EU asks for WTO panel over Colombia’s tax practices on spirits
The European Commission has requested the establishment of a World Trade Organisation (WTO) panel over Colombia’s alleged discrimination against imported spirits.
The panel request, made on Monday (22 August) is the next step in a dispute settlement as the consultations, which were announced in January and formally took place in March 2016 in Bogota, failed to settle the dispute.
The Commission’s request will be discussed at the next Dispute Settlement Body (DSB) meeting on 2 September in Geneva. In the event Colombia does not agree with the establishment of a panel at that meeting, Brussels may proceed to a second request at the following DSB meeting. In this case, Colombia won’t be able to block it again.
Given the backlog of cases in the WTO – as well as the fact that Colombia will likely push back at the September meeting – the panel establishment will take some months.
European Commission sources told EurActiv.com that panel proceedings should not generally exceed six months, at which time the panel should issue its report on the WTO compatibility of the measures under dispute. However, the duration of proceedings may eventually depend on the complexity of the matter.
“We hope that Colombia will remove the discrimination of imported spirits soon, to arrive at a prompt solution of this dispute,” Commission sources noted.
Colombia is one of the largest markets for European spirits exports in Latin America. EU exports of spirits to Colombia were valued at €42 million in 2015 while in 2014 their value was €43 million, representing approximately 14% of total agricultural exports to Colombia and 77% of total Colombian imports of spirits.
A distorted market
In a statement, the executive stressed that EU spirits were subject to higher taxes and local charges than those applied to local brands.
In addition, market restrictions apply in the departments or local subdivisions of Colombia.
“The departments impose market-access restrictions that distort the competitive conditions in the market to the detriment of EU spirits. This is in contravention of Colombia’s non-discrimination obligations under WTO rules,” the European Commission noted.
Sources close to the issue told EurActiv that Colombia’s excise tax regime discriminated against imported spirits by applying a lower rate per degree of alcohol to products below 35% vol.
The sources explained that this benefited locally produced spirits which consist predominantly of aguardiente and rum, which are generally bottled at 30° alcohol-by-volume (abv).
On the contrary, the majority of imported spirits are bottled above 35° abv and are subject to a tax rate 1.6 times higher.
A Joint Declaration in the EU-Colombia Free Trade Agreement, which took effect in July 2013, allowed Bogota to maintain its alcohol tax regime for two years after the FTA enters into force (i.e. until 1 August 2015).
But Colombia failed to ensure that the tax discrimination between domestic and imported spirit drinks was removed.
US and Canada
The same sources underlined that the current tax regime also contravened Colombia’s WTO obligations and infringes the terms of Colombia’s FTAs with Canada and the United States.
The United States and Canada had joined the consultations in January but it’s not clear that they will join the EU’s panel request.
“Their decision on the way forward is expected in the coming days or weeks.”
Trade deals “on paper”
SpiritsEUROPE, the representative body for the spirits industry at EU level, welcomed the Commission’s move to request a WTO panel.
Paul Skehan, spiritsEUROPE Director General, said he was disappointed that the WTO consultations with Colombia were unsuccessful.
“We hoped Colombia would already take the necessary action to reform its tax system and align itself with international trade rules so that European spirits would be able to compete fairly in the market,” he told EurActiv.com, adding that the implementation of the commitments made by the Colombians would help them create a more transparent market, reduce illicit trade and potentially increase tax receipts and revenue collection on spirits.
“Trade agreements don’t just exist on paper – they need to be respected in the marketplace,” he concluded.