In 1995, the United States trade deficit with the Philippines was $1.7
billion, $120 million less than in 1994. U.S. merchandise exports to the
Philippines were $5.3 billion, up $1.4 billion or 36.2 percent from 1994. The
Philippines was the United States' twenty-third largest export market in 1995.
U.S. imports from the Philippines totaled $7 billion in 1995, or 22.5 percent
greater than in 1994.
The stock of U.S. foreign direct investment in the Philippines was $2.4
billion in 1994, about 22 percent higher than in 1993. U.S. direct investment in
the Philippines is largely concentrated in manufacturing, banking and
The Philippines has ratified the Uruguay Round (UR) agreements, and is a
member of the World Trade Organization (WTO). It is still in the process of
enacting legislation to implement some important commitments under the UR
agreements. Additionally, it has yet to implement its WTO agricultural
commitments though it had promised to do so by July 1995, and is the only ASEAN
member of the WTO that has not done so.
The Philippines continuing program to improve market access accelerated with
the implementation of Executive Order (EO) No. 264 on August 28, 1995 and EO No.
288 on January 15, 1996. EO 264 covers chiefly industrial goods (HTS Chapters
25-97) while EO 288 covers agricultural commodities (HTS Chapters 1-24),
excluding "sensitive" products. These new rounds of comprehensive tariff
reduction follow an earlier five-year program (EO 470) that was completed in
These EOs established a four-tiered tariff structure with rates of 3, 10, 20
and a maximum 30 percent. Through phased reductions, average unweighted tariff
levels will decline between now and the year 2000, as follows: from 13.47 to
7.46 percent for manufactured goods; from 5.73 to 3.90 percent for mining sector
goods; and from 20.76 to 13.08 percent for agricultural goods. The program for
agricultural commodities excludes certain "sensitive" products, whose current
quantitative bans or restrictions are required under WTO commitments to be
converted to tariff equivalents, with minimum import quotas at much lower
tariffs (see the following paragraphs for more detail). The overall unweighted
average tariff level will decline from14.28 to 8.16 percent by the year 2000.
Since the tariff equivalents of current restrictions permitted under WTO rules
generally will be very high, they will appreciably increase the "average" rate
for agricultural products and push up the overall "average".
The "sensitive" agricultural products consist of some 90 tariff lines and
represent 11 percent of all agricultural items in chapters 1-24. While virtually
all of these have nominal rates of 30 percent at present, most of their imports
can be generally banned under the provision of the "Magna Carta for Small
Farmers", which provides for banning imports of farm products deemed to be
produced locally in sufficient quantity.
In order to meet its WTO commitments to convert these bans to tariffs, the
Philippine Government has introduced proposals in the Congress to repeal or
amend conflicting domestic laws. Notwithstanding that the Philippines was
required under the WTO agreement to have implemented these commitments by July
1, 1995, the proposals are still pending at present. Both executive branch and
congressional leaders have publicly deemed them to be priority legislation for
the current session of Congress. With respect to the balance of agricultural
products, EO 288 of January 15, 1996 significantly reduces the 50 percent tariff
rate previously provided for so-called "luxury items" and "developing"
agricultural products. This has significantly increased market opportunities for
such products as raisins and many nuts and candies. The reduced 30 percent
tariff that still applies to a number of other products, however, significantly
impedes full opportunities for U.S. exports of, among others, fresh fruits, wine
and distilled spirits, confectionary items and tobacco and tobacco manufactures.
Even for the latter group, however, the January 1996 tariff reductions should
allow some additional U.S. exports and, in may cases, these tariffs are
scheduled to decline further in succeeding stages.
There are several important exceptions to the 30 percent tariff rate, in
addition to the anticipated tariff conversions for currently banned agricultural
products. Rice will continue to carry a 50 percent tariff and remain under
import controls. Tariffs on soya sauce powder and chocolate dragees (not filled)
will remain at 50 percent before declining in January 1998. In lieu of previous
quota restrictions, a 40 percent tariff will apply until 1999 for imports of new
automobiles, jeeps, station wagons and motorcycles.
Expanded value added tax
An expanded value added tax (EVAT) law went into effect on January 2, 1996.
The EVAT law presently contains a discriminatory provision against imported meat
by subjecting the latter to the 10 percent VAT, while exempting domestic meat.
Government officials confirm that several shipments of imported meat have
already entered the Philippines since the start of the year, subject to this
tax. Legislation pending before the Congress would correct this provision. The
Philippines government has also indicated that it might draw up regulations
exempting imported meat from VAT on the grounds that this treatment conflicts
with WTOobligations, and to defer collection of VAT pending publication of the
Excise tax on distilled spirits
U.S. producers of distilled spirits complain that current laws have the
effect of subjecting Philippine imports of distilled spirits to a much higher
excise tax than that applied to domestic spirits. Distilled spirits produced
from indigenously available materials (such as coconut palm, cane and certain
root crops) are subject to a specific tax of four pesos (15 cents) per proof
liter; however, distilled spirits produced from other raw materials (which would
apply to most imports) are levied a specific tax of 35 pesos ($1.34) per proof
Quantitative restrictions and import licensing
The Philippine Government imposes specific import restrictions on some 100
agricultural and industrial products, implemented by means of an import
licensing system. While many of these are maintained on the grounds of health,
safety or national security concerns, this also includes the bans on imports of
many agricultural products described earlier. Prominent examples of the latter
include continued prohibitions on imports of corn and corn substitutes
(including wheat for feed), poultry and poultry products, and meat and meat
products (except beef and beef products). Additionally, the National Food
Authority, a government agency, remains the sole authorized importer of rice and
corn. Thus these latter products can only be imported by government
In March 1992, the Philippines adopted a "comprehensive import surveillance
scheme." This scheme requires that all goods destined for the Philippines with a
value in excess of $500 be inspected prior to shipment by a representative of
Societe Generale de Surveillance (SGS). The Philippines recently renewed their
contract with SGS for the pre-inspection service for what they have publicly
stated as a final 3-year period. Exporters in the United States and many
countries have complained that inspectors are often not available, resulting in
costly shipping delays. (If properly inspected abroad and the paperwork is in
order, the shipment is expeditiously released from customs upon arrival.) At the
time of pre-inspection the good is classified and the value for duty purposes is
Customs Valuation Issues: The dutiable value of imports to the
Philippines is based on a SGS determined price at the wholesale level in the
exporting country, plus applicable shipping and insurance charges. This is the
"Home Consumption Value" (HCV) system. U.S. exporters have expressed
considerable concern that the Philippine system of pre-shipment inspection and
its reliance on HCV, rather than invoiced or "transaction" value (the WTO
standard), has had the effect of substantially increasing the customs value of
imported goods, thereby increasing the tariffs and excise taxes assessed.
Distilled spirits are one example of exports especially affected by this system.
Since U.S. Federal and state taxes average more than 40 percent of the cost of a
bottle and are reflected in the wholesale price of these items in the United
States, distilled spirits from the U.S. are at a distinct disadvantage versus
domestic products. However, the distortions created by the HCV valuation
adversely affect a very broad range of U.S. exports to the Philippines, and HCV
continues to be one of the most frequently cited trade irritants.
To conform to WTO obligations (which require the adoption of transaction
value by the year 2000), the Government of the Philippines has committed to
replace HCV with a variation of the Brussels Definition of Value as an interim
step to shifting to a transaction-value-based system. During the ASEAN Summit in
December 1995, the Philippines agreed with other ASEAN countries to implement
the WTO customs agreement in 1997. However, the necessary legislation is still
pending before the Philippine Congress.
STANDARDS, TESTING, LABELING AND CERTIFICATION
Local inspection for standards compliance is required for imports of 30
specific products. These products include lighting fixtures, electrical wires
and cables, portland cement, pneumatic tires, sanitary wares and household
appliances. For other goods, U.S. manufacturers' self-certification of
conformance is accepted. Labeling is mandatory for textile fabrics, ready-made
garments, household and institutional linens and garment accessories.
Mislabeling, misrepresentation or misbranding may subject the entire shipment to
seizure and disposal. The Philippines is a signatory of the GATT Standards
Imports of fresh fruit and vegetables, seeds, and other planting material are
subject to phytosanitary restrictions. Specific country-of-origin phytosanitary
prohibitions for fresh fruit are sometimes arbitrary.
The Philippine Government generally does not discriminate against foreign
bidders. Competition for contracts in areas of significant interest to U.S.
suppliers which are not affected by substantial restrictions include power
generation equipment, communications equipment, and computer hardware. However,
the Government does favor Philippine firms in public procurement in several
sectors and for some specific products. These include rice, corn,
pharmaceuticals, and steel materials for infrastructure projects. In addition,
petroleum for government agencies must be procured from PETRON which is
Enterprises (including exporters) engaged in government-preferred activities
may register with the Board of Investment (BOI) to qualify for incentives under
the Philippine Omnibus Investment code. The incentives include income tax
holidays, preferential duties for imported capital equipment, tax credits for
domestically purchased machinery, and income tax deductions for incremental
labor expense. A number of benefits apply specifically to BOI-registered export
companies (such as tax credits for imports of raw material and exemption from
taxes and duties on imported spare parts). Export firms in government-designated
zones and industrial estates registered with the Philippine Economic Zone
Authority (PEZA) enjoy basically the same incentives as BOI-registered
Firms that export at least 50 percent of production may also register for
incentives under the Export Development Act of 1994 (EDA). Firms registered with
the BOI, PEZA or other government agencies which meet the 50 percent minimum
export requirement may register under the EDA to avail themselves of any
additional incentives under that law. Incentives under the EDA include:
duty-free imports of capital equipment (up to 1997); for exporters of
nontraditional products, partial tax credit for locally purchased raw materials,
equipment and spare parts (up to 1997); tax credit for imported inputs and raw
materials not readily available locally (up to 1999); and tax credit on
incremental annual export revenue. The EDA also provides for the establishment
of an Eximbank which will offer preferential and simplified credit schemes to
In December 1994, the Bangko Sentral launched an Export Development Fund
(EDF) facility (the forex counterpart of its peso rediscounting window).The EDF
rates are based on the London Interbank Bid Rate (LIBID) and adjusted
periodically. The Bangko Sentral imposes a ceiling on the spread at which
financial institutions can re-lend the funds (currently one percent, after
LACK OF INTELLECTUAL PROPERTY PROTECTION
While it has made some progress in recent years, the Philippines still fails
to consistently and effectively protect intellectual property rights.
Significant problems have included inadequate laws and regulations and
insufficient resources of enforcement. In April 1993, a significant step forward
was taken when the Philippines and the United States signed an agreement to
strengthen protection of intellectual property rights in the Philippines. As a
consequence, the Philippines was moved from the Administration's Special 301
"priority watch list" to the "watch list." The Philippine Government has
generally complied with the agreement except for legislative improvements. After
considerable delay, legislation to improve IPR protection was introduced in the
second half of 1995, and the government has certified these measures as priority
legislation. These measures are presently pending in the Philippine
The Philippine Government is a party to the Paris Convention for the
Protection of Industrial Property and the Patent Cooperation Treaty; it is also
a member of the World Intellectual Property Organization and the World Trade
Organization. In February 1993, President Ramos created the Interagency
Committee on Intellectual Property Rights and charged it with recommending and
coordinating enforcement oversight and program implementation. Due to budget
constraints, insufficient funding hampers the effective operation of agencies
tasked with IPR enforcement. Joint government-private sector efforts have
improved administrative enforcement. However, in the past, when IPR owners used
the courts to protect their property, enforcement had been slow and uncertain.
Recently, the Philippines moved to name special IPR courts. The Philippine
Supreme Court, with Administrative Order No. 113-95, designated 48 courts to
handle IPR violations, in an effort to speed adjudication of IPR cases. The
order instructs all judges to terminate "as far as practicable" the trial of IPR
cases in 60 days and to render judgment in another 30 days. While a positive
step, it remains to be seen if the new courts will, in practice, resolve past
problems in gaining judicial protection for IPR.
The Philippine patent law requires that a compulsory license be issued two
years after registration with the patent, trademark and technology transfer
board if a potential item is not being used in the Philippines on a commercial
scale or if domestic demand for the item is not being met to an "adequately
extent and on reasonable terms." The requirement could impose a significant
burden on patent holders. Other concerns include exceptions for experimental use
of patented inventions, government use provisions, "intervening rights" for
reissuance of patents, and treatment of plant varieties within the definition of
Trademark counterfeiting is widespread. Many well-known international
trademarks are copied in many product sectors, including denim jeans, designer
shirts, and personal beauty and health care products. Under the terms of the
U.S.-Philippine IPR agreement, the Philippine Government has sought amendments
to the Philippine trademark law to provide protection for internationally
well-known marks. Current practice provides that internationally well-known
marks should not be denied protection because of non-registration or lack of use
in the Philippines.
Philippine law is overly broad in allowing the reproduction and adaption of
translated published works without the authorization of the copyright owner.
Piracy of computer software remains a serious problem, and software owners
have organized to better protect their rights. The Philippine Government itself
is still a large user of pirated software, though some steps were taken in 1995
to increase the purchase of legitimate software by government agencies. Another
issue is a Presidential decree that permits educational authorities to authorize
the reprint of textbooks and other reference material certified by school
registrars as required by the curriculum without the permission of the foreign
copyright holder if the cost of the material exceeds 250 pesos. These two issues
were addressed in the bilateral IPR agreement and should be resolved by the
Philippine government's planned accession to the Berne Convention (Paris Act),
which has not yet occurred.
Video piracy is also a problem, but the Motion Picture Association of America
(MPAA) reports continuing cooperation with the government's Videogram Regulatory
Board (VRB). Many shops rent out video laser discs purchased retail in the
United States without the consent of, or the payment of fees to, the producers.
Many copyright infringement complaints have been levied recently against cable
TV stations that retransmit copyrighted works without authorization from or
payment to the copyright owners.
Copyright protection for sound recording, currently 30 years, is shorter than
the internationally accepted norm of 50 years. This problem should be resolved
through Philippine implementation of the WTO agreement on Trade Related Aspects
of Intellectual Property Rights (TRIPs), which provides for a minimum of 50
years copyright protection.
After being closed for nearly 50 years, the insurance sector was opened to
new, 100 percent foreign-owned companies for at least two years starting in
October 1994. Under the new regulations, up to ten new companies may be allowed
to operate in each of the three lines of insurance: life, nonlife and brokerage.
Entry may be either through purchasing stock in an existing company, setting up
a locally incorporated subsidiary or establishing a branch. Capital requirements
vary depending on the mode of entry, line of business and degree of foreign
ownership. After two years the local industry may petition to have the sector
closed to further new companies. However, the criteria for such an action appear
to be quite strict and legislative proposals being considered by the Congress
seek to eliminate this option. Nevertheless, officials of the government's
insurance commission have indicated that a provision in the insurance law
permits refusal of further entry after the two-year window "in light of local
economic requirements". Nine foreign life insurance firms, including five U.S.
companies, are actively pursuing entry and a number have already received their
respective licences to operate. Philippine authorities appear unlikely at this
time to increase the current cap of ten new firms in the life insurance sector.
So far, there has been little interest by foreign firms in the openings in
nonlife insurance and brokerage.
A law signed in May 1994 relaxed restrictions in place since 1948. A foreign
investor can now enter either on a wholly owned branch basis, or own up to 60
percent (up from 30 percent) of an existing or new locally incorporated banking
subsidiary. There is no legal limit on the number of entrants by the latter two
modes. However, the new law allows only ten new foreign banks entry on a full
service, branch basis (in addition to the four foreign branch banks established
before 1948). The new foreign banks are also limited to putting up six branches
each. Ten foreign banks were selected in late 1994 out of approximately 25
applications for the 100 percent branch basis license. These banks have already
entered the market. Some additional banks are considering entering under the
majority ownership provisions.
Membership in the Philippine Stock Exchange is open to any company (foreign
or domestic) incorporated in the Philippines, while foreign equity in mutual
fund and trust management firms is limited to 40 percent. The revised banking
law now allows a foreign branch bank to obtain a "universal banking" license
(which was previously limited to Philippine-controlled commercial banks). This
will allow a foreign branch bank to engage in the activities of an investment
house (primarily securities underwriting for the domestic market), in addition
to regular commercial banking functions. The current law governing investment
houses continues to impose limitations on foreign equity in securities
underwriting companies (i.e., less than 50 percent). A foreign-owned securities
underwriting firm may underwrite Philippine issues for foreign markets, but not
for the domestic market.
The Philippine constitution limits foreign ownership of advertising agencies
to 30 percent. All executive and managing officers of advertising agencies must
be Philippine citizens.
The Philippine constitution also specifically limits the operation of public
utilities to firms with at least 60 percent ownership by Philippine citizens.
All executive and managing officers of such enterprises should be Philippine
Practice of professions
As a general rule, the Philippine constitution reserves the practice of
licensed professions (i.e., law, medicine, nursing, accountancy, engineering,
etc.) for Philippine citizens.
The Philippine Government has taken important steps in recent years to
welcome foreign investment. These include foreign exchange liberalization and
more liberal foreign ownership regulations for enterprises not seeking
investment incentives. Land ownership, however, remains limited to entities that
are at least 60 percent Filipino. Peso borrowing by entities with more than 40
percent foreign equity are subject to certain debt-to-equity ceilings.
The 1991 Foreign Investment Act (FIA) is more liberal than its predecessors.
It allows foreign equity in Filipino enterprises to exceed 40 percent, provided
no investment incentives are sought and provided the company does not engage in
an activity that appears on the "negative list." This list has three parts, the
first or "A" list, restricts foreign investment in certain areas because of
either legal and constitutional constraints. Included are mass media,
advertising, public utilities , most licensed professional services (accounting,
for example) and retail trade. Consideration is being given to reducing the
number of covered activities, the most notable being limited opening of the
retail sector. The second or "B" list is composed of activities regulated for
reasons of security, defense, health and moral concerns and to protect small and
medium-scale enterprises. The third or"C" list includes those activities which
have been deemed "adequately served" by domestic firms. At present this list is
"vacant". Over the next two years, domestic firms which believe their activity
is "adequately served" may petition for inclusion in the "C" list. However, the
inclusion criteria established are strict, and involve public hearings. Pending
legislation supported by the Government seeks to abolish the "C" list
Enterprises engaged in preferred activities listed in the BOI annual
investment priorities plan must register with the BOI to qualify for tax and
non-tax incentives. An enterprise seeking incentives must be no more than 40
percent foreign-owned, unless the proposed activity is classified as "pioneer,"
or at least 70 percent of production is for export, or the enterprise locates in
areas classified by the government as less developed. The enterprise must agree
to divest to a maximum of 40 percent foreign ownership within 30 years from
registration with the BOI, unless the enterprise exports 100 percent of
production. Currently, the BOI strictly specifies industry-wide local content
requirements under the government's progressive manufacturing program for
automobiles. Current guidelines also specify that participants in this program
generate, via exports, a certain ratio of the foreign exchange needed for import
requirements. The Philippine Government is committed to phasing out local
content and forex requirements as a member of the WTO.
As a general policy, the Department of Labor allows the employment of
foreigners provided there are no qualified Philippine nationals for the
position. However, the employer must train Filipino understudies and report on
such training periodically. Foreign-owned firms registered with the BOI may
retain the positions of president, treasurer and general manager or their
The Philippines has taken significant steps since 1992 to deregulate its
foreign exchange system, leading to the full convertibility of current account
transactions. Except for some remaining restrictions on foreign investment and
foreign debt, the Government has also lifted most restrictions on capital
account transactions. Current regulations allow the full and immediate
repatriation of capital and remittance of profits without the Bangko Sentral's
prior approval (including investments made under the government's debt-to-equity
swap program).The Philippine Government continues to impose a ceiling on the
amount of foreign exchange which can be purchased from the banking system for
investment abroad. In September 1995, the Bangko Sentral announced that the
country had officially joined the ranks of "Article VIII" International Monetary
Fund (IMF) member countries, indicating its commitment to an open and liberal
foreign exchange and payments regime.
Through its technology transfer board, the Philippines reserves the right to
require that licensing agreements involving the use of foreign patent or
trademarks include technology or economic benefits for the Philippines.
Technology transfer limitations on royalties and exports apply to unpatented
technology protected as trade secrets as well as to patented technology.
Such technology benefits may include establishing local research and
development facilities. Economic benefits are defined, inter alia, as a
significant contribution to the national export promotion program and the
generation of foreign exchange earnings or savings and employment.
Implementation of the guidelines is discretionary but can result in the
imposition of performance requirements.