PHILIPPINES

FOREIGN TRADE

At independence in 1946, the

Philippines was an agricultural
nation tied closely to its erstwhile
colonizer, the United States.In 1950
the value of the Philippines' ten
principal exports--all but one being
agricultural or mineral products in
raw or minimally processed form-added up to 85 percent of the
country's exports.

In 1949, 80 percent of total Philippine trade

was with the United States. Thereafter, the
United States portion declined as that of
Japan rose. In 1970 the two countries' share
was approximately 40 percent each, the United
States slightly more, and Japan slightly less.
The pattern of import trade was similar, if not
as concentrated.

 The

United States share of Philippine

imports declined more rapidly than
Japan's share rose, so that by 1970 the
two countries accounted for about 60
percent of total Philippine imports. After
1970 Philippine exporters began to find
new markets, and on the import side the
dramatic increases in petroleum prices
shifted shares in value terms, if not in
volume. In 1988 the United States
accounted for 27 percent of total
Philippine trade, Japan for 19 percent.

At the time of independence and as a

requirement for receiving war reconstruction
assistance from the United States, the
Philippine government agreed to a number of
items that, in effect, kept the Philippines
closely linked to the United States economy
and protected American business interests in
the Philippines.

 Manila

promised not to change its

(overvalued) exchange rate from the
prewar parity of P2 to the dollar, or to
impose tariffs on imports from the United
States without the consent of the
president of the United States. By 1949
the situation had become untenable.
Imports greatly surpassed the sum of
exports and the inflow of dollar aid, and a
regime of import and foreign-exchange
controls was initiated, which remained in
place until the early 1960s.

No matter the trade regime, the Philippines

had difficulty in generating sufficient exports to
pay for its imports. In the forty years from 1950
through 1990, the trade balance was positive in
only two years: 1963 and 1973. For a few years
after major devaluations in 1962 and 1970, the
current account was in surplus, but then it too
turned negative. Excessive imports remained a
problem in the late 1980s. Between 1986 and
1989, the negative trade balance increased
tenfold from US$202 million to US$2.6 billion

A number of factors contributed to the

rather dismal trade history of the
Philippines. The country'sterms of trade
have fallen for most of the period since
1950, so that in the late 1980s, a given
quantity of exports could buy only 55
percent of the volume of imports that it
could buy in the early 1950s.

A second factor was the persistent

overvaluation of the exchange rate.
The peso was devalued a number of
times
falling
from
a
preindependence value of P2 to the
dollar to P28 in May 1990.

A third consideration was the

country's trade and industrial
policies, including tariff protection
and investment incentives. Many
economists have argued that these
policies favorably affected importsubstitution
industries
to
the
detriment of export industries.

In the 1970s, the implementation of an

export- incentives program and the
opening of an export-processing zone at
Mariveles on the Bataan Peninsula
reduced the biases somewhat. The export
of
manufactures
(e.g.,
electronic
components,
garments,
handicrafts,
chemicals, furniture, and footwear)
increased rapidly.

In the early 1980s, the Philippine government

reached agreement with the World Bank to reduce
tariffs by about one-third and to lift import
restrictions on some 3,000 items over a five- to sixyear period. The bank, in turn, provided the
Philippines with a financial sector loan of US$150
million and a structural adjustment loan for US$200
million, to provide balance-of-payments relief while
the tariff wall was reduced. Approximately twothirds of the changes had been enacted when the
program ground to a halt in the wake of the
economic and political crisis that followed the August
1983 assassination of former Senator Benigno
Aquino.

A tariff revision scheme was put forth again

in June 1990 by Secretary of Finance Jesus
Estanislao. After an intracabinet struggle,
Aquino signed Executive Order 413 on July
19, 1990, implementing the policy. The
tariff structure was to be simplified by
reducing the number of rates to four,
ranging from 3 percent to 30 percent.
However, in August 1990, business groups
successfully persuaded Aquino to delay the
tariff reform package for six months.

EVOLUTION OF PHILIPPINE
TRADE POLICY
The

literature covering the developments

in the Philippines trade policies is rich.
Wignaraja et al. (2010), Balboa & Medalla
(2006), Balisacan & Hill (2003), and
Austria (2001), Cororaton (1998), and
Austria & Medalla (1996) are among the
many studies that provide a detailed
account of the Philippines trade regime in
different decades.

Philippine trade policy has experienced major

shifts throughout the decades. From the
1950s-1970s, the government embarked on
an import-substituting trade regime. These
decades can be characterized by highly
protective tariffs, foreign exchange control
measures, and capital market
interventions. Realizing the limitations of
such a policy, the government shifted the
countrys trade policy using various
liberalization packages.

TARIFF REFORM PROGRAM (TRP).

The

program involved the tariffication of

quantitative restrictions, simplification of
the tariff rate structure to a narrower rate
range, and reduction in the tariff
protection. This was followed by two more
waves of tariff reform programs in the
1990s TRP II and TRP III.

 TRP

II was introduced in 1991 and is an

extension of the program introduced in
the 1980s. Under TRP II, phase-in period
and transition rates were included in the
tariff structure.2 TRP III, meanwhile, was
introduced by the government in 1994,in
response to the private sectors request of
lowering tariffs on capital and goods and
raw materials to improve their
competitiveness.

ASEAN FREE TRADE AREA (AFTA)

is atrade blocagreement by the
Association of Southeast Asian Nations supporting
local manufacturing in all ASEAN countries.
The AFTA agreement was signed on 28 January 1992
in Singapore. When the AFTA agreement was
originally signed, ASEAN had six members, namely,
Brunei,Indonesia,Malaysia,Philippines,Singapore
andThailand.Vietnamjoined in 1995,Laosand
Myanmarin 1997 andCambodiain 1999. AFTA now
comprises the ten countries of ASEAN. All the four
latecomers were required to sign the AFTA agreement
to join ASEAN, but were given longer time frames in
which to meet AFTA's tariff reduction obligations.

 In

2008, the Japan- Philippines Economic

Partnership Agreement (JPEPA) was
enforced, which is the Philippines first
bilateral free trade agreement.

JAPANPHILIPPINES ECONOMIC
PARTNERSHIP AGREEMENT (JPEPA)

TheJapan-Philippines Economic Partnership

Agreement( - ?)or in (
Filipino:Kasunduang Pangkabuhayan ng Hapon at
Pilipinas) or commonly known asJPEPAis aneconomic
partnership agreementconcerningbilateral investment
andfree tradeagreement betweenJapanand the
Philippines. It was signed inHelsinki,Finlandon
September 9, 2006 by former JapanesePrime Minister
Junichiro Koizumiand formerFilipino PresidentGloria
Macapagal-Arroyo. It is the first bilateral trade treaty
which the Philippines has entered since the Parity Right
Agreement of 1946 with theUnited States. This treaty
consists of 16 Chapters and 165 Articles, with 8 Annexes.

IMPACT OF TRADE
LIBERALIZATION
The

push for trade liberalization in the

Philippines was primarily due to the failed
protectionism and import substitution
strategy implemented in the past. Trade
liberalization is expected to improve the
allocation of resources and bring domestic
prices closer to world price, which are in
turn expected to deliver sustained
economic growth and development.

 However,

with the mixed experience of

different countries that have undergone
trade liberalization, a recurring question
is whether trade liberalization enhances
productivity and economic growth, help
reduce income inequality and alleviate
poverty in a developing country.

THE PHILIPPINES: GENERAL

ECONOMY AND EXPORT INDUSTRY
Overview
The Philippines is a newly industrialized emerging
market economy, with exports as its key driver of
growth. Its P1.5-trillion GDP, the fourth largest in
Southeast Asia, is accounted for by:
Service sector (50%)
Industry (33%)
Agriculture (17%)
Key economic activities include business process
outsourcing (BPO), food processing, textiles and
garments, and assembly operations in the
manufacturing of electronics and other high-tech
components.

RESILIENT GROWTH MARKET IN

DYNAMIC ASIA
The Philippines is one of the very few
economies with positive economic growth
during the 2008-2009 global recession. In
2010, the economy registered a record
high growth, with the stock market
breaking one record over another, making
it one of the best-performing bourses in
Asia.

The government has projected the Philippine economy to grow by 7 - 8% in 2011.

EXPORT PERFORMANCE AND

PROSPECTS

JAPAN ACCOUNTED FOR 17.9 PERCENT TO

TOTAL EXPORTS

LAW GOVERNING FOREIGN TRADE

EXPORT DEVELOPMENT ACT OF 1994

[Republic Act No. 7844]
The

government and the private sector shall

jointly transform the Philippines into an
exporting nation. Towards this end, the State
shall instill in the Filipino people that
exporting is not just a sectoral concern, but the
key to national survival and the means through
which the economic goals of increased
employment and enhanced incomes can most
expeditiously be achieved.chanrobles virtual
law library

REPUBLIC ACT NO. 1937

TARIFF AND CUSTOMS CODE OF
THE PHILIPPINES

Section 101.Imported Articles Subject to Duty.

All articles, when imported from any foreign
country into the Philippines, shall be subject to
duty upon each importation, even though
previously exported from the Philippines, except
as otherwise specifically provided for in this
Code or in other laws.

THE END