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II. trade policy regime: framework and objectives
(1) Introduction
1. Since the last Review of the Philippines in 1999, there have been no major changes in the general or institutional framework, nor in the way trade policy is formulated or implemented. The formulation of policies remains the joint responsibility of the executive and the legislative branches of Government. The Philippines is committed to and strives to achieve transparency in the formulation of trade and investment policies and in the enforcement of laws and regulations. In practice, however, these broad principles of good governance are not always met, and this undermines the economic reform process.[1]
2. The Philippines, a member of the ASEAN FTA (AFTA), continues to participate actively in the WTO and remains committed to the multilateral system. It also intends to pursue further regional trade agreements, bilaterally and collectively through ASEAN, where appropriate. Since its last Review, the Philippines has in principle concluded major elements of its first bilateral agreement with Japan. However, the Philippines’ main FTA activity has been through various ASEAN FTAs being negotiated or considered. The first parts of the ASEAN-China Agreement on Comprehensive Economic Cooperation (ACFTA on goods) and the RTIA with India are operating. ASEAN FTA negotiations are to start in 2005 with Japan, Korea, Australia, and New Zealand. Through such arrangements the Philippines is establishing a regional network of bilateral-type trade agreements.
3. Investment policy has not undergone major changes since 1999; the Philippines continues to encourage investment in "preferred" areas, which are listed in the Investment Priority Plan (IPP). Tax and other incentives, often contingent on export performance and Filipino ownership, are still provided to attract investment.
(2) Trade Policy Formulation and implementation
(i) Objectives
4. The Philippines' general trade policy objectives include moving towards a more outward-oriented trade regime, strengthening and increasing overseas market access for exports, and greater integration into the world economy. These objectives are being pursued through multilateral, bilateral and regional trade initiatives, in particular through ASEAN.
5. Policies have been aimed at enhancing production and productivity through economic reforms, with a view to promoting more efficient allocation of resources, while improving the environment for private domestic and foreign investment. However, the recent slowdown in the reform process, especially the "recalibration" of the long-running unilateral tariff reform programme and recent selective increases in tariff rates, albeit intended to be temporary until 2006, suggest that the Government may be re-thinking some aspects of its policies concerning trade liberalization. According to the authorities, the tariff increases affect 11% of all tariff lines and were necessary to assist domestic producers. These measures are, however, no substitute for the structural reforms needed to improve external competitiveness. While exports are expected to become a major engine of economic growth, recent policies seem to be detrimental to the sector. Instead, to support the export sector, the authorities might aim at further liberalizing trade and investment and promoting structural reforms (e.g. in the power and banking sectors) to develop efficient industries.
6. Despite its commitment to ASEAN and APEC, the Philippines recognizes that it is best served by a stable and increasingly liberalized multilateral trading system, which takes into consideration the needs of developing nations. Thus, it takes an active role in the WTO, where the authorities have emphasized that negotiations need to provide adequate flexibility for developing countries. The authorities have indicated that the Philippines abides by its commitments to the WTO, and under the ASEAN Free Trade Agreement (AFTA) and the Asia Pacific Economic Cooperation (APEC).[2]
(ii) Institutional and legal framework
7. The institutional and legal framework regarding economic and trade policies has changed little since 1999. The constitution divides the governing power in the Philippines into the executive, the legislative, and the judiciary.
8. Executive power is vested in the President (elected for a six-year term). Bills that have been approved by Congress need to be signed by the President. The President issues Executive Orders, according to the authorities, to implement the Constitution and other laws passed by Congress. They have the power of law, and the laws themselves grant the President substantial authority (see below). The President may pass legislation while Congress is in recess and this appears to happen frequently.
9. Legislative power is vested in the bicameral Congress, comprising a Senate (Upper House), which has 24 members elected directly by universal suffrage (for a six-year term), and a House of Representatives (Lower House), which has a maximum of 250 members elected for three years. The Lower House members are elected from each legislative district, and through a party-list system of registered national, regional, and sectoral parties, and organizations.
10. Congress enacts bills, approves three kinds of resolution (joint, concurrent, and simple) and deliberates on treaties (but only in the Senate).[3] Procedures for introducing and passing legislation through the different committees in the two House are similar. Legislative proposals may originate in various ways, including through members of either House, the executive branch of the Government, or through special interest groups (e.g. business, religious, labour, and consumer and trade associations). Every proposal, no matter where it originates, must be sponsored by a member of either House, with the exception of appropriation, revenue or tariff bills, and private bills, which may only originate in the House of Representatives. Once introduced, the bill is first deliberated in the House of which the sponsor is a member; after approval, it is sent to the other House for consideration and concurrence. To accelerate the process, legislation may be introduced in both houses simultaneously in the form of companion (identical) bills.[4]
11. Bills must be read three times in each of the Houses. After receiving final approval in both houses the bill is submitted to the President, who either signs it into law, or vetoes the bill and returns it to the originating house for amendment. A bill may become law if it is not signed by the President within 30 days of receipt, or if Congress overrides the President’s veto by a two-thirds majority vote.[5]
12. The judicial system consists of the Supreme Court and other courts including the Court of Appeals, the Court of Tax Appeals, and regional, municipal and metropolitan trial courts. A special court handles corruption cases. The Supreme Court rules on the constitutionality of treaties, international and executive agreements, laws, and other presidential regulations (e.g. decrees, orders, and ordinances).
(iii) Trade policy formulation and implementation
13. The formulation of trade policies is the joint responsibility of the executive and the legislative branches of government. The President appears to have substantial powers regarding the formulation and implementation of trade policies. Many laws grant the executive branch, through the President, discretionary powers to apply different measures. For instance, the Customs Code allows the President to fix, within specific limits, tariff rates, import and export quotas, and tonnage and wharfage dues, and to take measures to counteract trade practices deemed to be discriminatory.
14. The agencies in charge of trade policy formulation and implementation have not changed substantially since the previous Review of the Philippines. The Department of Trade and Industry (DTI) continues to be responsible for the implementation and coordination of trade and investment policies as well as for promoting and facilitating trade and investment. Key trade-related implementing institutions remain under the authority of the DTI (Table II.1). The only change since the previous Review was the transfer of the Intellectual Property Office to the Office of the President, but this was reversed in 2004.
Table II.1
Main institutions involved in trade policy formulation and implementation, 2004
Department/organization / Trade-related functions /National Economic and Development Authority / Formulation of social and economic policies, plans and programmes
Tariff Commission / Tariff policies (including tariff concessions, surcharges, and refunds)
Department of Trade and Industry / Trade and industrial policies
Board of Investment / Investment policies and provision of incentives
Bureau of Export Trade Promotion / Export promotion
Export Development Council / Export policies
Bureau of International Trade Relations / Trade representation abroad, trade information and export promotion; conduct of Philippine trade relations at bilateral, regional, and multilateral level
Garments and Textile Export Board / Administration of export quotas
Bureau of Import Services / Administration of import regulation on selected items, initiates and conducts the preliminary investigations on dumping, countervailing and safeguard protests
Bureau of Product Standards / Development and implementation of standards and technical regulations
Bureau of Trade Regulation and Consumer Protection / Consumer protection, and regulation of internal trade
Intellectual Property Office / Administration and implementation of the Intellectual Property Code
Department of Finance / Formulation and implementation of fiscal policies
Bureau of Customs / Collection of import/export duties, and VAT and excise taxes.
Privatization Council / Formulation and implementation of the privatization programme
Table II.1 (cont'd)
Department of Agriculture / Agricultural policies
Bureau of Plant Industry / Plant protection, quarantine and inspection services
Bureau of Animal Industry / Administration of animal quarantine and inspection services
Bureau of Fisheries and Aquatic Resources / Administration of fish quarantine and inspection services
Bureau of Agricultural and Fisheries Product Standards / Development of standards and technical regulations
National Food Administration / Administration of rice price stabilization programme and imports of rice
Sugar Regulatory Administration / Monitoring of sugar supply and administration of sugar export quotas
Department of Tourism / Policy formulation and promotion of the tourism industry
Central Bank of the Philippines / Monetary and exchange rate policy
Source: WTO Secretariat, based on various Departments' online information.
15. The National Economic and Development Authority (NEDA) is still the main agency in charge of formulating economic policies. The NEDA, as mandated by the Constitution, is the country's independent economic development and planning agency. It consists of the Secretariat and the Board, which is chaired by the President. Sixteen Cabinet members and the Central Bank Governor are Board members.
16. Five committees assist the NEDA Board, including the Committee on Tariff and Related Matters (TRM). The TRM advises the President and the Board on tariff and related matters, coordinates the different agencies' positions and proposes national positions for international economic negotiations, and recommends to the President a continuous tariff rationalization programme. The TRM, which is chaired by the Secretary of Trade and Industry, comprises the Committee Proper (cabinet level), the technical committees, and the sub-committees. Since the last Review of the Philippines, two new departments have joined the TRM: the Departments of Labour and Employment, and of Agrarian Reform.[6] In 1999, the NEDA Board created a Technical Committee on WTO Matters (TCWM). Its main function is to discuss and provide recommendations on the Philippines’ implementation of WTO commitments and its continuing participation in the multilateral trading system.
17. The Tariff Commission, an agency attached to the NEDA, undertakes public hearings/consultations on anti-dumping/countervailing and safeguard investigations, and investigates petitions to vary or remove duty rates (including any changes in tariff classification).[7] The Philippine Institute for Development Studies (PIDS), also attached to the NEDA, conducts policy research.
18. According to the authorities, the Philippines promotes transparency in enacting and enforcing trade and investment related laws, rules, and regulations.[8] Laws, rules, and regulations cannot take effect until 15 days after their publication in the Official Gazette or in a newspaper with general circulation in the Philippines. Conducting public hearings and consultations when formulating policies also enhance transparency, and the private sector and other groups are represented on certain government committees (e.g. the Export Development Council). [9]
19. Despite these efforts, law enforcement seems somewhat inconsistent, and corruption remains a pervasive and longstanding problem.[10] The Medium-Term Philippine Development Plan 1999-2004 (MTPDP) recognized that improved governance was essential to achieve growth and equity objectives. It acknowledged weaknesses in the public sector's capacity to implement policies and programmes, poor national and local government accountability, endemic graft and corruption, and lags in law enforcement and justice, including rare convictions in high profile cases.[11] The Plan provided for good governance, transparency, effective implementation of the rule of law, and reduced government red tape. Electoral and judicial reforms to guarantee political stability were to be pursued, and the Bureau of Internal Revenue (BIR), the Bureau of Customs (BOC) and the government procurement system were to be reformed to help fight graft and corruption.[12] These commitments were reiterated in the President's 2004 Budget Message and in the MTPDP 20042010.[13]
20. Several initiatives have been launched since the last Review of the Philippines to strengthen public and private governance, including anticorruption efforts. The Presidential Anti-Graft Commission was created to investigate allegations of corruption involving presidential appointees and to recommend appropriate actions to the President. The Governance Advisory Council was also formed, and the Presidential Committee on Effective Governance (the country's highest anticorruption body) was strengthened. An e-procurement system commenced, and the capacity of the Ombudsman's Office to deal with corrupt practices was improved.[14] The President stated in her July 2004 State of the Nation Address (SONA) that government agencies needed to be "re-engineered to reduce waste and corruption." Eighty offices under the Office of the President have been abolished and another 30 are to be closed.[15] To date, however, these initiatives seem to have produced limited results, and there is still a need to improve transparency, credibility, and predictability, including effective actions to enhance the regulatory system, curb corruption, and remove barriers to competition, which would increase investment opportunities and economic growth.[16] The Government has, according to the authorities, made every possible effort to strengthen public and private governance.
(3) Trade Agreements and Arrangements
(i) WTO
21. The Philippines, an original Member of the WTO, grants at least MFN treatment to all trading partners. As a developing country, it benefited from transition periods to implement commitments under various WTO Agreements, for instance, in relation to customs valuation.[17] The Philippines participated in the extended WTO negotiations on basic telecommunications and on financial services, but the relevant protocols are yet to be ratified by Congress (Chapter IV(5)).[18]