Comprehensive Study Primer on Philippine Tariff and Trade Policy (2021 Edition)

The Customs Modernization and Tariff Act (CMTA)

Republic Act (RA) No. 10863, known as the Customs Modernization and Tariff Act (CMTA), was signed into law on May 30, 2016. Its primary mandates are to protect and enhance government revenue, institute fair and transparent customs management to facilitate international trade, and modernize customs and tariff administration. This Act repealed Presidential Decree (PD) No. 1464 (the Tariff and Customs Code of the Philippines of 1978) and PD No. 1853. The CMTA aims to harmonize customs procedures with international standards, employ modern practices using information and communications technology, and instantiate professionalism within the customs tax administration.

Section 1100 of the CMTA allows importers or exporters to file a written application for an advance ruling on the tariff classification of goods, with the Commission required to render a ruling within thirty (30) days. Under Section 1608, the Flexible Clause, the President is empowered to increase, reduce, or remove existing rates of import duty upon the recommendation of the National Economic and Development Authority (NEDA), though increased rates cannot exceed 100% ad valorem. Section 1609 focuses on the promotion of foreign trade, empowering the President to enter into trade agreements and modify duties to expand markets for Philippine products. The Commission's role under the CMTA includes adjudicating trade remedy cases, studying the impact of tariff policies on national competitiveness, and providing technical support to the President and Congress on tariff and non-tariff measures (NTMs).

The Philippine Tariff Reform Programs and MFN Structure

The Tariff Reform Program (TRP) is a continuous restructuring of the Philippine tariff system to reflect economic needs and technological advancements. TRP-I (1981-1985) narrowed the tariff band from 10%-100% down to 10%-50%, reducing the average nominal tariff from 42% to 28%. TRP-II (promulgated under Executive Order 470 in 1991) focused on resource allocation and access to essential inputs. TRP-III (EO 264 in 1995) aimed for a uniform level of protection, moving toward a 5% uniform tariff rate. TRP-IV (1998) introduced a recalibration scheme for "Philippine Winners," which included 22 industries such as copper, electronics, jewelry, and processed foods. By 2020, the average Most Favored Nation (MFN) tariff had fallen by 83% from 1980 levels, reaching approximately 8%.

As of June 2020, the frequency distribution of Philippine tariff rates involves 11,058 tariff lines under the ASEAN Harmonized Tariff Nomenclature (AHTN) 2017. Approximately 14% of these lines are at zero duty, 40% are between 1% and 5%, and 9% are high-tariff items ranging from 20% to 65%. Rice and sugar maintain the highest MFN rates at 50% and 65%, respectively. The Effective Protection Rate (EPR) remains a key metric for government-provided protection, defined as the percentage excess of domestic value added over world market value added. The formula for EPR at the firm level is:

EPR=PSj1+VAT−∑Aij1+VAT−∑Aijm(1+VAT)(1+ti)Pbj(1+VAT)(1+tj)−∑Aij1+VAT−∑Aijm(1+VAT)(1+ti)−1EPR = \frac{\frac{PS_j}{1+VAT} - \sum \frac{A_{ij}}{1+VAT} - \sum \frac{A_{ijm}}{(1+VAT)(1+t_i)}}{\frac{Pb_j}{(1+VAT)(1+t_j)} - \sum \frac{A_{ij}}{1+VAT} - \sum \frac{A_{ijm}}{(1+VAT)(1+t_i)}} - 1

where PSjPS_j is the selling price net of sales tax, AijA_{ij} is the cost of local raw materials, AijmA_{ijm} is the cost of imported raw materials, PbjPb_j is the border price of the product, and tit_i is the actual tariff rate on material input i.

Specific Trade Legislation: Rice and Jewelry

Republic Act No. 11203, known as The Rice Tariffication Law, took effect on March 5, 2019. It liberalized the rice trade by lifting quantitative import restrictions and replacing them with tariffs. Under Section 5, the bound rate for rice imported outside ASEAN is 180% or the tariff equivalent calculated by the Commission using WTO methodology, whichever is higher. The law aims to lower domestic rice prices and provide a 35% or higher protective tariff for local farmers. The Agricultural Competitiveness Enhancement Fund was also established to assist the sector.

Republic Act No. 8502, the Jewelry Industry Development Act of 1998, provides incentives to promote jewelry manufacturing. These include zero duty on imported raw materials (precious metals, loose gems, jewelry parts), zero duty on imported capital equipment, and an additional 50% tax deduction for expenses incurred in approved training schemes. Jewelry enterprises must be registered with the Board of Investments (BOI) to qualify for these benefits.

Tariff Nomenclature and the World Customs Organization

The World Customs Organization (WCO), established in 1952 as the Customs Co-operation Council (CCC), is the global center of customs expertise based in Brussels, Belgium. It represents 182 customs administrations processing 98% of world trade. The WCO maintains the Harmonized Commodity Description and Coding System (HS). The HS is a multipurpose 6-digit nomenclature used for customs tariffs and international trade statistics. The Philippines formally adopted the HS in 1988.

The ASEAN Harmonized Tariff Nomenclature (AHTN) is an 8-digit nomenclature based on the HS, adopted by the ten ASEAN Member States (AMS) to facilitate regional trade. The AHTN 2017 edition incorporates the sixth HS amendment. AMS are required to apply the AHTN up to the 8-digit level for all trade transactions. The Philippines uses alpha-numeric codes (e.g., 8417.80.00A) for national subdivisions to handle specific requirements like in-quota and out-quota rates. Any proposed AHTN amendments must be made by consensus through the ASEAN Directors-General of Customs.

Trade Remedy Measures

Anti-dumping measures (RA 8752) protect domestic industries from the unfair trade practice of dumping, which occurs when an export price is lower than the normal value in the exporter's home market. The dumping margin is the difference between these two values. Investigations are terminated if the dumping margin is de minimis (less than 2% of the export price) or if the volume of dumped imports is negligible (less than 3% of total imports). Definitive duties are generally imposed for five (5) years.

Subsidies and Countervailing Measures (RA 8751) address specific financial assistance provided by a foreign government that confers a benefit and injures a Philippine industry. "Green" or non-actionable subsidies include research assistance (up to 75% of costs) or assistance to disadvantaged regions. "Red" or prohibited subsidies include those contingent on export performance or the use of domestic over imported goods. Actionable "yellow" subsidies are subject to countervailing duties if injury is proven.

Safeguard measures (RA 8800) involve protecting a domestic industry from a sudden increase in imports that causes or threatens serious injury. General safeguards are non-selective (MFN basis) and may take the form of tariff increases or quantitative restrictions. Special safeguards (SSG) apply to agricultural products where QRs were tariffied. The SSG price test triggers additional duty if the actual C.I.F. import price falls 10% or more below the trigger price.

Non-Tariff Measures (NTMs)

Non-Tariff Measures are policy measures other than ordinary customs tariffs that can potentially impact international trade by changing quantities, prices, or both. UNCTAD classifies NTMs into 16 chapters, including Technical Measures (SPS and TBT) and Non-Technical Measures (Quotas, Price Controls, etc.). The Philippines' NTM landscape involves 42 agencies, with the Department of Agriculture (Bureau of Animal Industry, etc.) being the top issuers. As of 2018, 1,220 NTMs were in force in the Philippines, with SPS and TBT measures each comprising approximately 29% of the total. The Philippines has a Coverage Ratio of 71%, meaning 71% of all tariff lines have an associated NTM.

Multilateral and Regional Trading Arrangements

The World Trade Organization (WTO), established January 1, 1995, operates on principles of non-discrimination (MFN and National Treatment). The Agreement on Agriculture (AoA) mandated the "tariffication" of agricultural products, using Minimum Access Volumes (MAVs) for in-quota imports. The Information Technology Agreement (ITA) and its expansion aim to eliminate tariffs on hundreds of IT products like semiconductors and GPS equipment. The Doha Round (DDA) seeks further reforms in agricultural and industrial market access.

Asia-Pacific Economic Cooperation (APEC), founded in 1989, established the Bogor Goals for free trade and investment by 2010 (developed) and 2020 (developing). APEC also endorsed a list of 54 environmental goods for tariff reduction to 5% or less. The Association of Southeast Asian Nations (ASEAN) works toward the ASEAN Economic Community (AEC) 2025. Intra-ASEAN tariffs for ASEAN-6 are virtually eliminated (average 0.03% in 2017). The Regional Comprehensive Economic Partnership (RCEP) is a major trade agreement between ASEAN and partners like Australia, China, Japan, Korea, and New Zealand.

Bilateral Agreements and Rules of Origin

The Philippines-Japan Economic Partnership Agreement (PJEPA), implemented in 2008, was the country's first bilateral FTA, covering trade in goods, services, and investments. The Philippines-European Free Trade Association (PH-EFTA) FTA, involving Iceland, Liechtenstein, Norway, and Switzerland, entered into force on June 1, 2018. Under PH-EFTA, the EFTA States abolished all duties on industrial products from the Philippines upon entry into force.

Rules of Origin (ROO) determine the "economic nationality" of a product. Criteria include "Wholly Obtained" (e.g., minerals extracted from the soil) and "Substantial Transformation." The latter is often established via the Regional Value Content (RVC) requirement or a Change in Tariff Classification (CTC) at the 2, 4, or 6-digit levels. The standard ATIGA ROO is RVC 40 or a Change in Tariff Heading (CTH). Certificates of Origin (e.g., Form D for ATIGA, Form E for ACFTA) are required to avail of preferential rates.

Competition Policy and Law

Competition policy aims to promote economic efficiency and consumer welfare by redressing anti-competitive practices. The Philippine Competition Act (RA 10667) created the Philippine Competition Commission (PCC) as an independent quasi-judicial body. The law prohibits anti-competitive agreements (such as price-fixing and bid-rigging), abuse of dominant position (predatory pricing, exclusionary behavior), and anti-competitive mergers and acquisitions. Administrative fines for violations can range from Php 200,000 to Php 600,000 under the Revised Penal Code, alongside civil and structural remedies like divestment.

Global Trade Policy Briefers

E-Commerce and Digital Trade

E-commerce involves the sale or purchase of goods over computer-mediated networks. The UNCTAD B2C E-commerce Index measures preparedness for online shopping; in 2019, the Netherlands ranked 1st (96.4), while Singapore ranked 3rd (95.1). The Philippines ranked 6th among ASEAN countries. During the COVID-19 pandemic, Philippine e-commerce saw US$ 6.87 billion spent on travel/accommodation and US$ 741 million on video games.

Global Protectionism and US-China Trade War

Harmful trade interventions rose significantly, with a peak of 2,204 measures in 2018. Common policy instruments include subsidies (7,431 global interventions) and export-related measures. The US-China Trade War began with a Section 301 investigation in 2017 into Chinese IP practices. By 2019, US tariffs covered hundreds of billions in Chinese goods, and China retaliated on products like pork and aluminum. A Phase One deal took effect on February 14, 2020. China is the Philippines' 1st import source (19% share), while the US is the 1st source of remittances (US$ 11.3 billion in 2019).

COVID-19 and Brexit

In response to COVID-19, 143 countries adopted trade measures. The Philippines eliminated import tariffs on medical equipment and PPE between March and May 2020. Regarding Brexit, the UK became a non-EU member on January 31, 2020. Beginning January 1, 2021, the UK Global Tariff (UKGT) replaced the EU Common External Tariff for the UK. The Philippines is placed under the UK GSP enhanced framework, replicating its EU GSP+ status.

Technical Supplementary Explanatory Notes (AHTN 2017)

Chapter 1-27: Agricultural and Primary Products

  • Oxen (0102.29.11): Castrated adult male bovine animals trained for draft work. They are more muscular and sturdy than reproductive bulls.

  • Mechanically Deboned Meat (0207.14.91): A paste-like product obtained by forcing bones with attached edible meat through a sieve under high pressure. Muscle tissue is no longer visible.

  • Botia (0301.11.11): Ornamental freshwater fish, bright yellow with 3 black bands.

  • Hom Mali Rice (1006.20.10): Thai fragrant rice with non-broken kernels >= 7 mm in length and a length-to-width ratio of at least 3.2:1.

  • Agarwood Chips (1211.90.95): Dark resinous heartwood from Aquilaria trees, produced via pathological processes/mould infection.

  • Coking Coal (2701.12.10): Bituminous coal used for coke production with a gross calorific value > 23,865 kJ/kg.

  • Aviation Spirit (2710.12.31): Gasoline prepared for aviation piston engines, distinct from jet fuel (Avjet).

Chapter 32-40: Chemicals and Plastics

  • UV Curable Inks (3215.11.10): Printing inks dried using ultraviolet rays rather than evaporation.

  • LLDPE (3901.10.12): Linear Low-Density Polyethylene, characterized by a linear backbone and short branches.

  • Rigid Plastics (3920.10.11): Defined as having a modulus of elasticity > 100,000 psi at 23 °C (ASTM D747/D790).

  • Centrifuged Rubber Latex (4001.10.11): Latex concentrated to >= 60% dry rubber content by weight using centrifugal force.

Chapter 44-96: Manufactured Goods

  • Pencil Slats (4408.10.10): Sized rectangular sheets (approx. 20 cm x 10 cm x 5 mm) made of cedar or jelutong for pencil manufacturing.

  • Barong Tagalog (6205.20.20): Lightweight upper garment, usually embroidered and worn untucked; the Philippine national attire.

  • Hubless Pipes (7303.00.11): Cast iron pipes with plain ends connected by flexible stainless steel couplings.

  • Aluminium Can Stock (7606.12.32): Sheet in coils used for rigid cans. Body stock (manganese predominant) tensile strength is 262 MPa; End stock (magnesium predominant) is 345 MPa.

  • Spindle Motors (8501.10.30): High-precision single-phase motors rotating disks at 3,000 to 10,000 RPM.

  • Pearl Nucleus (9601.90.12): Spherical shell bead implanted in oysters to produce cultured pearls.