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The Philippines
【 Risk Warning 】 Philippines published its new investment guidance in 2009, giving priority to investment in export-oriented business, agriculture, fishery and infrastructure construction on a regular basis. It also provides preferential terms on a temporary basis for investment in sectors that may attract investments and create jobs. Investments are restricted in such sectors as banking, financing, retailing, service and small-scale mining industries. Intended investors should have a knowledge of the new investment guidance before making plans. Many National Standards were introduced in Philippines in 2009, covering tire, glass products, fireworks, sugar cane liquor, and sucrose. Related exporters should stay informed of those new standards and make sure their products are qualified for importation.
1 An Overview of Bilateral Trade and Investment According to the China Customs, the bilateral trade volume between China and Philippines in 2009 reached US$ 20.53 billion, down by 28.3% over 2008, among which China’s export to the Philippines was US$ 8.58 billion, down by 6.0 %, while China’s import from the Philippines amounted to US$ 11.95 billion, down by 38.8 %. China ran a deficit of US$ 3.37 billion. China mainly exported to the Philippines electronic equipments, machinery, fossil fuel, knitted and crocheted clothing and accessories, plastic and its products, iron and steel products, automobiles, toys, sport facilities, and footwear. China’s imports from the Philippines include electrical equipments, mechanical equipments, ore, copper and its products, plastic and its products, optical and medical equipments, edible fruits and nuts, toys and sports, aluminum and its products, fossil fuels, etc.
According to the Ministry of the Commerce (hereinafter referred to as MOFCOM), by the end of 2009, the accumulated turnover of completed engineering contracts by Chinese companies in the Philippines reached US$ 564 million and the volume of the completed labor service cooperation contracts had reached US$ 1.26 million.
China’s total non-financial foreign direct investment (FDI) in the Philippines, approved by or registered with MOFCOM, reached US$ 42.68 million in 2009. Philippines invested in 39 projects in China with US$ 110 million in actual utilization.
2 An Overview of Trade and Investment Regime
2.1 Trade Administration Regime and its Development
2.1.1 Tariff Regime The legislation concerning import and export in Philippines is the Tariff and Customs Code of the Philippines 1991 , amended in 2001. The Code regulates the practice of evaluation and collection of duties in import and export as well as Custom supervision. The Philippine Tariff Commission makes tariff policies including tariff concessions, modifications and rebates. The Commission also holds public hearings of anti-dumping and countervailing cases, and conducts investigations of safeguard measures. The Bureau of Customs, under the Philippine Department of Finance, is the sole agency to administer tariff laws, collect VAT and other additional taxes.
2.1.1.1 Tariff Administration
The Philippines imposes ad valorem duties on most of the imports with the tax rates raging from 0 to 65%, while imposing specific duties on a number of products, such as alcohols, fireworks and firecrackers, tobacco products, watches, mineral fuel, cartoons, saccharin, and playing cards, etc. The food and other products for industrial usage are duty-free. The import and export rate for the electrical products, timber，photographic equipments and supplies furniture, mobiles and parts are 20%, and the rate for cosmetics and perfume are 30%.
According to The Agreement on China-ASEAN Free Trade Area issued in 2005, the Philippines exercises preferential rate on Chinese products within the scope of the Agreement on Trade in Goods , and MFN rates on other Chinese products. The Philippines has performed zero tariff on 214 kinds of Chinese products such as vegetables and fruits within the scope of the “Early Harvest” program in 2006. In line with the relevant commitments of the Agreement on Trade in Goods , the Philippines will gradually cut the tariff rates on normal imports from China to zero before 2010-2012. As to the sensitive products imported from China, the Philippines will reduce the tariff rated to 20% before 2012 and to 0-5% by 2018.As to the highly sensitive products from China, the Philippines will reduce the tariff rate to 50% by 2015.
The Philippines issued Executive Order No.814 in June 2009 to reduce the tax for normal products within the scope of the Agreement on China-ASEAN Free Trade Area. Currently, the original tariff rates of 20% and 5-20% on normal products have been reduced to 12% and 5% respectively, whereas the original tariff rates of 0-5% remained unchanged.
of Food and Drugs.
The Products banned from import mainly include: products which may do harm to the public health, the national security, international promises and the local development, including ammunitions and weapons, written or printed materials which may contain content inciting violence or subverting the government; pornographic materials; illegal abortion drugs or their advertising; gambling supplies; lottery, except those approved by the government; gold, silver and other precious metals; fake food or medicine violating The Food and Drug Act ; cannabis and opium and other narcotic drugs; opium pipes and parts; second-hand clothing; toy guns. In addition, second-hand autos are also forbidden by the Philippine government, except those imported from special economical area.
The products restricted from import mainly include: anhydrous ethylic acid; rice; Cymag; freon and other ozone layer depletion materials; Penicillin and its subseries; refined petroleum peoducts; coal and products derived from coal; chemicals which can be used to make explosive; the onion, garlic, potatoes, cabbage for seeding use; pesticides including agricultural chemicals; motorcycles and their accessories; second-hand truck and car tires; second-hand motorcycle; products imported from socialist countries and other countries with planned economy; warships ; radioactive materials; over the amount of P5000 Philippine currency which is no longer issued; the agricultural products sufficient in the Philippines.
In addition, many agricultural products such as chickens and ducks are subject to tariff quota administration, with normal in-quota tariff rates ranging from 30%-50% and out-of-quota rates ranging from 35%-65%.
2.1.3 Export Administration Most products in the Philippines are free to export, but a few goods are restricted to export or prohibited from export from the Philippines. Goods prohibited from export mainly include ramie seeds and seedlings, some wild animals and live fish. Export licenses should be gained from the Philippine competent authorities such as the Department of Agriculture and the Ministry of Environment and Natural Resources for exporting products in the restricted category including cement, petroleum and petroleum products, ammunitions and some raw materials of plants origin.
In accordance with the Omnibus Investment Code, the Export Development Act, and other laws and regulations, the Philippine government provides preferential measures for export-oriented
enterprises and exported products, including simplification of export procedures and exemption of export tax, rebate of VAT for the imported raw materials used in the processing for re-export, foreign exchange assistance and the using of low cost facilities in the export processing zones, duty-free import of raw materials required by the production of export goods; exporters can retain 100% foreign exchanges from export; export financing and credit are granted, etc. Besides, incentive measures in terms of raw materials and tariffs are granted to the export enterprises in the export processing zones, bonded warehouses and various kinds of industrial parks.
2.1.4 Trade Remedies Trade remedies in the Philippines mainly include anti-dumping, countervailing and safeguard measures, and the involved investigation applications, procedures and implementations are governed by the Anti-dumping Act , the Countervailing Act and the Safeguard Measures Act respectively. The Bureau of Import Services is mainly responsible for the administration of regulations related to import of specific products as well as initiating and guiding the preliminary investigations with regard to anti-dumping, countervailing and safeguard measures. The Philippine Tariff Commission is responsible for the public hearing of anti-dumping and countervailing and the preliminary survey of consultations and safeguard measures.
2.1.5 Other Related Systems The Philippine Customs adopts a risk classification management system of imported goods, and all the importers must submit the customs declaration form through Automated Customs Operating System, which determines the risk level of imported goods. The low risk shipment goes through the “green lane” and is generally subject to “post-audit review” instead of a spot check; the moderate risk shipment goes through the “yellow lane” and is subject to documentary review only. A high-risk shipment channels through the “red lane” and is subject to both documentary review and physical inspection prior to its release. The Philippine Customs provided a “super green lane” for importers of extremely low risk goods to improve customs clearance efficiency.
2.2 Investment Administration Regime and Its Developments
Omnibus Investment Code is the basic law for the investment in the Philippine, which stipulates the basic investment policy. Foreign Investment Act and its amendment further release the restrictions for the foreign investors. The law prescribes that foreign investors can invest in most of the economical activities except the areas prohibited and restricted by the law, it also stipulates the basic rights enjoyed by the foreign investors.
According to the Foreign Investment Act of 1991 and other related laws, foreigners can establish individual-owned enterprise, partnership enterprise, company, branch company and representative office. (1) An individual should invests 100% in an individual-owned enterprise and enjoys exclusive benefits and assumes full responsibility for the business. Individual-owned enterprise is approved by the Department of Trade and Industry. (2) A partnership enterprise is set up by two or more partners, and observes independent personality differing from the partners, either in the form of limited liability or unlimited liability. It is required that each partner should at least invest P3000 and the application for its establishment should be submitted to the Philippine Securities and Exchange Commission. (3) According to the Company Code , a company should be established by 5 to 15 persons and the application for registration should be submitted to the Philippine Securities and Exchange Commission. The actual capital should be P5000 or more. (4) Branch company is an extension of a foreign company, not an independent legal entity. It can make revenue in the Philippines. The applicant should remit US$ 200000 to the Philippines before registration. (5) Representative office will engage in activities in the Philippines such as information dissemination, liaison, promotion, quality control. It does not obtain income in the territory of the Philippines. The applicant should remit US$ 30000 to the Philippines before registration.
If the investment projects or business operations meet the requirements to enjoy the relevant preferential policies made by the Philippine government, they should be registered in the Broad of Investment or relevant authorities. The foreign-invested enterprises within the scope set by the Philippine government can enjoy the following preferential treatments: four year cooperate income tax holiday which can be extended to eight years at most; upon the expiration of the exemption period of corporate income tax, companies can choose to pay 5% gross income tax in lieu of state (central) and local taxes; imported capital goods (equipments), CKDs, components, raw materials, breeding stock or gene materials for breeding purposes are exempted from import duties and other taxes and fees; the purchase of the like products in the Philippines can be granted tax credit，that is to say, various taxes and fees should be paid at first, but will be refunded after the products are exported (including the imposition of and refund of import duties); exemption of dock dues and export duties and fees is available; foreign investors and their family members are granted permanent residents; procedures for import and hiring of foreign employees are simplified, etc. If the registered foreign enterprises invest in the less developed areas in the Philippines, whether the newly-built or enlarged enterprises can also enjoy the preferential treatment: as from the registered day, the enterprises can enjoy a six year corporate income tax holiday.
2.3 Trade and Investment Related Administration Regime and Its Development Philippines imposes consumption tax on imports of automobiles, tobacco, petroleum and alcohol, based on its Tariff and Customs Code. A 12% VAT is imposed on imports based on the amount of Custom valuation and excise tax.
In addition, Philippines imposes stamp duty on documents such as bill of lading, invoice, transaction bills, insurance polices, mortgage deeds and commission letters. A 250-peso service charge is mandatory for invoice of over 5000 peso.
2.4 Trade-related Technical Measures Adopted in 2009
2.4.1 Technical Regulations
2.4.1.1 National Standards on Tires On January 12, 2009, the Bureau of Product Standards of the Philippine DTI published an notification the Draft of Philippine National Standards(DPNS) UN ECE 30:2008-Provisions on the Pneumatic Tires of Automotive Vehicles and Their Trailers. This notification stipulates the national standards for the pneumatic tires of automotive vehicles and their trailers. It cancelled and replaced the PNS 25- Provisions on Pneumatic Tires issued in 2003. The Bureau of Product Standards of the Philippine DTI published on August 7, 2009 the Draft of Philippine National Standards (DPNS) UN ECE 54:2009-Provisons on the Pneumatic Tires of Commercial Vehicles and Their Trailers. The provisions cover the test sampling of tires of light trucks, trucks and buses; tires for low-speed freeways; the testing requirements of the tire strength and durability.
2.4.1.2 The Certification and Performance Criteria on Protective Helmet and Visor The Bureau of Product Standards of the Philippine DTI published on February 10, 2009 the Mandatory Certification and Performance Criteria on Protective Helmet and Visor under the PNS-UN-ECE Reg 22-2007. This notification intends to protect the safety of all riders of the motorcycles and moped convertible bicycles and address the proliferation of substandard motorcycle and moped helmets and visors..
2.4.1.3 Criteria on Glass on the Autos and Glass Products The Bureau of Product Standards of the Philippine DTI published on February 24, 2009 the DPNS UN ECE 43:2009 – Provisions on the Certificated Safe Glass and Its Installation on the Autos. The notification is applicable to the windshield or other windows, or safety glass of the
2.4.2.3 Standards on Corn Chips Snack Food The Bureau of Food and Drugs of the Philippines notified the Draft of National Standards on Corn Chips Snack Food and Draft of the Recommended Operational Code of the Processing and Handling of the Corn Chips Snack Food. The former stipulates the national standards on the fried corn snack food made of the whole corn kernels, while the latter involves the acceptance, handling and processing of the ingredients of the deep-fried corn snack food, as well as provides guidance to the standards of deep-fried corn snack food in any appropriate container.
3 Trade Barriers
3.1 Tariffs and Tariff Administrative Measures
3.1.1 Tariff Peak Products subject to tariff peaks include chemical waste，autos, motorcycles, some auto spare parts, oranges, cereals, pork and meat products, ,with the rate on raw sugar high at 65%, coffee and tea at 45%, rice at 50%, corn at 35%, wood and paper products at 30% and leather and footwear at 20%.
3.1.2 Tariff Escalation To encourage the development of its own auto manufacturing industry, the Philippines imposes low tariff on imported auto parts, while imposes high tariff on the autos and motorcycles. The tariff rate for cars is 30%, , trucks 20~30% according to their tonnage， passenger carriages 15%~20% according to their tonnage, completely knocked down kit 1%, alternative fuel vehicles zero. In addition, the Philippines imposes 12% value added tax on imported autos and excise tax in accordance with the prices of the autos, the higher the price is , the higher the tax rate will be.
2.1.3. Tariff Quotas Imports subject to tariff quotas mainly include agricultural products such as rice, livestock and meat product thereof, potatoes, coffee and sugar. According to the Agreement on China-ASEAN Free Trade Area , the Philippines still exercises tariff quota administration on fresh and frozen pork as well as corns originated from China. The in-quota rate for fresh and frozen pork is 30% while the out-quota rate is 40%, and the in-quota rate for turkey is 30% while out-quota rate ranges from 35% to 40%.
2.1.4 Re-calibration
The Philippine government often issues executive orders to “re-calibrate” tariff rates, and selectively raises tariff rates on any imported products. Executive Order No.241 and Executive Order No.264 issued in October 2003 raised import tariff rates on over 1000 products including fertilizer, cement, and footwear from 3%-10% to 5%-20%. The Philippines issued Executive Order No. 419 in April 2005 to impose 25% tariff on the vehicles with carrying capacity of ten people or over ten people (driver included), which is 5 percentage points higher than the previous MFN tariff rate of 20%.
2.2 Barriers to Customs Clearance To be in line with the relevant stipulations of the WTO Agreement on Customs Evaluation , the Philippines’ Customs Act prescribes that the Philippines adopts the actual trading prices as the bases for customs evaluation. But in the actual operation, the Philippines always tends to take the reference price and non-record commission account as the actual trading price and the private agencies take part in the process of customs evaluation. The Philippine customs always prolongs the evaluation time limit, all these phenomenon lead to the extra load on the enterprises.
In addition, the Philippines often makes most imports channel through the “red lane” for reasons of anti-smuggling, strengthening the Customs inspection, etc. Shipments through the “red lane” are subject to both strict documentary review and physical inspection. Cumbersome documentary review and physical inspection have prolonged the customs clearance time, causing negative impact on the imports.
2.3 Import Restrictions The Philippines has a system of import licensing. The licenses will only be issued when the products must be imported to ensure the domestic supply and they will cause no material injury or threat of injury to domestic industry. Such practice increases the uncertainty of issuance. ,In 2006, for reasons of protecting domestic farmers’ interests, BPI suspended issuing import license for onions. In 2007, the Philippine Department of Agriculture withdrew its plan to import 270, tons of corn. In 2008, the Department of Agriculture once again prolonged the issuing of the import license for pork and other agricultural products.
In addition, the license is valid for only 60 days after its issuing, which is far from enough for food importers to prepare for shipping.
2.4 Discriminatory Taxes and Fees on Imported Goods
Trade and Industry regulates that starting from January 2006, all the imported white-and-black TV sets or colore TV sets of 14-29 inches must be certified by the Testing Center of the Bureau of Product Standards (BPS) and the SOLID Company before entering the Philippine market. Such practice has brought huge inconvenience to importers and unnecessarily increased their importing cost, China hope Philippine could adopt more flexible policy on this point. In the aforementioned case of ceramic tiles, Philippines designated one of its local tile manufacturer as the ASTM certification agent, which has adversely effected the import of ceramic tiles since such practice violated the trade secret of many Chinese producers, as reported by some Chinese importers.
2.6 Sanitary and Phytosanitary Measures
The Philippines maintains Veterinary Quarantine Clearance (VQC) on the import of meat and
poultry products. The No.26 Ministerial Decree requires the obtaining of VQC for meat and poultry products before importing. The validity of VQC in the Philippines is 60 days and is not extendable. In addition, VQC in the Philippines can only be used once. When the amount of actual import exceeds the amount permitted by the VQC, the importer must apply for another VQC and the importer will be fined. Similar VQC were also required for all the imports of fresh vegetables and fruits. The Chinese side hopes that the applying for VQC can be more flexible and transparent, thus making the process consistent with TBT/SPS Agreement.
2.7 Trade Remedy Measures
2.7.1 Trade Remedy Cases against China Philippines initiated one remedy measure investigation against China in 2009. By the end of 2009, the Philippines had initiated 10 cases of trade remedies against China. The outstanding trade remedy cases at present include the safeguard measures in the case of pattern glass, float glass and glass, ceramic tiles and of angle irons which was initiated in 2008.
Table 1 Philippines’ Trade Remedy Measures against China in 2009 No. Date of Initiation Products covered HS number Progress of the case 1 November 16 Laminated cardboard 72162100, 72165010,
In process
2.7.2 Questionable Practice of Philippine Trade Remedy Measures According to the Safeguard Law of the Philippines, the involved enterprises will be assumed having received the questionnaires within five days from the date of filing the case, and they must send back filled questionnaires to the DTI within another five days on receipt. It is required that the involved enterprises should collect and sort out production and exports data of the recent six years. Time is rather pressing, and far from enough. At present, few WTO members give only five days for the involved enterprises to fill questionnaires. Apart from that, the Philippines also requires that the involved enterprises should obtain notarization from local Notary Office, be extended by the Foreign Affairs Office and verified by the Philippine Embassy in China, otherwise the DTI will deny the eligibility of the submitted questionnaires. However, Chinese side believes that to finish such complicated procedures within five days was obviously rather unreasonable. These restrictions will bring about many difficulties for Chinese enterprises. The Philippines has prepared to change the time limit to 30 days, yet it has not been performed up to now.
On November 16, 2009, DTI initiated safeguard measures investigation against imported tough liner. The investigating period is from 2004 to 2008. Chinese side has not exported the involved products to the Philippines in the period from 2004 to 2007. In 2008, China exported 736.32 tons of the involved products, covering 3.95% of the total amount of this type of products imported by the Philippines. This case is also the first trade remedy investigation initiated by the Philippines against China in 2009.
2.8 Government Procurement The Philippines is not a signatory to the Agreement on Government procurement of the WTO. The 2003 Government Procurement Act of the Philippines is the fundamental basis for governments when procurement is concerned. The law sets the principles, procedures and patterns of government procurement and defines the qualifications of suppliers.
The Philippines stipulates that the government observes countertrade obligation. The government bodies, the government-owned or government holding enterprises should use 50% of the imported value to counter trade in purchasing, that is to purchase the products of the Philippines. The Philippines will punish the enterprises that violate the counter trade.
The Philippines law stipulates that the financial institutions must provide certain
proportions of its total loans for designated sectors. According to theAgr-Agra Law, the
banks in the Philippines must guarantee more than 25% of its total loans to be extended
to agricultural areas.The Magna Carta for Micro, Small and Medium Enterprises requires
that banks should guarantee more than 10% of its total loans to be extended to small and
medium-sized enterprises. This kind of compulsory obligations increases the load for
foreign-invested banks.
2.10.2 Insurance
According to the Philippine current law, foreign insurance companies can set up
wholly-owned foreign insurance institutions. But only the state-holding Government
Service Insurance System is allowed to be engaged in insurance business of
government-funded projects in the Philippines. And the projects adopting the
build-operate-transfer mode and privatized government enterprises need to gain
insurance from the Government Service Insurance System within the scope of state
interests.
In addition, the prevailing Philippine insurance regulatory law provides that all insurance
and reinsurance companies operating in the Philippines should pay at least 10% of the
premium to the National Reinsurance Corporation of the Philippines.
2.10.3 Securities and Other Financial Services
The securities and insurance companies, which did not set up in accordance with the Philippine laws, could provide insurance to the abroad market but not to the Philippine market. Although the Philippines has no limit on foreign capital to gain mutual funds, membership on a board of directors of foreign-invested mutual funds is limited to Philippines citizens
According to the Philippines current laws, foreign equity in securities underwriting is
limited to 60 percent, yet theLending Company Regulation Act issued by the Philippines
in May 2007 set a regular system for the finance company, which doesn’t require the
majority share should be hold by the Philippines.
2.10.4 Basic Telecommunications In accordance with the Philippine Constitution of 1987 , foreign enterprises are restricted to engage in the basic telecommunications. It requires that only those foreign enterprises with more than 60% shares owned by the Philippine citizens can manage basic telecommunication business and it is hard for foreign enterprises to invest in broadband services in the Philippines. The Philippines also restricts foreigners to be executives and managers of the basic telecommunications businesses, and the proportion of foreign executives and managers should not exceed that of foreign equity.
In addition, the foreign investment in the private broadcasting company should not exceed 20% and the wired television and other types of broadcasting and media can only be managed by the Philippine citizens.
2.10.5 Advertising According to the laws of the Philippines, foreign ownership in the Philippine advertising companies cannot exceed 30%. In addition, eligibility of managers of advertising agencies is limited to Philippine citizens.
2.10.6 Public Utilities Relevant laws of the Philippines restrict the foreign ownership of the companies of the public utilities such as water, electricity, communications, and transportation system. The domestic ownership in these companies should exceed 60% and the investors and managers of these
enterprises in which the foreign investors hold more than 80% shares should provide at least 30% shares in the first 8 years to the local investors. In addition, there is mutually beneficial request for the foreign enterprises investing in retail enterprises, that is, only when the native countries of the foreign enterprises allow the Philippines to invest in retail trade in its country, can the foreign enterprises invest in the Philippines.
4 Barriers to Investment The current Philippine laws allow foreign investors to set up joint ventures, branches and representative offices in the Philippines. The law stipulates that Filipino shareholders should not be fewer than five and most shareholders should be permanent residents of the Philippines. The secretary of a joint venture should be Philippine citizen. The Philippine Securities and Exchange Commission also requires that the financial personnel of joint ventures should be permanent residents of the Philippines.
To establish companies of joint-stock or partnership, foreign enterprises are required to submit application forms to the Security and Exchange Commission, register name confirmed by SEC, articles of association, foreign shareholders’ permanent identification (ACR/ICR, SIRV and foreign equity subscriber’s visa) issued by the Philippine Immigration Office, certification for the (total) capital of the applicant issued by Philippine Banks, and certification for the capital (inward remittance) of the foreign investors issued by Philippine Banks. Submitting the resolutions of the Philippine board of directors is also required for the establishment of joint ventures.
To set up branch offices in the Philippines, besides application forms, register name confirmed by SEC and copies of articles of association, foreign enterprises are required to submit the following documents: copies of authorization to establish branches in the Philippines by the board of directors of the parent company, certification for foreign capital ( inward remittance) in place issued by Philippine Banks (If the documents are provided outside the Philippines, notarization by Philippine embassies and consulates abroad is also required), the latest annual financial reports of the parent company issued by independent certified public accountants in the home country of the applicant, and assignation of a local agent awaiting the subpoena of SEC.
The stipulations for the foreign investors in the Philippines are too cumbersome and the procedures too complicated, constituting a substantial obstacle to foreign investment.
