Colombia – Measures Concerning Imported Spirits

Articulate an “early settlement” of Colombia –Measures Concerning Imported Spirits

On January 13 2016, the European Union initiated a WTO dispute proceeding against Colombia, alleging that Colombia was engaged in discriminatory and WTO-inconsistent treatment to imported alcoholic beverages in a manner that affects exports of spirits from the European Union into Colombia.  It is pretty clear that Colombia’s actions are inconsistent with the General Agreement on Tariffs and Trade (GATT) Articles III:1, III:2, III:4, X:3, and XXIV:12.  Precedent has been set in previous WTO disputes on this issue, so the more interesting question is why did Colombia do this, when it is clear they will loose.  One possible reason: political cover to enact reforms necessary for the inclusion of pending multi-country trade pacts like the Trans-Pacific Partnership (TPP), a long standing goal of Colombia’s.  To avoided a full panel decision, I propose an early settlement in which Colombia agrees to dismantle its domestically protective tax scheme and prohibitive distribution tactics, while the E.U. offers carrots such as technical and financial support of Colombia’s spirits industry.

Background: What Does the Law Actually Say?

The specific allegations against Colombia include infringements of GATT III:1, III:2, III:4, X, and XXIV.  For the scope of this paper, I choose to focus on the infractions around GATT III, which requires that WTO members provide national treatment to all other Members. Under this rule, members cannot accord discriminatory treatment between imports and “like” domestic products.^[1] Below is a short summary of the specific parts of GATT Article III that Colombia allegedly violated:

• GATT III:1: Members must not apply internal taxes or other charges, laws, regulations, and requirements affecting imported or domestic products so as to afford protection to domestic production.
• GATT III: 2: Members shall not apply standards higher than those imposed on domestic products between imported goods and “like” domestic goods, or between imported goods and “a directly competitive or substitutable product.”
• GATT III: 4: Imported products should afford no less favorable treatments than those given to “like products” of national origin. This is of particular importance to this case because it touches on the non-fiscal barriers to trade a country may enact.

What Did Colombia Actually Do?

Colombia’s spirits consumption tax is split to apply a larger tax on spirits with higher alcohol content. The threshold for the higher tax sits at 35% alcohol content, which captures mostly foreign products while leaving local spirits in the lower bracket.  This is in clear violation of GATT III: 2, as the domestic product is not charged the same tax level as the imported one.

Beyond the taxation system, Colombia authorities routinely engage in roadblocks to stall the importation of foreign spirits.   Specifically, Colombia’s local authorities maintain a fiscal monopoly in the sector, meaning that imports are subject to “introduction contracts” containing a slew of trade-restrictive clauses.  Those contracts also impose maximum values and minimum selling prices, and require traders to secure the payment of the amount of a future fiscal debt.  In addition, Colombia’s regional authorities or “departmentos” impose market-access restrictions for imported spirits.  These non-fiscal barriers to trade fall under GATT III:4.