Trade policies and practices by measure Measures Directly Affecting Imports

3. trade policies and practices by measure

   1. Measures Directly Affecting Imports

1. Customs registration, documentation, procedures, and valuation

1. 
   Importers need to be registered with the Bureau of Customs (BOC) under the authority of the Department of Finance¹ (fees of PHP 1,000 in the case of new applications and PHP 500 for renewal). The BOC has automated its core processes through the Electronic-to-Mobile (E2M) system to streamline the payment and clearance processes at the Bureau of Customs.²
   
2. 
   Importers (or customs brokers) are required to lodge an import entry electronically through the E2M system.³ However, they must submit hardcopies of import documents and attachments to the Entry Processing Unit for verification. In general, all imports must be accompanied by a formal customs entry declaration form that can be submitted electronically through the E2M system; commercial invoice; bill of lading (or air waybill for cargo shipments); packing list; certificate of origin (if required); and import licence (if required) (section (iv) below). Imports must be marked with their country of origin in an official Philippine language. Once all regulations and requirements are met and duties and fees paid, goods are released via electronic notification.
   
3. 
   Product-specific documentation is also required for some imports, including SPS certificates (section (vi)(b) below).⁴ Moreover, certain imports are subject to mandatory certification (section (vi)(a) below), while some imports are strictly prohibited (section (iv) below).
   
4. 
   Shipments continue to be classified according to risk: a high risk "red lane" (subject to physical examination and documentary review; requires an average of 1-2 days for clearance); a moderate risk "yellow lane" (documentary review; requires an average of four hours for clearance); and a low-risk "green lane" (not subject to any documentary review or physical inspection; requires an average of two hours for clearance). The BOC also uses the "super green lane" (SGL) for qualified importers, to provide immediate clearance.⁵ According to information provided by the BOC, in 2010, 60% of all imports were classified as yellow, followed by red (23%), green (10%), and SGL (7%).
   
5. 
   Under ASEAN, the Philippines is required to implement a "national single window" in order to expedite both intra and extra-ASEAN trade.⁶
   
6. 
   In 2001, the Philippines adopted the transaction value as the basis for calculating the dutiable value of imports.⁷ The Philippines no longer maintains a transition period to apply the computed value method.⁸ It reserved the right (with no expiry date) to reverse the order of paragraphs 3 and 4 of Annex III.⁹
   
7. 
   A Valuation and Classification Review Committee (VCRC) is organized in every district port to solve valuation and classification disputes.¹⁰ The decision of the VCRC is appealable to the Central Valuation Classification Review and Ruling Committee (CVCRRC) within 15 days of receipt of the decision. The CVCRRC's decision is subject only to one motion for reconsideration, which should be filed within five working days of its receipt. If no motion is filed in time or if denied, the CVCRRC resolution becomes final. The aggrieved importer may pay under "formal protest". In the Port of Manila, an annual average of 100 valuation/classification disputes have been referred to the VCRC since 2005.
   
8. 
   The Philippines discontinued preshipment inspection on 31 March 2000.¹¹ Nonetheless, in case of bulk and break-bulk cargoes a load port survey/discharge port survey is required under the Bulk and Break-Bulk Enhancement Programme implemented as from June 2010.
   
9. 
   The Philippines is a member of the World Customs Organization (WCO). It acceded to the WCO's Revised Kyoto Convention in June 2010 but with certain reservations, including full adoption of post-entry auditing. It has been suggested that the Tariff and Customs Code of the Philippines (TCCP) needs to be revised to achieve full compliance with the Convention's provisions; this is being deliberated in Congress.
   

3. Rules of origin

1. 
   The Philippines has notified the WTO that it does not have non-preferential rules of origin.¹²
   
2. 
   The Philippines applies preferential rules of origin under its regional and bilateral trade agreements, i.e. Association of Southeast Asian Nations (ASEAN-ATIGA); ASEAN-Australia-New Zealand; ASEAN-China; ASEAN-India; ASEAN-Japan; ASEAN-Korea; and Philippines-Japan (Chapter II(2)). In general, the basic rule is a product wholly obtained or that has undergone substantial transformation in the country of export. Substantial transformation is defined as a change in tariff classification, value-added threshold, and specific process, which vary across agreements. For example, it confers origin status under the ASEAN Free Trade Area to goods that have an ASEAN content of at least 40% of their f.o.b. value.
   

3. Tariffs, other duties, and taxes

12. 
    Goods imported into the Philippines may be subject to customs tariffs, excise duties, VAT, and various customs fees and charges for BOC services (section (g) below). The Philippines conducts a full review of its tariff every five years to assist business sectors in their long-term strategic plans. Two comprehensive reviews have been carried out since the last TPR of the Philippines: in 2007, the tariff rates of several products were modified¹³; and a review was recently concluded as part of the Government's assessment of its economic policy and line with its tariff commitments in the WTO and under preferential agreements.¹⁴
    
13. 
    Under Sections 401 and 402 of the TCCP (as amended), concerned parties may request the Tariff Commission to conduct public hearings/consultations on proposed tariff modifications. In addition, in the interests of the economy, general welfare, and/or national security, the President may raise, reduce or remove import duties (including classification changes) upon the recommendation of the National Economic and Development Authority (NEDA). Rates may be lowered, or raised to a maximum of 100% ad valorem, in one or several stages; this could breach bindings, thereby undermining predictability. Nonetheless, the authorities maintain that WTO bindings have not been breached.
    
14. 
    With the adoption of the 2007 ASEAN Harmonized Tariff Nomenclature (the AHTN Protocol)¹⁵, the Philippines' tariff was simplified and now comprises 8,299 lines at the HS eight-digit level (compared with 10,688 in 2004), with rates ranging from zero to 65%. The share of duty-free imports increased from 3.7% in 2004 to 4.7% in 2011 (Tables III.1 and AIII.1). Rice and sugar receive the highest tariff protection. All tariffs (levied on the c.i.f. value of imports) are ad valorem, which enhances transparency. Overall, 56.3% of tariff lines are within the range >0-5% (Chart III.1).
    

(% unless otherwise indicated)

a Final bound rates are based on the 2004 tariff schedule (HS02 nomenclature). Calculations on bound averages are based on 5,938 fully and 29 partially bound rates (representing 58.6 % of the total tariff). When using the 2002 tariff schedule, the binding coverage rises from 58.6% to 64.9% because of the difference in the number of tariff lines, i.e. 5,640 in 2002 and 10,688 in 2004.

b Domestic tariff peaks are defined as those exceeding three times the overall average applied rate.

c International tariff peaks are defined as those exceeding 15%.

d Nuisance applied rates are those greater than zero, but less than or equal to 2%.

Note: The 2004 tariff is based on HS02 nomenclature; the 2011 tariff is based on HS07.

15. 
    The simple average applied MFN rate is 6.4% (down from 7.4% in 2004). Tariffs average 10.2% (10.3% in 2004) on agriculture (WTO definition¹⁶), and 5.8% on non-agricultural products (7% in 2004). Using ISIC (Revision 2) definition (Table III.2), the least tariff protected sector is mining and quarrying (2.4%), followed by manufacturing (6.4%), and agriculture (7.7%).
    

16. 
    On aggregate, the tariff displays mixed escalation, negative from first-stage processed products (average tariff rate of 6.7%), to semi-finished goods (average rate of 4.9%), and positive from semi-finished to fully processed products (average 7%). This structure is strongly influenced by the high tariffs on raw agricultural products and, to a lesser extent, by the tariff structure in certain industries. At a more disaggregate level (Chart III.2), positive tariff escalation is most pronounced in textiles and leather, followed by wood and furniture, paper and printing, chemicals, and non-metallic mineral products, thereby providing higher levels of effective protection to those industries than that reflected by the nominal rates. Escalation is positive from first-stage processed goods to semi-finished products, and negative from semi-finished to finished goods, in food, beverages and tobacco.
    

2. Bound tariff

1. 
   In the Uruguay Round, the Philippines bound 58.6% of all tariff lines.¹⁷ Binding coverage varies substantially across the HS: sections including vegetables, fats and oils, prepared foods, and textiles, are fully bound while others, including mainly industrial products, have either no or a low incidence of bound items.¹⁸ Greater coverage of bindings could increase tariff predictability.
   
2. 
   The simple average bound rate is 25.7%, i.e. 35.6% on agricultural products (WTO definition) and 23.3% on non-agricultural goods (Table III.1). All bound rates are ad valorem, and range from zero to 80%. The overall average MFN applied tariff, at 19.3 percentage points lower than the simple average bound rate, presents an element of uncertainty as it gives the authorities considerable scope to raise applied tariffs, which further undermines predictability. According to the authorities, the gap also provides some flexibility to policymakers.
   

3. 
   Tariff quotas
   

1. 
   Tariff quotas represent 0.9% of total tariff lines (0.6% in 2004) (Table III.1). On 15 June 2007, under Executive Order No. 627, the Philippines reduced the in-quota tariff rate on rice from 50% to 40%, and MFN rates were reduced on certain agricultural products (i.e. mechanically deboned meats) to compensate WTO Members for the seven-year extension granted (until 30 June 2012) for the special treatment on rice (Chapter IV(1)(i)(a)).¹⁹
   
2. 
   Tariff quotas, ranging from 30-50% (in-quota rates) and 35-65% (out-of-quota rates), have remained relative stable during the period under review (Table AIII.2). Cane and sugar beet lines have the highest rates, both in-quota (50%) and out-of quota (65%), followed by rice. However, several are inoperative following the lowering of the out-of-quota rate to equal the in-quota rate.²⁰ The system for administering tariff quotas still seems complex (section (v) below), and this may deter imports.²¹ A substantial number of tariff quotas are regularly unfilled; more recently there have been no tariff-quota imports of sugar and potatoes, while utilization for coffee and corn (maize) has been less than three quarters.
   

3. 
   Variable levies and seasonal tariffs
   

1. 
   No variable levies or seasonal tariffs have been applied since 1999, but provisions for their introduction still exist.²²
   

3. 
   Concessional entry and exemptions
   

1. 
   Sector-specific duty exemptions are provided for inputs under specific laws.²³ General exemptions are also granted upon fulfilment of particular conditions (Table III.3). In addition, the President may, upon NEDA's recommendation, allow any imports to enter duty free if in the "interest of national economic development".
   

3. 
   Tariff preferences
   

23. 
    The Philippines has preferential trading agreements with 15 partners: the other nine parties of ASEAN²⁴, and six countries that have negotiated agreements with ASEAN (Australia and New Zealand; China; Japan²⁵; Korea (Rep. of), and India). In 2011, the average preferential tariff (on all products) under these agreements ranged from 0.1% (ASEAN common effective preferential agreement) to 5.8% (agreement between ASEAN and India), i.e. below the simple average applied MFN rate of 6.4% in all cases (Table III.4). Moreover, preferential rates are always higher, on average, for agricultural products (WTO definition) than for non-agricultural goods. The Philippines is committed to achieving free trade by specific dates under some of these agreements (Chapter II(2)(ii) and Table AII.1).
    

7. Other duties, fees, and taxes

24. 
    Most imports, like domestically produced goods, are subject to a VAT rate of 12% (increased from 10% in January 2006).²⁶ Exempt items include: agricultural and marine food products; agricultural inputs; books, newspapers, and magazines; and passenger and/or cargo vessels of more than 5,000 tons. VAT is zero-rated on the sale and purchase of bio‑organic products and coal, and petroleum products.
    

Note: Calculations exclude in-quota rates.

ASEAN - ASEAN common effective preferential agreement;

AK - ASEAN-Korea Free Trade Agreement;

AC - ASEAN-China Free Trade Agreement.

AANZ - ASEAN-Australia New Zealand Free Trade Agreement;

AI - ASEAN-India Free Trade Agreement;

AJ - ASEAN-Japan Comprehensive Economic Partnership Agreement;

1. 
   Imports continue to be subject to various customs fees and charges for BOC services, such as import processing, refund processing, documentary stamp tax, and registration fees. These fees range from PHP 250 to PHP 3,000. In addition, fees for laboratory tests range from PHP 500 to PHP 2,500.²⁷
   
2. 
   Excise taxes are levied on alcohol products, automobiles, jewellery, minerals, perfumes, cigarettes, and petroleum (Table AIII.3). Despite efforts to reform the excise tax regime, few changes have been achieved since 1999. In late 2011, excise tax rates on tobacco and alcohol products were increased.²⁸ Imported distilled spirits are subject to higher excise taxes than those produced domestically. In March 2010, the United States requested the establishment of a WTO panel on "Philippines-Taxes on Distilled Spirits" (Chapter II(2)(i)).²⁹
   

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