VI. TRADE REGULATIONS AND STANDARDS A. Tariffs and Import Taxes Under the Government's ongoing tariff restructuring program, the average nominal tariff has fallen from 42 percent in 1979 to about 22 percent in mid-1994. Further reductions over the next year will bring the average down to 20 percent, grouped into four tiers of 3, 10, 20, and 30 percent. An executive order issued in May 1994 imposed a minimum tariff of three percent on 50 line items which had previously been duty-free. About 208 products are exempt from the tariff reduction program and remain subject to 50 percent tariff. Included in this group are rice, coconut oil, sugar, fruits, and luxury consumer-oriented goods such as liquor, wines, processed fruits and vegetables, snack foods, tobacco, candy and leather goods. A 60 percent tariff on high-grade boneless beef was reduced to 40 percent on July 1, 1994 and will be reduced to a final rate of 30 percent (same rate as manufacturing grade cuts) beginning July 1, 1995. A value added tax (VAT) of 10 percent is imposed on imports for resale or reuse. The VAT is based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus import duties, excise duties, and other charges. Other charges refers to charges on the imports prior to release from customs custody, including postage, insurance, commissions, and similar charges. If duties are determined on the basis of volume or quantity, the base is the landed cost (duties, freight, insurance, and other charges). Firms located in export processing zones are excluded from VAT. B. Customs Valuation The Philippines is the only country which continues to utilize Home Consumption Value (HCV) as the basis for assessing import duties. It also requires that all shipments valued at over $500 be inspected prior to shipment, to prevent misdeclaration of goods and tariff evasion. Both of these features of law have engendered numerous complaints from business both abroad and in the Philippines. The Government has publicly announced it will shift to a variation of the Brussels Definition of Value on January 1, 1995, and to a fully GATT/WTO consistent system within five years of the entry into force of the Uruguay Round Agreement. However, the necessary legislation must first be enacted by Congress. C. Import Licenses An ongoing import liberalization program has significantly reduced the items subject to import licensing requirements. For most products, quantitative restrictions are imposed for reasons of public health, morals and national security. For agricultural commodities, however, the "Magna Carta of Small Farmers", issued on June 4, 1992, effectively prevents the importation of certain products that are produced locally in sufficient quantity. Specifically mentioned are corn and corn substitutes (including feed wheat), poultry and poultry products, hogs and pork products, and meat and meat products (except beef and beef products). (See Section III-E, p. 8, concerning Uruguay Round commitments, and Section E, below, on Import Documentation.) Under the Board of Investments' (BOI) Progressive Industrial Development Program, imports of commercial vehicles and parts still require a BOI "authority to import." D. Export Controls Exporters enjoy a variety of incentives, including simplified import and export procedures, exemption from the payment of excise taxes on exports, refunds of value-added taxes paid on imports for re-export, foreign exchange assistance, and the use of low-cost facilities in the country's Export Processing Zones administered by the Export Processing Zone Authority. Nevertheless, the Bureau of Export Trade Promotion of the Department of Trade and Industry has listed 34 products that require clearance from various Government agencies prior to shipment. These products are: PRODUCT GOVERNMENT AGENCY 1. Abaca and ramie seeds, Fiber Industry seedlings, suckers, and Development Authority root stocks and other planting materials 2. Aircraft Department of Transportation and Communications 3. All exports to socialist Philippine International and centrally planned Trading Corporation economy countries 4. All plants, planting Bureau of Plant Industry materials and plant products capable of harboring pests; insect specimens, live and dead 5. Animals, animal products and Bureau of Animal Industry effects 6. Antiques, cultural artifacts National Museum and historical relics 7. Mangrove Department of Environment and Natural Resources 8. Milkfish fry Bureau of Fisheries and Aquatic Resources 9. Buri seeds and seedlings Bureau of Plant Industry 10. Cement and clinker Board of Investments 11. Coffee Department of Trade and Industry 12. Copper Concentrates Board of Investments 13. Firearms and Ammunitions Firearms and Explosives Office, Philippine National Police, Department of Interior & Local Government 14. Garments and textiles, Garments and Textile Export carpets, polyester stable Board fiber, filament yarns, fabrics, upholstered furniture and other natural and synthetic fibers and all products made up of whole or in part of these fibers for export to all countries with or without quota 15. Gold from small scale mining Bangko Sentral ng Pilipinas or panned gold 16. Grains and grain by-products National Food Authority 17. Logs, poles and piles Department of Environment and including log core and Natural Resources flitches/railroad ties 18. Lumber Department of Environment and Natural Resources 19. Matured coconuts/seedlings Philippine Coconut Authority 20. Motion pictures/television Movie and Television Review films and related publicity and Classification Board materials 21. Natural fibers Fiber Industry Development Authority 22. Oil and petroleum products Energy Regulatory Board 23. Legal tender Phil. notes and Bangko Sentral ng Pilipinas coins, checks, money orders and other bills of exchange drawn in pesos against banks operating in the Phils. greater that P5,000.00 24. Prawn-spawner and fry Bureau of Fisheries and Aquatic Resources 25. Radioactive Materials Phil. Nuclear Research Institute 26. Raw materials for cottage Department of Trade and industries Industry 27. Shells Bureau of Fisheries and Aquatic Resources 28. Undersized raw shells Bureau of Fisheries and Aquatic Resources 29. Stalactites and stalagmites Dept. of Environment and Natural Resources 30. Sugar and molasses Sugar Regulatory Administration 31. Wildlife species Bureau of Fisheries & Aquatic Resources 32. Wild marine species Bureau of Fisheries and Aquatic Resources 33. Wild terrestrial species Protected Areas and whether live, stuffed or Wildlife Bureau by-products 34. Other wild terrestrial Protected Areas and Wildlife species Bureau E. Import/Export Documentation Export Documentation: The Department of Trade Industry, through its Export Assistance Network (EXPONET), is tasked with assisting importers and exporters set up their business transactions. Export procedures have been simplified, and involve the following steps: - Export Declaration (ED) with Foreign Exchange Process Form is filled out and filed with local Authorized Agent Bank (AAB). - After processing the ED, the AAB releases the original and other copies to the exporters (except the working blue copy). - AAB forwards ED3 to the Bureau of Customs (BOC) at the One-Stop Export Documentation Center (OSEDC), South Harbor, Ninoy Aquino International Airport (NAIA) or at the local Customs Office. - Exporter secures an export commodity clearance form the proper government commodity office, if required by the buyer. - With the required supporting documents, the BOC approves Authority to Load on the ED. Import Documentation: Before any importation into the Philippines can be made, an importer must identify the product in the Philippine Standard Commodity Classification Manual. This commodity classification is the general basis for determining whether the item is freely importable, prohibited, or regulated. For freely importable products, no permit is required, but for regulated or prohibited items, a commodity clearance from the appropriate government agency is required. The Philippine Government requires import permits for meat and meat products, fresh produce, planting seeds/plants and all agricultural commodities which are officially prohibited for import. For meat and meat products, the import permit consists of a Veterinary Quarantine Clearance (VQC) by the National Meat Inspection Commission (NMIC) for beef, poultry, pork and all products of same. For fresh produce and planting seeds/plants, the import permit is issued by the Bureau of Plant Industry (BPI). For both commodity groups, the respective agencies take into account not only domestic sanitary and phytosanitary regulations, but also domestic production/supply levels. Consequently, the import permit process for meat, produce and planting material is often used as a de facto quantitative restriction on imports. The U.S. has been largely prequalified by both the NMIC and BPI for compliance with Philippine sanitary and phytosanitary regulations. The exception is fresh fruit from Florida and Texas, which is prohibited due to Philippine concerns regarding fruit fly infestation. For commodities which are officially prohibited for import, import licenses may be issued if the Agriculture Secretary certifies that domestic supplies are inadequate. Until implementation of the new market access rules established under the GATT Uruguay Round, several agricultural commodities will continue to be prohibited for import. These include: corn, all other feedgrains, poultry/products, pork/products, prepared or preserved meat/products, fresh garlic, fresh cabbage, fresh onions, fresh potatoes, sugar, coffee, and live swine, chicken and horses except for breeding purposes. Further, Republic Act No. 7607 (the so-called "Magna Carta of Small Farmers") prohibits imports of any agricultural commodity which is grown domestically in sufficient quantity unless the Agricultural Secretary certifies that domestic supplies are inadequate. This broad-reaching legislation enables the Philippines to potentially ban imports of a wide variety of commodities. Most recently, it has been used to restrict imports of fresh U.S. vegetables. Import documentation is generally routed through Authorized Agent Banks (AABs). There are several modes of payment by which an importer can pay its supplier: a. Letter of Credits (L/Cs), Documents against Acceptance (D/A), Open Account (O/A), Documents against Payment (D/P) and Direct Remittance are used for imports involving foreign exchange remittances. b. Imports without foreign exchange remittance are paid on a self- funded (no-dollar) basis, whereby imports are funded from importer's own foreign currency deposit accounts overseas. c. Special Import Arrangements can be done on a consignment basis, open account arrangement and lease, lease-purchase, leverage lease, lease with the option to purchase and similar arrangements. These transactions do not require prior Bangko Sentral approval but will follow existing rules and regulations of the BOC. Customs Memorandum Order (CMO) No. 149-88 requires the registration of all importers/consignees who regularly import or lease twice a year in commercial quantity. Application forms can be secured from the Customs Intelligence and Investigation Service or in the outports from the District of the Sub-Port Collector. The Philippine Government has engaged the services of the Societe Generale de Surveillance S.A. (SGS) to implement the "Globalized Comprehensive Import Supervision Scheme (CISS)." Under this scheme, all importations into the Philippines valued at $500.00 and above and coming from any country of supply are subject to pre-shipment inspection by SGS in the country of origin. Complete SGS guidelines are contained in the Central Bank Memorandum to all AABs and Customs Memorandum Order No. 39-92 dated March 31, 1992. Guidance on this system is available from the U.S. Embassy's Commercial Section, or from SGS' main U.S. office in New York City. Prior to or upon arrival of the shipment, an importer should file an import entry together with all supporting documents with the Entry Processing Division (EPD) of the BOC. When all documentation is completed and processed, the imported goods are released at the Pier and Inspection Division of BOC and/or transferred (for warehousing entries) to the: A) Consignee's Warehouse, Customs Bonded Warehouse or Container Yard-Container Freight Station; B) Customs Common Bonded Warehouse; C) Firms's Bonded Manufacturing Warehouse; or D) EPZA Warehouse F. Temporary Entry All articles brought into the Philippines for repair, processing or reconditioning to be re-exported upon completion are exempted from the payment of import duties provided that a bond amounting to one and one- half times the ascertained duties and taxes and other charges is paid to the Bureau of Customs. Products that are commercial samples, for exhibit purposes or of no appreciable commercial value, and samples of medicine properly marked "physician's samples, not for resale" are also exempted from import duty. G. Labeling, Marking Requirements Minimum requirements for every imported or locally manufactured product are the following: 1. Registered trade or brand name; 2. Duly registered trademark; 3. Duly registered business name; 4. Address of the manufacturer, importer or repacker of the consumer product in the Philippines; 5. General make or active ingredients; 6. Net quantity of contents, in terms of weight, measure or numerical count rounded to at least nearest tenths in metric system; 7. Country of manufacture, if imported; and, 8. If a consumer product is manufactured, refilled, or repacked under license from a principal, the label shall state the facts. The following additional information may be required by the relevant government agency: 1. Whether it is flammable or inflammable; 2. Directions for use, if necessary; 3. Warning of Toxicity; 4. Wattage, voltage or amperes; or 5. Process of manufacture used, if necessary. If the product is certified to have passed the consumer product standard prescribed by the Bureau of Product Standards, the label must contain the Product Standard (PS) quality mark. Exemptions from the above marking requirements include: articles that cannot be marked prior to shipment without injury or at prohibitive expense; crude substances, crude products, and products imported for use by the importer and not for resale in their imported form; or products produced 20 or more years ago. For these items, the container must indicate the country of origin and product name. Mislabelling, mispresentation or misbranding may subject the entire shipment to seizure and disposal. Agricultural Items: Processed packaged food products are required to comply to the regulations of the Philippine Bureau of Food and Drugs (BFAD). All labeling must be in English. For U.S. products, compliance with USFDA requirements will virtually always assure compliance with Philippine regulations. It is the importer's responsibility to satisfy BFAD requirements. Textile and garment labeling: A reasonably legible label, with letters not less than 1.5 mm in size, on which the information is stamped, printed, woven or indicated in tags is mandatory for the following: -- Finished textile fabrics in rolls or folds; -- Textile piece goods; -- Ready-made garments; -- Household and institutional linens such as bedsheets, towels, napkins, and placemats; -- Textile products such as handkerchiefs, umbrellas, socks, hosiery, neckties and scarves. Labels are not mandatory for special items made of textiles such as narrow fabrics, artificial flowers, purses, doilies, bags, hats, belts, gloves, and other products not specified in the preceding paragraph. General Label Requirements: For ready-made garments, the label must be durable enough to withstand normal laundering, and shall include the percent fiber content by mass using the generic name of the fiber in the order of predominance, the manufacturers' name or trademark or both, and the country of origin (the address of manufacturer may also be indicated). Method of labeling: For finished textile fabrics in rolls or in folds, a label must be stamped, printed, or woven on the selvedge not more than 2 meters apart regardless of the width of the fabric. When it is not practical or possible to conform to the requirements set forth in the previous paragraph, the alternative method shall be to print or stamp the required information on the other edge portion of the fabric roll or fold, and, in addition, to attach tags at the beginning and end of the roll or folds. For textile piece goods, a tag must be attached to the goods when there is no label on the selvedge. In cases where tags are to be attached by the purchaser (retailer), the name of the store must be indicated. For ready-made garments, the label for blouses, dresses, jackets, robes, nightgowns, shirts and sweaters must be affixed at the center back neckline or at any other appropriate place such as side seam, facing of front placket, etc. The label for pants, skirts, pajamas, shorts, tights, or half-slips, must be affixed at any appropriate place such as the inside waist-band, inner facing of the ply, etc. H. Prohibited Imports The following items may not be imported into the Philippines: -- Dynamite, gunpowder, ammunition and other explosives, firearms and weapons of war, and parts thereof, except when authorized by law; -- Written or printed articles in any form containing any matter advocating or inciting treason, or rebellion, insurrection, sedition or subversion against the government of the Philippines, or forcible resistance to any law of the Philippines, or containing any threat to take the life of, or inflict bodily harm upon any person in the Philippines; -- Written or printed articles, negatives or cinematographic film, photographs, engravings, lithographs, objects, paintings, drawings or other representation of an obscene or immoral character; -- Articles, instruments, drugs and substances designed, intended or adapted for producing unlawful abortion, or any printed matter which advertises or describes or gives directly or indirectly information where, how or by whom unlawful abortion is produced; -- Roulette wheels, gambling outfits, loaded dice, marked cards, machines, apparatus or mechanical devices used in gambling or the distribution of money, cigars, cigarettes or other articles when such distribution is dependent on chance, including jackpot and pinball machines or similar contrivances, or parts thereof; -- Lottery and sweepstakes tickets except those authorized by the Philippine government, advertisements thereof, and lists of drawings therein; -- Any article manufactured in whole or in part of gold, silver or other precious metals or alloys thereof, the stamps, brands or marks of which do not indicate the actual fineness of quality of said metals or alloys; -- Any adulterated or misbranded articles of food or any adulterated or misbranded drug in violation of the provisions of the "Food and Drugs Act"; -- Marijuana, opium, poppies, coca leaves, heroin or any other narcotics or synthetic drugs which are or may hereafter be declared habit forming by the President of the Philippines, or any compound, manufactured salt, derivative, or preparation thereof, except when imported by the government of the Philippines or any person duly authorized by the Dangerous Drugs Board, for medicinal purposes only; -- Opium pipes and parts thereof, of whatever material; and -- All other articles and parts thereof, the importation of which is prohibited by law or rules and regulations issued by competent authority. For a list of agricultural items that are prohibited for import, see Section E, Import Documentation, above. I. Standards Established by Republic Act No. 4109 and Executive Order 133, the Bureau of Product Standards (BPS) is a governmental body under the Department of Trade and Industry and is tasked to promote quality through product certification and quality management system certification. The Bureau offers the following services to importers and manufacturers: 1. PS Quality Marking Scheme: A PS quality mark is affixed on products manufactured by companies that comply with national or internationally-accepted standards. The BPS undertakes rigid testing and assessment of the product based on standards set by the Bureau. 2. Issues Import Commodity Clearance to importers of commodities conforming to national and internationally accepted standards. In general, the Philippines' standards are based on accepted American standards, such that U.S. products/equipment generally do not encounter any problem with BPS clearance. 3. ISO 9000 Certification: ISO 9000 Certification was launched in the Philippines on April 23, 1992 to spur business growth and provide greater assistance to Filipino manufacturers and exporters in meeting global market requirements. The requirements set by the International Standards Organization under the ISO 9000 Series have been adopted as the Philippine National Standards (PNS) 1000 Series. The standard can be applied in the services sector (including banking, insurance, tourism and medical services), as well as in manufacturing. The BPS concluded a Memorandum of Understanding with foreign certification bodies for joint quality system assessment work in specific fields. These organizations are TUV Product Service GmbH (Germany) and BVQI (U.K.). A certification from BPS shows that a company is structured for quality products and services. As of April 15, 1994, 34 local companies were certified by the BPS as complying with ISO 9000. 4. Metric System: The BPS requires that only the modern metric system (SI units) can be used for measurement of any products, commodities, materials, services, utilities, and in commercial transactions, contracts and other legal instruments, official records and documents. Importation of non-metric measuring devices, instrumentation, and apparatus is prohibited without prior clearance with the BPS. Information on Philippine standards, including acceptable international standards, is available from the BPS at tel. nos.: (632) 817-5339/817- 9602/817-5440, fax no: (632) 817-9870. J. Free Trade Zones/Bonded Warehouses Free Trade Zones: The Export Processing Zone Authority (EPZA), a government corporation, operates and manages four export processing zones (EPZs) and has designated ten privately-owned industrial sites as "special" EPZs, in which the Government offers the same incentives as those available in a regular zone. Any person, partnership, corporation, or business organization, regardless of nationality, control and/or ownership, may apply for registration as an export zone enterprise. In general, to qualify for EPZ incentives all production must be exported. However, there are provisions under which up to 30 percent of production may be sold domestically, subject to applicable taxes and duties. Bonded Warehouses: The bonded warehouse scheme entitles a firm to tax and duty exemption for imported raw materials used in the manufacture of products for export. The government administers the following schemes: 1. Bonded Manufacturing Warehouse (BMW) Scheme: This scheme authorizes a firm to store and manufacture imported inputs without going through the normal customs import procedures and payment of taxes. Under this facility, the firm is required to post a bond covering the amount of duties, taxes and their charges due on importation and to ensure the exportation of the finished products within the designated period. A letter of request or application to establish a BMW must be filed with the Commissioner of Customs or the Executive Director of the Garment and Textile Export Board (GTEB) for garments. Firms are required to pay a performance bond, a general warehousing bond and annual warehouse supervision fees. 2. Customs Common Bonded Warehouse (CCBW) Scheme: In contrast to the BMW, the CCBW scheme caters to small and medium scale exporters who cannot afford to operate individual BMWs. Companies operating the CCBWs serve as import agents and carry out all the necessary import procedures for a service fee of at least 3.5 percent of the importation's value. The service fee covers any expenses incurred through the use of CCBW. Operations and terms are similar to BMWs. Export-oriented industries such as electronic components and garments enjoy the benefits of bonded warehousing schemes. K. Special Import Provisions EPZA-registered enterprises are entitled to tax and duty exemption on imports of capital equipment, machinery and accompanying spare parts for the exclusive use by the registered zone enterprise. Goods brought into an EPZ (raw materials, supplies, merchandise, and other articles) enjoy simplified import procedures, including exemption from pre-inspection and the assessment and payment of duties and taxes unless such goods are subsequently sold in the Philippines. L. Membership in Free Trade Arrangements In January 1992, the Philippines and the five other ASEAN countries (Singapore, Thailand, Malaysia, Indonesia, and Brunei) concluded the so- called Singapore Declaration to create the ASEAN Free Trade Area (AFTA). At the heart of AFTA is the Common Effective Preferential Tariff scheme (CEPT), under which member countries will seek to reduce tariffs on products traded among themselves to 0-5 percent within 15 years (by the year 2008). Unlike other ASEAN countries, which began implementing CEPT on January 1, 1994, the Philippines will not begin implementation until current tariff reforms under E.O. 470 are completed on July 1, 1995. Included within the CEPT are 15 products identified for "fast track" tariff reduction to 0-5 percent within 7-10 years (vegetables, cement, chemicals, pharmaceuticals, fertilizers, plastics, rubber products, leather products, textiles, ceramic and glass products, gems and jewelry, copper cathodes, electronics, and wooden and rattan furniture). Other products that are not on the exclusion list or subject to fast track treatment will undergo tariff reduction under normal track procedures. CEPT allows member countries to exclude certain products from tariff reductions, including unprocessed agricultural products, "general" products related to health or security, and "sensitive" products that would be on a temporary exclusion list and subject to review by the year 2001. The Philippine exclusion list consists of over 350 unprocessed agricultural products, about 30 general exceptions, and roughly 650 temporary exclusions (mostly garments, processed food, paper, and motor vehicles). According to Philippine trade statistics, the total 1991 import value of these products was $1.1 billion, of which less than 10 percent was imported from ASEAN. The Philippines claims to have a "moderately restrictive" exclusion list, since only 12.8 percent of all tariff lines are excluded on a temporary basis. Actions are ongoing gradually to broaden the CEPT by taking products off the exclusion lists. AFTA also covers other areas of cooperation, including the harmonization of standards, the reciprocal recognition of testing and certification, the removal of barriers to foreign investments, macroeconomic consultations, rules for fair competition, and the promotion of venture capital formation.