Background

In June, 2009, Japan Tobacco International was quoted as objecting to Armenia's tax policies on tobacco products as they impeded imports.

 "The most important issue for us now is the existence of different excise tax rates for domestic and imported products in Armenia. According to WTO principles, there should not be such a difference, and the reduction of this difference in Armenia should be carried out gradually in the long term, so that towards January 1, 2011 these rates would become equal." ...

The key issue in Armenia is the difference in taxation rates between imported and domestic products, which prevents us from full-fledged competition with domestic products. Owing to this, we are not represented in the lower price segments, and have to content ourselves with operating in the mid and high price segments. Surely, we perfectly understand that the issue can only be solved by the Armenian government. In order to solve this issue we’d like to see a roadmap covering a span of 2-3 years that outlines the realignment of Armenian legislation with WTO requirements, to which Armenia has been a party since 2003.

Martin Braddock, JTI’s Regional President, CIS, Romania and Adriatics

Armenia's tax policies on tobacco products were challenged by the Ukraine in July of 2010. (This was the first time that the Ukraine had made a complaint at the WTO, and the first time that Armenia was a respondent).

In October 2010, at a meeting of the Dispute Settlement Body, representatives of Armenia and Ukraine reported that bilaterial discussions were ongoing. 

On October 27th, Armenian news agency reported that the dispute had been resolved.

YEREVAN, October 27. /ARKA/. A dispute between Armenia and Ukraine over taxes on Ukrainian tobacco products is already settled, Igor Kaletnik, head of Ukraine’s state customs agency, said in Yerevan on Wednesday after the 52nd meeting of CIS member countries’ customs services.

Earlier, Ukraine accused Armenia of creation of adverse regime for Ukrainian tobacco and alcohol products in a clear breach of World Trade Organization’s general rules.

Ukraine was unhappy about excise duty set at 6,500 drams ($17.7) for 1,000 imported cigarettes and 4,750 drams ($12.9) for those made in Armenia.

“The matter was discussed yesterday with the Armenian president and is completely settled now,” Kaletnik said adding that taxation complies fully with appropriate tax requirements now.

Armenia is now negotiating with the World Trade Organization over alcohol and tobacco taxation.  Armenia took unprecedented steps amid the crisis in an effort to support domestic manufacturers.  In particular, the excise law was amended in favor of them.  In October, the National Assembly amended laws on excise tax, fixed pays for tobacco products and some other related laws.

Further news reports (February 2011) confirmed ongoing negotiations. 

Dispute at WTO

From WTO Case Summary

Complaint by Ukraine.

On 20 July 2010, Ukraine requested consultations with Armenia regarding Armenia's measures affecting the importation and internal sale of cigarettes and alcoholic beverages.  Ukraine alleged that Armenia's law “On Presumptive Tax for Tobacco Products” of 24 March 2000 levies discriminatory internal taxes on imported tobacco products and is therefore in violation of Article III of the GATT 1994 and paragraph 1.2 of Armenia's Protocol of Accession to the WTO.  Moreover, the law imposes customs duties on such imported tobacco products at a rate of 24 per cent, which is higher than Armenia's WTO bound rate of 15 per cent.  As to imported alcoholic beverages, Ukraine alleges that Armenia's law “On Excise Tax” of 7 July 2000 applies higher excise taxes on imported alcoholic beverages than on like domestic products.  Ukraine considers that this is also inconsistent with Armenia's obligations under Article III of the GATT 1994.

On 8 September 2010, Ukraine requested the establishment of a panel.  On 6 October 2010, Ukraine requested the establishment of a panel.  At its meeting on 25 October 2010, the DSB deferred the establishment of a panel.