20 September 1999
Continuing liberalization helps the philippine economy become more competitive and resilient
Policy reforms pursued by the Philippines over an extended period have resulted in a more open, competitive economy which was able to withstand relatively unscathed the Asian financial crisis. A new WTO report on the trade policies of the Philippines concludes that this provides a generally good example of the advantages of structural reform in overcoming macroeconomic shocks. The report also suggests that the Philippines could derive further benefits, including for its consumers, from more outward oriented, as opposed to an export-oriented trade and investment regimes.
The new WTO Secretariat report, along with a policy statement by the Philippine Government, will serve as a basis for the Trade Policy Review of the Philippines which will be conducted by the Trade Policy Review Body of the WTO on 27 and 29 September.
Electronics, automotive products and garments together account for more than 70% of Philippines' exports, the report says. Between 1993 and 1997, the share of manufactured products in Philippine exports has grown from 79% to 86%. By contrast, the direction of trade remains largely unchanged. Main export markets are the United States, with about 35% of total merchandise exports in 1997, and the European Union and Japan with about 16% each. These three are also the Philippines' main source of imports.
The report notes that tariffication and reduction in tariff rates over the past six years have significantly opened the economy. Applied tariffs were more than halved between 1992 and 1999 - from 26% to just over 10%. The report notes however that in some sectors tariffs escalation persists and tariff dispersion has increased.
The Philippines has removed most of its non-tariff barriers, the report also notes. With the notable exception of rice, which remains traded exclusively by a State agency, the Philippines has abolished most of its quantitative restrictions. And since 1994 only five anti-dumping cases have resulted in the imposition of definitive duties.
However, the report also states that remnants of the earlier import-substitution policies persist, pushing up exporters' costs through competition from protected import-competing sectors. In part to offset this bias against exports, the Philippines has introduced measures in support of export-oriented activities, including various tax exemptions on imported and locally supplied inputs.
Although a number of activities are yet to be fully open to foreign investment, the report states that more liberal investment policies and a privatization programme have widened the choice of sector for domestic and foreign private investors and thus contributed to export growth. Foreign investment has also been attracted by sound macroeconomic policies, a stable business environment, skilled labour force and a comprehensive system of fiscal incentives. The report notes, however, that these incentives have become complex and burdensome to administer, that they may be fiscally expensive, and may divert investment from efficient uses.
The report notes that progress in the privatization of state corporations has reduced the degree of state intervention in the economy. In the services sector, for example, privatization and liberalization have made significant headway in raising the competitiveness of domestic producers. However, the Philippine economy is still characterized by a high degree of market concentration, with significant state involvement in some sectors, such as banking and air transport. There is no comprehensive law, nor central government agency overseeing the implementation of competition policy, and the report suggests that a comprehensive competition law would help ensure that limited market competition does not dampen the full benefits of investment liberalization and privatization.
The Philippines is not a party to the WTO Agreement on Government Procurement. In its procurement, the Philippine Government generally favours the purchase of domestically produced goods and services and applies certain foreign ownership limitations to suppliers. Government procurement also favours suppliers from ASEAN members and the United States.
The report states that current Philippine policies tend to favour agriculture and related processing industries over most other activities. Support for agriculture relies predominantly on border protection, relying on very high out-of-quota duties administered through a complex system to protect sensitive products like rice or corn. The report also notes that though legal provisions were introduced in 1997 to enhance food production and lower prices, the domestic price of some agricultural commodities exceeds world prices by a wide margin.
In the manufacturing sector, electronics has become a major export activity; many electronics manufactures benefit from duty-free status in the special economic zones, where investment has been growing, the report states. . Motor vehicles and parts, in contrast, remains one of the most protected sectors of the Philippines economy, maintaining trade-related investment measures. Likewise, tariff increases in 1999 to protected industries such as textiles, clothing and steel appear to run counter to Philippines' drive towards greater neutrality of sector protection.
Notes to Editors
The WTO's Secretariat report, together with a policy statement prepared by the Philippines, will be discussed by the WTO Trade Policy Review Body (TPRB) on 27 and 29 September 1999. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular intervals and monitors significant trends and developments which may have an impact on the global trading system. The Secretariat report covers the development of all aspects of each of the Philippines' trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the areas of services and trade-related aspects of intellectual property rights are also covered.
To this press release are attached the summary observations from the Secretariat report and a summary of the government report. The full Secretariat and government reports are available for the press in the newsroom of the WTO internet site (www.wto.org). The Secretariat report, together with the government policy statement, a report of the TPRB's discussion and the Chairman's summing up, will be published in hardback in due course and will be available from the Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following reports have been completed: Argentina (1992 & 1999), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993 & 1999), Botswana (1998), Brazil (1992 & 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996 & 1998), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992 & 1999), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Guinea (1999), Hong Kong (1990, 1994 & 1998), Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991, 1994 & 1998), Israel (1994 & 1999), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mali (1998), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 & 1998), Sri Lanka(1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992, 1994, 1996 & 1999), Uganda (1995), Uruguay (1992 & 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).Back to top
The Secretariat s report: summary
TRADE POLICY REVIEW BODY: THE PHILIPPINES
Report by the Secretariat Summary Observations
Since the previous Trade Policy Review of the Philippines in 1993, policy reform has continued to open the economy, going a long way to correcting the misallocation of resources associated with earlier trade and industrial policies. Non-tariff trade barriers have been largely removed and tariff protection has been sharply reduced, with MFN duties currently averaging just over 10% compared with almost 26% in 1992. More liberal investment policies and the privatization programme have widened the choice of sectors for domestic and foreign private investors, and together with sound macroeconomic policies were instrumental in boosting real GDP growth to an average annual rate of 5% between 1994 and 1997; subsequently, those policies have also helped soften the impact on the Philippine economy of the Asian financial crisis.
However, remnants of the earlier import-substitution policies persist, inducing an anti-export bias that the Philippines has tried to offset through measures in support of export-oriented activities. Other areas have also enjoyed special support, including the automotive sector, which has longstanding investment measures and border protection; rice, from quantitative import restrictions; and, more recently, certain textile, clothing, steel and other products for which tariffs have been selectively increased (within WTO bound levels). Moreover, a number of activities are yet to be fully open to foreign investment, with no foreign participation possible in the retail sector. The reform process is thus not yet complete; its continuation is desirable for the Philippines to establish a more outward-looking, rather than export-oriented, environment that could well support higher, sustainable rates of economic growth.
The Economic Environment
Trade and investment reforms have been carried out within the framework of a stable political and institutional environment. Disciplined macroeconomic policies have underlain a fiscal balance and lower inflation; the current account remained weak over much of the period since the Philippines' last Review, given a persistent domestic savings/investment imbalance, and private external debt grew in consequence. The onset of the Asian financial crisis led to severe balance-of-payments difficulties and in July 1997 the Government floated the Peso, which has since depreciated by some 50% in nominal terms. The current account turned to a surplus 1998, reflecting a narrowing of the merchandise trade deficit and a surplus in the services account. The rate of unemployment, however, was up to just over 10% in 1998, the highest level since the 1991-92 recession.
Merchandise exports and their contribution to GNP increased considerably between 1992 and 1997, the export to GNP ratio rising from just over 18% to 29% during the period. The shift in exports from primary to manufactured goods continued, the share of manufactures in Philippine exports growing from 76.6% in 1992 to 86.0% in 1997; Philippine exports are now dominated by electronics, automotive products and garments. By contrast, the direction of trade has remained largely unchanged: in 1997, main exports markets were the United States, with about 35% of total merchandise exports, and Japan and the European Union (EU), with 16-17%. In 1997, Japan and the United States accounted for some 20% of total Philippine imports, followed by the EU with just over 19%. In 1997, the Philippines was the world's 28th importer and 23rd largest exporter of commercial services.
Export growth has been closely linked to a rapid increase of inward foreign direct investment (FDI), notably in special economic zones. Although limitations to foreign equity participation remain in various key sectors, these have been gradually reduced. Foreign investment has also been attracted by sound macroeconomic policies, privatization, a stable business environment, and a skilled labour force. The Government also offers a comprehensive package of tax and non-tax investment incentives which, however, has become complex and burdensome to administer as a result of the proliferation of eligibility criteria, conditions and requirements. The system may divert investment from efficient uses, attract rent-seeking companies that are already world-competitive or, on the contrary, attract inefficient producers that need extra financial assistance. Moreover, the implicit fiscal cost of such system is probably high.
Progress in the privatization of state corporations has reduced the degree of state intervention in the economy, but the Philippine economy is still characterized by a high degree of market concentration. There is no comprehensive competition law, nor central government agency overseeing the implementation of competition policy. A comprehensive competition law might thus help ensure that limited market competition does not dampen the full benefits of investment liberalization and privatization.
Trade Policies and Practices
The overall degree of protection granted to the economy has continued to decline since the Philippines' last Review. In consequence of the commitments in the Uruguay Round, the Philippines bound virtually all agricultural (except for rice) and about half of manufacturing tariff lines, compared with only about 7% of all tariff lines before the Round. However, final bound tariffs are well in excess of the current average applied tariff. Based largely on pre-announced programmes, applied tariffs were more than halved between 1992 and 1999, despite tariff increases within bound levels for some products in January 1999. In some sectors tariff escalation persists and tariff dispersion has increased.
Reform of Philippine customs procedures, as well as some streamlining of preshipment inspection, has taken place since the last Review. The Philippines has applied the provisions allowing developing countries to delay application of the WTO Customs Valuation Agreement. Customs valuation switched from the "home consumption value" method to the "export value" method in 1996, and a shift to the "transaction value" method by 2000 is envisaged. Minimum import prices remain in use.
Most quantitative restrictions have been abolished, with the notable exception of rice, which remains state-traded by the National Food Authority; other quantitative restrictions, including import prohibitions and import licensing, are maintained for health, security and similar objectives. The Philippines has apparently phased out import restraints previously maintained for balance-of-payments reasons, having undertaken to disinvoke GATT Article XVIII:B (on trade measures for balance-of-payment reasons) by end 1997.
The Philippines has used trade defence measures sparingly, five anti-dumping cases having resulted in the imposition of definitive duties since 1994. Proposed anti-dumping and countervailing legislation would align Philippine regulations with the respective multilateral rules. There is no specific safeguard legislation but work is in progress to introduce it.
Almost half the standards in the Philippines are aligned to international standards, a significant increase since 1993; the authorities intend to increase this share to 50% by 2005, and to 100% by 2020. There are 69 (mandatory) technical regulations covering products such as electrical goods, construction materials and chemical products. National product certification marks are voluntary except for products covered under technical regulations.
In part to offset the anti-export bias resulting from trade measures affecting imports, Philippines has a number of measures to support exports. These include various tax exemptions on imported and locally supplied inputs provided through bonded warehouses, and duty exemptions. Additional tax incentives for export activities were provided by the Export Development Act of 1994. Sugar, and textiles and clothing exports remain subject to special arrangements in foreign markets.
The Philippines is not a party to the WTO Agreement on Government Procurement. In its procurement, the Philippine Government generally favours the purchase of domestically produced goods and services, and applies certain foreign ownership limitations to suppliers. The Philippines is a signatory to the ASEAN Preferential Trading Arrangements under which it grants a preferential margin in government procurement to ASEAN suppliers; certain goods produced in the United States also seem to be favoured. Counter-purchase or offset in certain government procurement projects is encouraged by law.
The Philippines maintains various schemes of intervention in the automotive industry, and soap and detergent production; they have been notified under the provisions of the WTO Agreement on Trade-Related Investment Measures (TRIMs). The Philippines adopted, in 1998, a new law on intellectual property, to reflect the requirements in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS); further legislative changes are envisaged to provide protection to layout designs of integrated circuits, and plant varieties.
Sectoral Policy Developments
The Philippines continued liberalization of its trade and investment regimes has resulted in, and required the adoption of policies to establish a more neutral incentive structure. Tariffication and reductions in tariff rates over the past six years have gone a long way towards offsetting the traditional anti-export bias in the Philippine import regime, which pushed up exporters' costs through competition from the protected import-competing sectors. The authorities have also sought to remove infrastructural constraints by liberalizing regulated industries, particularly those providing basic business inputs (e.g. electricity and telecommunications services).
Nevertheless, remnants of earlier import substitution and "picking winners" strategies remain, combined with a complex system of concessions to help export-oriented industries, many located in special economic zones, to take advantage of imported inputs. The dynamism of special economic zones demonstrates the advantages of a liberal trade regime, and suggest that the Philippines could derive further benefits, including for its consumers, from a more outward-oriented, as opposed to export-oriented regime focusing on neutrality of treatment between domestic and export-oriented production.
The effect of current sectoral policies is to favour agriculture and related processing industries over most other activities, a significant reversal of the situation at the time of the previous Review in 1993. In view of existing budget constraints, support for agriculture relies predominantly on border protection. Complying with WTO commitments to tariffy quantitative import restrictions, tariff quotas were implemented in 1995 for 15 groups of agricultural products, including coffee, corn, meat, potatoes, and sugar. Very high out-of-quota duties, administered through a complex system, protect sensitive products, such as rice and corn; for some products, the out-of-quota tariff rate is the only applicable duty. The Philippines also undertook minimum access commitment on rice. Though legal provisions were introduced in 1997 to enhance food production and lower prices, the domestic price of some agricultural commodities exceeds world prices by a wide margin.
The downstream oil industry has been largely liberalized, but a requirement for a state corporation to use a minimum of domestic coal is in place to support the local coal industry. The priority given by the Government to eliminate the power shortages that plagued the economy at the time of the previous Review has born fruit, relying mostly on the privatization and facilitation of private participation in power generation; however, the high cost of electricity is an issue.
The Philippines' manufacturing sector is becoming increasingly diversified and its exports are now crucial to economic performance. Such exports have been led by electronics, which have grown annually by about 44% over the period since the previous Review. Exports subject to bilateral agreements under the WTO Agreement on Textiles and Clothing accounted for about four fifths of total Philippine garment exports in 1996.
The motor vehicle industry has grown strongly since the last Review, becoming also a major export activity but competing from behind a heavily protected domestic market. Parts and components as well as used motor vehicles are subject to import licencing, while participants in the Car Development Program must comply with local-content requirements and foreign-exchange requirements. These measures have supported domestic producers at the cost of significant distortions in the domestic market, such as higher prices for consumers and minimal scale efficiencies due to low production volumes, and a probable net resource misallocation in the Philippine economy.
Tariff increases in 1999 to protect industries such as textiles, clothing and steel also appear to run counter to Philippines' drive towards greater neutrality of sectoral protection. In view of the sharp currency depreciation since 1997, the rationale for intervention in and preferred treatment for those industries would appear weak.
In the services sector, significant headway has been made in reforming and raising the competitiveness of domestic producers through liberalization and privatization, including in financial services and telecommunications. State involvement in some sectors, such as banking and air transport, is still significant but decreasing. Foreign investment remains restricted in significant areas of the transport, telecommunications, banking, and business services industries, notwithstanding recent initiatives to liberalize foreign equity participation notably in financial services.
Trade Policies and Foreign Trading Partners
A commitment to WTO principles has been integral to Philippine economic policies since the Philippines ratified of the WTO Agreement in 1994. Philippine undertakings under the WTO Agreements included a significant increase in tariff bindings, extensive tariff reductions, elimination of quantitative and other non-tariff measures, and commitments in many services sectors. Under the General Agreement on Trade In Services (GATS), the Philippines made commitments in financial, communication, transport, and tourism and travel-related services; it also participated in the Financial Services Negotiations and the Negotiations on Basic Telecommunication Services concluded in 1997. The Philippines had yet to sign the Fifth Protocol of the GATS as of June 1999. In some cases, existing legislation offers more liberal treatment to foreign providers than the Philippines' bindings under the GATS.
Concurrently, the Philippines has also pursued preferential trading agreements as a means of increasing trade flows. Within ASEAN, the Philippines is party to the Common Effective Preferential Tariff (CEPT) scheme, signed in 1992, aiming to achieve an ASEAN Free Trade Area (AFTA). Although, as in the case of other preferential arrangements, the CEPT could lead to trade diversion, this effect is currently reduced by the relatively modest value of Philippine trade with other ASEAN members; in the longer term, the effect would be minimized by the falling external barriers in the Philippines and other ASEAN countries.
The reforms pursued by the Philippines over an extended period provide a generally positive example of liberalization and of their advantages in overcoming macroeconomic shocks. There can be little doubt that the Philippines has also benefited since 1993 from market opening and improved rules achieved under the Uruguay Round and subsequent multilateral negotiations. These results have helped in maintaining and deepening the Philippines' autonomous liberalization measures, and consolidating their economic benefits. The Philippine economy stands to gain from further non-discriminatory liberalization and strengthening of multilateral rules, combined with continued domestic reforms towards a more outward-looking economy.Back to top
TRADE POLICY REVIEW BODY: THE PHILIPPINES
Report by the Government - Parts I and II
I. ECONOMIC PERFORMANCE
1. At about the time of the 1993 Trade Policy Review (TPR), the Philippine economy was recovering from a string of major natural calamities including a devastating earthquake and the catastrophic eruption of Mount Pinatubo. The economy was in stagnation caused largely by unsustainable deficits in the government budget and the current account of the balance of payments (BOP). Huge financial requirements of post-disaster rehabilitation work exacerbated the situation.
2. Nonetheless, the adoption of important financial and monetary measures helped promote greater economic stability, while the progress achieved in addressing structural bottlenecks and in encouraging a more open economy improved the prospects for more rapid growth being sustained in the long-run. Inflation has since been contained at single digit and domestic interest rates softened. Real Gross National Product (GNP), which grew at 2.1% in 1993 was bolstered largely by higher real investments and strong foreign demand. A more liberal foreign exchange regime, combined with market-based foreign exchange policy, improved the capability of the economy to respond more quickly to foreign demand and pulled in foreign capital. In the light of this deregulated atmosphere, the level of international reserves were kept at a comfortable level during that year and the peso exhibited improved international competitiveness.
3. Gathering strength, GNP growth steadily increased to 5.3% by 1997 during which the incipient financial crisis affecting Asia, and subsequently the world, was creeping into the Philippine economy as well. In 1998, the economy slowed down to a negligible 0.1% GNP growth with gross domestic product (GDP) also posting a slight decline of 0.5%.
Selected Macroeconomic Indicators
|Real GNP (growth rate in %)|
|Real GDP (growth rate in %)|
Source: National Statistics Coordination Board; National Economic Development Authority.
4. For the period 1993 to 1998, growth in the Philippine economy was largely attributed to the services sector which accounted for a 43% share of GDP in 1993 in value-added terms, and 45.1% in 1998. The services sector was the slowest in 1993 with a growth rate of 2.5% and the fastest in 1996 by 6.4%. In 1998, the services sector grew by 3.5%.
5. Industry accounted for the next largest share of GDP with 34.2% in 1993 and 35.5% in 1998. In terms of growth, the industrial sector peaked in 1995-1996 and markedly decelerated by 1998.
6. The share of the agricultural sector has declined from 22.8% in 1993 to 19.4 in 1998, despite the fact that more than 40% of the Philippine labour force is in the sector, owing to its relatively poorer performance. In 1998, due to a combination of factors including adverse climatic conditions (El Niño), the agricultural sector contracted by 6.6%.
Sectoral Growth Rates and Share of GDP
Source: National Statistics Coordination Board; National Economic Development Authority.
C. External Trade
7. For the period 1993 to 1998, the countrys liberalization programme, and active involvement in international and regional trading arrangements, underpinned the growth in the export sector. During this period exports of goods and services grew by an average of 14.2%. Although exports of goods registered a negative rate in 1998 at 0.3%, in real terms (using 1985 as base prices), merchandise exports continued to grow at 16.9% for that year in current dollar terms. Exports are dominated by semiconductors and other products of the electronic industry, which in 1998 accounted for around 67% of total exports.
8. On the other hand, import growth was lower at around 10% average from 1993 to 1998, with 1998 registering an all-time decline of 14.3% owing to the financial crisis, and the resulting depreciation of the Philippine peso by around 39%. The bulk of imports is comprised of fuel, raw materials, intermediate goods and capital equipment.
(Growth rate in percent)
|Total exports of goods and services|
|(Merchandise exports in current terms)|
|Total imports of goods and services|
|(Merchandise imports in current terms)|
Source: National Statistics Coordination Board; National Economic Development Authority.
II. Major Developments in Trade and Related Economic Policy
9. Since the last Trade Policy Review in 1993, the Philippine Government has pursued trade and related economic reforms. The present report highlights four specific policy areas that have pronounced effects on the countrys international trade practices.
(1) Philippine Accession to the World Trade Organization
10. In December 1994, the Philippine Senate ratified the "Marrakesh Agreement Establishing the World Trade Organization". Thus, the Philippines became a founding Member of the WTO as the Agreement entered into force on 1 January 1995. The event signaled a conscious policy decision on the part of the Philippine Government to pursue further trade liberalization and embodied a firm policy objective of becoming more closely integrated with the multilateral trading system (MTS).
11. Philippine priorities in the WTO are as follows:
(a) Market Access - the full and faithful implementation of commitments in areas such as industrial tariffs, agriculture, textiles and clothing, and services;
(b) Rules and Disciplines - the proper use of WTO rules and disciplines including measures against unfair trade such as anti-dumping and countervailing duties, safeguard measures under fair trade conditions, customs valuation, subsidies, intellectual property rights; and
(c) Institutional Topics - faithful and timely enforcement of the decisions and recommendations under the dispute settlement mechanism and improving and strengthening the multilateral trading system through the Trade Policy Review mechanism.
A. Active Participation in Regional Trading Arrangements
12. The Philippines is a founding and active member of the ASEAN and plays an important role in the realization of the ASEAN Free Trade Area (AFTA). Launched in 1993, the timetable for AFTA was originally set for 15 years ending in the year 2008. In 1994, an agreement was reached to shorten the time frame for implementation within 10 years or until the year 2003. Very recently in 1998, ASEAN announced bold measures to even shorten the duration of AFTA by completing the process in the year 2002.
13. On a much wider regional front, the Philippines also actively participates in the Asia-Pacific Economic Cooperation (APEC) forum, supporting the objective of building on the open multilateral trading system espoused under the WTO. APEC members agreed after the conclusion of the Uruguay Round (UR) in 1994 to carry out all commitments fully and without delay. In various events since then, APEC has affirmed its goal for the full and effective implementation of the UR outcomes within the agreed time frames in a manner fully consistent with the letter and spirit of the WTO.
B. Continuing Tariff Reform Programme
14. The year 1993 marked the midpoint of the implementation of Executive Order No. 470, or the Tariff Reform Programme (TRP), for 1991-1995 undertaken by the Philippine Government as part of its overall economic reform package. Nearly 90% of the total number of tariff lines were dutiable at either duty free, 10%, 20%, 30%, 40% or 50% in the 1993 TRP Schedule. Those dutiable at 10% represented almost 35% of all tariff lines. The minimum tariff rate was 0% with the highest at 80%, and the overall average nominal tariff was 23.50%.
15. By 1995, the Philippine Government issued Executive Order (E.O.) No. 264 ushering in the third TRP. The E.O. envisioned ending tariff rates of 3% and 10% by 1 January 2003, adjusting to a uniform 5% tariff rate starting 1 January 2004. By the end of 1995, the minimum tariff was at 3% imposed on 35% of all tariff lines. Another 62% of tariff lines had duties of either 10%, 20% or 30%. Tariff lines with duties above 30% (ie., 35%, 40%, 45% and 50%) comprised less than 3% of the total number of tariff lines. Since then, the Philippines has continued to aggressively pursue the TRP issuing more comprehensive tariff adjustments under E.O. 465 which took effect in January 1998, and E.O. 486 (effective July 1998).
16. In 1999, E.O. 63 was implemented mainly in response to the current economic crisis, with the upward tariff adjustments primarily intended to alleviate the difficulties faced by domestic industries, arising from the financial crisis, and to provide temporary import relief to industries adversely affected by the crisis, and address the surge in low-priced imports from sources which experienced significant currency depreciation. It covers a total number of 720 tariff lines consisting of textile and garment products, petrochemicals, and iron and steel products. The applied tariffs on 694 tariff lines, for chemicals, textiles, metals and machinery, were raised to levels at or below those bound in the WTO. It should be noted, however, that the upward tariff adjustments are temporary and limited to the remainder of 1999, after which they will revert to their former rates. Furthermore, E.O. 63 reduced the tariffs on three tariff lines while maintaining present rates on 14 tariff lines which were scheduled for reductions.
17. The average nominal tariff is currently estimated at approximately 10% for 1999 and at 8% in the year 2000. More than half of the total number of tariff lines, which presently number 5,638, is dutiable at 3% in 1999. Another 31% of tariff lines have tariffs of either 10% or 20%. The minimum tariff is 0% and the maximum at 65%.
18. The Philippine Government plans to continue with its TRP until a uniform tariff rate of 5% on all products (except sensitive agricultural products), or at least a narrow range of 0% - 5%, is achieved in 2004.
C. Establishment of a New Central Bank
19. In 1993 the new Bangko Sentral ng Pilipinas (BSP) was established with the primary objective of maintaining price stability conducive to a balanced and sustainable growth of the economy. The fiscal and administrative autonomy of the BSP provided the monetary authorities adequate flexibility to pursue its objective of price stability. Likewise, the BSP was established with the objective of maintaining a central monetary authority which functions and operates as an independent and accountable corporate body with mandated responsibilities concerning money, banking and credit.
20. The bold reforms to deregulate the countrys foreign exchange (forex), trade, and payment systems were started by the former Central Bank of the Philippines (CBP) in 1992. Among the reforms pursued by the CBP and its successor, BSP, was the lifting of forex restrictions on current transactions. Under the liberalized current account environment, the mandatory surrender requirement on all forex receipts and on inward remittance of all forex receipts from exporters were removed. On the other hand, limits on the allowable amount of forex purchases by residents, to facilitate payments for services, were liberalized substantially. The liberalization process of the forex regime was continued by the BSP. At the same time, the BSP liberalized selected transactions in the capital account of the balance of payments. In particular, the rules applied to local banks on forex lending were relaxed to facilitate exporters access to foreign currency loans. A liberalized market on the entry and operation of foreign banks was put in place following the passage of RA 7721 on 15 May 1994.
21. At the outbreak of the currency crisis in July 1997, the monetary authorities decided to allow the peso to float freely as the effectiveness of the intensified dollar sales diminished.
Trade Liberalization and Wage Inequality in the Philippines
Publication | March 2010
This paper examine the role of trade liberalization in accounting for increasing wage inequality in the Philippines from 1994 to 2000—a period over which trade protection declined and inequality increased dramatically. Using the approach of Ferreira, Leite, and Wai-Poi (2007), it find that trade-induced effects on industry wage premia and industry-specific skill premia account for an economically insignificant increase in wage inequality. A more substantial role for trade liberalization comes through trade-induced employment reallocation effects whereby reductions in protection appear to have led to a shift of employment to more protected sectors, especially services where wage inequality tended to be high to begin with. Nevertheless, the key drivers of wage inequality appear to be changes in economy wide returns to education and changes in industry membership over and above those accounted for by our estimates of trade-induced employment reallocation effects. In order for trade liberalization to account for a relatively large portion of the increases in wage inequality, it would have to be a major determinant of the changes in economywide returns to education.
- Data and Measurement
- Economics, Education, Industry and trade, Trade facilitation, Economic research