the reasons explained in paragraphs 75-86 of Thailand's answers to the Panel's questions, Thailand's calculation of the deductive value was fully consistent with Article 5 of the Customs Valuation Agreement. As a deductive value calculation, its WTO-consistency should be determined by reference to Article 5 rather than Article 7 of the Customs Valuation Agreement.

(iii) Thai Customs acted consistently with Article 16 in providing an explanation of how the customs value was determined

4.208.
As Thailand explained in paragraphs 172-178 of its first submission, Thai Customs provided a written explanation in its letter of 12 April 2007 that the customs value had been determined "using the deductive method". In addition, Thailand explained that PM Thailand was provided with a detailed explanation of why and how the deductive value was used at the 6 March 2007 meeting (see Exhibits THA-64 and THA-65).
4.209.
Anti-dumping/CVD investigations are far more complex investigations than a customs valuation determination and it is to be expected that the standards for explaining anti-dumping or CVD determinations would be much higher than the standards governing explanations of customs valuation determinations.

(iv) The release of guarantees for the [[xx.xxx.xx]] entries

4.210.
Given that the Philippines has not made a claim with respect to the release of these guarantees, and that PM Thailand has never raised this issue with Thai Customs in an effort to reconcile the figures in question, there is no reason why the Panel should dedicate its time to this issue. Once PM Thailand is sure of its figures, Thai Customs would be happy to discuss with the company any outstanding issues it may have regarding the release of guarantees.

(c) Claims under Article III of the GATT 1994

(i) Thailand acted consistently with Article III:2 of the GATT 1994 in using the MRSPs as the tax base for its VAT system

Like product issues

4.211.
The Philippines must establish that every possible pair of imported and domestic cigarette brands is "perfectly substitutable". The Philippines has not provided evidence establishing that consumers perceive all of these pairs of brands to be "perfect substitutes". The evidence regarding consumer switching behaviour in the study submitted as Exhibit PHL-111a does not cover all brands and is of limited value. Moreover, significant price differences between particular pairs of imported and domestic brands undermine any conclusion that these pairs of brands are perfect substitutes. The evidence submitted in Exhibits PHL-148 and PHL-149 is of limited value because it does not establish relevant elasticities of demand and substitution for particular brands of imported and domestic cigarettes.
4.212.
In any event, the key issue in this case is not whether particular cigarettes are fully substitutable, but whether Thailand's system of determining the tax base for VAT is applied in a manner that discriminates against imported cigarettes within the meaning of Article III:2.

The use of the MRSPs as the tax base for cigarettes does not result in imported cigarettes being taxed "in excess" of domestic cigarettes

4.213.
Article III:2 does not require that all imported cigarettes must bear the same absolute tax amount as all domestic cigarettes. This would imply that both price-based and ad valorem tax systems would be per se inconsistent with Article III:2 of the GATT 1994. To the contrary, Members are free to use both fixed price systems and ad valorem systems of internal taxation. Moreover, under Article III:2 a comparison between the fixed price and the actual retail price cannot be used to establish discrimination. If a difference between the fixed price and the retail price was sufficient to establish discrimination, Members would, in effect, be compelled to use the actual retail price as the tax base.
4.214.
The proper test of whether Thailand's use of the MRSPs as the tax base for its VAT system is inconsistent with Article III:2 is whether Thai Excise determines the MRSPs in the same manner for both domestic and imported cigarettes. As Thailand has previously explained, the same methodology is used to establish MRSPs for both domestic and imported cigarettes. The Philippines has yet to make a prima facie case that Thai Excise establishes the MRSPs differently for imported and domestic cigarettes or applies the methodology described above in a manner that affords protection to domestic cigarettes.
4.215.
The evidence before the Panel shows that the starting point for the determination of the MRSP is the manufacturer's recommended retail price and that Thai Excise does not independently determine the "marketing cost" element of the MRSP. It also shows that exactly the same methodology is used for domestic and imported cigarettes. Furthermore, the fact that PM Thailand and other importers were able to request and receive a change in the MRSPs for their brands shows that there is no basis for the Philippines to argue that there has "never been a transparent way for an importer to provide information for the authority's decision-making process" or that PM Thailand was not "encouraged... to provide input into the MRSP determination process". Thailand notes that the methodology used to arrive at the MRSPs in the 2006-2007 notices was very different from the methodology used before and after that period, on which the Panel must rule. Accordingly, Thailand urges the Panel to take care to ensure that its rulings with respect to the MRSP methodology before it are based on evidence relating to the methodology applied during the time of establishment of the Panel and not on evidence relating to a different MRSP methodology that is not within the Panel's terms of reference.

(ii) Thailand acted consistently with Article III:2 of the GATT 1994 with respect to the taxation of resales of cigarettes

4.216.
As Thailand explained in paragraphs 241-244 of its first submission, the amount of VAT paid by the ultimate consumer on a pack of imported cigarettes and a pack of domestic cigarettes is exactly the same and is not affected by any difference in the VAT reporting requirements for imported and domestic cigarettes.
4.217.
The Philippines now argues that the issue is whether the tax burden "imposed on like imported products exceeds the tax burden imposed on like domestic products at any point in the distribution chain". There is no support for this interpretation in the text of Article III:2. The emphasis in Article III:2 is on the taxes imposed on the product, without any reference to different points in the distribution chain. The context provided by Article II:2(a) and Ad Article III of the GATT 1994 also supports this reading of Article III:2. Moreover, as a practical matter, the Philippines' argument would mean that all VAT systems are WTO-inconsistent because it is inevitable that under VAT systems the tax burden will vary at different points in the distribution chain, so that at some point the imported product may pay more tax than the domestic product (or vice versa).

(iii) Thailand acted consistently with Article III:4 of the GATT 1994 with respect to the administrative requirements for its VAT system

4.218.
While the Philippines argues that the different administrative requirements for resales of imported cigarettes imposed additional regulatory burdens on these sales that are not imposed on resales of domestic cigarettes, the Philippines ignores that (i) wholesalers and retailers of domestic cigarettes that are VAT‑registrants are subject to exactly the same regulatory requirements as wholesalers and retailers of imported cigarettes that are VAT‑registrants; (ii) any wholesalers and retailers of imported cigarettes that are not VAT‑registrants are subject to the same regulatory burdens as wholesalers and retailers of domestic cigarettes that are not VAT‑registrants; and (iii) for every regulatory burden imposed on VAT‑registered wholesalers and retailers of imported cigarettes, there is an equivalent regulatory burden imposed on any wholesalers and retailers of domestic cigarettes that are not VAT‑registrants.
4.219.
There is no compelling evidence before the Panel indicating that these different administrative requirements create significant incentives for retailers or wholesalers to stock only domestic cigarettes. The only evidence submitted by the Philippines is an opinion by a tax lawyer, Mr. Veraphong, that the reporting and book-keeping requirements for resellers of imported cigarettes are "more onerous"76 than those imposed on resellers of domestic cigarettes. Much of this analysis amounts to a restatement of the differences in the reporting requirements imposed on VAT‑registrants and non-VAT registrants without any further explanation of how these differences give rise to incentives not to stock imported cigarettes. Moreover, the analysis relies on alleged differences in penalties for non-compliance with applicable reporting requirements.77 Thailand does not accept that Mr. Veraphong's analysis of penalties is complete or accurate. More importantly, Thailand does not understand the Philippines to have advanced a claim that any differences in the penalties applicable to wholesalers and retailers that are VAT‑registrants under Thai law when compared to those applicable wholesalers and retailers that are not VAT‑registrants would give rise to a violation of Article III:4 of the GATT 1994.
4.220.
In addition, Thailand contends that to the extent that the regulatory requirements for imported cigarettes constitute less favourable treatment, those requirements are justified under Article XX(d) of the GATT 1994. As Thailand explained in more detail in its answers to the Panel's questions, Thailand's VAT system, including the system of monthly input/output tax reporting, is similar to that used by many other WTO Members.78 Accordingly, these reporting requirements are necessary, as that term has been interpreted by the Appellate Body in Brazil – Retreaded Tyres, for the enforcement of Thailand's VAT system.

(d) Claims under Article X of the GATT 1994

(i) Thailand acted consistently with Article X:3 with respect to the composition of the TTM Board

4.221.
The issue before this Panel is whether dual roles of governmental officials that create potential conflicts of interest constitute in and of themselves "unreasonable" or "partial" administration within the meaning of Article X:3(a) of the GATT 1994.
4.222.
As Thailand has explained79, situations of dual roles and potential conflicts of interest are not in and of themselves sufficient to demonstrate inconsistency with Article X:3(a). Jurisprudence confirms that a complainant must demonstrate a number of additional elements for a violation of Article X:3(a), including: (i) qualitative evidence of particular unreasonable or impartial acts by the relevant public officials;80 (ii) evidence that there are inadequate safeguards to ensure against unreasonable or impartial administration by those officials;81 and (iii) evidence that the dual role of the government officials is irrelevant for the administration of the legislation at issue.82 There are sound policy reasons for these additional elements. To prohibit all potential administrative actions flowing from officials in such circumstances would reverse the presumption of good faith implementation of the discretion vested in the executive branches of government when implementing WTO obligations. Furthermore, if the mere fact of public officials having dual roles or supervising authority over competing interests was sufficient to establish a violation of Article X:3(a), the regulatory capacity of governments would be severely curtailed.
4.223.
In this case, the Philippines has not met its burden of proving these three additional elements. In fact, the Philippines has not provided any solid evidence of a pattern of TTM Directors simultaneously making customs or fiscal determinations regarding imported cigarettes.

The Philippines has failed to show unreasonable or partial acts

4.224.
The Philippines concedes that it is not able to provide evidence that "specific decisions taken by TTM Directors in their capacity as government officials have actually been motivated by bias".83 The Philippines merely re-submits its evidence that some TTM Directors have simultaneously been employees of the Ministry of Finance.84 This evidence fails to satisfy the requirement of qualitative evidence of particular unreasonable or impartial acts by the relevant public officials.

The Philippines has failed to demonstrate inadequate safeguards

4.225.
Thailand submits that any risk of partial administration of customs and tax laws by government officials is mitigated by significant statutory safeguards governing the conduct of Thailand's public officials (e.g., Thai Civil Service Act and Thai Criminal Code). Where government officials are involved in the wrongful, dishonest, or inadequate exercise of their functions they shall be subject to imprisonment (of one to ten years) and/or fines (of between two thousand and twenty thousand baht).85 The Philippines argues that paragraph 2.6.2 of the Ethical and Moral Guidebook for Executives and Employees of Thailand Tobacco Monopoly would take precedence over these statutory civil and criminal obligations and sanctions.86 Thailand disputes the interpretation of the guidebook given by the Philippines, which, furthermore was issued by the Human Resources Department of TTM and has no legal status.

The Philippines has failed to demonstrate that the presence of government officials on the board of TTM is irrelevant

4.226.
The involvement of government officials in the administration of customs valuation and tax laws is relevant. There are also legitimate reasons why individuals from these departments might be appointed to the TTM Board to ensure that TTM itself complies efficiently with Thai tax and customs laws.

(ii) Thailand acted consistently with Articles X:3(a) and X:3(b) with respect to the conduct of appeals of customs valuation determinations

Thailand's conduct of these appeals is "reasonable" within the meaning of Article X:3(a)

4.227.
The parties agree that the determination of what is "reasonable" requires an analysis of all relevant circumstances surrounding the administration at issue, including "whether the undecided appeals can be distinguished from those already decided".87
4.228.
Thailand considers that there are several distinguishing factors between the resolved and unresolved appeals. First, the [[xx.xxx.xx]] appeals that remain under consideration relate to entries of Marlboro cigarettes landed in the year 2002. Thus, all [[xx.xxx.xx]] appeals relating to entries landed in the years 2000 and 2001 have been addressed. Second, PM Thailand requested, by letter dated 15 December 2005, that the BoA's determinations for the [[xx.xxx.xx]] ongoing appeals be based on revised profit and general expense inputs resulting in information exchange between the BoA and PM Thailand through to mid-2007. Third, PM Thailand subsequently requested, in July 2007, that its appeals lodged in 2006 and 2007 be prioritised over the [[xx.xxx.xx]] ongoing appeals.88 These extenuating circumstances explain why these appeals have not yet been completed.

Article X:3(b) does not impose obligations regarding the completion of particular appeals

4.229.
The parties disagree on the scope of the legal obligation in Article X:3(b). Thailand submits that Article X:3(b), unlike Article X:3(a), does not set standards governing individual instances of review of administrative action. Instead, Article X:3(b) contains only an obligation to create an institutional or procedural framework. In this context, Thailand notes that the Philippines has presented no evidence of delays in processing appeals other than the [[xx.xxx.xx]] appeals (which remain pending due to extenuating circumstances). In fact, the BoA has ruled on [[xx.xxx.xx]] of the [[xx.xxx.xx]] appeals lodged by PM Thailand between 2000 and 2002.
4.230.
Furthermore, the [[xx.xxx.xx]] ongoing appeals do not fall within the scope of application of Article X:3(b) as the BoA is not a tribunal or procedure "independent of the agencies entrusted with administrative enforcement". Section 112 sexies and septies of the Customs Act confirm that the BoA includes representatives of and is staffed by the same administrative agency – Thai Customs – whose decisions are the subject of review.
4.231.
Even if Article X:3(b) applied to the BoA, for the same reasons explained above with respect to the Philippines's claim under Article X:3(a), in the particular circumstances of this case, the BoA's administration of the [[xx.xxx.xx]] appeals lodged by PM Thailand's for entries landed in 2002 is not inconsistent with Article X:3(b).

(iii) Thailand acted consistently with Article X:3(b) with respect to appeals against the imposition of guarantees

4.232.
Thailand is not under an obligation to provide for appeals against the imposition of guarantee values because a decision by a customs official to require a guarantee is not an "administrative action relating to customs matters" within the meaning of Article X:3(b) of the GATT 1994. This is because guarantees have only a "provisional legal status" and requiring a guarantee does not constitute separate administrative action affecting the rights and obligations of importers.
4.233.
Even assuming that Thailand has to provide for the review of decisions requiring guarantees, Article X:3(b) neither mandates that this review be instantaneous nor prohibits it from being conditioned on the exhaustion of internal procedures. Contrary to the Philippines' arguments, Article X:3(b) does not contain any language requiring WTO Members to confer "independent and immediate" rights to challenge all administrative action relating to customs matters. The Philippines appears to accept that, under Thai law, importers can seek independent judicial review of orders requiring guarantees by the Tax Court after exhausting internal procedures. Thus, Thailand complies with the requirements of Article X:3(b).

(iv) Thailand acted consistently with Article X:3(a) in its administration of the VAT system and its excise, television and health taxes

Generally-applicable criteria to calculate MRSPs

4.234.
Contrary, to the Philippines' assertion, Article X:3(a) does not require Members to adopt generally applicable rules that attempt to address every possible contingency in advance; instead they are free to rely on discretion to administer their laws and regulations. It is perfectly "reasonable" for Members to administer their laws through the conferral of discretion on administrative agencies.
4.235.
In any case, even assuming that Article X:3(a) contains a requirement to administer laws and regulations using "generally applicable criteria", Thailand has complied with this requirement. MRSPs are determined according to generally-applicable criteria.

Use of guarantee value data to calculate MRSPs for Marlboro and L&M

4.236.
Thailand responds to the three claims advanced by the Philippines as follows:
4.237.
The use of different data sources to calculate the c.i.f. price component of MRSPs does not amount to non-uniform administration because the difference can be explained by reference to differences in the circumstances of the case. In September 2006 Customs had legitimate doubts about the reliability of PM Thailand's declared values and Thai Excise had to resort to estimates; by August 2008 Customs was satisfied that PM Thailand's declared values were reliable and, at that point in time, Thai Excise utilised the declared/assessed values.
4.238.
The use of guarantee values in September 2006 was reasonable given the legitimate doubts expressed by Thai Customs regarding the reliability of PM Thailand's declared values and the absence of any credible alternative. The fact that the guarantee values were based on a BoA ruling and were not much higher than the declared or eventually assessed values also indicates that the actions of Thai Customs were not unreasonable.
4.239.
The use of estimates was impartial because the Philippines has not established that Thai Excise would not use estimates to calculate the ex factory price component of MRSPs for domestic brands if there were any doubts about the reliability of figures furnished by TTM.

Tax bases used to assess excise, television and health taxes

4.240.
Thailand contests the Philippines' factual assertions that excise, television and health taxes have been or will be collected by Thai officials in contravention of existing Thai laws. The Philippines has not submitted any evidence in support of its assertions that Thai Excise has used "unlawful" tax bases to assess excise, television and health taxes. The Philippines bears the burden of proof on this matter and has failed to discharge its burden. Accordingly, the Philippines' claims must be rejected.
4.241.
Furthermore, even assuming that Thai officials somehow act inconsistently with Thai law when they levy excise, television and health taxes, it does not follow that this gives rise to a breach of Article X:3(a) of the GATT 1994. Article X:3(a) cannot be used to convert every failure by domestic authorities to comply with domestic laws into breaches of international law. Article X:3(a) does not impose an overarching requirement on WTO Members to ensure that their administrative actions remain based onapplicable domestic laws.

(v) Thailand acted consistently with Article X:1 with respect to the publication of rules and data relating to VAT, ex factory prices and the release of guarantees

The overall MRSP calculation methodology and data used to calculate MRSPs

4.242.
From August 2007 onwards, Thailand has published the overall MRSP calculation methodology in the preamble to all MRSP notices issued by the Excise Department. This description enables governments and traders to become acquainted with the methodology used by Thai Excise. Contrary to the Philippines' assertions, this description adequately explains the manner in which the VAT amount and the marketing margin are calculated – at least sufficiently clearly that PM Thailand and other importers are regularly able to request changes in their MRSPs.
4.243.
Thailand is not under an obligation to publish data utilised to calculate MRSPs because this material is not a law, regulation, judicial decision or administrative ruling of general application within the meaning of Article X:1 of the GATT 1994, or, alternatively this material is not an "essential element" of any relevant law, regulation, judicial decision or administrative ruling of general application. Concerning the data used in MRSP calculations for imported cigarettes, Thailand cannot publish this material because publication would result in the disclosure of confidential information.

Ex-factory price calculation methodology and data used to calculate ex factory prices for TTM Brands

4.244.
Ex-factory price determinations are not "administrative rulings of general application". The relevant ex factory price determination applies to a single entity – TTM – and is used to set tax bases for excise, health and television taxes paid by this single entity. Accordingly, the ex factory price calculation methodology is not a measure of general application. In the event that the Panel accepts that ex factory prices have general application, then publication of data used in arriving at these prices is not required because (i) this data falls outside the scope of Article X:1 of the GATT 1994, and (ii) publication of this data would result in the disclosure of confidential information.

Rules relating to the release of guarantees

4.245.
The starting point of the analysis under Article X:1 must be the identification by the complainant of an existing rule of general application that the respondent has failed to publish. In this case, the Philippines has failed to identify any existing instrument or set of instruments relating to the release of guarantees made effective by Thailand that Thailand has failed to publish.

(e) Issues relating to the Panel's terms of reference

(i) The Philippines' claim under the Customs Valuation Agreement regarding a "general rule or methodology"

4.246.
In its response to the Panel's question 1, the Philippines attempts to resuscitate its claim that Thai Customs had a "general rule and/or methodology" regarding the rejecting of transaction values for PM Thailand's imports. The Panel should not rule on this claim because (i) the Philippines has failed to establish that a "general rule and/or methodology" existed as that term is understood in WTO jurisprudence; (ii) even if the general rule alleged by the Philippines ever existed, it is clear that it had expired, at the latest, in September 2007 – long before the establishment of the Panel; and (iii) there is no need for the Panel to rule on this claim in order to resolve the dispute before it.

(ii) The Philippines' claims regarding expired measures and completed acts

4.247.
Thailand urges the Panel to consider carefully (i) whether each of the Philippines' claims identified in Exhibit THA-36 are properly within its terms of reference such that the Panel can rule on those claims; (ii) whether and to what extent it is appropriate or useful for the Panel to rule on claims that relate either to expired measures or completed acts; and (iii) whether the Panel is permitted under Article 19.1 of the DSU to make recommendations with respect to such claims.

(iii) The Philippines' claims under Article X:3(a) regarding Thailand's administration of its VAT system and the excise, television and health taxes

4.248.
The Philippines makes two separate requests for findings and seven claims under Article X:3(a) of the GATT 1994 regarding the manner in which Thailand administers its VAT regime and its excise, television and health taxes. None of these claims is described in the Philippines' panel request in a manner that suffices to present the relevant problems clearly because (i) the Philippines fails to "plainly connect" the absence of generally applicable criteria to calculate MRSPs, the use of guarantee values to calculate MRSPs, or the utilisation of unlawful tax bases to assess excise, television and health taxes with Thailand's obligations under Article X:3(a) of the GATT 1994, and (ii) the panel request does not contain any reference to claims that Thailand administers the VAT measures and the excise, television and health tax measures in a non-uniform manner.

G. EXECUTIVE SUMMARY OF THE ORAL STATEMENT BY THE PHILIPPINES AT THE SECOND SUBSTANTIVE MEETING OF THE PANEL

1. Article X:3(a) claim relating to the role of TTM Directors

4.249.
Thailand violates Article X:3(a) by vesting governmental authority to apply Thai customs and tax measures concerning domestic and imported cigarettes in government officials simultaneously serving as TTM Directors, which results in partial and unreasonable administration of these measures. As government officials, these individuals are charged with administering Thai customs and tax measures for domestic and imported cigarettes. As TTM Directors, they have a duty and financial incentive – in the form of significant bonuses – to advance TTM's competitive interests. The act of vesting authority to apply Thai customs and tax measures in this manner is an act of administration, distinct from additional acts such as the adoption of discriminatory MRSPs. TTM Directors are not subject to an effective safeguard, explicitly provided in the Thai Civil Service Act, prohibiting government officials from being a manager or managing director in a company. Thailand's other safeguards have proven ineffective in practice and have not prevented the disclosure of highly sensitive BCI to TTM Directors and acts of partial and unreasonable administration.

2. Thailand violated the Customs Valuation Agreement in rejecting PM Thailand's declared transaction values and in determining higher deductive values

(a) Articles 1.1 and 1.2: general rule requiring rejection of transaction value

4.250.
Thailand has not rebutted the Philippines' prima facie claim regarding the existence of a general rule requiring the rejection of transaction value. In addition to five pieces of evidence already submitted, the Philippines can now also rely on a series of memoranda, submitted by Thailand in response to the Panel's Article 13 DSU request, confirming that, in August 2006, Thailand adopted a general rule providing for the rejection of transaction value without examination of the circumstances of sale, and for the use of a deductive value as the minimum or reference price irrespective of particular circumstances. This general rule applied to importers of cigarettes and alcoholic beverages, and was not company-specific. Even if the rule is company-specific, a panel has jurisdiction to consider a rule or norm prescribing that a particular company will be subjected to specific regulatory treatment on a general and prospective basis.
4.251.
The general rule falls within the Panel's terms of reference and may be the subject of findings and recommendations. It has not expired and continues to have effects through the [[xx.xxx.xx]] valuation decisions, taken pursuant to the rule, that are pending before the BoA. Even if the Panel were to find that the general rule has fully expired, it may make findings regarding expired measures.

(b) Articles 1.1 and 1.2: improper rejection of PM Thailand's declared transaction values in [[xx.xxx.xx]] entries

4.252.
Thailand violated Articles 1.1 and 1.2 by rejecting PM Thailand's declared transaction values in [[xx.xxx.xx]] transactions, without (1) examining the circumstances of sale, and (2) valid grounds, other than the relationship between the buyer and seller.
4.253.
The Philippines has advanced five pieces of evidence, showing that no examination of the circumstances of sale occurred and that Thailand did not examine the relevant evidence, such as deductive calculations, submitted by PM Thailand. Thailand has responded with contradictory ex post reasons for why PM Thailand's evidence was inadequate; it has yet to provide evidence showing that Thai Customs ever examined PM Thailand's evidence. In fact, the minutes of the 6 March 2007 meeting expressly state that Thai Customs did not examine the circumstances of sale. Thai Customs' explanation of its determination, in the 12 April 2007 letter, also does not reveal an examination of PM Thailand's evidence. Thailand now argues, ex post, that it did not use deductive testing in the relevant period. However, the evidence before the Panel shows that Thai Customs used deductive values as minimum test prices for the 2006 and 2007 entries at issue; when transaction value was below the deductive test value, it was rejected without a proper examination of the circumstances of sale. Thai Customs also failed to examine PM Thailand's gross margin evidence. This evidence allowed Thai Customs to compare the gross margins earned by PM Thailand with the gross margins of similarly-situated distributors in transactions with unrelated suppliers. Thailand has advanced contradictory reasons for not addressing that evidence. At the relevant time, however, Thai Customs never communicated that its grounds for doubting the transaction value included concerns over the gross margin data for unrelated distributors. Thailand also argues, ex post, that at that time Thai Customs was only required to examine "new" evidence, and not other evidence, such as the gross margin evidence that PM Thailand previously submitted, and resubmitted after 4 August 2006. However, an authority must examine any evidence, unless it has previously rejected it. Moreover, alleged and unspecified telephone conversations and meetings, without a documentary record, are insufficient, under the Customs Valuation Agreement, to establish that the circumstances of sale were examined.
4.254.
Thailand also violated Articles 1.1 and 1.2 by failing to provide valid grounds for rejecting transaction value. With respect to the first fact mentioned in the letter of 12 April 2007, Thailand has expressly stated in these proceedings that Thai Customs did not rely on a comparison between [[xx.xxx.xx]] (hereafter: "Importer A") prices and PM Thailand's prices.89 At the relevant time, PM Thailand explained why these prices were incomparable, and Thai Customs did not ask it to account further for the differences between these incomparable prices. With respect to the second fact, also mentioned in the 12 April letter, the Philippines submits that a WTO Member cannot evade its primary valuation obligation with a bald statement that the burden of proof was not met, without also explaining why the evidence submitted was deficient.

(c) Article 1.2(a): communication of "grounds" before rejecting transaction value

4.255.
Thailand violated Article 1.2(a) by failing to communicate grounds for considering that the relationship influenced the price before rejecting transaction value. A communication of solely the legal conclusion that PM Thailand "had ‘yet to prove' that the relationship did not influence the price" is insufficient to communicate the factual "grounds" for the authority's conclusion, and deprives the importer of a "reasonable opportunity to respond" to those "grounds".

(d) Article 16: adequate explanation of how customs value was determined

4.256.
Thailand violated Article 16 by failing to provide PM Thailand with a written and sufficiently reasoned explanation, enabling the importer to understand how and why the authority rejected transaction value and determined the assessed customs value. Neither the 12 April letter nor the minutes of the 6 March meeting provide an adequate explanation of Thai Customs' determination because they rely on an improper comparison with Importer A's prices (upon which Thailand alleges Thai Customs did not rely) and a bald, unsubstantiated statement that the burden of proof was not met.

(e) Articles 5 and/or 7: incorrect assessment of deductive value of PM Thailand's [[xx.xxx.xx]] transactions

4.257.
Thailand violated Article 5 by determining, for impermissible reasons, that it could not value PM Thailand's goods using that provision, and/or Article 7 by incorrectly assessing the deductive value of PM Thailand's [[xx.xxx.xx]] entries. Thailand now admits that it deducted incorrect amounts for excise tax, causing inflated customs value, and VAT for certain entries. The fact that PM Thailand may have benefited from the deduction of an incorrect VAT amount does not render Thailand's actions WTO-consistent.

(f) Article 10: disclosure of business confidential data

4.258.
Thailand violated Article 10 by disclosing BCI. Thailand accepts that c.i.f. prices for imported cigarettes are BCI, and that their disclosure would prejudice legitimate commercial interest of importers of cigarettes.

3. Thailand violates Article X:3(b) of the GATT 1994 by failing to provide a right to challenge guarantees

4.259.
Thailand violates Article X:3(b) by failing to provide an unconditional right to appeal a guarantee order, independently from the final notice of assessment. A guarantee order is a complete and final act that is distinct from the final assessment, and is administrative action in the sense of Article X:3(b). Making the review of a guarantee conditional on the existence of final assessment of customs value risks depriving importers of any review of a guarantee, inflicting on them immediate financial harm. An unconditional right to review of a guarantee is also needed in cases where the guarantee excludes market access entirely, in which case there is no assessed customs value.

4. GATT 1994 claims pertaining to VAT

(a) Article X:1: publication of methodology and data used to determine MRSPs

4.260.
Thailand violates Article X:1 by failing to publish the overall methodology used to establish and revise MRSPs. Contrary to Thailand's argument, individual MRSP notices do not provide adequate publication of the MRSP methodology, nor do they explain the methodology that Thailand described before this Panel. PM Thailand complained about this lack of transparency in its ongoing internal appeals against three MRSP notices. With respect to the December 2005 MRSP, Thailand now argues that the "marketing costs", one of the elements in the calculation, are not "calculated" but instead "derived" from the latest MRSP proposed by the importer. The available evidence and calculations relating to the December 2005 marketing costs, which were applied again in the 2008 and 2009 MRSPs, contradict Thailand's explanation. In fact, Thailand's contradictory explanations regarding the December 2005 MRSPs serve to emphasize the urgent need for published rules.
4.261.
Thailand also violates Article X:1 by failing to publish data, in indexed format where needed, used to calculate MRSPs. Timely publication of essential data underlying the MRSPs would prevent errors from infecting the tax base, allow traders and foreign governments to review MRSP calculations, and ensure that calculation disputes can be addressed immediately at the domestic level. The repeated errors in the calculations submitted by Thailand to the Panel demonstrate the need for publication of the data underlying the MRSPs.

(b) Article III:2, first sentence: excess taxation of imported cigarettes, as a result of the MRSP

4.262.
The MRSP Notices of 7 December 2005, 18 September 2006, 30 March 2007, 29 August 2007, and 19 August 2008 fall within the Panel's terms of reference because they were identified in the Panel Request as "MRSP Notices [in the plural] issued by the Director-General for Excise" and the Philippines indicated that the dispute concerned MRSP Notices from the past "two and a half years". The earlier MRSP Notices have not ceased to have effects; but, in any event, an expired and superseded measure is covered by Article 6.2 of the DSU, as shown in EC – Bananas III (21.5) and US – Zeroing (Japan) (21.5).
4.263.
The Philippines has already demonstrated that all domestic and imported cigarettes are like, through evidence pertaining to physical characteristics, end uses, consumers' tastes and preferences, tariff classification, and regulatory treatment. Thailand has submitted neither argument nor evidence disputing the Philippines' assessment. Thailand's argument that the Panel must make 1,634 comparisons between different brands of imported and domestic cigarettes is not supported by the text of Article III:2 or the case law.
4.264.
Thailand's objections to the Philippines' evidence measuring behavioural changes resulting from relative price movements are unfounded. First, surveys of consumer opinion provide helpful evidence of consumers' tastes and preferences, and were previously relied on by the Panel in Japan – Alcoholic Beverages. Second, the fact that the evidence does not show calculations for 1,634 separate elasticities of substitution and income-compensated cross-price elasticities of demand is irrelevant.
4.265.
Thailand imposes VAT on imported cigarettes in excess of VAT imposed on domestic cigarettes, because (1) the MRSPs for imported cigarettes are systematically higher than for like domestic cigarettes; and, (2) the MRSPs for imported cigarettes are systematically higher than the RRSPs for imported cigarettes, whereas the MRSPs for like domestic cigarettes are systematically equal to the RRSPs. A table in each of PM Thailand's three internal appeals against the 2006-2007 MRSPs shows that (1) MRSPs for all 13 major imported brands were higher than the MRSPs for the three major domestic brands, and (2) a sizeable gap between the MRSP and RRSP exists for only imported brands. The evidence before the Panel shows that since December 2005, the MRSPs have been consistently higher than they would have been if based on PM Thailand's information, and have been consistently higher for imported brands than for like domestic brands, resulting in a gap between the retail price and the MRSP for imported, but not domestic, brands.

(c) Article III:2, first sentence: de jure exemption of resales of domestic cigarettes from VAT

4.266.
Thailand also violates Article III:2, first sentence, by de jure exempting resales of domestic cigarettes from VAT while subjecting resales of imported cigarettes to VAT and a non-automatic, conditional tax credit. Thailand applies different VAT systems to domestic and imported cigarettes. It applies a single stage VAT system to domestic cigarettes, involving a de jure VAT exemption of resales of domestic cigarettes. In that system, only TTM is VAT‑liable, and VAT is due on sales at only one stage of the distribution chain. In contrast, a multi-stage VAT system applies to resales of imported cigarettes, whereby VAT is due at each of the multiple stages in the distribution chain of imported cigarettes.
4.267.
Although Thailand argues that the additional VAT liability can be offset by a tax credit, a Member cannot rely on action by a private party to mitigate the effects of a discriminatory tax. Also, the tax credit is subject to conditions, and not granted automatically as Thailand alleges.

(d) Article III:4: more onerous VAT administrative burdens on resales of imported cigarettes

4.268.
Thailand violates Article III:4 by subjecting resales of imported cigarettes to the VAT administrative requirements set out in Chapter IV of the Thai Revenue Code, while exempting resales of domestic cigarettes from those requirements. The Philippines has submitted expert statements supporting its claim. Thailand's argument that resales of domestic cigarettes are, nevertheless, subject to income tax administrative requirements, which it claims are "exactly the same" as the VAT administrative requirements, fails because Thai law also de jure exempts income earned by resellers of TTM cigarettes from income tax.

(e) Article X:3(a): administration of VAT regime

4.269.
The Panel has jurisdiction to consider the Philippines' claim under Article X:3(a) because the measures being administered, and the relevant legal provision, were identified and connected in the Panel Request.
4.270.
Thailand violates Article X:3(a) by using a guarantee value as the starting point for calculating MRSPs. Thailand effectively converts a provisional guarantee into a definitive tax base, which is neither reasonable nor uniform administration. Such administration is also partial because Thai law does not authorize DG Excise to issue a provisional ex factory price, whereas an express power exists to issue a provisional guarantee value. The Philippines further objects to a definitive tax that is based on the highest estimated guarantee value.
4.271.
Thailand also administers its VAT system in an unreasonable fashion by failing to base its MRSP calculations on generally-applicable criteria set forth in domestic law. The Philippines has shown, and Thailand has admitted, that MRSPs are calculated on an ad hoc basis, without criteria set forth in law, allowing DG Excise to add, since December 2005, marketing costs that have not been based on the importer's information. This is contrary to the objectives underlying Article X:3(a). Moreover, Thailand's methodology used to calculate the 2006 marketing costs, which involved giving arbitrary and differing weights to different retail prices in different countries, is also unreasonable – especially in the light of the fact that MRSPs calculated for domestic brands during the same period were based on TTM's information.

5. Claims pertaining to the excise, health, and television taxes

(a) Article X:1: publication of methodology and data used to determine the ex factory price

4.272.
Thailand violates Article X:1 by failing to publish the methodology and data, indexed if necessary, used to determine the ex factory prices. This methodology is a ruling establishing "principle or criteria applicable in future cases", affecting an unidentified number of economic operators. First, the ex factory price constitutes the tax base for the excise, health, and television taxes, and, therefore, affects the taxes and prices paid by all purchasers of domestic cigarettes. Second, the ex factory price is the starting point for calculating MRSPs for domestic brands, and, therefore, applies generally to all of TTM's VAT‑liable sales.

(b) Article X:1: publication of rules concerning the release of guarantees for excise, health, and television taxes

4.273.
Thailand violates Article X:1 by failing to publish rules concerning the release of guarantees collected to cover the potential liability for excise, health, and television taxes. Neither the Customs Act, nor statutes imposing these taxes, provide rules on the release of guarantees for these internal taxes. Thailand's assertion that it has not adopted general rules concerning the release of guarantees is contradicted by its description before this Panel of a "departmental practice" governing the release of guarantees, applied "routinely" and "[i]n the overwhelming majority of cases … without incident". The Philippines urges the Panel to consider the circumstances surrounding the tardy release date of the health tax guarantees for [[xx.xxx.xx]] entries, occurring between 18 August 2006 and 16 February 2007, in objectively assessing its claim that published rules are needed to protect importers.

(c) Article X:3(a): administration of the excise, health, and television taxes

4.274.
The Panel has jurisdiction, on the same grounds as those described in paragraph 21 with respect to the Article X:3(a) VAT claim, to consider the Philippines' claim that Thailand violates Article X:3(a) by failing to administer the excise, health, and television taxes in a uniform, reasonable, and impartial manner. If the assessed customs value is reduced, following a successful appeal against Thai Customs' valuation, Thailand refunds the excess customs duties collected but does not refund the excess excise, health, and television taxes, which are based on the initial assessed customs value plus customs duties. It is not reasonable to administer these three taxes on the basis of a customs value that, as here, was found to be incorrect by a domestic court or tribunal, and that does not reflect the statutory tax base. Finally, it is also partial administration to impose tax on the basis of an incorrect customs value, because this administration affects imported, but not domestic, cigarettes.

(d) Articles X:3(b) and X:3(a): undue delays in the BoA's decision-making

4.275.
Thailand violates Articles X:3(b) and X:3(a) by failing, after more than seven years, to resolve [[xx.xxx.xx]] appeals brought by PM Thailand. This delay is not justified by PM Thailand's request that the BoA use a revised P&GE ratio for these [[xx.xxx.xx]] appeals. The issue of whether to adjust the audited P&GE ratio to account for Thai Customs' higher assessed customs value has been resolved in each of the four previous BoA rulings regarding hundreds of entries from 2000-2002: the BoA decided to adjust the company-wide P&GE ratio by treating the extra customs duties and taxes paid on the uplifted customs value as income. As shown in Exhibit PHL-251, for all entries from April 2000 to December 2002, the BoA uniformly used a single, adjusted company-wide P&GE ratio of [[xx.xxx.xx]] per cent. In these circumstances, PM Thailand's request from June 2004 for an adjustment to the audited P&GE involved the BoA pursuing a consistent approach, without requiring it to re-start its analysis. Instead, it is the BoA that indicated, at a meeting on 28 September 2005, that it would depart from its previous rulings; any attendant delay caused by that decision is attributable solely to the BoA.

H. EXECUTIVE SUMMARY OF THE ORAL STATEMENT BY THAILAND AT THE SECOND SUBSTANTIVE MEETING OF THE PANEL

1. Claims under the Customs Valuation Agreement

4.276.
The Panel must not conduct a de novo review: it "cannot conduct a new inquiry into the facts to decide for itself what conclusions it would have reached; nor can it substitute its own judgment for that of a domestic authority.... In a WTO customs valuation dispute, a panel's role is, therefore, not to conduct a new examination into the facts, and to decide for itself the proper valuation of the goods."90 The Appellate Body has said that a panel "has to put itself in the place of [the customs administration] at the time that it makes its determination".91 The Philippines has failed to show that any of Thailand's arguments before the Panel are ex post in that they differ from the grounds on which Thai Customs acted. The Philippines seeks to use the concept of ex post justification – which is not found in the DSU – to read into the Customs Valuation Agreementprocedural obligations similar to those in the trade remedy agreements, even though there are significant differences between the everyday process of customs valuation and the extraordinary remedy of anti-dumping measures.92 Even if the Panel agrees that some of Thailand's arguments are ex post, the Panel would not be able to rule that the determination was substantively inconsistent with the Customs Valuation Agreement. The Panel could rule only that Thai Customs had failed to provide a reasoned explanation of its actions.
4.277.
Thai Customs had "doubts" within the meaning of Article 1.2(a) and its interpretative notes.93 There is no requirement that the customs administration must either justify its doubts or even notify the importer of the nature of the doubts.94 There is no requirement that the subsequent examination of the circumstances of sale must focus on the nature of the original doubts. PM Thailand did not "dispel" the doubts in this case.95
4.278.
The evidence presented by PM Thailand did not establish that the relationship between PM Philippines and PM Thailand did not influence the price between the two. The importer bears the burden of proof on this.96 The [[xx.xxx.xx]] evidence addresses only the relationship between PM Thailand and its resellers in Thailand and says nothing about the relationship between PM Thailand and its affiliated supplier, PM Philippines. The amount of profit made by the importer on its resale does not establish that the price at which the importer bought from the related exporter was at arm's length.97 The fact that the profit ratio falls within certain ranges also does not establish that the price paid was at arm's length. Also, the source and probative value of the profit ranges relied on by PM Thailand are too vague to be reliable. In March 2007, PM Thailand expressly requested Thai Customs to use a "deductive method" "in testing the acceptance of the imported value".98 It was therefore reasonable for Thai Customs to use the deductive method, as proposed by PM Thailand and as "akin" to the method in the [[xx.xxx.xx]].
4.279.
Thai Customs provided the necessary notification of the grounds to consider that the relationship between PM Philippines and PM Thailand influenced the price in its 19 December 2006 letter.99 Subsequent correspondence also makes clear that PM Thailand was fully informed as to the basis on which Thai Customs was acting and its opportunities to provide additional information.100
4.280.
Thai Customs' examination of the circumstances of these sales was also consistent with the requirements of the Customs Valuation Agreement. This examination was a "process of consultation" including the following events: (i) Oral communication on 15 February 2007101; (ii) 16 February letter from PM Thailand to Thai Customs102; (iii) Request for information preceding 21 February 2007 letter103; (iv) 21 February 2007 letter from PM Thailand to Thai Customs104; (v) 26 February 2007 letter from Thai Customs to PM Thailand's accountants105; (vi) 27 February 2007 letter from Thai Customs to PM Thailand106; (vii) 2 March 2007 letter from Thai Customs to PM Thailand107; (viii) 2 March 2007 letter from Thai Customs to PM Thailand's accountants108; (ix) Thai Customs' meeting with PM Thailand's accountants, 2 March 2007; (x) Meeting of 6 March 2007; (xi) 6 March 2007 letter109; and (xii) 7 March 2007 letter.110
4.281.
The 6 March 2007 meeting was part of the examination of these sales, requested by the importer, and part of the process of consultation. When the Panel "has []put itself in the place of [Thai Customs] at the time that it makes its determination"111 it should conclude that Thai Customs acted reasonably by valuing PM Thailand's entries using precisely the approach requested by the company in its letter of 5 February 2007. Article 6 of the Customs Valuation Agreement provides that Members cannot compel persons in other countries to provide information for the purposes of determining customs value under that Article suggesting that the customs administration is not required to seek information from foreign sources in determining customs value even under other methods. Moreover, when Thai Customs asked PM Thailand for information regarding the costs incurred by PM Philippines, PM Thailand expressly told Thai Customs to use the deductive method instead.112
4.282.
Thai Customs fully examined the circumstances of sale in the light of the evidence presented by PM Thailand and found that: (i) there was no evidence provided regarding the circumstances of sale such as how PM Thailand and PM Philippines negotiated their prices; (ii) the [[xx.xxx.xx]] method did not provide the customs administration with any basis to conclude that the price between PM Philippines and PM Thailand was at arm's length, and (iii) even when viewed as "akin" to a deductive value, the evidence did not establish that the related transfer price was at arm's length. Accordingly, the Panel should find that Thai Customs reasonably determined that the transaction value was not acceptable for the reasons stated in Articles 1.1(d) and 1.2(a) of the Customs Valuation Agreement.
4.283.
With respect to the deductive value calculation, discounts, rebates and similar price adjustments are not expenses, but instead form part of the price itself. Articles 5.1(a)(i)-(iii) of the Customs Valuation Agreement do not require discounts to be deducted on the basis of "usual" amounts. Deductions are required only for discounts that are tied to the particular unit price for the GAQ sale. Provincial taxes are deductible "if included in the resale price on which the [deductive value] is based".113 PM Thailand made no claims for a deduction for transportation costs. Accordingly, Thai Customs properly calculated the deductive value.
4.284.
The customs administration is not required to continue to make repeated requests for information as part of its examination of the circumstances of sale. Even under the Anti-Dumping Agreement, the respondent does not have a right to unlimited opportunities to present additional data.114
4.285.
Thai Customs provided a written explanation of how the customs value was determined in its 12 April 2007 letter and by means of the minutes of the 6 March 2007 meeting, which were provided to PM Thailand and referred to in at least one of the notices of assessment for these entries.115 Thai Customs acted reasonably and consistently with the Customs Valuation Agreement in rejecting the declared value and using the deductive method to value these entries in accordance with Articles 1.1(d) and 1.2 of the Customs Valuation Agreement.

2. Claims under Article III of the GATT 1994

(a) Claim under Article III:2 with respect to the setting of MRSPs

4.286.
The key issue is whether the tax base – the MRSPs – is established in the same manner for imported and domestic cigarettes.116 The 2006 and 2007 MRSPs were not included in the Philippines' panel request and are not within the Panel's terms of reference.117 Instead, this dispute concerns the 2008 and 2009 MRSP notices and there is no evidence showing that those MRSPs were established in a manner that discriminated against imported cigarettes. Rather, the evidence is clear that the 2008 and 2009 MRSPs were set using the same methodology for both domestic and imported cigarettes and that the importers that actually made company-specific requests for changes in their MRSPs relating to those notices were treated in the same manner as domestic producers.

(b) Claim under Article III:2 regarding VAT on resellers

4.287.
VAT is a tax on consumers, who pay exactly the same tax on imported and domestic cigarettes.118 The key issue is that the total tax on the imported and domestic product is the same, not whether the tax is collected uniformly from different merchants at each stage of the distribution process.
4.288.
The Philippines' claim also fails because: (i) a reseller never pays more VAT on imported cigarettes than on domestic cigarettes; (ii) a reseller always obtains an input tax credit on its purchases of cigarettes before it incurs the obligation to pay output tax on its sales of cigarettes; and (iii), resellers can use VAT paid on their purchases of services and equipment to increase their offset against VAT output tax payable on sales of imported cigarettes.119 If the Philippines' argument were accepted, Members would not be able to use VAT systems based on input/output tax offsets, because such systems inevitably result in different taxes being collected at different points in the distribution process.120

(c) Claim under Article III:4 regarding VAT forms

4.289.
The requirement to file a Por.Por.30 depends on the entity's total sales, not on whether it sells imported or domestic cigarettes. Thailand attaches as Exhibit THA-89 samples of Por.Por.30s submitted by TTM and by a convenience store that show amounts for both VAT and VAT‑exempt sales. Furthermore, the Revenue Department's Instruction No. Paw. 86/2542, published in 1999, regarding the types of documents required for VAT compliance, makes clear that sales receipts may double as tax invoices, thereby avoiding duplication of requirements under the Accounting Acts and the Revenue Code (Exhibit THA-90, clause 6). In accordance with this instruction, many companies produce a single document that serves as a receipt and a tax invoice.

3. Claims under Article X of the GATT 1994

(a) Article X:3 claim relating to TTM's Board of Directors

4.290.
A complainant must show actual acts of partial or unreasonable administration in order to prove a violation of Article X:3(a). The Philippines concedes that it is not able to provide evidence that "specific decisions taken by TTM Directors in their capacity as government officials have actually been motivated by bias."121 Press reports of alleged "statements of intent by the conflicted individuals to protect the domestic producer"122 do not constitute acts of unreasonable or partial administration. A claim under Article X:3(a) generally requires evidence of "a pattern of decision-making".123 In this case, the sole alleged act, the disclosure of confidential declared values to the Thai press in 2006124, has not had a significant impact on the overall administration of the Thai Customs Code. Specific statutory safeguards prevent such a result.125
4.291.
Even if Article X:3(a) were read to regulate how governments structure their administrative processes, rather than how they actually administer their laws and regulations, the Philippines' claims must fail. An "administrative structure" whereby government officials are simultaneously on the TTM Board does not "compromise all" or "taint the entirety" of the government's administration in individual cases.126
4.292.
As a matter of fact, Thai law contains strict statutory safeguards, which take priority over the TTM Guidebook and which protect against improper administration of Thai law by government officials serving on the TTM Board.127 Financial incentives for TTM Directors are modest, based as much on attendance at meetings as profits128, and calibrated to ensure that Directors act consistently with those statutory controls. This case therefore differs from Argentina – Hides and Leather, in which there were no controls on the treatment of confidential information available to private industry representatives present at export inspections.129

(b) Article X:3 claims relating to the BoA's treatment of appeals on Marlboro cigarettes landed in 2002

4.293.
There are three circumstances that justify the BoA's treatment of the pending appeals as "reasonable": (i) the spike in appeals due to Thailand's implementation of new Customs Valuation Agreement disciplines in 2000; (ii) PM Thailand itself requested that the BoA use new information regarding P&GE ratios into account in those appeals (by letters dated 15 December 2005 and 12 March 2007); and (iii) PM Thailand requested that the subsequent appeals be prioritised over the pending appeals. Thailand submits, in addition to the 19 July 2007 letter, a statement confirming that "PM Thailand's company representatives also came to meet our officials and told them, verbally, that they would prefer Thai Customs to prioritise the appeals of the [[xx.xxx.xx]] entries landed in 2006 and 2007 ahead of the appeals of [[xx.xxx.xx]] entries landed in 2002".130 Since that letter of 19 July 2007, PM Thailand "has not submitted any additional communications to Thai Customs" regarding delays of the appeals of the entries landed in 2002.131
4.294.
Article X:3(b) does not apply to the BoA as it is not "independent". The context of Article X:3(c) confirms that procedures subject to Article X:3(b) must be "fully and formally independent" of the agency being reviewed. Thailand's BoA is not. It is headed by the Director-General of Customs and has a Customs civil servant as secretary. It is supported by a "team of officers [of the Customs Department] that acts as secretariat".132 The Sub-Committee for Customs Valuation of the BoA, charged with the "power and responsibility to... consider the appeal" and to present a "conclusion" to the BoA, is composed entirely of Customs Department officials.133

(c) Claim regarding appeals against the imposition of guarantees

4.295.
An administrative decision requiring an importer to furnish a guarantee is not an "administrative action relating to customs matters" within the meaning of Article X:3(b). Under Thai law, importers have unconditional rights to appeal decisions imposing guarantees directly to the Thai Tax Court.134 Article X:3(b) of the GATT 1994 does not require that WTO Members provide "immediate and independent" rights of appeal to affected importers.135 Instead, WTO Members are permitted to impose requirements to await the completion of internal proceedings and the exhaustion of alternative remedies before rights of appeal can be exercised.

(d) Administration of the VAT system and excise, television and health taxes

4.296.
The Philippines argues that a failure to collect refundable guarantees for VAT liability from cigarette sellers is a breach of Article X:3(a).136 Article X:3(a) requires only that Members' administration of their laws be "reasonable". It is irrelevant that the Philippines may be able to think of a different way of doing things. The relevant question is whether Thai authorities administered Thailand's VAT laws and regulations irrationally by utilising guarantee value data to calculate MRSPs. In the light of the doubts regarding the reliability of the declared customs value, it was not irrational to use the guarantee values. Also, VAT is a tax on consumption ultimately paid by consumers.137 Any refund would be due to consumers, not to importers or domestic manufacturers.

V. ARGUMENTS OF THE THIRD PARTIES

A. ORAL STATEMENT BY AUSTRALIA AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL

5.1.
Australia did not file a written third party submission in the dispute Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines (DS371). Australia did however make an oral statement at the third-party session of the first substantive meeting of the Panel.

1. Introduction

5.2.
Chair, Members of the Panel, parties and third parties, Australia welcomes this opportunity to present its oral statement today. As a general remark, Australia considers that where customs duties are applied by WTO Members, the security and predictability of the multilateral trading system is contingent upon the correct application of the WTO Customs Valuation Agreement. Central to the Customs Valuation Agreement is the importance of transparency in determining the customs valuation methodology used by the customs authorities of WTO Members.
5.3.
In our statement, Australia will address the following issues:

· The obligation to maintain transparency in determining the methodology used to arrive at a customs value;

· Australia's practice in the event of doubt on declared customs valuations; and

· The Philippines claims under Article III:2 of the GATT 1994.

2. Transparency issues in customs valuation

5.4.
It is apparent that the complainant and respondent in this case have divergent views on the obligations of importers and customs authorities to communicate with each other, as provided for in the Customs Valuation Agreement. This is nowhere more evident than in their respective positions when grounds exist to doubt the declared value claimed by an importer where the buyer and seller are 'related' for the purposes of Customs Valuation Agreement Article 1(d). Australia recalls that it is not contested that PM Thailand and PM Philippines are 'related' within the meaning of the Customs Valuation Agreement.138
5.5.
Australia considers full transparency should be provided in such cases to prove that the relationship between the importer and the seller has not influenced the price. In Australia's view, the importer can only effectively attempt to prove that its relationship with the seller has not influenced the price if the customs authority fully communicates its doubts to the importer in writing. It is only then that the importer can meaningfully 'respond' to those doubts as provided for in Article 1.2(a) of the Customs Valuation Agreement. This response should also be provided in writing. Australia agrees with the European Union in its written submission that it is only after the customs authority has examined the 'relevant aspects of the transaction … in order to determine whether the relationship influenced the price' that customs authorities can properly reject the declared value and consider alternative customs valuation methods.139 In order to ensure full transparency, if the importer requests the grounds for rejecting the customs value in writing the customs authority should provide it even though the Customs Valuation Agreementdoes not require it to do so.
5.6.
Australia therefore considers that Article 1.2(a) of the Customs Valuation Agreement establishes a clear obligation on the customs authority to communicate its grounds that the relationship between the importer and the seller has influenced the price. In addition, if an importer requests the grounds for considering that the relationship influenced the price in writing, the failure to communicate these grounds in writing would be inconsistent with this Article.
5.7.
A further provision in the Customs Valuation Agreement relevant to transparency and communication is Article 16. Article 16 contains an obligation on the customs authorities of the importing country to provide an explanation in writing as to how the importer's goods were valued whenever the importer makes a request in writing for this information. This obligation applies irrespective of which valuation method is used.

3. Australia's practice in case of doubt regarding declared transaction values

5.8.
In the light of what I have just said, it may assist the Panel for Australia to spend a moment to outline its practice in the application of Australian law giving effect to the Customs Valuation Agreement,in situations where the transaction value may have been influenced by the relationship between the buyer and seller. Firstly, a written notice is sent to the buyer outlining the Australian Customs' concerns. This notice will include the view that the relationship may have affected the price rendering the Australian Customs unable to use the transaction value method. The buyer is then invited to respond and provide sufficient evidence to satisfy Australian Customs that the relationship has not affected the price. A period of no less than 28 days is provided for a response.
5.9.
If Australian Customs is satisfied that the information provided has established that the relationship has not affected the price, then the declared transaction value is applied. However, if Australian Customs is not satisfied with the explanation or no reply is received, the transaction value method is held to be inapplicable and an alternate method is used following the requisite sequence in the Customs Valuation Agreement.140 Australian Customs will then convey this determination in writing to the importer and secondly, when a new customs valuation is determined, this methodology is also provided in writing to the importer.

4. The Philippines' claims under Article III:2 of the GATT 1994

5.10.
Australia will now address the Philippines' claims under Article III:2 of the GATT 1994. In order for the Philippines to establish that Thailand has acted inconsistently with Article III:2, it must demonstrate that Thailand subjected imported cigarettes to a tax 'in excess of' that applied to 'like domestic products.' In the present case, it appears likely that domestic and imported cigarettes are 'like products' within the meaning of Article III:2. Further, Australia notes Thailand acknowledges that this "may' be the case.141 However, Australia recognises the need for the Panel to undertake a thorough analysis on this point.
5.11.
As established by the Appellate Body in Japan – Alcoholic Beverages II142, the Panel must then determine whether dissimilar taxation has been applied so as to afford protection to domestic products. This may be done through an analysis of "the design, the architecture, and the revealing structure of a measure".143
5.12.
Australia understands that Thailand applies VAT that is proportional to the retail sales price of goods. While VAT is normally payable on the actual retail sale price of goods, for both domestic and imported cigarettes, the VAT tax base is the MRSP which is set by the Thai Government.144 This VAT‑MRSP value is therefore fixed and is payable independently of the actual sale price. Thailand states that 'the VAT burden on the domestic and imported product is the same' (emphasis in original).145
5.13.
As this absolute VAT‑MRSP value is fixed, the effective or marginal VAT rate increases as a percentage when imported or domestic cigarettes are sold at prices below the MRSP. The factual question before the Panel is therefore whether the design, architecture or structure of the tax measure operates so as to afford protection to domestic products. That is, does the evidence show that the tax burden on imported cigarettes is higher because they are more often sold at prices below the MRSP.
5.14.
While Australia understands that imported cigarettes are commonly sold below their MRSP146, the Philippines claim that the retail price for domestic cigarettes had 'never' been below the MRSP for the three year period prior to this dispute.147 If this factual situation is found to be the case by the Panel, then the marginal VAT rate may, on occasion, be higher for imported cigarettes than that for domestic cigarettes and thus may constitute an internal tax 'in excess of those applied … to like domestic products.'148 Australia notes that Thailand claims in its first written submission that Exhibit PHL-127 shows exceptions to this assertion.149 In the view of Australia this, in itself, does not invalidate the claims of the Philippines.
5.15.
As a final point, Australia recalls that there is no prohibition that would prevent Thailand from regulating the sale price of particular products. However, where a Member opts to set a sale price, it must ensure that it does not apply measures to imported or domestic products so as to afford protection to domestic production contrary to Article III of the GATT 1994.

5. Conclusion

5.16.
Australia would like to thank the Panel for the opportunity to provide its views in this case. This dispute has highlighted the importance of transparency in the application of the Customs Valuation Agreement,which, when applied correctly, is an integral part in the maintenance of security and predictability of the multilateral trading system.

B. THIRD PARTY SUBMISSION BY CHINA

5.17.
China did not file a written third party submission in the dispute Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines (DS371). China reserved its right but did not make a statement at the third party hearing, nor did it file responses to the Panel's questions following that hearing.

C. THIRD PARTY SUBMISSION BY THE EUROPEAN UNION

1. Introduction

5.18.
Whilst not taking a final position on the specific facts of this case, the European Union will provide its views on the legal claims advanced by the parties to the dispute.

2. Claims under the Customs Valuation Agreement

5.19.
The European Union understands that in its first written submission the Philippines makes a series of substantive and procedural claims under the Customs Valuation Agreement with respect to the assessment of customs value by Thai Customs for a particular number of entries of Marlboro and L&M cigarettes imported into Thailand from the Philippines and cleared between 11 August 2006 and 13 September 2007. In this respect, even if the Philippines does not expressly request a finding against Thailand's general practice or methodology providing for the systemic rejection of transaction values and the imposition of higher pre-determined values "as such", in the European Union's view, a finding that Thailand failed to comply with the Customs Valuation Agreement with respect to the assessment of customs value of the entries concerned ("as applied" claims) would also cover a finding against Thailand's general rule or methodology to disregard declared transaction values in similar circumstances.
5.20.
The Customs Valuation Agreement is one of the multilateral agreements on trade in goods contained in Annex 1A of the WTO Agreement. Thus, the Customs Valuation Agreement, a covered agreement, must be interpreted in the light of the customary rules of interpretation of public international law, as required by Article 3.2 of the DSU. The European Union observes that, following these interpretative principles, the Customs Valuation Agreement primarily sets out that the basis for valuation of imported goods for customs purposes is the transaction value of the goods being valued.
5.21.
More importantly, the Customs Valuation Agreement also establishes a sequential order for the application of alternative customs valuation methods. The text, context and purpose of the Customs Valuation Agreement confirm that there is a hierarchy which WTO Members must respect when applying methods of customs valuation to other Members' imports. The transaction value is the first method for customs valuation which WTO Members must apply. Whenever the conditions are such that the customs value cannot be determined under the transaction value method, Articles 2 to 7 of the Customs Valuation Agreement provide for alternative customs valuation methods which may be applicable, but always respecting the sequential order therein.
5.22.
In cases of related importers, Article 1.2 of the Customs Valuation Agreement provides for criteria to assess customs values and contains different means of establishing the acceptability of declared transaction values (i.e., the influence test and the referenced values test). It is only through these criteria and means that a customs authority can accept or reject declared transaction values. Indeed, both the relevance of transaction values as the preferred customs valuation method and the sequencing order of other customs valuation methods provided by the Customs Valuation Agreement indicate that, in order to move down to the next method, the first alternative should be explored thoroughly. In the European Union's view, this calls for a strict interpretation of the conditions contained in Article 1 of the Customs Valuation Agreement before having recourse to other customs valuation methods.
5.23.
The key issue in examining the declared transaction value of related importers is whether the relationship between the seller and the related buyer influenced the transaction price (i.e., influence test) rather than the accuracy or reality of the declared price. This is the central inquiry on which customs authorities should focus and the basis for rejecting the declared transaction price of related importers. Customs authorities do not need to examine the particularities of all transactions. However, where the customs administration is unable to accept the transaction value without further inquiry, it should give the importer an opportunity to supply such further detailed information as may be necessary to enable it to examine the circumstances surrounding the sale. Thus, the European Union considers that customs authorities are entitled to request further information from the importer to examine the circumstances surrounding the sale. This may occur as part of the normal process to obtain customs clearance or in any other context of customs administration procedures.
5.24.
If in the light of information provided by the importer following that initial inquiry or "otherwise" the customs administration has "grounds" for considering that the relationship influenced the transaction price, such information or "grounds" must be communicated to the related importer, which should be given reasonable opportunity to respond and demonstrate that such a relationship has not affected the transaction price. In the European Union's view, Article 1.2(a) of the Customs Valuation Agreement does not limit the source or type of information which may trigger a further inquiry by the customs authorities as to whether the relationship between the seller and the related importer influenced the transaction price. The term "otherwise" is general enough to support the conclusion that customs authorities may proceed to a further inquiry in cases of higher declared transaction values by unrelated importers with respect to the same product from the same seller.
5.25.
The purpose of the exchange between the customs authorities and the related importer in the context of that inquiry is to examine the circumstances surrounding the sale and clarify whether the transaction price has, or has not, been influenced by the relationship with the seller. In this exercise, the customs authorities communicate its reasons for considering that the relationship has influenced the transaction price, whereas the related importer has to show that such a relationship has not affected the transaction price. Only if following an inquiry into the circumstances surrounding the sale it results that the relationship between the buyer and the related importer has influenced the transaction price, customs authorities can reject the declared value and move on to other customs valuation methods. However, where it can be shown that the buyer and seller, although related under the provisions of Article 15 of the Customs Valuation Agreement, buy from and sell to each other as if they were not related, this would demonstrate that the price had not been influenced by the relationship.
5.26.
As an alternative to examining whether the relationship between the seller and the related buyer influenced the declared transaction price, Article 1.2(b) of the Customs Valuation Agreement states that the related importer may show that the declared transaction value is acceptable if such a value "closely approximates" to other referenced values at or about the same time. In comparing the declared transaction value with the other values, due account shall be taken of demonstrated differences in commercial levels, quantity levels, the elements enumerated in Article 8. If the declared transaction value closely approximates to those values, then the declared transaction price should be considered as acceptable, and the influence test cannot serve as the basis for rejecting the declared transaction value.
5.27.
Consequently, without entering into the facts of this case, the European Union agrees with the Philippines that the rejection by the customs authorities of a WTO Member of declared transaction values of related importers must respect the conditions warranting such a rejection as provided in Articles 1.1 and 1.2 of the Customs Valuation Agreement.
5.28.
Finally, the European Union considers that the relevance of transaction values as the preferred customs valuation method and the sequencing order of the other customs valuation methods provided by the Customs Valuation Agreement once more imply that, when the customs authorities reject the transaction value and determine the customs value on another basis, such explanation should include: the reasons for rejecting the transaction value; the reasons for using a particular valuation method; how the value has been calculated pursuant to that method; and the reasons for not using any other valuation method prior to the one effectively used following the sequencing order of Articles 2 to 7 of the Customs Valuation Agreement.

3. Claims under Articles III:2 and III:4 of the GATT 1994

5.29.
As regards the claims made under Article III of the GATT 1994, Thailand raises a preliminary issue concerning the references made by the Philippines to MRSP's notices for imported cigarettes for 2006 and 2007 to support its claim against the MRSP's calculation methodology. On this point, the European Union observes that the Panel Request contains a reference to "any amendments (…) or other measures related to [the MRSP Notices expressly mentioned therein]", which related to the years 2007 and 2008. Consequently, the broad scope of the Panel Request would suggest that the Philippines intended to cover other notices and used them, at least, as evidence of the methodology used in this case. Furthermore, as the Appellate Body found in US – Upland Cotton, measures which expired before the request for establishment of the panel can also be measures at issue in the sense of Article 6.2 of the DSU and, thus, form part of the terms of reference of a panel. In this respect, it should not be excluded that an expired measure could be the subject of an appropriately worded recommendation or suggestion.
5.30.
On the substance of the claims concerning Article III:2 of the GATT 1994, the European Union understands that the core of the Philippines' claims under Article III:2 relates to the calculation of the MRSP under Article 23 of the Tobacco Act of Thailand. This calculation is also one of the subject matters of the Philippines' claims under Article X:1 of the GATT 1994 for the alleged failure to publish promptly trade regulations of general application. In the absence of the precise published basis for the calculation of the MRSP at least with regard to the entries subject to this case, the Philippines has attempted to provide evidence that the basis of calculation is discriminatory at least in relation to the imports of PM Thailand and at least during a given period. However, the European Union points out that the Panel's examination of the claims made under Article X:1 of the GATT 1994 may reveal facts that may be relevant for its analysis of the claims made under Article III:2. Therefore, the Panel may consider it appropriate to examine the claims made under Article X:1 before those made under Article III:2 of the GATT 1994.
5.31.
In the present case, it would appear that imported cigarettes can generally be considered as like products to Thai cigarettes within the meaning of the first sentence of Article III:2 of the GATT 1994. Provided that this is the case, the key issue would be to determine whether the taxes applied on imported cigarettes are "in excess of" those applied to domestic cigarettes. It would appear to the European Union that the Philippines has limited its claims under Article III:2 of the GATT 1994 to certain specific imports by PM Thailand. Indeed, the situation would seem to be analogous to the situation examined by the Panel in Dominican Republic – Import and Sale of Cigarettes where, after the examination of detailed evidence, it was concluded that there was evidence to indicate that during a given period imported and domestic cigarettes were not taxed on the same basis with the result that certain imported cigarettes were taxed in excess to the rates applied to domestic cigarettes. To what extent this has been the case in the present challenge requires a careful analysis by the Panel taking into account all the facts and evidence presented.
5.32.
In addition, the Philippines claims that Thailand violated Articles III:2 and III:4 of the GATT 1994 by exempting resellers of domestic cigarettes from VAT liability, whereas resellers of imported cigarettes continue to be subject to VAT and related administrative requirements. In contrast, Thailand maintains that, in practice, imported cigarettes are treated exactly the same since wholesalers and retailers do not have to pay any VAT on sales of imported cigarettes. While not entering into the facts of this case, the European Union considers that an exemption to pay VAT exclusively granted to resellers and resales of domestic cigarettes would imply that imported cigarettes are "subject to an internal tax... of any kind in excess of those applied... to like domestic products" contrary to the first sentence of Article III:2 of the GATT 1994. On this point, our analysis does not extend to Article III:4 of the GATT 1994 because in the view of the European Union the latter is purely consequential to the alleged violation of Article III:2.
5.33.
Finally, the European Union would also like to draw the Panel's attention to the recent panel report in Colombia – Ports of Entry. On the basis of the analysis by the Panel in that case, the European Union considers that, insofar as the MRSP for imposing VAT, the Excise tax, the Health tax and the Television tax are calculated on the basis of customs values determined contrary to the provisions of the Customs Valuation Agreement, the basis for taxing imported products would not be compatible with Thailand's obligations under Article III:2 of the GATT 1994 to the extent such basis would be higher than the declared transaction value.
5.34.
Finally, as regards Thailand's claim that any differences in the treatment of imported and domestic cigarettes can be justified under Article XX(d) of the GATT 1994, the European Union points the Panel towards the analysis of the "necessity" of the measure as carried out by the Appellate Body in Brazil – Retreaded Tyres and invites the Panel to apply that analysis to the facts of this case in order to examine whether the measure adopted by Thailand is justified according to Article XX(d) of the GATT 1994.

4. Claims under Article X of the GATT 1994

5.35.
As regards the claims concerning the publication of trade regulations under Article X:1 of the GATT 1994, without entering into the specific facts of the case, the European Union emphasises the importance of the obligations contained in Article X:1 of the GATT 1994. In the European Union's view, the Panel's analysis should concentrate on examining whether the relevant rules in question are indeed "laws, regulations, judicial decisions and administrative rulings of general application" (emphasis added). If that is the case and if Thailand has failed to publish them promptly, there would necessarily be a violation of Article X:1 of the GATT 1994.
5.36.
As regards the Philippines' claims under Article X:3(a) of the GATT 1994, the European Communities notes that the Panel in Argentina – Hides and Leather observed that the three requirements in Article X:3(a) – namely "uniformity", "reasonableness" and "impartiality" – are legally independent in that "[c]ustoms laws regulations and rules must satisfy each of the three standards". The European Union agrees with this interpretation. Thus, a claim under Article X:3(a) and its legal assessment by a panel must identify which of the three requirements is at stake in relation to the facts that are presented as evidence of a breach thereof. It may well be that in a given situation the same or interrelated facts are relevant in relation to one or more of three requirements. In this respect, the European Union would like to point to the established case law according to which the covered agreements that are more specific to the matter before the Panel should be considered first. In the European Union's view, the same logic applies between legally independent requirements contained within the same provision of the same covered agreement. The European Union invites the Panel to carefully distinguish between the requirements and their analysis under the facts of the case.
5.37.
On the Philippines' claims concerning Article X:3(b) of the GATT 1994 dealing with the prompt review and correction of administrative action, the European Union agrees with the Philippines that the length of time that an appeal takes in a given case is an important factor to be taken into account for the purposes of examining that appeal in the light of the word "prompt" in Article X:3(b) of the GATT 1994. Although the European Union cautions the Panel to impose a clear cut numerical limit for what could be considered as "prompt review and correction" under the provision, an appeal in the first instance that remains to be decided after six-seven years since being lodged would appear not to fulfil the requirements of the Article X:3(b), absent very good reasons justifying the length of time. However, in addition to the mere time an appeal takes, the European Union observes that the term "prompt review" is followed by "and correction". In the European Union's view, this appears to allow also consideration relating to the intensity of the review and correction process. In other words, in case the facts and evidence demonstrate that a given appeal is actively examined, the mere overall length of time taken should not be exhaustive of what is covered by the requirement of "prompt review and correction" under Article X:3(b) of the GATT 1994.
5.38.
Moreover, the European Union agrees with the Philippines that decisions on the imposition of guarantee values comes within the scope of the notion "administrative action relating to customs matters".

5. Request pursuant to Article 13 of the DSU

5.39.
The European Union observes that the Philippines has requested that the Panel seeks certain documents in the possession of Thailand pursuant to Article 13 of the DSU. With respect to each document, the Philippines has explained in detail the relevance for the Panel to obtain such documents to carry out a proper examination of all claims. In this respect, the European Union would like to make the following comments.
5.40.
The discretion granted to panels under Article 13 of the DSU is modulated by the obligation to make "an objective assessment of the matter" pursuant to Article 11 of the DSU. Thus, the Panel should request the information it deems necessary to fully examine the matter before it. In the European Union's view, where there is a refusal to reply to any request for information made by the panel, such a panel may draw inferences from this behaviour. More generally, where assertions of a complaining party could be confirmed or refuted by the defending party providing information that is available to it, but the defending party declines to do so, a panel can legitimately presume these assertions to be true. In other words, an invitation to draw such inferences can be part of the making of a prima facie case by a complaining party.

D. THIRD PARTY SUBMISSION BY INDIA

5.41.
India did not file a written third party submission in the dispute Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines (DS371). India reserved its right but did not make a statement at the third party hearing, nor did it file responses to the Panel's questions following that hearing.

E. ORAL STATEMENT BY CHINESE TAIPEI AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL

5.42.
Chinese Taipei did not file a written third party submission in the dispute Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines (DS371). Chinese Taipei did however make an oral statement at the third-party session of the first substantive meeting of the Panel.

1. Introduction

5.43.
The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (hereinafter referred to as "Chinese Taipei"), as a third party in this proceeding, would like to thank the Panel for the opportunity to present its views in this dispute. Chinese Taipei makes this oral statement because of its systemic interests in the interpretation of relevant provisions in the GATT 1994, in particular, its Article III:2.
5.44.
While not taking a final position on specific factual issues in this dispute, Chinese Taipei would like to provide its views on the issue of whether an internal tax applied on imported products is in excess of those on like domestic products calculated on certain tax bases is subject to interpretation within the wording of Article III:2 of the GATT 1994. Chinese Taipei hopes that this submission will help determine whether, in the present dispute, the internal duty, or the internal charges, are being imposed in excess of those on like domestic products.

2. Legal standard under the first sentence of Article III:2 of the GATT 1994

(a) The structure and the limits of the first sentence of Article III:2 of the GATT 1994

5.45.
The first sentence ofArticle III:2 of the GATT 1994 provides that: "[t]he products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products". To examine whether a contested measure is consistent with this requirement, well-established WTO jurisprudence requires the application of a two-tier test.
5.46.
In the first tier, one must examine whether the imported and domestic products at issue are like products. In the second tier, it must be determined whether the imported products are taxed in excess of like domestic products. If, and only if, both questions are answered in the affirmative, has there been a violation of the first sentence of Article III:2.150 Compared with the second sentence of Article III:2, the first sentence of Article III:2 can be satisfied by applying the two-tier test aforementioned. As such, this passage does not require the claimant to demonstrate that the measures at issue aim at affording protection for domestic production.151

(b) Like products

5.47.
According to the Appellate Body in Japan – Alcoholic Beverage II, the criteria for determining "likeness" between an imported and a domestic product may include the product's end use, consumer tastes and habits (which vary from country to country), the product's properties, nature and quality (including the actual price of the product), and tariff classification.152 Appropriate criteria are selected on a case-by-case basis and such criterion would eventually determine whether the measure at issue constitutes a violation.153

(c) In excess of those applied

5.48.
In the same dispute, the Appellate Body also ruled that even the smallest amount of excess is too much. The Appellate Body specifically ruled that "the prohibition of discriminatory taxes in Article III:2, first sentence, is [neither] conditional on a 'trade effect test' nor is it qualified by a de minimis standard".154
5.49.
Moreover, on the judgment of whether other internal taxes or charges are applied in excess of those applied to like domestic products, first sentence of the Article III:2 requires a comparison of actual tax burdens rather than merely nominal tax burdens. Even in situations where imported and like domestic products are subject to identical tax rates, it is possible that actual tax burdens are heavier on imported products.155

3. Examining the operation of Thai VAT under the first sentence of Article III:2 of the GATT 1994

(a) Whether imported cigarettes and domestic cigarettes are like products

5.50.
In this dispute, all imported and domestic cigarettes comprise a paper tube containing a mix of tobacco and additives and a filter: a physical likeness. In addition, since the opening of the Thai tobacco market in 1991, imported cigarettes have gradually built up their market share. The market share of domestically produced Thai cigarettes has simultaneously eroded. The fact that the market share has transferred from one product to the other demonstrates the interchangeability or "likeness" between the products insofar as consumer tastes and habits are concerned.156 It also follows that all imported and domestic cigarettes share identical end-uses on the Thai market. Moreover, imported and domestic cigarettes are both classified under the same heading within the Customs Tariff of Thailand.157 Thus, in this dispute, imported and domestic cigarettes are like products when interpreted through the lens of the GATT 1994 Article III:2, first sentence.

(b) Whetherimported cigarettes are taxed in excess of domestic cigarettes under Thai VAT

5.51.
We now turn towards examining whether the Thai government taxes imported cigarettes in excess of like domestic products. To begin with, an internal tax has two major components: a tax rate and a tax base. When determining whether imported products are taxed in excess of like domestic products, it is necessary to examine both the tax rate and the tax base.
5.52.
Secondly, Chinese Taipei is of the view that the primary object and purpose of Article III:2 is to prohibit discrimination against imported products. An investigation of discrimination first requires a comparison of actual tax burdens. Even if imported and like domestic products are subject to identical tax rates, actual tax burdens on imported products can still be heavier if a different method is used to compute the tax base.
5.53.
In this dispute, it must be determined whether the VAT that Thailand imposes on imported cigarettes is in excess of the tax imposed on domestic cigarettes. Whereas the MRSP serves as a standard of determining the tax base for the Thai VAT, it is necessary to go a step further and examine how Thailand determines MRSPs for individual brands themselves.
5.54.
In the present case, Thailand has not published the methodologies, formulae, price surveys, or the data used to calculate MRSPs for domestic and imported cigarettes. Given that MRSPs are used in calculating VAT tax bases, one would assume that Thailand uses the same methodologies to compute MRSPs of both imported and domestic cigarettes. Otherwise, Thailand would have to justify its compliance with Article III:2, first sentence.
5.55.
Having stated the above, we wish to note that Article III:2, first sentence, does not dictate how Members impose internal taxes on products, so long as the applications of the internal taxes does not afford less favourable treatment to imported cigarettes. Members are free to prescribe the kinds of taxes, elements and parameters used to compute the tax base, as well as whatever methodologies employed to determine tax rates and to levy taxes, as long as such differentiated taxation methods do not result in discriminatory taxation inconsistent with the relevant WTO rules.
5.56.
It is difficult to prove the existence of discrimination against imported cigarettes by merely comparing tax bases of imported and domestic cigarettes since the tax bases are not always the same.
5.57.
For example, the Thai MRSPs for imported cigarettes are based on the customs value (including maritime transportation cost), customs duties, health taxes, excise taxes, television taxes, and marketing costs (including selling expenses and profits). The Thai MRSPs for domestic cigarettes, by contrast, involve neither maritime transportation costs, nor customs duties. Domestic MRSPs reflect only the ex factory price before calculation of marketing costs and other taxes. Thus, the MRSPs for imported and domestic cigarettes are subject to different parameters.
5.58.
Given the fact that Thai MRSPs are unilaterally and artificially determined by Thai government, it seems reasonable that Thailand bears the burden to prove that the Thai VAT does not impose an internal tax burden on imported cigarettes heavier than that imposed on like domestic ones. Thailand has to explain the value gap between MRSPs and retail prices on imported cigarettes, and prove that this gap is not the result of a discriminatory application of MRSPs. In particular, Thailand must clarify how it determines the marketing costs, including selling expenses and profits, imbedded in MRSPs.

4. Conclusion

5.59.
In conclusion, Chinese Taipei would like to highlight the relevant aspects of the scope and certain limits under the first sentence of Article III:2 of the GATT 1994. As an internal tax is generated from two components: a tax rate and a tax base, it follows that the comparison of tax bases falls within the scope of Article III:2, first sentence. In addition, Article III:2 is limited to prohibiting Members from treating imported products less favourably than like domestic products. It does not aim at intervening in Member's internal fiscal matters. Members are free to pursue their own domestic policy through the imposition of internal taxes or charges, so long as they do not do so in a manner inconsistent with relevant provisions of the WTO covered agreements, in particular, the first sentence of Article III:2 of the GATT 1994.
5.60.
Mr. Chairman and distinguished Members of the Panel, we thank you again for the opportunity to present our view in this dispute.

F. ORAL STATEMENT BY THE UNITED STATES AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL

5.61.
The United States did not file a written third party submission in the dispute Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines (DS371). The United States did however make an oral statement at the third-party session of the first substantive meeting of the Panel

1. Introduction

5.62.
The United States appreciates the opportunity to present this oral statement as a third party in these proceedings. We recognize that a number of issues in this dispute are factual in nature, and the United States takes no position on the measures at issue. The United States does, however, have a substantial interest in the interpretation of provisions in the covered agreements raised in this dispute and would like to comment in particular on certain issues regarding the Customs Valuation Agreementand Article X of the GATT 1994.
5.63.
The United States would first like to address four specific issues relating to the Customs Valuation Agreement: (1) the approach to related-party transactions under Article 1.2 of the Customs Valuation Agreement; (2) the application of the deductive value method under Article 5; (3) the importance of the obligations to protect confidential information under Article 10; and, (4) the references made by the parties to a letter from the World Customs Organization Secretariat. The United States would then like to address whether Article X:3(b) of the GATT 1994 requires a Member to maintain tribunals or procedures for the review and correction of guarantees. Finally, the United States would like to comment briefly on the scope of the Panel's terms of reference in this dispute.

2. Article 1.2 of the Customs Valuation Agreement

5.64.
The United States is concerned by certain statements in Thailand's first written submission regarding the responsibilities of a customs authority examining a related party transaction. By way of background, the United States notes that the determination of customs value is a transaction-specific process.
5.65.
The Customs Valuation Agreement sets forth a specific sequence of methods of valuation that customs authorities must follow. The Customs Valuation Agreement clearly establishes the transaction value as the primary basis for valuation. Article 1 of the Customs Valuation Agreement provides, "The customs value of imported goods shall be the transaction value, that is the price actually paid or payable..." (emphasis added), except under certain specified circumstances.
5.66.
Article 1 provides further that, even where the buyer and seller are related, the customs value shall be the transaction value, provided that the transaction value is acceptable under Article 1.2. Article 1.2(a) explicitly states: "the fact that the buyer and the seller are related... shall not in itself be grounds for regarding the transaction value as unacceptable. In such case the circumstances surrounding the sale shall be examined and the transaction value shall be accepted provided that the relationship did not influence the price".
5.67.
Article 1.2(a) must be "read and applied in conjunction with"158 the Interpretive Notes to Article 1. Those notes make clear that a customs authority need not examine the relationship between the buyer and seller in every case.159 The customs valuation process typically begins when the importer presents a declaration. In most cases, the customs authority accepts the value submitted in the declaration. In other cases, where the buyer and seller are related and the customs authority has "doubts" about the acceptability of the price, the customs authority may conduct an examination into the relationship between the buyer and the seller.160
5.68.
Where the buyer and seller are related and the customs authority considers that further inquiry is necessary, as just noted, Article 1.2(a) provides that the customs authority shall examine the circumstances of the sale. Article 1.2(a) provides further that if the customs authority "has grounds for considering that the relationship influenced the price, it shall communicate its grounds to the importer and the importer shall be given a reasonable opportunity to respond". These "grounds" must be communicated in writing if the importer so requests.
5.69.
In the light of this background, the United States generally agrees with Thailand161 that the "doubts" that give rise to further inquiry by the customs authority, and the "grounds" on which the customs authority bases its conclusion that the relationship between the buyer and seller influenced the price, are distinct concepts. However, the United States is concerned by certain statements in Thailand's first written submission – such as that the "importer [must] establish that the relationship did not influence the price"162 – and in the April 12, 2007, response of Thailand's customs authority to the importer that "it cannot be proven whether the relationship has an influence on the determination of customs value or not".163 The United States wishes to emphasize that the relevant inquiry for the Panel under Article 1.2(a) is whether "the customs administration ha[d] grounds for considering that the relationship influenced the price".
5.70.
Bearing in mind that Article 1.2(a) provides that "the transaction value shall be accepted provided that the relationship did not influence the price," and that "the fact that the buyer and the seller are related... shall not in itself be grounds for regarding the transaction value as unacceptable," a customs authority is obligated to accept the transaction value unless it has "grounds" – in other words, a sufficient reason or reasons164 – for concluding that the relationship influenced the price. While the United States takes no position on whether all of the facts before Thailand's customs authority constituted "grounds" for rejecting transaction value, the United States would note that the language in the customs authority's 12 April 2007, response165 calls into question of whether the authority identified any grounds to reach its conclusion or in fact applied the correct standard. The failure by an importer to prove a negative, specifically to prove that the relationship did not influence the price, does not relieve the customs authority of its obligation to accept the transaction value unless it has grounds for considering that the relationship influenced the price. As noted in Article 1.2(a), after considering the information provided by the importer or otherwise, it is incumbent on the customs authority to have grounds for not accepting transaction value and to communicate those grounds to the importer.

3. Article 5 of the Customs Valuation Agreement

5.71.
If, after undertaking all of the necessary steps, the customs authority determines that the transaction value is not acceptable, the customs authority must follow the sequence of valuation methods set forth in the Customs Valuation Agreement in determining the final customs value.
5.72.
Where valuation is not possible under Article 2 or 3, the Customs Valuation Agreement dictates that the customs authority next proceed to the deductive value method set forth in Article 5 (unless the importer requests that the valuation method of Article 6 be applied). Article 5 provides that the value of imported goods shall be based on the unit price of identical or similar imported goods sold in the country of importation in the condition as imported in the greatest aggregate quantity, or the unit price at which the imported goods, after further processing, are sold in the greatest aggregate quantity in the country of importation, subject to certain specified deductions, including "the additions usually made for profit and general expenses".
5.73.
If valuation is not possible under Article 5 of the Customs Valuation Agreement, the customs authority must proceed to the computed value method set forth in Article 6 (unless the importer has requested that the order of Articles 5 and 6 be reversed). If valuation is not possible under Article 6, then the customs authority may use the last valuation method in the sequence set forth in the Customs Valuation Agreement, found in Article 7.
5.74.
Paragraphs 184 through 187 of Thailand's first written submission indicate that Thailand's customs authority applied the deductive method under the method corresponding to Article 7 in its domestic law, rather than Article 5, because the importer had not provided audited financial statements for the year of importation. However, the United States agrees with the Philippines (as set forth in paragraph 338 of the Philippines' first written submission) that Article 5 of the Customs Valuation Agreement does not permit a WTO Member to make the use of the method set out in that article contingent on the submission of audited financial statements from the year of importation.

4. Article 10 of the Customs Valuation Agreement

5.75.
With respect to the claims brought by the Philippines under Article 10 of the Customs Valuation Agreement, the United States does not express a view as to whether officials in Thailand in fact provided information to the press that was by its nature confidential or provided on a confidential basis. However, the United States considers that the obligations of Article 10 are an important element supporting the entire customs valuation system, as a failure to protect confidential information may prevent customs authorities from obtaining proprietary information that is critical to making the valuation decision, particularly in related party transactions.

5. Letter from the WCO Secretariat

5.76.
The United States notes that both the Philippines and Thailand have cited a letter from the World Customs Organization Secretariat in presenting their respective positions. Specifically, the Philippines argues that this letter contradicted what the Philippines characterizes as one of Thailand's justifications for rejecting transaction value.166 Thailand explains, in contrast, that Thailand's customs authority determined that it would be appropriate to make further inquiries into the relationship between the buyer and the seller "in the light of" the letter from the WCO Secretariat.167 The United States appreciates the work of the WCO, including its cooperation with the WTO. However, the United States submits that the relevant inquiry in this dispute is whether Thailand complied with the obligations of the Customs Valuation Agreement, not to what extent Thailand acted consistently with a letter from the WCO Secretariat.

6. Article X of the GATT 1994

5.77.
The United States would now like to turn to an issue relating to the GATT 1994. In particular, we would like to comment on the question of whether Article X:3(b) of the GATT 1994 requires a Member to maintain tribunals or procedures for the review and correction of guarantees imposed in accordance with Article 13 of the Customs Valuation Agreement.
5.78.
Article X:3(b) requires each contracting party to maintain "judicial, arbitral or administrative tribunals or procedures for the purpose, inter alia, of the prompt review and correction of administrative action relating to customs matters".
5.79.
The United States is aware that the parties dispute, as a factual matter, whether Thailand in fact provides for an appeal of guarantee values, and, again, the United States does not take a position with respect to the facts in dispute. However, Thailand's suggestion168 that the lack of any reference to an appeal in Article 13 of the Customs Valuation Agreement with respect to guarantees means that Members have no obligation to provide such an appeal merits comment.
5.80.
The United States does not agree that the absence of a reference to an appeal in Article 13 of the Customs Valuation Agreement resolves the question of whether Article X:3(b) of the GATT 1994 requires such appeals. The relevant inquiry under Article X:3(b) is whether the determination of the amount of the guarantee is within the scope of the term "administrative action related to customs matters," and, if so, whether a Member has provided tribunals or procedures for the prompt review and correction of that action.
5.81.
In support of its argument that Article X:3(b) of the GATT 1994 does not apply to the determination of guarantee values, Thailand contrasts the lack of any reference to an appeal in Article 13 in the Customs Valuation Agreement with the explicit obligation in Article 11 to provide for an appeal of the "determination of customs value".169 It is true that the only decision as to which the Customs Valuation Agreement explicitly requires Members to provide the right to appeal is the determination of customs value. The language of Article X:3(b) of the GATT 1994 is not so limited, however. The meaning of "administrative actions related to customs matters" should not be equated with "a determination of customs value".

7. Terms of reference

5.82.
Finally, the United States notes that the request by the Philippines for the establishment of a Panel in this dispute identifies one of the measures at issue as "the general rule and/or methodology providing for the systematic rejection of transaction value, and the imposition of a higher pre-determined value, including any calculation methodology underpinning the pre-determined value, applicable at the time of entry as well as at the time of final assessment".170 The United States notes that when bringing a challenge against an unwritten measure, a complaining party must clearly establish, through arguments and supporting evidence, both the existence of the alleged measure, and its precise content.171 The United States does not express a view as to whether, in either its first written submission or its first oral statement to the Panel (which, of course, the United States has not seen), the Philippines has done so. However, such a methodology would appear to be within the Panel's terms of reference.
5.83.
Mr. Chairman, members of the Panel, this concludes the oral statement of the United States. Thank you for your attention, and we hope that the comments provided by the United States will prove to be useful to the Panel.

VI. INTERIM REVIEW

6.1.
On 30 June 2010, the Panel submitted its Interim Panel Report to the parties. On 14 July 2010, the Philippines and Thailand submitted written requests for review of precise aspects of the Interim Panel Report. The Philippines requested, on the same day, an interim review meeting with the Panel regarding its decision not to make a recommendation on the September 2006 MRSP, the March 2007 MRSP and the August 2007 MRSP Notices. The Philippines' written comments of 14 July 2010 also included its specific views on the Panel's decision in this regard. The Panel granted the Philippines' request for an interim review meeting and provided Thailand an opportunity to provide its written comments on this specific issue prior to the interim review meeting. On 19 July 2010, Thailand submitted its written comments on the Philippines' comments on the Panel's decision not to make a recommendation with respect to the concerned MRSP Notices. The Panel held an interim review meeting on 20 July 2010 to exclusively address the question whether the Panel should make a recommendation with respect to these MRSP Notices. On 21 July 2010, the Philippines and Thailand submitted written comments on each others' requests for interim review on the issues other than the question addressed at the interim review meeting.
6.2.
In accordance with Article 15.3 of the DSU, this section of the Panel's report sets out the Panel's response to the arguments made at the interim review stage, providing explanations where necessary. The Panel has modified aspects of its report in the light of the parties' comments where it considered these appropriate, as explained below. The Panel has also made certain technical and editorial corrections and revisions to the Interim Panel Report for the purposes of clarity and accuracy. References to sections, paragraph numbers and footnotes in this section relate to the Interim Panel Report, except as otherwise noted.

A. THE PANEL'S FINDINGS AND RECOMMENDATIONS

1. Paragraph 8.8 of the Interim Panel Report – the Philippines' comments

6.3.
Regarding the September 2006, March 2007 and August 2007 MRSP Notices,although agreeing with the Panel's finding that these MRSP Notices have been superseded by subsequent Notices, the Philippines disagrees with the Panel's conclusion that these measures thus have expired and ceased to exist for purposes of Article 19.1 of the DSU.172 It also contests that it agreed to this understanding during the proceedings.173 On the contrary, the Philippines argues that these MRSPs continue to exist and therefore requests that the Panel recommend Thailand to bring them into conformity.174
6.4.
The Philippines contends that "for purposes of Article 19.1 of the DSU, the case-law shows that a measure that is no longer in force, for example, because it has been superseded or replaced, may continue to 'exist'..., if the respondent Member will take further action in relation to the measure or if the measure will otherwise continue to have effects in domestic law".175 The Philippines refers to the panel rulings in EC – Commercial Vessels and India – Autos to underline its position that only when measures have "ceased to have an effect", there is no obligation to bring them into conformity.176
6.5.
First, the Philippines argues that the three MRSP Notices at issue are still in existence because they are being challenged in domestic legal proceedings. To explain its stance, the Philippines refers to the Appellate Body report in US – Zeroing (Article 21.5 – Japan), which concerned "administrative reviews that superseded each other, similar to the way in which the MRSP Notices do" and these reviews had been "challenged in domestic legal proceedings, which effectively prolonged the existence of the reviews".177 In that case, the Appellate Body clarified that any WTO-inconsistent action taken in relation to a measure found to be WTO-inconsistent "must cease by the end of the reasonable period of time".178 Subsequently, the Philippines explains that the August 2007 MRSP Notice first continues to exist through Thai administrative proceedings in which DG Excise "must still take action to decide whether to insist upon enforcement of the discriminatory Notice or to correct the discrimination" and that second, the Notice also continues to exist because Thai courts "may also be called upon to take action in relation to the measure".179 In addition, the September 2006 and March 2007 MRSP Notices continue to exist through Thai judicial proceedings in which "Thailand's judiciary must rule whether the two WTO-inconsistent measures may be enforced given that they involve, inter alia, unlawful discrimination against cigarettes imported from the Philippines".180
6.6.
Hence, according to the Philippines, since Thailand still has to decide on the final tax base of the WTO-inconsistent measures, "the tax base continues to have effects on the financial burden to be imposed [and] [s]o long as the final tax base is undecided, the measure still exists". Therefore, the Philippines wants the Panel to make a recommendation regarding the three MRSP Notices, since a recommendation would ensure that "if the final tax base is decided after the end of the [reasonable period of time], [Thailand] cannot continue violating WTO law by giving continued effect to a WTO‑inconsistent tax base".181
6.7.
Second, the Philippines contends that the Panel should make a recommendation regarding the three MRSP Notices, because MRSP Notices are "replacement measures": they are replaced by a subsequent measure that has "very similar substantive characteristics". According to panels and the Appellate Body in some of the zeroing cases it was stated that such replacement measures can be regarded as forming part of the same dispute.182 In addition, in its opening statement at the interim review meeting, the Philippines explained that the MRSP Notices form a "chain of inter-connected measures" that are part of a single dispute, and that therefore implementation obligations assumed in relation to one measure in the chain impose similar obligations in relation to subsequent measures.183
6.8.
Consequently, the Philippines requests the Panel to make a recommendation regarding the three MRSP Notices at issue, to ensure that if, after the reasonable period of time, Thailand has not terminated its WTO-inconsistent measures, the Philippines can resort to compliance procedures under Articles 21 and 22 of the DSU.184
6.9.
Thailand argues that the September 2006, March 2007 and August 2007 MRSP Notices have been superseded and are no longer used to assess or collect VAT on sales of imported cigarettes, hence they ceased to exist.185 Consequently, under Article 19.1 of the DSU, the Panel cannot make recommendations in relation to measures that no longer exist.186 The right to make a recommendation under Article 19.1 of the DSU should not be used to create a retrospective remedy that is not otherwise available under the DSU.187
6.10.
Regarding the domestic legal/administrative proceedings, Thailand first states that these proceedings are not within the Panel's terms of reference and, therefore, cannot themselves be the subject of recommendations by the Panel.188 Second, Thailand claims that the Philippines misinterprets the zeroing jurisprudence and explains that the main issue in those cases was whether the implementation obligation also applied to imports that had entered the United States before the end of the reasonable period of time ("RPT"), but for which duties had not been finally assessed ("liquidated") by the end of the RPT. The United States claimed that challenges of the duties in domestic proceedings delayed the liquidation of these duties, and that therefore these should not be taken into account in checking whether the implementation obligation had been fulfilled. The Appellate Body found that the implementation obligation applied to entries for which liquidation took place after the end of the RPT, regardless of when the calculation of the dumping margin took place. According to Thailand, therefore, "continuing effects"were found in that case because "liquidation of entries at WTO-inconsistent rates would continue after the end of the RPT, not because the measure had been challenged in domestic proceedings" (italics in original). This can be contrasted to the case at hand in which the three MRSPs will never be used again to collect VAT and hence there is no such continuing effect.189
6.11.
Moreover, Thailand explains that the scope of the administrative proceeding regarding the August 2007 MRSP Notice was limited to a request from PM Thailand to DG Excise to amend the August 2007 MRSP and to provide details on its calculation. Since the August 2007 MRSP Notice has been superseded by the August 2008 MRSP Notice, the remedy sought by PM Thailand was granted and there is no remaining action to be taken by Thailand regarding this measure. The mere possibility that importers may have recourse to domestic court proceedings "at some indeterminate point in the future" cannot change Thailand's implementation obligations with respect to this MRSP Notice.190 Regarding the September 2006 and March 2007 MRSP Notices, Thailand states that the Philippines has failed to show that the existence of these domestic court proceedings gives rise to "anything like the situation in the zeroing cases". To the contrary, the remedies sought in these appeals were originally limited to a request for revocation of the Notices. The Philippines' new and untimely evidence regarding the appeal of these proceedings191 before the Thai Supreme Court does not explain how these proceedings could serve to delay the application of these MRSP Notices until after the Panel's ruling or the end of the reasonable period of time in this case. Moreover, if the Supreme Court would rule that these MRSP Notices should indeed be revoked, PM Thailand will have to start a different procedure before DG Revenue to seek a refund. Thailand believes it is unlikely that PM Thailand will be able to obtain this refund.192
6.12.
In relation to the Philippines' argument that the MRSP Notices form a chain of inter-connected measures, Thailand puts forward that in the zeroing cases there was one single anti-dumping order under which several administrative reviews took place that were thus interconnected, while in this case there is no connection between the collection of VAT on particular sales from MRSP Notice to MRSP Notice: they do not form part of the same proceeding, they are not subject to collective review, and they do not form part of the same continuum of events. If the Philippines' reasoning was followed, all VAT and classification decisions would form a chain.193
6.13.
As indicated in paragraph 7,563 of the Interim Panel Report, the Panel found that the September 2006, the March 2007, and the August 2007 MRSP Notices were inconsistent with Thailand's obligations under Article III:2, first sentence of the GATT 1994. We decided, however, not to make a recommendation with respect to these MRSP Notices as they had already ceased to exist at the time of the establishment of the Panel. This decision is set out in paragraph 8.8 of the Interim Panel Report.194
6.14.
The Philippines requests in its interim review comments that, pursuant to Article 19.1 of the DSU, the Panel recommend that these Notices be brought into conformity with the obligations under the first sentence of Article III:2 of the GATT 1994. In making this request, the Philippines argues that a measure that is no longer in force because, for example, it has been superseded or replaced, may still continue to exist for purposes of Article 19.1 of the DSU if the respondent Member takes further action in relation to the measure later on, or if the measure will otherwise continue to have effects in domestic law. Thailand also does not argue, in our understanding, that a panel should never make a recommendation with respect to a measure that was superseded or replaced. Thailand appears to agree that in determining whether a panel must make a recommendation with respect to such a measure, the legal standard to be applied is whether the measure continues to exist after it has been superseded or replaced. The parties' disagreement therefore lies in the application of that principle to the factual circumstances of this case, namely whether the concerned MRSPs must be considered as continuing to exist for purposes of Article 19.1 of the DSU.
6.15.
In paragraphs 7.42-7.43, 7.46-7.47, 7.62-7.66 of the Interim Panel Report, we addressed issues relating to the panels' examination of the measures which had been completed before or have expired at the time of the establishment of a panel. Although the parties do not take issue with the Panel's conclusion that the so-called expired and/or completed measures may still be subject to panels' examination and rulings depending on the factual circumstances in each case, they have differing views on whether panels also must make a recommendation pursuant to Article 19.1 of the DSU with respect to such expired measures. Although a measure can normally be considered to have ceased to exist if it has been superseded or replaced by a subsequent measure or reaching the end of the period of effect, we consider that the measure's expiration in such circumstances would not in itself make it automatically fall outside the scope of panels' obligation to make a recommendation under Article 19.1. As the Philippines submits, there may be situations where despite the expiry nature of a measure, it must still be brought into compliance to the extent that the measure continues to exist by being subject to a further action by the responding Member or by continuing to have effects on the concerned imported goods.
6.16.
Before turning to the specific factual situation presented in this case based on our understanding of the nature of the panels' obligation under Article 19.1 as set out in the previous paragraph, we will first address the premise of the Philippines' position. The Philippines' request for the Panel's recommendation with respect to the three MRSP Notices found inconsistent with Article III:2 of the GATT 1994, appears to be based on the premise that the Philippines needs recommendations to pursue compliance proceedings, if necessary, under, inter alia, Articles 21.5 and 22.6 of the DSU as, in the absence of a recommendation under Article 19.1 of the DSU, the Philippines' right to pursue compliance proceedings under Articles 21.5 and 22 would be undermined. The Philippines submits that only recommendations by the DSB would impose positive obligations in relation to the subject measures.195
6.17.
We do not however find any language in the relevant provisions of Articles 21 and 22 of the DSU indicating that an implementing Member's compliance obligation arises only from panels' recommendations. Rather, most of the provisions relating to compliance obligations under Articles 21 and 22 of the DSU refer to both recommendations and rulings.196 For example, Article 21.1 provides, "prompt compliance with recommendations or rulings of the DSB is essential in order to ensure effective resolution of disputes to the benefit of all Members". In our view, the scope of the compliance requirement under these provisions is therefore broader than just "recommendations". In any event, it is difficult to envision a situation where the Philippines will a priori be precluded from resorting to the compliance proceedings with respect to any future action taken by Thailand if it can be shown that such action is related to the Panel's findings on the inconsistency of the concerned MRSP Notices with Thailand's obligations under Article III:2 of the GATT 1994. As noted in paragraphs 7.42 and 7.43 of the Interim Panel Report, previous panels considered it necessary and important to make findings even with respect to measures that have expired at the time of making such findings in certain situations. Among those are situations where a measure was still impairing benefits accruing to a complaining Member or situations where there remained the prospect of reintroduction of the measure, and thus making findings with respect to expired measures would contribute to resolving a particular dispute. If only recommendations were to guarantee the complaining Member's right, as granted under the DSU, to seek compliance proceedings, there would be no meaning in even making findings for expired measures, which has not been the view of the Appellate Body and previous panels.197 We also do not believe that such an understanding would serve the spirit and purpose of the WTO dispute settlement mechanism.
6.18.
Specifically in the factual context of the current dispute, the Philippines' position that these MRSPs continue to exist even though they have been superseded by subsequent MRSP Notices rests on two lines of arguments: first, the concerned MRSP Notices are all subject to ongoing domestic proceedings in which Thai executive and judicial authorities will take action in relation to them; and, second, to the extent that existing MRSPs continue to be replaced by new MRSPs under Thai law, which according to the Philippines are a chain of closely connected, succeeding MRSP measures, Thailand's obligation under Article III:2 of the GATT 1994, as clarified by the Panel with respect to the September 2006 and the March and August 2007 MRSPs, should equally extend to those future MRSPs through the Panel's recommendation.198 We will evaluate these two lines of arguments in turn.
6.19.
First, we examine whether the domestic proceedings in which the three MRSP Notices at issue are being reviewed can be considered as the Thai government action affecting these Notices.199 The factual aspect of the current proceedings pending before both DG Excise and the Thai Supreme Court are described in paragraph 6.5 above. The Philippines submits that the concerned MRSP Notices continue to exist because they are subject to these ongoing domestic proceedings in which Thai executive and judicial authorities will take action in relation to them.200 In its oral statement at the interim review meeting, the Philippines explained that the types of actions to be taken by different branches of the Thai government included the following actions: (i) deciding whether to continue enforcing the discriminatory tax base and, possibly, (ii) establishing a new tax base, and (iii) granting a refund.201
6.20.
We do not consider that the Philippines' description of the so-called future actions yet to be taken by the Thai government, however, correctly reflects the exact status of the concerned MRSP Notices. For example, the Philippines states that Thailand still has to decide the final tax base, which we understand refers to the concerned MRSPs, because of the domestic proceedings in which the concerned MRSPs are being challenged. As the Philippines confirmed at the interim review meeting, however, Thai Excise had completed the collection of the VAT amount for imported cigarettes, calculated based on the concerned MRSPs, until new MRSPs came into effect in August 2008. The September 2006 and the March and August 2007 MRSP Notices therefore no longer form the tax base for the imported cigarettes at issue. Further, even if these MRSPs were found inconsistent by domestic review authorities, it is not clearly shown to us that such findings will necessarily lead to a revocation of the concerned MRSPs and/or a refund of any excess VAT paid based on those MRSPs. In these circumstances, we cannot agree with the Philippines' description that the MRSPs at issues are not enforced yet and did not form the final tax base for the VAT for the imported cigarettes at issue.
6.21.
In this connection, the Philippines heavily relies on the Appellate Body's statements in US – Zeroing (Article 21.5 – Japan) to support its position. We consider, however, that the factual circumstances of that dispute must be distinguished from those in the present dispute. As Thailand explains, in US – Zeroing (Article 21.5 – Japan), the issue was whether the implementation obligation also applied to imports that had entered the United States before the end of the reasonable period of time, but for which the anti-dumping duties had not been finally assessed and collected ("liquidated") by the end of the reasonable period of time due to the injunction imposed by the domestic court on the liquidation of the anti-dumping duties. The Appellate Body in that dispute found that the implementation obligation did apply to those imports because their liquidation (final assessment) took place after the end of the reasonable period of time. The Appellate Body's finding in that case, therefore, provides guidance that an important factor in determining the point in time when a government action can be considered as completed is the final assessment and collection of the anti-dumping duties, which include the original determination of the dumping margin and the rulings by a domestic review body, if such a review is warranted under the domestic law, on the adequacy of the original determination.
6.22.
In contrast to such factual circumstances, in the present dispute, Thai Excise had completed not only the calculation, but also the collection of VAT based on the MRSPs at issue. To that extent, we do not consider that the Appellate Body's reasoning in US – Zeroing (Article 21.5 – Japan), as relied upon by the Philippines, can be equally applied to the situation in our case.202 Furthermore, as noted earlier, it is not clear to us whether the MRSPs, once determined, can be re-determined in the same sense as the anti-dumping duties or customs valuation determinations may be re-determined. We understand that once MRSP Notices are issued, cigarette importers and TTM may request for new MRSPs.203 In our view, however, a request for new MRSPs cannot be equated to a proceeding in which duties or customs values are challenged for re-determination. The main difference, in our view, can be found in that as for anti-dumping duties and customs values, a concerned Member government must take action, be it re-determination and/or refund, with respect to such duties and customs values if they were found by domestic review bodies to have been incorrectly determined. This feature is also related to the nature of obligations under the relevant WTO Agreements such as the Anti-dumping Agreement and the Customs Valuation Agreement.204 With respect to the MRSPs at issue, however, it seems uncertain at best whether an importer would be able to have the expired MRSPs re-determined and/or to recover a refund for any excess tax paid because of an incorrectly determined tax base (MRSPs). Thailand submits that even if the Thai Supreme Court were to rule that these MRSP Notices should be revoked, PM Thailand will have to start a different procedure before DG Revenue to seek a refund. In any event, Thailand believes it is unlikely that PM Thailand will be able to obtain this refund. In these circumstances, we are not convinced by the Philippines' argument that the concerned MRSP Notices are subject to further actions by the Thai government.
6.23.
The Philippines further submits that MRSP Notices form a chain of inter-connected measures that are part of a single dispute, under which implementation obligations assumed in relation to one measure in the chain impose similar obligations in relation to subsequent measures. As we laid out in paragraphs 7,459-7.468 of the Interim Panel Report, DG Excise determines MRSPs based on its so-called general methodology, as described by Thailand in this proceeding. We understand that the expired MRSPs may be considered to be connected to the current and subsequent MRSPs to the extent that the same methodology continues to be applied to the determination of MRSPs for the imported cigarettes at issue. We also note the Philippines' argument that the Appellate Body's guidance in the zeroing cases that replacement measures with similar substantive characteristics can be regarded as forming part of the same dispute can equally apply to this case. In the Philippines' view, MRSP Notices are replaced by a subsequent measure that has "very similar substantive characteristics".
6.24.
We do not agree, however, that MRSP Notices are necessarily comparable to anti-dumping orders in the context of the zeroing cases. As Thailand points out, the subject measure in the zeroing cases was one single anti-dumping order pursuant to which several inter-connected administrative reviews took place. In the case of MRSP determinations, DG Excise replaces existing MRSPs by new ones either when there is a change to any of the components of the MRSP (including tax rates) or upon request from an importer. We therefore consider that the link between successive MRSP determinations is not similar to the link observed between a series of anti-dumping duties which stem from one single anti-dumping order.
6.25.
Having said this, however, we are mindful of the particular nature of the general methodology used in determining MRSPs. Specifically, we note that, in its calculation of new MRSPs, DG Excise generally refers back to the amount of "marketing costs" included in the latest MRSP or in the MRSP previously requested by the domestic manufacturer or the importer.205 Thus, we cannot eliminate the possibility that specific aspects of the MRSPs at issue in this dispute, which were found to render these MRSPs inconsistent with Thailand's obligation under Article III:2, would continue to have effects on future determinations of MRSPs for imported cigarettes. We note the panel's observation in EC – Commercial Vessels that "the notion of a measure that no longer 'exists' is not always straightforward". That panel then concluded that as it could not determine with certainty whether and to what extent it would be possible for subsidies to continue to be provided pursuant to applications made before the expiry of those schemes, its recommendation did not apply to the subsidy schemes that have expired, except to the extent that those schemes continued to be operational. Following the guidance by the panel in EC – Commercial Vessels and in the light of the particular circumstances in this dispute, we have modified the conclusion in paragraph 8.8 to reflect our considerations above.

2. Customs valuation determinations as "completed acts" (paragraphs 7.40-7.51) – Thailand's comments

6.26.
Thailandrequests review of certain aspects of paragraphs 7.40-7.51 of the Interim Panel Report, because (i) it does not accurately reflect Thailand's arguments and (ii) it does not fully address the arguments with respect to whether, or in what circumstances, the Panel should make recommendations with respect to completed customs valuation determinations.206
6.27.
With respect to the first reason, Thailand submits that the Panel incorrectly states in paragraph 7.41 that Thailand argued that it should not "rule" with respect to the [[xx.xxx.xx]] entries listed in the Philippines' request. Thailand only requests that the Panel revise the final sentence of paragraph 7.41 to state that "Thailand takes the position that the Panel should not make recommendations with respect to the claims relating to these entries".
6.28.
Regarding the second reason, Thailand states that in paragraphs 7.40-7.51 the Panel focuses on the issue of whether it may make findings regarding the [[xx.xxx.xx]] entries at issue, but does not separately address whether it would be appropriate to also make recommendations. In paragraph 7.51, however, the Panel concludes, without any further explanation, that it will make recommendations regarding these entries. Therefore, Thailand requests the Panel to revise these paragraphs and to explain whether and why it considers it appropriate to make recommendations regarding customs valuation determinations (in general).207
6.29.
Regarding the issue whether or not the Panel should make a recommendation, Thailand puts forward an argument that there is a difference between "completed acts" that give rise to ongoing "measures" within the meaning of Articles 3.3 and 6.2 of the DSU (such as the measures at issue in Chile – Price Band System), and "completed acts" that do not give rise to an ongoing measure, such as the valuation and assessment of customs duties in this case. The customs duties and other internal taxes have been finally assessed and paid with respect to the [[xx.xxx.xx]] entries at issue before the establishment of the Panel. Hence the Panel has not specified a factual basis on which these entries can be characterised as having continuing effects that may be relevant for the Panel to make recommendations with respect to them.208
6.30.
The Panel's failure to explain why it considers it appropriate to make recommendations could be interpreted to mean that the Panel considers that all customs valuation determinations that have been completed could be subject to recommendations in dispute settlement proceedings. In that case, Members could be retrospectively required to revise these determinations with respect to which all domestic legal proceedings had been completed long before the establishment of a panel. Therefore, Thailand requests the Panel to explain why it considered it appropriate to make recommendations with respect to the customs valuation determinations for the [[xx.xxx.xx]] entries at issue.209
6.31.
The Philippines points out that this issue is linked to its request on revision of the Panel's analysis of findings and recommendations on the MRSP Notices. It states, as the Panel noted in paragraph 7.46 of its Interim Panel Report, that the issue is not whether an act is "completed", but whether a measure found to be inconsistent continues to exist.210 The Philippines then explains that one way in which a measure can continue to exist is where it is subject to domestic legal proceedings. The Philippines subsequently provides the same explanation as it gave for its arguments on domestic proceedings in respect of the MRSP Notices.
6.32.
In addition, the Philippines discusses Thailand's assertion that it would be subject to a retrospective remedy if it had to revise measures that were applied to transactions that occurred before the end of the reasonable period of time. The Philippines refers to the Appellate Body statements in US – Upland Cotton and US – Zeroing (Japan) (Article 21.5 – Japan) to explain that after the end of the reasonable period of time, WTO-inconsistent conduct must cease completely.211
6.33.
The Philippines agrees with Thailand's request that the Panel clarify the factual circumstances that support its decision to make a recommendation regarding the [[xx.xxx.xx]] entries at issue. However, the Philippines also contests some arguments put forward by Thailand. Specifically, it disagrees with the idea that "all domestic legal proceedings had been completed long before the establishment of a panel".212 The Philippines points at the fact that it appealed the transaction value of the [[xx.xxx.xx]] entries and that these appeals are still pending before the BoA, a fact that has been recognized by the Panel in its Interim Panel Report.213 The BoA is reviewing Thai Custom's assessment of the customs value of the [[xx.xxx.xx]] entries and may revise that value. If the BoA reduces Thai Custom's valuation, DG Customs grants a refund of excess customs duties and excess payments of excise, health, and television taxes.214
6.34.
Hence, domestic legal proceedings regarding the [[xx.xxx.xx]] valuation decisions are ongoing and in those proceedings, Thailand is still to take action to determine the final assessed customs value, and to determine "whether to enforce the WTO-inconsistent measures at issue" (italics in original). The Philippines contends that these actions in the domestic proceedings will determine the legal effects of the measures at issue, including the customs duties and internal taxes to be paid under the measures, and in these circumstances, the [[xx.xxx.xx]] customs valuation measures have not ceased to exist. Therefore, the Panel must make a recommendation under Article 19.1 of the DSU regarding these measures.215
6.35.
First, in the light of Thailand's request that Thailand's arguments be revised because they are not correctly reflected in paragraph 7.41, the Panel has slightly modified the last sentence of paragraph 7.41 as it deemed appropriate.
6.36.
We now address Thailand's second request that the Panel explain why it considered it appropriate to make recommendations, as stated in paragraph 7.51, with respect to the customs valuation determinations for the [[xx.xxx.xx]] entries at issue.
6.37.
As the Philippines notes, we find this issue to be closely related to the question we addressed in the previous section regarding whether we must make a recommendation with respect to certain MRSP Notices. First, we agree that in determining whether panels should make a recommendation for expired measures, the applicable legal standard should be the same regardless of the measure at issue. The nature and characteristics of the measure being assessed, however, may lead panels to a different conclusion as to whether to make a recommendation.
6.38.
We recall our discussion above that the legal standard in this regard should be whether a measure, despite its expiry nature, continues to exist. There may indeed be different circumstances under which the continuing effect of an expired measure can be found. To that extent, it is not our task here to draw up an exhaustive list of such circumstances. However, as indicated above, we agree, and the parties do not appear to dispute, that an expired measure may be considered as having a continuing existence if that measure is still subject to a government action(s) and/or if it still has an effect(s) on imported goods or on measures currently in force.
6.39.
Regarding Thai Customs valuation determinations in respect of the [[xx.xxx.xx]] entries at issue, Thailand underlines the fact that the customs duties and other internal taxes, calculated based on these customs valuation determinations, have been finally assessed and paid prior to the establishment of the Panel. As such, according to Thailand, these determinations constitute completed acts and do not give rise to ongoing measures, which is a fact distinguishable from other measures such as the ones at issue in Chile – Price Band System.
6.40.
In respect of Thailand's arguments relating to the concerned customs valuation determinations as "completed acts", we consider our discussion in paragraphs 7.40-7.51 of the Interim Panel Report to be sufficient. We agree with Thailand that these customs valuation determinations have been finally assessed and collected by Thai Customs. To such an extent and given that the WTO dispute settlement system does not generally provide for a retrospective remedy, they are completed acts which cannot practically be brought into compliance.
6.41.
However, the Philippines has shown that the pending domestic review proceedings may result in an obligation for the Thai government to revise or re-determine the concerned customs valuation determinations. As described in paragraph 7.92 of the Interim Panel Report, Thai law provides for the right to appeal the customs valuation determinations, first before the BoA and then before the Thai Tax Court. Thus, those determinations must be distinguished from the MRSP Notices that were the subject of our considerations above. As for the MRSP Notices, we were not presented with evidence establishing that a domestic review of a given MRSP determination, either before DG Excise or before the Thai Supreme Court, could result in a revision or re-determination as in the case of customs valuation determinations. In other words, customs valuation determinations challenged by an importer will be subject to specific government actions if they are found to be incorrect by domestic review bodies. We also find support for our understanding in the nature of the obligations under the Customs Valuation Agreement, particularly those in Article 11 of this agreement, which requires Member governments to provide for the right to appeal determinations of the customs value. Hence, this agreement specifically envisages situations where the adequacy of a given customs valuation determination is reviewed by the Member's administrative and judicial authorities. We therefore agree that the ongoing domestic proceedings in relation to the [[xx.xxx.xx]] valuation determinations will determine the legal effects of the measures at issue. This, in our view, renders the customs valuation determinations at issue subject to further actions by the Thai government and consequently to continue to exist for the purposes of Article 19.1 of the DSU.
6.42.
In the light of our considerations above, we have decided to maintain our conclusion to make recommendations for Thai Customs' customs valuation determinations with respect to the [[xx.xxx.xx]] entries at issue. We have modified the text of paragraph 7.51 and added a footnote to explain our decision in this regard.

B. CUSTOMS VALUATION AGREEMENT

1. The Panel's analysis of the "substantive aspects" of Thai Customs' application of the deductive value method (paragraphs 7.332-7.382) – Thailand's comments

(a) Standard of review for the Panel's evaluation of the Philippines' claim under Article 7 of the Customs Valuation Agreement

6.43.
Thailand claims that in this section of its analysis, the Panel improperly conducted a de novo review of Thai Customs' determination of the deductive value for [[xx.xxx.xx]] entries at issue. By referring to several parts of the Interim Panel Report, Thailand explains that the Panel adopted a standard of review whereby its review was limited to whether Thai Customs provided a reasoned and adequate explanation to support its determination.216 However, it contends that the Panel did not follow this standard consistently in the Interim Panel Report and that the Panel should have stopped its analysis after its conclusion in paragraph 7,336 of the Interim Panel Report that Thailand "failed to apply the deductive valuation method consistently with Article 7.1". Instead, the Panel continued "for the sake of completeness" to examine de novo the information and evidence on the record to determine whether these deductions were warranted. Therefore, Thailand requests that the Panel delete this analysis regarding the "substantive aspect" of the deductive value from the report.217
6.44.
The Philippinesdoes not share Thailand's point of view. Instead, it argues that if the Panel had only examined the procedural aspect of the Philippines' claim on this issue, it would not have resolved the dispute.218 Moreover, the Philippines does not read the Panel's statements as implying that it conducted a de novo review. Rather, in the Philippines' view, the Panel properly stated that its role was "limited to determining whether there was an evidentiary basis for Thai Custom's decision – not the Panel's – not to deduct certain items".219 The analysis put forward by the Panel is an interpretative framework on the substantive aspects of the deduction of sales allowances, provincial taxes, and transportation costs, which does not involve any review of Thailand's valuation decisions.220
6.45.
However, to avoid confusion, the Panel could consider incorporating this interpretative framework into an earlier part of its reasoning. In paragraphs 7,332 to 7,336 of its Interim Panel Report, the Panel provides an introductory section to the claims on the deduction of the three items. After drawing a conclusion at the end of the introductory section, the Panel continues with its analysis of the substantive aspects. The Philippines notes that it is unusual for a Panel to reach a conclusion in an introduction and that by moving this conclusion to the end of the section, Thailand's standard of review objection will be taken away. Furthermore, in its analysis of the deduction of the three items, the Panel could make clear that it is reviewing the authority's decision consistently with the standard of review, by adding a phrase "in light of the explanation given by the authority and of the evidence before the authority".221
6.46.
Finally, the Philippines notes that to make clear that it did hear and examine Thailand's arguments, the Panel might consider addressing Thailand's explanations before the Panel to show that they are without merit. The Philippines suggests that if the Panel's reasoning following paragraph 7,336 is intended to achieve these ends, it expressly state so at the beginning of the section instead of at the end.222
6.47.
The Panel notes that Thailand is correct in stating that the standard of review of this Panel is limited to whether Thai Customs provided a reasoned and adequate explanation to support its determination. We also confirm that no de novo review has been conducted. As stated by the Philippines, our analysis consisted of an interpretation of the substantive aspects of the deduction of the three items at issue and not of a review of the evidence to determine ourselves whether these items should have been deducted. Therefore, the Panel declines to delete the paragraphs as requested by Thailand. However, as the Philippines suggests, we have changed the order of the paragraphs at issue and added sentences to clarify the standard of review applied to our relevant analysis contained in paragraphs 7,332-7.382.

(b) Other issues regarding the Panel's analysis of the Philippines' claim under Article 7 of the Customs Valuation Agreement

6.48.
Thailandargues that if the Panel declines to delete paragraphs 7,332-7.382, it should make several revisions to it.223 Regarding the Panel's analysis on the deduction of sales allowances, it states that it is unclear what the Panel means with the statement "we are not presented with any evidence that can guide us on the question of whether the amount of sales allowances claimed for a brand of imported cigarettes must match the amount of sales allowances provided in each month to the relevant company at issue" in paragraph 7,370. Thailand claims that the Panel's suggestion that Thai Customs should have been able to adjust the amounts illustrates the dangers inherent in the Panel attempting to conduct a de novo review. Second, Thailand does not understand what claim the Panel thinks Thailand put forward when it states: "Thailand, as the party who puts forward this claim, had the burden of proving it with supporting evidence" in the same paragraph.224
6.49.
Regarding the deduction of provincial taxes, Thailand requests the Panel to clarify to which finding it refers in paragraph 7,376 of the Interim Panel Report. In addition, Thailand notes that a "finding that provincial taxes payable, and not merely paid", must be deducted does not resolve the factual issues arising in this case. It explains that the evidence in the case did not indicate whether the GAQ price was based on sales for Bangkok or sales to other provinces, or a mix of the two; it did not indicate whether sales to this customer usually included payments for provincial taxes; and it did not allow for a calculation of a precise adjustment for provincial taxes in the event that the GAQ price consisted of a mix of sales on which provincial taxes were and were not payable or usually paid.225
6.50.
In relation to the transportation costs, Thailand maintains that paragraphs 7,377-7.382 are "simply duplicative" of paragraphs 7,329-7.331 of the Interim Panel Report and should therefore be deleted.226
6.51.
With respect to the deduction of sales allowances, the Philippines notes that in paragraph 7,370 of the Interim Panel Report the Panel expressly states that it is "unable to examine evidence, because there is none" (italics in original), and that it is therefore hard to see how the Panel could have conducted a de novo review. Instead, the Panel concluded that the authority's determination was WTO-inconsistent because there was "no basis in the evidence before the authority" (italics in original) for a refusal to deduct any sales allowances. The Philippines states that the Panel may wish to clarify that its conclusions are based on such an approach.227
6.52.
Regarding the deduction of provincial taxes, the Philippines states that the Panel does not appear to provide any review of the facts surrounding the authority's decisions. In its comments, Thailand appears to re-argue the substance of the interpretative point. The Philippines urges the Panel to maintain its position, despite Thailand's repetition of its failed arguments.228
6.53.
The Philippines disagrees with Thailand that paragraphs 7,377-7.382 on the deduction of transportation costs are a duplication of paragraphs 7,329-7.331, as they answer a different legal question.
6.54.
Regarding the deduction of sales allowances, the Panel has made changes to paragraph 7,370 to clarify the issues put forward by Thailand.
6.55.
In respect of provincial taxes, we have modified paragraph 7,376 to further clarify our point in light of Thailand's comments.
6.56.
In paragraph 31 of its comments on the Interim Panel Report, Thailand repeats its arguments without making a specific request that for the deduction of provincial taxes, the evidence available, did not provide clear information as to whether the GAQ price was based on sales for Bangkok, which are excluded from provincial taxes; or on sales to provinces; or a mix of the two. First, we observe that these arguments have been reflected in paragraph 7,351 of the Interim Panel Report. We recall that in our analysis of the procedural aspects of the deductive valuation method we concluded that Thai Customs should have requested further information on provincial taxes if it considered the available information to be insufficient in deciding whether to deduct provincial taxes (and sales allowances).229 Furthermore, in our analysis of the substantive aspects of the deductive valuation method, we concluded that "provincial taxes payable must be deducted if the information shows usual payments made for local taxes even if they are not included in the sales price based on which the deductive valuation method will be applied under Article 5".230 We therefore confirm that it is not necessary to determine whether or not provincial taxes were included in the GAQ price.
6.57.
Finally, the Panel does not consider paragraphs 7,377-7.382 on transportation costs to be "simply duplicative" of paragraphs 7,329-7.331, since they answer different legal questions, as pointed out by the Philippines. Paragraphs 7,329-7.331 focus on the procedural aspect of the deductions and answer the question whether Thai Customs properly consulted the importer; while paragraphs. 7,377-7.382 address the substantive aspect of the deductions in relation to transportation costs. Therefore, the Panel declines to accept Thailand's request to delete paragraphs 7,377-7.382, but made a slight modification to paragraph 7,384 of the Final Report to clarify this point.

2. Aspects of the Panel's analysis of the Philippines' claim under Articles 1.1 and 1.2 (paragraph 7.194) – Thailand's comments

6.58.
Thailand disagrees with the Panel's analysis in paragraph 7,194 of the Interim Panel Report and requests that the Panel review the content and the conclusions contained in the paragraph. First, Thailand states that the Panel's analysis is incorrect to the extent that it gives the impression that Thai Customs determined that the transaction value was not acceptable after it received the 5 February 2007 letter. To the contrary, Thailand has argued that rejecting the transaction value and using the deductive value instead was "part of a single process" that included all contacts between the importer and Thai Customs between the date of the 5 February letter and the 6 March letter and meeting.231 At the end of this process Thai Customs compared the transaction value to the deductive test value and at that point it rejected the transaction value, and not before that time.
6.59.
Second, Thailand contends that the Panel's statement reads as if PM Thailand never requested Thai Customs to use a deductive testing methodology. Even if the 5 February letter does not explicitly request the use of this methodology, it must be read in the context of the subsequent exchanges between the importer and Thai Customs. Specifically PM Thailand's 6 March 2007 letter should be taken into account as in this letter "PM Thailand clearly and unambiguously asked Thai Customs to use a deductive testing methodology".232
6.60.
The Philippines does not subscribe to Thailand's point of view. First, it states that the Panel's statement on the 5 February letter is literally quoted from Thailand's answer to Panel question No. 99(3), and thus the Philippines sees no reason to revise passages that have been directly taken from Thailand's response to a specific question.233 Second, the Philippines disagrees with Thailand's reading of the 6 March 2007 letter. In the letter, PM Thailand states that it is providing information in response to a request by Thai Customs to allow the authority to determine the customs value "correctly", following the "hierarchical order" of the sequential valuation methods set forth in Thai law and indicates that deductive testing may be appropriate in certain circumstances. However, PM Thailand nowhere "requests" that the acceptability of the transaction value be tested exclusively by such testing or that Thailand abandon any effort to conduct a proper examination of the circumstances of sale.234
6.61.
First, the Panel notes that its reproduction of Thailand's statement on the 5 February 2007 letter was not quoted verbatim from Thailand's answer to Panel question No. 99(3). In its answer to that question, Thailand described a process at the end of which Thai Customs decided to reject the transaction value after having compared it to the deductive test value subsequent to the letter and meeting of 6 March 2007. We have revised paragraph 7,194 to correctly reflect Thailand's arguments in this regard.
6.62.
Second, regarding the content of the 6 March letter, we understand that in this letter, PM Thailand pointed to the fact that Thai Customs was asking PM Thailand to provide information to be used to calculate the computed value, while the hierarchical order of Ministerial Regulation No. 132/2000 (and of the Customs Valuation Agreement) prescribes that the calculation of a deductive value predates the calculation of a computed value. Hence, we do not consider this as amounting to be a request specifically to use the deductive value instead of the transaction value. Rather, this is a general request to follow the hierarchical order according to which the valuation method to be used should be chosen. While we disagree with Thailand's reading of the letter, we have modified and made additions to paragraph 7,194 to provide a more accurate/complete explanation on the issue.

3. The Philippines' comments

(a) Footnote 272, paragraph 7.91

6.63.
The Philippines requests that the Panel use the name [[xx.xxx.xx]] instead of "Importer A" in footnote 272 of the Interim Panel Report to reflect the Philippines' arguments that [[xx.xxx.xx]] is not technically an importer because its goods transit through duty free areas, and have not formally entered Thailand or been cleared through Thai Customs.235Thailandis of the opinion that the Panel should "refer to the duty-free importer by name the first time it uses it, following by the notation ("Importer A") and then use the designation 'Importer A' on every following occasions". This would make the reading of the non-BCI version easier according to Thailand.
6.64.
The Panel has modified footnote 272 as commented by the Philippines because the reference in the footnote to "Importer A" is not entirely correct and also included the Philippines' arguments on [[xx.xxx.xx]] (Importer A) in the footnote. We have changed the other references to [[xx.xxx.xx]] as suggested by Thailand.

(b) Paragraph 7.91

6.65.
The Philippines requests the Panel to modify its statement in paragraph 7.91 of the Interim Panel Report, as this statement is factually incorrect. It clarifies that on 28 March 2008, Thai Customs started accepting the transaction values as customs values for all new entries. Concerning the [[xx.xxx.xx]] entries made between 13 September 2007 and 19 March 2008 on the other hand, Thai Customs only began accepting the transaction values as the correct customs values on or after 14 July 2008. For these entries however, transaction values had not been accepted at the time of clearance, and guarantee values had been collected in respect of potential customs and fiscal liabilities. Concerning the three entries that cleared on 10 and 13 September 2007, Thai Customs also accepted the transaction values as the correct customs values on or after 14 July 2008.236
6.66.
Thailand proposes that the statement by the Panel in paragraph 7.91 be kept, and that the words "subject to guarantee" be added to explain that, while Thai Customs began accepting the transaction values as the correct customs values for the entries at issue, guarantees had already been collected in relation to these entries.
6.67.
As the information provided by the Philippines in its comments on the Interim Panel Report is accurate, the Panel has modified paragraph 7.91 of the Interim Panel Report accordingly.

(c) Paragraph 7.158

6.68.
The Philippines takes issue with the wording of paragraph 7,158 of the Interim Panel Report in which its is stated that "[w]hile not disputing the overall sequence of the procedural steps as described above...". It states that it agrees with the order of steps set forth in paragraph 7,156, but it "does not agree that a customs authority need not request information from an importer if the authority is unable to accept the transaction value without further enquiry".237 The Philippines therefore requests that the Panel avoid suggesting that the Philippines agrees with the procedural steps described in paragraphs 7,152-7.156 of the Interim Panel Report.
6.69.
Thailand does not read paragraph 7,158 or 7,152 as suggesting that "a customs authority need not request information from an importer if the authority is unable to accept the transaction value without further enquiry", and states that no change appears to be warranted.
6.70.
The Panel considers that, on the contrary to the Philippines' statement, paragraph 7,152 of the report does not state that a customs authority need not request additional information. Instead, it states that the customs authority may "choose to ask the importer to provide information". The third sentence of paragraph 7,158 then reflects the Philippines' view on this issue by stating that "the Philippines' position is that a customs authority is obliged to undertake an active investigative role...". We have therefore decided to maintain the current paragraphs at issue.

(d) Footnote 390, paragraph 7.184

6.71.
The Philippines requests the Panel to revise footnote 390 of the Interim Panel Report where the Panel pointed to an inaccurate reference by the Philippines to Thailand's submissions. Seeking to show that Thai Customs had acknowledged a letter by PM Thailand asking Thai Customs to (i) accept the declared values; or (ii) explain in writing why it was not clearing the goods at the declared values, the Philippines referred to paragraph 24 of Thailand's second written submission. The correct reference was paragraph 24 of Thailand's second opening statement. As Thailand did not present any objection to this request, the Panel has modified footnote 390 of the Interim Panel Report accordingly.

(e) Paragraph 7.193

6.72.
The Philippines takes issue with the second to last sentence in paragraph 7,193, which states "[t]here may... between the same parties turn out to be the same". In its first oral statement, the Philippines has noted that the circumstances surrounding transactions in 2002-2003 were very different from those surrounding transactions in 2006-2007. The Philippines requests the Panel to include a footnote referencing this assertion. Thailanddid not comment on this issue. The Panel has modified the paragraph at issue and included a reference to the Philippines' statement.

(f) Paragraph 7.265

6.73.
The Philippines' contends that in paragraph 7,265 of the Interim Panel Report, the Panel misinterpreted paragraph 50, footnote 80 of the Philippines' second oral statement. From this footnote, the Panel understood that "the revised minutes were submitted to the Thai Tax Court for the first time in the context of PM Thailand's appeal before the court concerning the September 2006 MRSPs". According to the Philippines, however, in the footnote at issue, it referred to the original version of the minutes and notes that DG Customs sent this version of the Minutes to PWC ABAS. According to the Philippines, Thailand has not provided any documentary evidence to show that the revised version of the Minutes was provided to the Thai Tax Court. Therefore, the Philippines requests that the Panel modify paragraph 7,265 accordingly.238Thailanddid not provide comments on this issue.
6.74.
The Panel has modified paragraph 7,265 of the Interim Panel Report to correct its mistaken statement about paragraph 50, footnote 80 of the Philippines' second oral statement as pointed out by the Philippines.

(g) Paragraph 7.267

6.75.
The Philippines requests that the Panel modify the first sentence of paragraph 7,267 to record that the evolution of its arguments occurred as a response to Thailand's changing description of its customs valuation decisions in the revised Minutes that were submitted at the first substantive meeting with the Panel.239
6.76.
Thailanddoes not object to a change of this sentence. It nonetheless notes that even before the revised minutes were provided to the Panel, Thailand had already argued in its first written submission that regardless of what provision of domestic law was cited, Thai Customs had used a deductive value method within the meaning of Article 5 of the Customs Valuation Agreement.
6.77.
The Panel agrees that the Philippines changed its arguments because of a change in Thailand's description of its customs valuation decisions, and changed the first sentence of paragraph 7,267 of the Interim Panel Report accordingly.

(h) Paragraph 7.298

6.78.
ThePhilippines' states that in regard to Article 7.1 of the CVA, it put forward two claims, only one of which was discussed by the Panel. Therefore, the Philippines requests the Panel to also examine its claim that Thailand acted inconsistently with Article 7.1 of the CVA "by deducting incorrect amounts for VAT and excise tax for certain transactions".240
6.79.
Thailand does not object to this request, but it disagrees with the Philippines assertion that "Thailand 'had not previously disclosed' the calculations of the deductive value for entries in the period 1 January 2007 -13 September 2007 prior to its submission of 4 September 2009".241 Thailand claims that it already put forward those calculations in Exhibit THA-13.
6.80.
The Panel added a paragraph in Section VII.C.7(c)(iii) of the Report to clarify the Philippines' position in this regard. Regarding Thailand's statement that it already disclosed the calculations for the entries in the period 1 January 2007-13 September 2007 in Exhibit THA-13, the Panel notes that this exhibit covers the calculations for the year 2006 and that Exhibit THA-71, which was submitted on 4 September 2009, covers the calculations for the first half of the year 2007. A factual description to this effect has been added in a footnote to the newly added paragraph 7,304.

(i) Paragraph 7.314

6.81.
The Philippines requests the Panel to add to the paragraph the argument that Thai Customs knew that PM Thailand had included a deduction for internal transport costs in its annual filings for the years 2003 to 2005, as the Panel also included in paragraph 7,353 of its Interim Panel Report. Moreover, the Philippines' invites the Panel to consider whether a reference to this factor should be included in the Panel's reasoning on this issue in paragraph 7,329. Thailanddoes not comment on this issue.
6.82.
The Panel has included the argument, as requested by the Philippines, in paragraphs 7,314 and 7,329 and made the necessary modifications.

(j) Paragraph 7.406

6.83.
The Philippines notes that the Panel has not included a conclusion expressing its findings at the end of its findings under Article 10 of the CVA as in other sections. It requests that the Panel add its conclusion in this regard. Thailandhas not commented on this issue. The Panel has modified the paragraph by adding its conclusion.

C. ARTICLE III:2, FIRST SENTENCE OF THE GATT 1994

1. MRSPs – The Philippines' comments

(a) Paragraph 7.413

6.84.
The Philippines submits that in its analysis of the August 2008 Notice, the Panel made two mistakes. First, the Panel misinterpreted the Philippines' statement in its comments of 9 November 2009, in which the Philippines stated that in listing the MRSP Notices that form part of these proceedings, the Philippines omitted to include the MRSP Notice of August 2008. As also becomes clear from the text of its comments of 9 November, the Philippines specifically made this statement in connection to its opening statement at the second panel meeting, and hence it only wanted to correct a clerical error and it did not refer to a general omission of the MRSP Notice in its previous submissions.242
6.85.
Secondly, the Philippines disagrees with the Panel that it "never put forward a claim, not to mention specific arguments, in this proceeding that the 19 August 2008 Notice itself violates Article III:2 until its comments of 9 November 2009".243 The Philippines contends that during the proceedings, it put forward several arguments and pieces of evidence that underline its claim that the Notice is violating Article III:2. In Annexes A and B to its comments, the Philippines has included an overview of all arguments and evidence related to the August 2008 MRSP Notice submitted during the proceedings. In its comments, the Philippines points at the fact that the Notice was expressly identified in its Panel request and subsequently it puts forward the instances in which it made arguments regarding the Notice during the proceedings by referring to its Annexes A and B.244
6.86.
Based on this information, the Philippines urges the Panel to rule on the Notice, as required by Article 11 of the DSU. Further, it demands that if the Panel denies to rule on the Notice, it includes a reference to all of the paragraphs of the Philippines' submissions and exhibits addressing the August 2008 MRSP Notice as part of its claims under Article III:2 of the GATT 1994. If the Panel does decide to rule on the Notice, the Philippines asks it to make a recommendation for the same reasons as it requests a recommendation on the September 2006, March 2007 and August 2007 MRSP Notices.245
6.87.
Thailand does not respond to the Philippines' first comment that the Panel misinterpreted its statement of 9 November 2009. Regarding the Philippines' second statement that it did provided arguments and evidence regarding the August 2008 MRSP Notice, it puts forward that in its Interim Panel Report, the Panel did not state that the Philippines did not refer to the August 2008 MRSP Notice, instead the Panel concluded that it did not make "specific" arguments or a claim with respect to this Notice.246 Thailand notes that the examples the Philippines provides appear to be general examples of how Thailand calculated MRSPs, instead of a specific argument on the 2008 one; and secondly all of the arguments referred to by the Philippines seem to relate to the difference between the MRSP and RRSP for this Notice.247 Therefore, Thailand sees no reason for the Panel to change this paragraph.
6.88.
If, nonetheless, the Panel decides to examine the Philippines' claim and arguments regarding the Notice, the Panel should find that the Philippines has failed to establish that Thai Excise acted inconsistently with Article III:2 with respect to that Notice, unless the Panel finds that the evidence establishes that "DG Excise determined the marketing cost component of the MRSP for imported cigarettes in a manner different from the general methodology" for that Notice.248 Regarding the Philippines' request for a recommendation on the Notice, Thailand requests the Panel to deny to make recommendations for the same reasons as it requested the Panel to not make recommendations regarding the September 2006, March 2007 and August 2007 MRSP Notices.249
6.89.
Regarding the Philippines' first comment, that the Panel misinterpreted its statement of 9 November 2009, the Panel agrees that the Philippines specifically made this statement in connection with its opening statement at the second panel meeting, and not with regard to the panel proceedings as a whole. The Panel has revised the first sentence of paragraph accordingly.
6.90.
Second, the Panel disagrees with the Philippines' comment that it did put forward arguments and evidence regarding the August 2008 MRSP Notice. The Panel agrees with Thailand that the examples the Philippines provides appear to be general examples of how Thailand calculated MRSPs, instead of a specific argument on the 2008 one; and secondly all of the arguments referred to by the Philippines seem to relate to the difference between the MRSP and RRSP for this Notice. Consequently, the Panel denies to rule on this MRSP Notice. However, the Panel has modified the second sentence of paragraph 7,413 to clarify why it deems the Philippines' references to the 2008 MRSP Notice to be insufficient to make a ruling on this Notice. The information provided by the Philippines in Annexes A and B to its interim review comments has been specifically used in this clarification.

(b) The May 2009 MRSP Notice

6.91.
The Philippines explains that during the proceedings, it requested that the Panel not make findings regarding this measure "because it did not wish to litigate against a moving target", since at that stage "it was not clear how many more replacement MRSP Notices Thailand would adopt during the dispute".250 The Philippines states that during the proceedings, it submitted expressly that this Notice violates Article III:2. Moreover, the Philippines notes that in its analysis, the Panel has focused on situations where Thailand has been unable to provide an explanation for a gap between the MRSP and RRSP for imported cigarettes, and that such a gap also exists for the May 2009 MRSP for Marlboro, and Thailand has been unable to explain this gap.251
6.92.
In its report, the Panel does not address the parties' arguments regarding the May 2009 MRSP Notice, and the Philippines therefore requests that the Panel does address the Notice.252 In addition, the Philippines urges the Panel to take into account whether a ruling on this measure is necessary to resolve the dispute, and enable the DSB to make sufficiently precise recommendations and rulings. The Philippines states that the dispute has not been resolved, because the May 2009 MRSP Notice, which is currently in force, violates Article III:2 of the GATT 1994. If the Panel finds that this Notice is indeed inconsistent with Article III:2, the Philippines requests that it makes a recommendation under Article 19.1 of the DSU.253
6.93.
Thailand notes that the request by the Philippines for the Panel to make findings and recommendation regarding the May 2009 MRSP is an extraordinary one. In addition to the parts of the second written submission quoted by the Philippines in its comments, Thailand refers to the parts in which the Philippines states that it "objects to a ruling" on the May 2009 MRSP Notice and that "ruling on the 'new' [May 2009] MRSP Notices would not resolve the dispute that properly forms part of the Panel's term of reference".254 Thailand points at the fact that during the proceedings, the Philippines did not change its point of view until its comments on the Interim Panel Report, and therefore Thailand "fails to see any possible conception of the due process requirements for a panel proceeding that would permit the Panel, at the interim review stage, to rule on a measure with respect to which the complainant never once,..., requested the Panel to rule on and,... to which the complainant expressly objected the Panel making a ruling".255 Furthermore, it argues that at this point in the proceedings, the Panel cannot know what arguments or evidence would have been put forward by either party. Consequently, Thailand urges the Panel to deny the Philippines' request that it makes findings or recommendations regarding the May 2009 MRSP Notice.256
6.94.
Moreover, Thailand wants to correct the assertion by the Philippines that the Panel focused its analysis on "situations where Thailand has been unable to provide adequate explanation for a gap between the MRSP and RRSP for imported cigarettes". To the contrary, according to the Panel "the mere existence" of such a gap was not automatic proof of an inconsistency with the obligation under Article III:2.257
6.95.
First, the Panel notes that the May 2009 MRSP Notice was issued during the course of these proceedings, so after the establishment of this Panel. As the Philippines and Thailand note, during the proceedings, the Philippines specifically requested the Panel not to rule on this MRSP Notice, and it did not change its stance until its comments on the Interim Panel Report.258 The Panel agrees with Thailand that the due process rights of Thailand would not be respected if the Panel were to decide to rule on the May 2009 MRSP Notice only at this stage, since the parties have not been able to put forward substantive arguments and/or evidence regarding this Notice. In particular, given that the May 2009 MRSP Notice did not exist at the time of the establishment of the Panel and came into existence only during the course of this proceeding, the Philippines should have put forward robust arguments if it intended to make a claim with respect to this Notice.
6.96.
Further, the Philippines argues that in its analysis, the Panel has focused on situations where Thailand has been unable to provide an explanation for a gap between the MRSP and RRSP for imported cigarettes, and that such a gap also exists for the May 2009 MRSP for Marlboro, and Thailand has been unable to explain this gap.259 As Thailand points out, however, the Philippines' understanding of the Panel's analysis of the Philippines' claim with respect to the concerned MRSPs in this dispute is not correct. As stated in paragraphs 7,488 and 7,489 of the Interim Panel Report, we rather found that "the mere existence" of a gap between the MRSP and RRSP was not automatic proof of an inconsistency with the obligation under Article III:2.260
6.97.
Therefore, the Panel rejects the request by the Philippines to rule on the May 2009 MRSP Notice. However, we agree that our decision not to examine the May 2009 MRSP Notice still needs to be explained. We have added paragraph 7,420 to reflect our decision in this regard.

2. VAT exemption for re-sales of domestic cigarettes (paragraphs 7.629 to 7.634) – Thailand's comments

6.98.
In paragraphs 7,629-7.634 of the Interim Panel Report, the Panel considered whether "input tax credits under the Thai regulations are granted automatically and simultaneously with the obligation to pay output taxes in every case so as not to create even the potential risk of an excess tax for imported cigarettes".261 The Panel concluded that Thailand's input tax/output tax VAT system for resale of imported cigarettes gave rise to a "potential liability [that] does not exist for domestic cigarette resellers under the Thai law [and] leads to excess taxation for imported cigarettes and consequently a de jure violation of the first sentence of Article III:2".262 Thailand requests review of this section of the Interim Panel Report, for the reasons provided below.
6.99.
First, Thailandstates that while in paragraph 7,631 the Panel notes that resellers must submit a form Por.Por.30 in order to receive an input tax credit263, it fails to point out that resellers do not incur the liability for output tax until they file the same form Por.Por.30. Thus, no liability for output tax collected can arise before the time at which the importer applies for and obtains its input tax credit.264 Thailand requests that the Panel clarify its description of the system to reflect this factual point correctly.
6.100.
Second, Thailand takes issue with the assertion that a "potential risk of excess taxation" as identified by the Panel can give rise to excess taxation on the resale of imported cigarettes. The Panel describes this potential risk as stemming both from the fact that a form has to be filed by resellers of imported cigarettes to apply for VAT credits, and that there are circumstances in which this credit may not be granted. Thailand argues that this risk either does not exist or, alternatively, cannot give rise to a violation of Article III:2.265 Thailand then puts forward several arguments to support this statement:
6.101.
Thailand first asserts that once resellers submit the form Por.Por.30, they have a "right" and are "entitled" to an input tax credit.266 Consequently, Thailand argues that there can be neither a "risk" of excess taxation compared to the VAT imposed for resale of domestic cigarettes nor a corollary violation of Article III:2, first sentence. Instead, there is, at most, a difference in reporting requirements that ought to be addressed under Article III:4, rather than Article III:2, first sentence.267
6.102.
Moreover, the essential element of the Panel's finding of a "risk of excess taxation" appears to be the circumstance in which a reseller does not receive a tax credit that it claimed on form Por.Por.30. In its analysis, however, the Panel omits to include Thailand's explanation that this can only happen in circumstances in which the reseller is not able to show that the claimed input tax credit relates to an actual purchase of imported cigarettes.268 Hence, the evidence regarding the availability of input tax credits for legitimate, documented purchases of imported cigarettes does not support a finding that there is a "risk" that resellers may not obtain a credit with respect to these transactions, and Thailand requests the Panel to revise the Interim Panel Report to reflect Thailand's arguments on this issue.
6.103.
Thailand further notes that the Panel seems to suggest that the requirement to file form Por.Por.30 can, in itself, give rise to a violation of Article III:2, first sentence.269 Since, as explained above, there is no actual risk of losing the tax credit, Thailand sees no basis on which a requirement to file a VAT tax report can, in itself, constitute a violation of Article III:2, first sentence. Instead, this is an issue to be addressed under Article III:4.270
6.104.
In this context, Thailand notes that the requirement of a private action in the form of filing input/output VAT tax reports to obtain input tax credits against output tax VAT liability is a common feature of many WTO Members' VAT systems. Under these systems, importers risk losing credits if they do not file their input tax credit claims. In its final report, the Panel may wish to clarify whether these VAT systems are consistent with Article III:2, first sentence, under its ruling.
6.105.
Finally, Thailand notes that once the Panel finds the reporting requirements to be inconsistent with Article III:4, there appears to be little further purpose to be served by considering these requirements under Article III:2. In these circumstances, it may be appropriate for the Panel to exercise judicial economy in its final report with respect to the Philippines' claim under Article III:2, first sentence.271
6.106.
In response to Thailand's request that the Panel clarify in paragraph 7,631 that no VAT liability arises for the resale of imported cigarettes until form Por.Por.30 is filed, the Philippines presents two arguments. First, the Philippines underlines that this assertion is contrary to Thai law which states that tax liability for the sale of goods arises as a results of acts such as: "the delivery of goods"; "when payment of price becomes due for each payment period"; "when the agent delivers goods to the purchaser"; and so on.272 Moreover, Section 82/4, para. 1 of the Thai Revenue Code provides that a "registrant shall collect value added tax from a purchaser of goods or a recipient of services at the time the liability to value added tax arises".273 In other words, under Thai law, VAT liability does not arise when filing a form but at an earlier point in a sales transaction (e.g., upon delivery, payment, or transfer of ownership).274 Second, Thailand appears to imply that a failure to file form Por.Por.30 would enable the reseller to avoid taxation altogether. The Philippines however notes that such evasion would constitute a breach of Section 83 of the Thai Revenue Code and thereby be sanctioned pursuant to Section 89(2) of the Code with a "penalty... twice the amount of tax payable or remittable in the tax month".275 However, the Philippines does not object to a minor change in the wording of paragraph 7,631 to clarify that form Por.Por.30 is also used to request a tax credit.
6.107.
Furthermore, concerning Thailand's assertion that a potential risk of excess taxation as identified by the Panel, does not exist or cannot give rise to a violation of Article III:2, first sentence of the GATT 1994276, the Philippines contends that the Panel correctly relied on previous Appellate Body and GATT interpretations to the effect that the mere possibility or risk of discriminatory treatment is sufficient to violate Article III:2, first sentence.277 The Philippines argues that the Panel may support its findings further by citing the panel in US – Exports Restraints, which made clear that for a violation of Article III:2, it suffices to show that discrimination will arise in certain defined circumstances.278
6.108.
Subsequently, the Philippines argues that a potential risk of excess taxation for imported cigarettes does exist.279 To rebut Thailand's argument that there is no excess taxation because resellers of imported cigarettes are "entitled"280 to a refund, the Philippines argues that the Panel has correctly examined and rejected Thailand's arguments, deciding that a reseller would be taxed in excess if it failed to file the form, or subsequently failed to prove that the purchase took place.281
6.109.
Likewise, according to the Philippines, the Panel correctly rejected Thailand's argument that only the failure of a reseller – a private party – to secure a tax credit can trigger excess taxation. The Panel indeed explained that Thai laws and regulations at issue, rather than solely the action of private parties, gave rise to obligations for resellers of imported cigarettes only. In particular, the Philippines contends that the Panel correctly relied on the Appellate Body's statement in Korea – Various Measures on Beef that "the intervention of some element of private choice does not relieve [a WTO Member] of responsibility under the GATT 1994 for the resulting establishment of competitive conditions less favourable for the imported product than for the domestic product".282 In this vein, the Philippines agrees with the Panel's approach rejecting Thailand's argument that VAT liability imposed on resale of imported cigarettes may be offset by a tax credit so as to be in compliance with Article III:2, first sentence.283 In addition, the Philippines states that the Panel may want to consider to modify the text of paragraphs 7,633-7.634 to clarify its point even more.
6.110.
Moreover, the Philippines states that in paragraph 7,633, the Panel has also answered Thailand's concern that Thailand's VAT exemption system, not the simple requirement to file Por.Por.30, establishes an additional tax liability contrary to Article III:2, first sentence of the GATT 1994.284
6.111.
Finally, the Philippines states that other WTO Members' VAT systems have no bearing on the WTO-inconsistency of Thailand's de jure discriminatory treatment of the resale of imported cigarettes.
6.112.
First, regarding Thailand's argument that the Panel failed to point out that resellers do not incur the liability for output tax until they file (the same) form Por.Por.30, the Panel notes that its factual description of the imposition of VAT on cigarettes resellers in Thailand is provided in paragraphs 7,573-7.580 and 7,584-7.589 of the Interim Panel Report.285 Under Thai law, specifically Section 82/7 of Division 6 of the Thai Revenue Code, every VAT registrant cigarette reseller is required to collect VAT from the purchaser in respect of every stage of sale. Accordingly, all cigarette resellers in the distribution chain incur VAT liabilities. Further, when considering the applicable provisions of the Thai Revenue Code,286 it appears that VAT liability does not arise when filing a form but at an earlier point in a sales transaction.
6.113.
We also observed the manner in which a final VAT liability is determined based on the difference between output tax (sale to purchaser) and input tax credit (purchase from reseller) in the paragraphs cited above. In our view, Thailand's argument that resellers do not incur the liability for output tax until they file form Por.Por.30 pertains more to the administrative steps linked to the imposition of VAT for imported cigarette resellers than to the tax liability itself that arises upon the sale of imported cigarettes. To that extent, the Panel agrees with the Philippines that Thailand's argument would appear to imply that no tax liability arises so long as no form is filed. Hence, the Panel does not find that Thai law supports the statement that no liability for output tax collected arises before the importer applies for and obtains its input tax credit by filing form Por.Por.30. However, the Panel accepts that with the same form Por.Por.30, the importer can request for a tax credit. The Panel has changed the text of paragraph 7,631 to clarify this point.
6.114.
Second, regarding Thailand's comment that the "potential risk of excess taxation" identified by the Panel either does not exist or, alternatively, cannot give rise to a violation of Article III:2, the Panel is of the opinion that this potential risk does exist and that a potential risk can give rise to a violation of Article III:2.
6.115.
In relation to "potential risks", as was stated in paragraphs 7,622-7.624 of the Interim Panel Report, the Appellate Body in US – Section 211 Appropriations Act and the GATT Panels in US – Tobacco and US – Section 337 Tariff Act explained that the national treatment obligation assumed under Article III:4 also applies to the mere possibility of risk of discriminatory treatment of imported goods, and we considered this finding to be of equal relevance for the national treatment obligation under Article III:2. We therefore confirm our opinion that a potential risk of excess taxation can give rise to excess taxation under Article III:2.287
6.116.
Regarding the existence of a potential "risk" of excess taxation, Thailand puts forward, that resellers have a "right" or "entitlement" to an input tax credit and therefore no such "risk" exists. The Panel confirms that it did address this specific aspect of Thailand's arguments in its Interim Panel Report. First, in paragraphs 7,613, 7,621 and 7,627 of the Interim Panel Report, the Panel refers to Thailand's argument that when filing form Por.Por.30, a reseller is "entitled" to an input tax refund, however in paragraph 7,631 it makes clear that from the information available, it concludes that the reseller of imported cigarettes is indeed entitled to receive a tax credit, but it will not receive this credit, if it does not submit form Por.Por.30 or if it is not able to prove that the purchase took place despite the submission of the form. Therefore, although a reseller has a "right" to obtain a tax refund, in our view, the reseller will not be able to obtain that refund automatically, without taking any further procedural steps.288 Second, Thailand claims that in discussing the fact that in certain circumstances the reseller will not receive a tax credit although he submitted form Por.Por.30, the Panel did not address Thailand's explanation that this only happens in cases in which the reseller is not able to prove that the claimed input tax credit relates to an actual purchase of imported cigarettes. The Panel considers that it did specifically address Thailand's explanation in paragraphs 7,633-7.634 of the Interim Panel Report. However, the Panel has clarified the content of these paragraphs by slightly modifying their text.
6.117.
Thailand also noted that in paragraph 7,633, the Panel appears to state that the requirement to file the form Por.Por.30 can, in itself, give rise to a violation of Article III:2, first sentence, as it states that "the failure to comply with these obligations will in turn deprive importers of tax credits necessary to offset their VAT liability".289 We do not agree with Thailand's reading of this paragraph, as the sentence that follows states that this potential liability does not exist for resellers of domestic cigarettes, and it is this difference that establishes the additional liability for resellers of imported cigarettes. Hence, we consider that this issue was correctly addressed under Article III:2, but to clarify our point, we made the necessary amendments to paragraph 7,633.
6.118.
Further, the Panel does not agree with Thailand's statement that the Panel has to clarify whether other WTO Members' VAT systems in which importers risk losing credits if they do not file their input tax credit claims are consistent with Article III:2, first sentence, under its ruling. First, as we explained in paragraph 7,604, we are not stating that the existence of a tax credit system as such is inconsistent with Article III:2 of the GATT, instead what "distinguished the VAT‑related measures maintained by Thailand from other so-called normal VAT measures is... the VAT exemption accorded to domestic cigarettes only" (emphasis added). Second, there is no need for the Panel to clarify whether its ruling with respect to Article III:2 of the GATT 1994 in this dispute concerning Thailand's de jure discriminatory VAT system applies to other WTO Members' VAT systems for two reasons: first, as a matter of law, the Panel's terms of reference are limited to the measures specified in the Panel Request and the Panel's report is solely binding upon the parties to this dispute. Second, as a matter of fact, the examples of other WTO Member's VAT system have no bearing on the Panel's analysis of Thailand's de jure tax exemption, because there is no evidence that any of these Members exempts resale of domestic cigarettes from VAT, while not providing the same exemption for resale of imported cigarettes.290
6.119.
For these reasons, we consider that a potential risk of excess taxation exists under the Thai VAT system, which can give rise to a violation of Article III:2, first sentence.
6.120.
Finally, we consider Thailand's statement that if the Panel finds the reporting requirements to be inconsistent with Article III:4, it might consider exercising judicial economy with respect to the Philippines' claim under Article III:2, first sentence. We note in this respect the statement by the Appellate Body in Australia – Salmon that: "[t]he principle of judicial economy has to be applied keeping in mind the aim of the dispute settlement system. This aim is to resolve the matter at issue and "to secure a positive solution to a dispute.... A panel has to address those claims on which a finding is necessary in order to enable the DSB to make sufficiently precise recommendations and rulings so as to allow for prompt compliance by a Member with those recommendations and rulings in order to ensure effective resolution of disputes to the benefit of all Members".291 In the light of the Appellate Body's guidance, we must consider whether separate findings on the Philippines' claims under Article III:2, first sentence and Article III:4 are necessary for the DSB to make sufficiently precise recommendations and rulings, or whether only findings on Article III:4 would be enough. We are of the view that the Philippines' claim under Article III:2 addresses an obligation that is distinguished from that under Article III:4. It also pertains to different aspects of the Thai measures at issue. For example, under Article III:2, what is at issue is whether the VAT exemption on the resale of domestic cigarettes leads to an excess VAT liability for the resale of imported cigarettes; while the Philippines' claim under Article III:4 goes to the question of whether the Thai administrative requirements lead to an additional administrative burden on resellers of imported cigarettes and consequently less favourable treatment for imported cigarettes. Therefore, we decline to accept Thailand's request that the Panel exercise judicial economy with respect to the Philippines' claim under Article III:2, first sentence.

D. ARTICLE III:4, FIRST SENTENCE OF THE GATT 1994 – THAILAND'S COMMENTS

1. Form Por.Por.30 reporting requirements

6.121.
In paragraph 7,698 of the Interim Panel Report, the Panel concluded that resellers of imported cigarettes are subject to a heavier administrative burden in respect of the obligation to complete and submit form Por.Por.30 in part because "a supplier who is a VAT registrant need not include information on sales of domestic cigarettes in completing form Por.Por.30". Thailand provided its comments on certain aspects of the Panel's analysis and conclusion in this regard. We address them in turn.

(a) The Panel's reliance on the expert testimony provided in Exhibit PHL-289 for the purpose of its conclusion in paragraph 7.698 of the Interim Panel Report.

6.122.
Thailand submits that the Panel cannot make an objective and impartial assessment of the facts within the meaning of Article 11 of the DSU based on evidence provided by the Philippines only "at the last opportunity afforded to the parties to submit their views".292 Thailand therefore requests the Panel not to take into account this evidence. Paragraph 15 of the Panel's working procedures provided that all evidence, other than rebuttal evidence, was to be provided "to the Panel no later than the first substantive meeting, except with respect to factual evidence necessary for purposes of rebuttals, answers to questions or comments on answers provided by each other". Thailand points to the Panel's understanding that the expert testimony submitted by the Philippines is the only evidence relating to the alleged change in DG Excise's practice regarding the recording of VAT exempt sales in line 3 of form Por.Por.30. Given also that the Philippines had numerous opportunities to submit this expert testimony293 earlier in the proceedings, which would have allowed Thailand to timely respond, Thailand argues that its due process rights would be denied if the Panel used this evidence for its determination.294
6.123.
The Philippinesdoes not deny that it has submitted its expert opinion in Exhibit PHL-289 at the latest stage of the proceedings such that Thailand had no further opportunity to respond in this regard. Nonetheless, the Philippines offers a history of Thailand's position regarding form Por.Por.30 throughout the panel proceedings to show two things: first, Thailand's position shifted, as it first considered in its first written submission that "retailers that deal exclusively in VAT‑exempt cigarettes are not required to submit and maintain [form Por.Por.30]"295, while it later contended that "sales exempted from VAT are reported in line 3 [of Por.Por.30], including sales of domestic cigarettes"296; second, the Philippines contends that the Philippines submitted its expert opinion only at the latest stage of the proceeding in order to rebut the 1995 DG Revenue ruling which Thailand submitted only in its written responses to the Panel questions after the second substantive meeting. In this regard the Philippines underlines that Thailand had many opportunities to submit this evidence earlier on, which would have allowed the Philippines to present its rebuttal evidence at an earlier stage too. Thus, Thailand, not the Philippines, is responsible for the late submission of the Philippines' expert opinion. This evidence can therefore be fully taken into account by the Panel.297
6.124.
The Panel notes Thailand's position that the expert opinion provided by the Philippines as Exhibit PHL-289 was submitted at the latest stage of the proceedings (i.e. comments on each other's written responses to the Panel questions after the second substantive meeting), which deprived Thailand of an opportunity to respond. Thailand is thus of the view that this evidence is inadmissible and should not be taken into account by the Panel for the purpose of its analysis and conclusions.
6.126.
For the purpose of the current Panel proceedings, paragraph 15 of the Panel's Working Procedures establishes that all evidence, other than rebuttal evidence, was to be provided to the Panel no later than the first substantive meeting, except with respect to factual evidence for purposes of rebuttals, answers to questions or comments on answers provided by each other". Thailand submitted a new piece of evidence, namely the 1995 DG Revenue Ruling as part of its response to the Panel's questions after the second substantive meeting. Each party was subsequently granted the possibility to submit comments on each other's responses pursuant to paragraph 9 of the Panel's Working Procedures. In an attempt to rebut Thailand's argument on the 1995 DG Revenue ruling, the Philippines then submitted the concerned expert opinion.
6.127.
We note that the first sentence of this opinion reads "I have been asked to provide an opinion on [the 1995 DG Revenue Ruling]", suggesting that the intended purpose of this evidence was to rebut Thailand's arguments in relation to this ruling. Therefore, to the extent that the Panel's Working Procedures envisaged the submission of evidence at a later stage than the first substantive meeting when it could be characterized as rebuttal evidence, or comments on answers provided by parties, we are of the view that the concerned expert opinion submitted by the Philippines falls within the scope of such evidence.
6.128.
In the light of this, and notwithstanding a general preference to receive evidence at an early stage of the panel proceeding rather than at a later or the last stage of the proceeding, we confirm our view that accepting the Philippines' evidence that was provided as part of its comments on Thailand's response to Panel question No. 142 was in accordance with paragraph 15 of the Working Procedures. The Panel therefore declines to accept Thailand's request.

(b) The Panel's assessment of all the evidence submitted by Thailand for the purpose of its analysis and conclusion in paragraphs 7.694-7.698 of the Interim Panel Report

6.129.
Thailand submits that the Panel is incorrect in suggesting that Thailand adduced only two pieces of evidence (namely the Textbook on the Revenue Code,300 and a 1995 DG Revenue Ruling301) to support its position that exempted sales must be reported in line 3 ("exempted sales") of form Por.Por.30. In addition to these two pieces of evidence referred to by the Panel, Thailand provided the instructions for form Por.Por.30, which make unambiguously clear that in completing line 3 ("exempted sales") in the form, "a taxpayer shall fill [in] the amount of exempted sales that [are] reported in [its] revenue account". Those instructions clearly state that the amounts corresponding to the sale of VAT exempt products must be reported in line 3 of form Por.Por.30. Nonetheless, the Panel has not provided any analysis for its choice not to interpret those official instructions to mean what they plainly state on their face.302 Thailand also submits that samples of form Por.Por.30 which it provided303 – forms filled out by TTM and a convenience store that sells both imported and domestic products, as well as other products – indicate that sales exempted of VAT must be reported in line 3 of form Por.Por.30, even though the form does not require a breakdown of these amounts.304 Accordingly, Thailand requests the Panel to revise paragraphs 7,694 et seq. of the Interim Panel Report to refer to and to address these additional pieces of evidence.
6.130.
The Philippines contends that the Panel has duly taken into account all the evidence before it in relation to form Por.Por.30. In particular, the Philippines stresses that the instructions for form Por.Por.30 were addressed by the Panel at paragraph 7,690 of the Interim Panel Report where the Panel found that "[t]he introductory statement contained in the instructions for filling in and the filing of Por.Por.30 attached to form Por.Por.30 also confirms [the] understanding [that] the obligation to file [this] form hinges on the supplier's status as a VAT registrant, not the specific type of goods".305 Similarly, the Philippines states that the Panel properly took into account the form filled in by TTM and a convenience store submitted as Exhibit THA-89. In particular, at footnote 1033 to paragraph 7,694, the Panel noted that sample forms Por.Por.30 had been submitted by Thailand, including those in Exhibit THA-89, but that those pieces did not inform it on which exempted sales must be recorded in line 3 of the form.306 Overall therefore, the Panel has taken into account all the evidence before it to decide that resellers of both domestic and imported cigarettes would not have to report the sale of domestic cigarettes under line 3 of Form Por.Por.30 which the Philippines had explained to be reserved to amounts that are exempted from the VAT tax base pursuant to Section 79, third paragraph of the Revenue Code307 (PHL-94) and Notification No.40.308 In this vein, the Panel considered all of (i) the text of form Por.Por.30, (ii) the Thai Revenue Code, (iii) the excerpt of the Textbook on the Revenue Code, (iv) the 1995 DG ruling, (v) the 2000 DG Ruling and (vi) expert statements about the meaning of the phrase "less exempted if any" in line 3 of Form Por.Por.30.309 The Philippines suggests that the Panel slightly modify the current text of the relevant sections in this regard to clarify that it considered all the evidence before it.310
6.131.
Thailand submits that the Panel failed to consider the sample Por.Por.30 forms produced by Thailand as Exhibit THA-89 and the instructions to fill Form Por.Por.30 provided as Exhibit THA-42. The Panel, however, concluded, based on its examination of all the relevant evidence, that they do not clearly establish that the amount corresponding to the retail sale of domestic cigarettes must be reported in line 3 of the form.
6.132.
Specifically, regarding the instructions to fill out Form Por.Por.30, based on the text of the instructions and having considered the parties' arguments, we could not find any clear indication that the sale of domestic cigarettes falls within the scope of the category of sales that must be reported in line 3 of form Por.Por.30. Further, we found that the two sample Por.Por.30 forms filled out by TTM and a convenience store selling domestic cigarettes as well as other goods did not clarify whether VAT‑exempt sales reported in line 3 specifically correspond to the sale of domestic cigarettes.
6.133.
In light of the above considerations, the Panel has decided to maintain its current analysis and conclusions. We have nonetheless revised the relevant paragraphs to further clarify our reasoning in this regard.

(c) The Panel's analysis of certain evidence submitted by Thailand for the purpose of paragraphs 7.694-7.698 of the Interim Panel Report.

6.134.
Thailand argues that the Panel's analysis of some evidence regarding the alleged change in reporting practice does not fully or accurately reflect the content of that evidence. Specifically, the Panel misinterpreted the evidence related to the 2000 DG Revenue ruling submitted by the Philippines311, and failed to substantiate its rejection of arguments based on an excerpt from a Textbook submitted by Thailand.312
6.135.
First, Thailand considers that the Panel failed to adequately discuss the 2000 DG Revenue ruling submitted by the Philippines as Exhibit PHL-253 because a careful analysis of this evidence does not support the Philippines' explanations.313 Thailand submits that the 2000 DG Revenue ruling presented two questions: (i) whether income from legal advocacy services was exempt from VAT under Section 81(1)(i) of the Revenue Code, and (ii) whether "in submitting and paying VAT the company does not have to include the income from advocacy or defending the case in courts for calculation in order to pay for value added tax".314 These questions only relate to whether income from legal services was exempt from the VAT and, therefore, not included in the calculation of the VAT. Contrary to the Philippines' expert's statement therefore, these questions do not refer to what must be reported in lines 1 and 3 of form Por.Por.30 and the ruling does not make any direct reference to that issue.
6.136.
Thailand also notes that the calculation of VAT, to which the 2000 ruling actually relates, does not change depending on whether exempt sales are reported in lines 1 and 3 of Form Por.Por.30. This is because, as the Panel's summary of form Por.Por.30 at paragraph 7,693 of the Interim Panel Report makes clear, the taxable sales amount is the amount reported in line 4 of sales net of exempted sales and sales at the 0% rate. This amount will be the same regardless of whether exempt sales are reported in lines 1 and 3.315
6.137.
The Panel therefore mistakenly concluded that this evidence supported the view that the sale of VAT exempt cigarettes need not be reported in line 3 of form Por.Por.30. In particular, the Panel based its conclusion that "DG Revenue, however, subsequently changed the rule..."316 regarding the recording of VAT exempt sales from its past practise as evidenced by the 1995 ruling317 on both the 2000 ruling and the statement of the Philippines’ expert that the banks have "never been required" to include income from activities that are not subject to VAT such as the income "from non-VAT banking services" in their VAT reporting. Given that the 2000 ruling makes no direct reference to form Por.Por.30, and that, in contrast, the 1995 ruling on which Thailand relied expressly addressed the issue of what must be reported on lines 1 and 3 of form Por.Por.30 and expressly stated that "the company is required to include income arising from the transport of goods, which is a VAT‑exempted activity, in the gross sales to be shown in item 1 of form Por.Por.30 and this income is to be listed as exempted sales under item 3 of Form Por.Por.30"318, Thailand requests the Panel to reconsider its conclusion that the amounts for the sales of VAT exempt cigarettes do not have to be recorded in lines 1 and 3 of form Por.Por.30.319
6.138.
Further, Thailand argues that both the Panel and the Philippines’ expert appear to be confusing two types of income in their combined readings of Section 77/2 and 79 of the Revenue Code and the 2000 ruling discussed above. The first type is income that is not within the scope of the Thai VAT system because it is subject to another Thai tax, the Specific Business Tax, rather than VAT. This income is not subject to any kind of VAT reporting and, therefore, has never been required to be reported on form Por.Por.30. This is clear from Section 77/3 of the Revenue Code.320 In contrast, income that is within the scope of the VAT system, including sales of cigarettes pursuant to Section 77/2 of the Revenue Code, is required to be reported on the appropriate line of form Por.Por.30. Contrary to the Panel’s discussion and the Philippines' expert's statement, as explained above, nothing in the 2000 ruling changed this. Moreover, the Panel and the Philippines’ expert are incorrect to refer to "Section 79 income" as a category of income which would need to be reported in form Por.Por.30, because Section 79 only deals with the tax base for VAT, not the VAT exempt income.321
6.139.
Accordingly, the Panel's statement in paragraph 7,696 that (i) so-called "Section 79 income must be reported" and (ii) this represents a change in practice with respect to the reporting of income that is within the scope of the VAT system but "exempt" on lines 1 and 3 of form Por.Por.30 is incorrect in both respects. Thailand requests the panel to reconsider its conclusion that the amounts for the sales of VAT‑exempt cigarettes do not have to be recorded in line 1 and 3 of form Por.Por.30.322
6.140.
Second, Thailand states that, even though the Panel referred to the excerpt from the leading textbook on the Thai Revenue Code, it did not adequately discuss the content of this excerpt.323 This excerpt strongly supports Thailand's position as it