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PHILIPPINES FOREIGN TRADE

At independence in 1946, the Philippines was an agricultural nation tied closely to its erstwhile colonizer, the United States.In 1950 the value of the Philippines' ten principal exports--all but one being agricultural or mineral products in raw or minimally processed form--added up to 85 percent of the country's exports.

In 1949, 80 percent of total Philippine trade was with the United States. Thereafter, the United States portion declined as that of Japan rose. In 1970 the two countries' share was approximately 40 percent each, the United States slightly more, and Japan slightly less. The pattern of import trade was similar, if not as concentrated.

The United States share of Philippine imports declined more rapidly than Japan's share rose, so that by 1970 the two countries accounted for about 60 percent of total Philippine imports. After 1970 Philippine exporters began to find new markets, and on the import side the dramatic increases in petroleum prices shifted shares in value terms, if not in volume. In 1988 the United States accounted for 27 percent of total Philippine trade, Japan for 19 percent.At the time of independence and as a requirement for receiving war reconstruction assistance from the United States, the Philippine government agreed to a number of items that, in effect, kept the Philippines closely linked to the United States economy and protected American business interests in the Philippines.

Manila promised not to change its (overvalued) exchange rate from the prewar parity of P2 to the dollar, or to impose tariffs on imports from the United States without the consent of the president of the United States. By 1949 the situation had become untenable. Imports greatly surpassed the sum of exports and the inflow of dollar aid, and a regime of import and foreign-exchange controls was initiated, which remained in place until the early 1960s.No matter the trade regime, the Philippines had difficulty in generating sufficient exports to pay for its imports. In the forty years from 1950 through 1990, the trade balance was positive in only two years: 1963 and 1973. For a few years after major devaluations in 1962 and 1970, the current account was in surplus, but then it too turned negative. Excessive imports remained a problem in the late 1980s. Between 1986 and 1989, the negative trade balance increased tenfold from US$202 million to US$2.6 billion A number of factors contributed to the rather dismal trade history of the Philippines. The country'sterms of trade have fallen for most of the period since 1950, so that in the late 1980s, a given quantity of exports could buy only 55 percent of the volume of imports that it could buy in the early 1950s. A second factor was the persistent overvaluation of the exchange rate. The peso was devalued a number of times falling from a pre-independence value of P2 to the dollar to P28 in May 1990. A third consideration was the country's trade and industrial policies, including tariff protection and investment incentives. Many economists have argued that these policies favorably affected import-substitution industries to the detriment of export industries.In the 1970s, the implementation of an export- incentives program and the opening of an export-processing zone at Mariveles on the Bataan Peninsula reduced the biases somewhat. The export of manufactures (e.g., electronic components, garments, handicrafts, chemicals, furniture, and footwear) increased rapidly. In the early 1980s, the Philippine government reached agreement with the World Bank to reduce tariffs by about one-third and to lift import restrictions on some 3,000 items over a five- to six-year period. The bank, in turn, provided the Philippines with a financial sector loan of US$150 million and a structural adjustment loan for US$200 million, to provide balance-of-payments relief while the tariff wall was reduced. Approximately two-thirds of the changes had been enacted when the program ground to a halt in the wake of the economic and political crisis that followed the August 1983 assassination of former Senator Benigno Aquino.

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

Evolution of Philippine Trade PolicyThe literature covering the developments in the Philippines trade policies is rich. Wignaraja et al. (2010), Balboa & Medalla (2006), Balisacan & Hill (2003), and Austria (2001), Cororaton (1998), and Austria & Medalla (1996) are among the many studies that provide a detailed account of the Philippines trade regime in different decades.Philippine trade policy has experienced major shifts throughout the decades. From the 1950s-1970s, the government embarked on an import-substituting trade regime. These decades can be characterized by highly protective tariffs, foreign exchange control measures, and capital market interventions. Realizing the limitations of such a policy, the government shifted the countrys trade policy using various liberalization packages.Tariff Reform Program (TRP).The program involved the tariffication of quantitative restrictions, simplification of the tariff rate structure to a narrower rate range, and reduction in the tariff protection. This was followed by two more waves of tariff reform programs in the 1990s TRP II and TRP III.TRP II was introduced in 1991 and is an extension of the program introduced in the 1980s. Under TRP II, phase-in period and transition rates were included in the tariff structure.2 TRP III, meanwhile, was introduced by the government in 1994,in response to the private sectors request of lowering tariffs on capital and goods and raw materials to improve their competitiveness.ASEAN Free Trade Area (AFTA)is atrade blocagreement by theAssociation of Southeast Asian Nationssupporting local manufacturing in all ASEAN countries.The AFTA agreement was signed on 28 January 1992 in Singapore. When the AFTA agreement was originally signed, ASEAN had six members, namely,Brunei,Indonesia,Malaysia,Philippines,SingaporeandThailand.Vietnamjoined in 1995,LaosandMyanmarin 1997 andCambodiain 1999. AFTA now comprises the ten countries of ASEAN. All the four latecomers were required to sign the AFTA agreement to join ASEAN, but were given longer time frames in which to meet AFTA's tariff reduction obligations.

In 2008, the Japan- Philippines Economic Partnership Agreement (JPEPA) was enforced, which is the Philippines first bilateral free trade agreement.JapanPhilippines Economic Partnership Agreement (JPEPA)TheJapan-Philippines Economic Partnership Agreement(-?)or in (Filipino:Kasunduang Pangkabuhayan ng Hapon at Pilipinas) or commonly known asJPEPAis aneconomic partnership agreementconcerningbilateral investment andfree tradeagreement betweenJapanand thePhilippines. It was signed inHelsinki,Finlandon September 9, 2006 by former JapanesePrime MinisterJunichiro Koizumiand formerFilipino PresidentGloria Macapagal-Arroyo. It is the first bilateral trade treaty which the Philippines has entered since the Parity Right Agreement of 1946 with theUnited States. This treaty consists of 16 Chapters and 165 Articles, with 8 Annexes.Impact of Trade LiberalizationThe push for trade liberalization in the Philippines was primarily due to the failed protectionism and import substitution strategy implemented in the past. Trade liberalization is expected to improve the allocation of resources and bring domestic prices closer to world price, which are in turn expected to deliver sustained economic growth and development.However, with the mixed experience of different countries that have undergone trade liberalization, a recurring question is whether trade liberalization enhances productivity and economic growth, help reduce income inequality and alleviate poverty in a developing country.The Philippines: General Economy and Export IndustryOverviewThe Philippines is a newly industrialized emerging market economy, with exports as its key driver of growth. Its P1.5-trillion GDP, the fourth largest in Southeast Asia, is accounted for by:Service sector (50%)Industry (33%)Agriculture (17%)Key economic activities include business process outsourcing (BPO), food processing, textiles and garments, and assembly operations in the manufacturing of electronics and other high-tech components.

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

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

JAPAN ACCOUNTED FOR 17.9 PERCENT TO TOTAL EXPORTS

Law Governing Foreign TradeEXPORT DEVELOPMENT ACT OF 1994 [Republic Act No. 7844]The government and the private sector shall jointly transform the Philippines into an exporting nation. Towards this end, the State shall instill in the Filipino people that exporting is not just a sectoral concern, but the key to national survival and the means through which the economic goals of increased employment and enhanced incomes can most expeditiously be achieved.chanrobles virtual law libraryRepublic Act No. 1937Tariff and Customs Code of the PhilippinesSection 101.Imported Articles Subject to Duty. All articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each importation, even though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in other laws.THE END