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THE merchandise exports of the Philippines to the United States have been chugging along on well-oiled gears in recent years. That is, until a virus from Wuhan, China, formed like a monkey wrench and dented the momentum between the countries.
Last year, Manila shipped $10.02 billion worth of exports to Washington, which is 13.4 percent lower than $11.57 billion in 2019 amid the overall muted business activities in the pandemic.
The US is considered a major trading partner for the Philippines as evidenced by statistics. But trade engagement between the countries has been supported by the US Generalized System of Preferences (GSP) program as well.
The GSP deal is a unilateral preferential trade arrangement by the US to 122 beneficiary developing countries (BDCs) and least developed beneficiary countries (LDBCs), including the Philippines. It aims to promote economic growth, development and trade by providing duty-free market access to about 5,000 products into the US.
However, the program expired on December 31, 2020—and local exporters are waiting for further developments. The US Congress is currently working to reauthorize the program.
Rate of utilization
TRADE Assistant Secretary Allan B. Gepty, in an interview with the BusinessMirror, emphasized the importance of the country securing a new GSP deal from the US.
Gepty told the BusinessMirror that the preferential treatment for Philippine exports has been boding well for the industry, noting that the GSP’s utilization rate was at 74 percent in the last two years. In 2020, the country was the fifth-biggest beneficiary of the US GSP—a program that provides nonreciprocal, duty-free tariff treatment to certain products imported to the US from designated BDCs—after Thailand, Indonesia, Brazil and Cambodia.
“This is [an] important preferential arrangement with the US, taking into account that the US is our third-largest trading partner and second[-largest] export market. In terms of import sourcing, US is the fourth [major] trading partner,” Gepty told the BusinessMirror.
He also pointed out that the US-issued trade perks give local exporters competitive advantage vis-à-vis other economies.
GEPTY also emphasized the relevance of being included in the GSP program.
“It is really important we have this preferential arrangement, although it is unilateral, but just the same our exporters are enjoying comparative advantage with our competitors to the US market because of this US GSP,” Gepty explained.
“We really want to optimize this preferential arrangement. Although, the US GSP now is pending,” the trade official added.
In the event that the US does not renew its GSP deal with the Philippines, Gepty said Philippine exporters will suffer the consequence of additional financial burden for their exports.
The increased trading costs will impact revenues in a way, he said. But Gepty also noted that Philippine exporters would find it more challenging to navigate among competitors due to a potential hit on competitiveness.
Raymond Albert H. Batac, Philippine Special Trade Representative at Washington, told the BusinessMirror there are no clear timelines yet for Congress to consider re-authorization of the GSP program.
“We wish to note, though, that GSP imports should continue to be flagged as such, because once the program is renewed by Congress, it usually includes a mechanism where all duties paid will be refunded,” Batac explained.
March of time
IF there is one thing Gepty is counting on, it is history.
The trade official said the country’s GSP deal has been renewed periodically.
“If you will have to base that on the historical actions taken by the US, of course, we are hoping that they will continue this GSP preferential arrangement,” he said.
Gepty underscored as well that the statistics have been proving that the trade relation between the Philippines and its former colonizer is not something to be taken for granted.
He believes that the US is still running with the same policy direction, seeing the Philippines as a strategic trading partner.
“We have already an established trade relation with the US. Our exporters have established that relationship; the trust is already there,” Gepty added.
Batac agrees with Gepty’s sentiment. He noted that the Philippines has been a GSP beneficiary since the start of the program.
In addition, he said the Philippines is compliant with all the requirements set by the US, including affording workers’ rights and respecting intellectual property (IP), among others.
“Being a unilateral trade preference program, GSP beneficiaries are not in a position to negotiate the program’s coverage, requirements, renewal, etc., and all beneficiaries are required to comply with a number of statutory criteria determined by the US government,” Batac explained.
PHILIPPINE Exporters Confederation Inc. (Philexport) Chairman George T. Barcelon said he has a “positive” outlook for the country’s export to the US this year.
For one, overall exports grew by 7.6 percent to $17.56 billion (about P871.48 billion at current exchange rates) in the first quarter already. In March alone, export revenues improved by 31.6 percent to $6.68 billion (about P331.52 billion).
The US and Philippines’s trade engagement have been steadily growing at least in the past decade.
According to Philippine Statistics Authority (PSA) data, the compounded annual growth (CAGR) of the total trade between both countries is at 2.4 percent. Broken down, the CAGR for import is 0.6 percent and for export, 3.9 percent.
The top exports under the US GSP include pneumatic tires of rubber, handbags, insulated electronic conductors, travel and sports bags, electrothermal hairdressing apparatus, other cane sugar and non-alcoholic beverages.
The US is among the top export destinations—that include Hong Kong, China, Singapore and Japan—of the local electronics industry. Electronics comprise bulk or 62 percent of Manila’s total exports.
IN securing another GSP deal, Barcelon said it would help if the Philippines addresses the trade barriers with the US.
He cited geopolitical issues as one of these barriers.
The Philexport official recalled that the Philippines was under fire earlier because of concerns over the extra-judicial killings amid the government’s stance to apply violent solutions against players in the illegal-drugs trade and use.
“Addressing the trade barriers would be a step in the right direction towards another GSP deal with the US, especially if this would ease the flow of trade between the two countries, in view of recent trend of eliminating trade barriers and harmonization of trade rules/standards in recent years amid various free trade agreements,” RCBC Chief Economist Michael L. Ricafort added.
Earlier this year, the US Trade Representative (USTR) released its 2021 “National Trade Estimate Report on Foreign Trade Barriers.”
The report, which covers 61 countries, highlights foreign trade barriers to US exports, US foreign direct investment and US electronic commerce.
“US law requires USTR to submit this report to the President and Congress, as an inventory of the most important foreign barriers faced by US exports and investment,” Batac explained. “The report is generated to enhance domestic awareness of these trade restrictions and to facilitate negotiations aimed at reducing those barriers.”
“We can continue to improve on these aspects by building on our institutional resilience to clean up and limit the red tape associated with doing business in the country,” ING Bank Manila Economist Nicholas Antonio T. Mapa added.
WASHINGTON, through the USTR report, expressed worries over the Philippines’s government procurement process amid the perceived bias for Filipino-controlled enterprises.
“Republic Act [RA] 9184 or the Government Procurement Reform Act specifies minimum Filipino ownership requirements for suppliers and contractors of goods and consulting services (60 percent) and infrastructure projects (75 percent),” the USTR said in its report. “Domestic goods are also given preferential treatment over imported products in the bid evaluation process.”
Gepty explained, however, that the Philippines has always been transparent regarding its rules and regulations on government procurement.
“At least, we are an observer in the WTO [World Trade Organization] for government procurement,” he told the BusinessMirror. “We are trying to see what are the rules, what are the disciplines that we can adopt and see if the same would fit our national interest and national policies.”
THE USTR also flagged the Philippines’ sanitary and phytosanitary import clearance (SPS-IC) permits for agriculture imports as the US president’s trade advisory body sees these “hampering” trade between the two countries.
The US has raised concerns about the SPS-IC permit requirement before the WTO during the Import Licensing Committee meeting as well as the Committee on Agriculture meeting last year.
Washington, in a WTO document dated April 7, also asked the Philippines to explain the rationale behind the SPS-IC system and to detail the underlying laws, regulations and guidelines supporting said requirement.
“This [SPS-IC permit] requirement adds costs, complicates the timing of exports, and prevents the rerouting to the Philippines of products intended for other markets but not sold there for commercial reasons,” the USTR said. “It also prevents an exporter from reselling an imported product if the importer refuses to accept delivery or abandons the shipment.”
However, Trade Secretary Ramon M. Lopez told the BusinessMirror that requiring SPS-IC permits for agriculture imports is a necessary measure despite the US tagging it a “trade barrier.”
Lopez said such permits “are needed non-tariff measures to ensure food safety and protect local industry from entry of plant and animal diseases.”
“It [SPSIC permit] should be applied to the extent that it is necessary to protect human, animal and plant life and should not be used arbitrarily,” he said, noting that standards should be subject to science.
“It [SPSIC permit] is not necessarily a trade barrier unless the measures are used unjustifiably,” the head of the Department of Trade and Industry (DTI) explained to the BusinessMirror.
In an earlier interview, the trade chief also supported the removal of non-tariff barriers for imports and replacing them with an appropriate tariff instead.
IN the same USTR report, Washington also expressed alarm over the current IP environment of the country. Despite this, the Philippines has been excluded from the Special 301 Watchlist—a rogue’s list of IP violators—for eight years and cleared of unlicensed software use allegations on the part of the government.
The IP Rights Enforcement Office (IEO) of IPOPHL, for its part, said that the IP concerns raised in the USTR’s 2021 report are not new and that the Philippines has already addressed these.
“We disagree with the evaluation. These are not new issues that have been raised against the Philippines and this is despite the fact that the Philippines has already previously responded to, and addressed, the issues,” the IEO told the BusinessMirror.
For example, US right-holders have concerns with the surging online piracy and counterfeit drugs and apparel, even citing the inclusion of the Greenhills Shopping Center in the City of San Juan in the “Notorious Markets” List.
RECOGNIZING that online piracy is a global concern, the IPOPHL noted it has been coming up with programs with a whole-of-government approach to resolve the matter at hand.
“Through the initiative of the IPOPHL, Congress is now discussing the proposed amendment to the IP Code [Republic Act 8293], which will give impetus to enforcement power of IPOPHL to address online piracy, among others,” the IEO said. “Parallel to this is the Internet Transactions bill, pending also in Congress, which will address issues on e-Commerce including the proliferation of counterfeit and pirated goods online.”
The IPOPHL said it also revised the Rules on Administrative Enforcement that governs the jurisdiction and process of the IEO.
Earlier this year, the IPOPHL and the National Telecommunications Commission announced their partnership with several internet service providers to streamline mechanisms in blocking pirated websites. This, after the IP office teamed up with the Asia Video Industry Association to curb piracy in the creative sector as well.
THE USTR cited the “weak provisions in patent law” affecting the issuance of patents on certain chemical forms and the “ineffective” enforcement of IP due to lack of capacity, among others.
The IPOPHL said the concerns on said patent law were raised when the Cheaper Medicines Act (RA 9502) was enacted in 2008. The agency said, though, that it has addressed this by amending the Examination Guidelines relating to “pharmaceutical invention involving known substances” to provide administrative interpretation of RA 9502 (The Universally Accessible Cheaper Medicines Act).
Since the removal of the Philippines from the USTR Special 301 Watch List in 2014, IPOPHL said the issue on patent law for issuance of certain chemical forms has not been raised until the 2021 report on trade barriers.
“However, we believe that this is an issue that has been settled already,” the IEO emphasized.
Meanwhile, the IPOPHL said the National Committee on Intellectual Property Rights (NCIPR) hauling infringing products worth billions from seizure operations proves that the country’s IP enforcement is effective.
“In terms of capacity building, the members of the NCIPR regularly undertake capacity building activities with international experts to update their skills in investigation and case build up including learning new trends and modus operandi of infringers,” the IEO added.
Issues of trade
BATAC gave assurances that the said concerns over trade barriers between the countries are being tackled through the bilateral Trade and Investment Agreement (TIFA) mechanism. This communication, which is part of the countries’ long-standing economic relations, aims to resolve issues such as those mentioned in the report, he said.
“The Philippines also uses the TIFA mechanism when we wish to bring up any concerns with bilateral trade issues with the US,” the trade representative from Washington told the BusinessMirror.
Gepty, meanwhile, said the TIFA mechanism is in place as there is no free trade agreement (FTA) yet between the Philippines and the US.
Under the US-Philippines TIFA, either party may request for consultations on any matter relating to bilateral trade and investment relations, both potential opportunities and even problems.
“Requests for consultations shall be accompanied by a written explanation of the subject to be discussed, and consultations shall be held within 30 days of the request, unless the requesting party agrees to a later date,” the accord noted. “Consultations will take place initially in the country whose measure or practice is the subject of discussion.”
The consultative mechanism also pushes for dispute resolution at the working level, but Manila and Washington may request for a review at a higher level.
WHILE the Philippines enjoys the preferential treatment on trading, it is looking for something more permanent to boost the economic cooperation with the US in a form of FTA.
“[We] hope to strengthen our relationship beyond the GSP and graduate towards an FTA that would provide a long-term rules-based, and predictable trade environment for our two nations,” Lopez said in a recent event.
An FTA would allow both countries to have wider market access and strengthened partnership for foreign direct investments that can generate more job opportunities.
“We’re still on the same policy direction. We still want to pursue a bilateral FTA with the US for so many reasons,” Gepty said. “For purposes of stability, better to have an FTA.”
For one, Gepty reiterated the established trade relations between Manila and Washington. He also underscored that the US is both a “valuable” and “strategic” partner of the Philippines.
A good bet
ON the other hand, Gepty said the Philippines is also a good bet because of the passage of many legislative reforms and pursuit of further FTAs, including the Regional Comprehensive Economic Partnership (RCEP).
This signals, said the DTI official, that the country is an open market for trade and investment.
The RCEP was signed in November last year by 10 Asean member-states and five Asean FTA partners: Australia, China, Japan, Korea and New Zealand. India did not sign, however, due to unresolved trade concerns but the FTA is still open for its accession.
One of the world’s biggest economic deals, RCEP covers roughly a third of the global gross domestic product and international trade.
Currently, the Philippines is working on its accession to another mega trade deal: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. This is an FTA among Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam signed on March 8, 2018 in Santiago, Chile.
The DTI is also finalizing FTA negotiations with South Korea. Previously, Trade Undersecretary Ceferino Rodolfo said they were aiming to finalize the trade deal before the elections next year.
THE bilateral trade agreement between Manila and Washington, however, remains up in the air as the latter recently transitioned to a new administration.
Jose Manuel G. Romualdez, Philippine Ambassador to the US, said in April they are still awaiting the go-ahead from the US Department of Commerce on how both parties would proceed with the trade deal discussions.
“If you are talking about the bilateral trade agreement that we were talking about last year, it hasn’t been moved since there is a new administration now,” he added.
Batac, meanwhile, noted that the Biden administration indicated early on that it would focus on addressing domestic issues first amid the economic slump that prompted the pandemic.
“There were pronouncements that no major trade initiatives will be taken in its first year, including the launching of any new FTA negotiations with any country,” he added.
The Philippines has yet to see major developments on the matter. Hopefully, rust wouldn’t cover all the gears of trade between the US and its long-term ally in Southeast Asia.
Image courtesy of BM Graphics: Job Ruzgal