An appeal panel on Wednesday upheld a World Trade Organization ruling that the Philippines broke trade rules by imposing high excise taxes on imported liquor.
The trade body found in favour of the European Union and the United States in August, saying Manila's tax on imported alcohol was unfair to outside distillers.
The country contested the decision but the WTO appellate body agreed in its report on Wednesday that the Philippines had breached trade rules in order to protect its own producers.
By applying different taxes to imported and domestic distilled spirits, Manila had acted "inconsistently" with the rules "so as to afford protection to Philippine production of distilled spirts," it said.
The EU alleged that in some cases levies on foreign spirits may be as much as 50 times higher than those on local liquor.
It said that the excise tax, designed to help domestic producers who use local cane and palm sugar, unfairly disadvantaged imported hard liquor.
Manila applies a lower tax rate on sugar- and palm- based drinks produced within the country.
But the EU and the US argued that since Philippine products were being sold as whisky, gin, vodka, and tequila, they should be taxed at the same rate as the foreign products, even if they are made from different raw materials.
European experts estimated that exports of European liquor to the Philippines plunged more than 50 percent from 2004 to 2007 largely due to the excise tax.
"This is an important victory for American distilled spirits producers and workers," US Trade Representative Ron Kirk said.
"The Philippine tax system for these products is discriminatory, plain and simple.
"We urge the Philippine government to comply swiftly with the panel and appellate body findings and eliminate the discriminatory treatment of imported distilled spirits in its market."
