Import: Non-Tariff Barriers

Many countries use non-tariff barriers as a means to restrict imports.

General Customs Barriers

Certain practices of the Philippines customs system create barriers for traders. These practices include:

• Corruption, costly processing delays, and other irregularities
• Involvement of private sector in the valuation process
• Use of reference prices rather than declared transaction values
• Unrecorded facilitation fees paid to customs officials

Government Procurement

The Philippines is not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement.

Companies based in the Philippines and Philippines-controlled companies are favored in the government procurement process due to distorted government procurement laws.

The Philippine government maintains a countertrade requirement for procurement by government agencies and government-owned or controlled corporations. They set the level of countertrade obligations at a minimum of 50 percent of the price of imports and established penalties for non-performance of countertrade obligations.

Intellectual Property Rights (IPR)

There is lack of progress in successfully prosecuting and convicting IPR violators in Philippines courts. There is widespread presence of illegal activities, such as recording and downloading of copyrighted material onto mobile devices in retail outlets. The effect of new pharmaceutical legislation is also not helpful to control the breach of IPR.

Trademark infringement is also a severe problem with counterfeit merchandise openly available.

Investment Barriers

The foreign investment is subjected to significant restrictions in the Philippines economy. The Foreign Investment Act contains two Negative Lists (List A and List B), collectively called the Foreign Investment Negative List, specifying the areas where foreign investment is restricted. The act requires the government to update the Negative Lists after every two years.

List A consists of foreign investment restrictions mandated by the constitution and specific laws. The list includes sectors that have reserved investment for Philippines nationals (such as mass media, small-scale mining) and sectors that have limited foreign equity participation (such as natural resource extraction, where foreign equity is limited to 40 percent).

List B contains limitations on foreign ownership imposed by the executive. The main reasons for the restrictions are national security, defense, public health, safety, and morals. Sectors that are covered under this list include explosives, firearms, military hardware, and gaming activities. These sectors have limited foreign ownership of up to 40 percent. List B also restricts foreign ownership in certain small and medium enterprises to 40 percent.

Basic Telecommunications

The Philippine government counts telecommunications services as a public utility, thereby limiting foreign ownership to 40 percent. Foreign firms are unwilling to invest in highly capital-intensive applications, such as broadband, without majority control. This has led to limited market entry of foreign firms in capital-intensive areas. In addition, foreigners are restricted from serving as executives or managers of telecommunications companies. The proportion of foreign directors in telecommunications companies must not exceed a company's foreign capital stock.

Banking, Insurance, and Financial Services

Current regulations require all reinsurance companies operating in the Philippines to transfer at least 10 percent of the outward reinsurance placements to the industry-controlled National Reinsurance Corporation of the Philippines.

There are a number of limitations on foreign participation in the banking sector. The Central Bank has put a moratorium on the issuance of new bank licenses to encourage consolidation in the banking system. These consolidations lead to limited foreign investment in the existing banks. Philippines-owned domestic banks must control at least 70 percent of the total banking system assets at any given point of time. Foreign banks cannot open more than six branches, and are prohibited from providing full service at the existing branches. If a bank creates a subsidiary, it cannot own more than 60 percent of the equity in that subsidiary.

The mandatory lending provisions are more burdensome on foreign banks due to lack of knowledge and experience with the sectors, their constrained branch networks, and constitutionally mandated foreign land ownership restrictions that block their ability to enforce security rights over land accepted as collateral.

Foreign equity in securities underwriting companies and financing companies is limited to 60 percent. Securities underwriting companies that are not established under Philippines law can underwrite Philippines issues for foreign markets, but not for the domestic market.

Although there are no foreign ownership restrictions related to acquisition of shares of mutual funds, law restricts board of directors membership to citizens of the Philippines.

Tariffs and Quotas

Most tariffs on agricultural goods imported into the Philippines have been controlled, but it has controlled less than two-thirds of its non-agricultural tariff lines.

Products that are unbound include:

• Autos
• Chemicals
• Plastics
• Textiles
• Clothing
• Fish
• Paper products

Chemical wastes, automobiles, motorcycles, and some auto parts are subjected to high tariff rates. Some more products levied with high agricultural tariffs are citrus fruits, grains, poultry and meat products, and frozen french fries.

Tariff rates are reduced on vehicle components to promote locally assembled automobiles and their parts. On the other hand, tariff rates are highest on finished autos and motorcycles in the category of non-agricultural products.

There is a general import prohibition on used cars. There are few exceptions to this prohibition, such as vehicles imported through Special Economic Zones. In addition, Philippines customs charges 12 percent value-added tax (VAT) on import of vehicles and excise taxes based on the price of vehicles. This duty structure leads to high tax rates for expensive vehicles.

The Philippines has an excise tax regime for distilled spirits. It imposes comparatively lower excise taxes on locally produced spirits made from indigenous raw materials than on spirits imported from abroad.

Philippine customs maintains a Tariff-Rate Quota (TRQ) system, also known as the Minimum Access Volume (MAV) system. This system regulates the distribution of import licenses for certain agricultural products, including pork and poultry. A TRQ is imposed on fifteen agricultural products, including corn, pork, and poultry. The Philippines has consistently maintained a special safeguard on out-of-quota chicken imports that effectively doubles the out-of-quota tariff.

Note: The above information is subject to change. Importers are advised to obtain the most current information from a customs broker, freight forwarder, or the local customs authorities.

Source: Office of the United States Trade Representative

Article written for World Trade Press by Taylor Holloran, Jennifer Goheen, and Nina Bellucci.
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