72742 v1 World Trade Indicators 2009/10 The Philippines Trade Brief Trade Policy are bound, less than two-thirds of non-agricultural goods are bound.2 The country maintains high tariffs The Philippines has moved towards liberal trade and on finished autos, to develop a local assembly hub. In investment regimes through unilateral liberalization February 2008, import tariffs were removed from since 1985, and policy actions in the context of several auto parts under an ASEAN commitment.3 regional and multilateral commitments. In spite of a Most quantity restrictions have been eliminated except temporary reversal during the East Asian crisis in that rice is traded solely by a state agency. 1999, liberalization proceeded in line with the Philippines’ commitments under the ASEAN In terms of commitment to multilateral services (Association of South East Asian Nations) free trade liberalization, the government agreed to bind all agreement (AFTA). However, after a partial reversal of restrictions on market access and has applied national tariff reductions in late 2003, new initiatives have been treatment in the area of financial, transport, lacking. As judged by its latest MFN Tariff Trade communications, and tourism. It ranks 83rd among 148 Restrictiveness Index (TTRI)1 for overall trade of 3.8 countries, as reflected by the GATS commitments percent, the Philippines remains a relatively open index. Under ASEAN, liberalization of air transport, economy, and compares well to the average East telecommunications, tourism, and healthcare is Asian and Pacific (EAP) and lower-middle-income planned for 2010, when foreign ownership limits countries (with TTRIs of 4.9 and 8.4 percent expand to 70 percent. respectively). Based on the MFN TTRI, it ranks 21st out of 181 countries (where 1st is least restrictive). The High food prices in the first half of 2008 prompted trade regime is more protective of imports of the government to remove quotas on imports of rice agricultural goods, which have a barrier three times and maize.4 Import tariffs placed on rice, which had higher than that for non-agricultural goods (with been designed to encourage local production, were TTRIs of 10.8 and 3.3 percent respectively). lifted in April 2008 and replaced with a less substantial import service fee.5 Tariffs on wheat and meslin were The simple average of the MFN applied tariff rate has also reduced. In the context of the global recession remained constant over the past five years at 6.3 and declining external and domestic demand, the percent, and remains less than the average for both the country reduced tariffs on several raw materials (to EAP region and lower-middle-income countries help exporters) and consumer products not produced (which are 9.3 and 11.4 percent, respectively). The locally (to help consumers) in February and May 2009. Philippines’ maximum tariff on all goods (excluding Additional funds were also allocated for export alcohol and tobacco) has been equal to 65 percent promotion activities.6 In February 2009, the since 2005. The trade policy space, as measured by the government placed a temporary safeguard measure on gap between bound and applied tariff levels (the steel angle bars, which requires importers to post cash overhang), has remained steady at a relatively low 19.6 bonds.7 percent. However, while all of the agricultural tariffs External Environment The exports of the Philippines’ face relatively open Unless otherwise indicated, all data are as of August 2009 foreign markets as reflected by the latest Market and are drawn from the World Trade Indicators 2009/10 Access TTRI8 (including preferences) of 2.5 percent Database. The database, Country Trade Briefs and for all goods. However, agricultural goods face a MA- Trade-at-a-Glance Tables, are available at TTRI that is significantly (9 percentage points) higher http://www.worldbank .org/wti. than for non-agricultural goods. The overall trade If using information from this brief, please provide the restrictiveness faced is close to the average for lower- following source citation: World Bank. 2010. ―The middle-income countries (2.4 percent), but lower than Philippines Trade Brief.‖ World Trade Indicators 2009/10: the EAP regional average of 3.8 percent. The simple Country Trade Briefs. Washington, DC: World Bank. average of the rest of the world tariff faced by Available at http://www.worldbank.org/wti. Philippine exports is 9.9 percent. When weighted by World Trade Indicators 2009/10 The Philippines Trade Brief actual exports, it is 1.8 percent, with the rate faced by standards. According to a World Bank survey of firms agricultural goods and non-agricultural goods in March 2009, 41 percent of demand for new orders substantially different (11.1 and 1.3, respectively). In fell due to the lack of trade financing on the side of 2008, the Philippines had one anti-dumping the exporter or importer. The government has recently investigation initiated against it by India regarding its responded to the lack of trade finance by expanding exports of hot rolled steel. Over the course of 2008 the funds available to banks lending to exporters, the real effective exchange rate of the Philippine peso requiring banks to increase their lending to small and appreciated by 7.6 percent, making exports relatively medium-sized businesses, and providing loan less competitive abroad. guarantees for funds borrowed by exporters.10 Besides access to ASEAN markets, the country has increased market access to goods and services through Trade Outcomes the free tread agreements (FTAs) it has negotiated as Total trade in goods and services did not grow at all in part of ASEAN. ASEAN has FTAs with China, Japan, real (constant 2000 U.S. dollars) terms during 2008. the Republic of Korea, Australia, New Zealand, and, Real exports fell by 1.9 percent, after averaging a since August 2009, India. The goods FTAs with China growth rate of 7.9 percent during 2005–07. Real and Korea are expected to be fully realized by January imports grew 2.4 percent after falling 4.1 percent in 1, 2010. The FTA with Korea extends beyond goods 2007. Expectations are that both exports and imports trade with the services agreement taking effect in May will fall in 2009 by 11.8 and 3.6 percent in real terms, 2009, and an investment component signed in June. respectively. The comprehensive ASEAN-Australia-New Zealand FTA signed in February 2009 covers goods and In nominal U.S. dollar terms, total trade grew by 2.6 services as well as investment and intellectual property percent in 2008, less than a quarter of its 2007 growth issues, whereas the FTA with India is currently rate. Total exports fell by 1.5 percent, driven mostly by restricted to goods. Both FTAs are expected to come decreases in goods exports, which fell by 2.6 percent. into effect on January 1, 2010. In March 2008 ASEAN During the last quarter of 2008, when the economy signed a FTA with Japan that would eliminate tariffs began to feel the impact of the global economic crisis, on 93 percent of goods exported from ASEAN. The the Philippines saw a 13 percent decrease in exports Philippines’ signed a deeper bilateral agreement with over the last quarter of 2007. However, exports in Japan that took effect in December 2008. It expanded services (including business process outsourcing) were the product coverage to 95 percent, and covers resilient and grew by 4.4 percent, after increasing by migration and commercial presence.9 over 50 percent in 2007. Philippine exports have suffered due to a lack of available credit for exporters Behind the Border Constraints and the drop in worldwide demand for semiconductors and other electronics products, (which In terms of the conduciveness of its institutional make up 60 percent of goods exports) as well as for environment to business, Philippines ranked 144th out garments, furniture, and footwear.11 In the first two of 183 countries in the 2010 Ease of Doing Business quarters of 2009, exports dropped by 25 percent and index, reflecting a cumbersome business environment. 34 percent respectively on a year-on-year basis. Even The Logistics Performance Index, a measure of the on a quarter-on-quarter basis, exports declined in the ease of trade facilitation, rates the Philippines at 2.69 second quarter of 2009 by 23 percent. on a scale from 1 to 5 with 5 being the highest performance. This is a good performance when Total nominal imports grew by 6.3 percent, led by a compared with the scores of 2.58 for the EAP region growth in services of 16.5 percent in 2008. In the first and 2.47 for countries in the lower-middle-income two quarters of 2009, imports dropped by 27 percent group. It ranked 65th in the world and 6th in the East and 31 percent respectively on a year-on-year basis, Asia and Pacific region (with Malaysia leading the reflecting the drop in domestic demand. The U.S. regional group). It performed best in lowering dollar value of total remittances increased in 2008, and domestic logistics costs and lagged in the quality of only marginally dropped as a share of GDP to 11.2 transport and IT infrastructure. percent from 11.3 percent in 2007. Total remittances continued to grow in 2009, but at a slower rate than in The slowdown in the worldwide economy has 2008. Foreign direct investment as a share of GDP decreased the availability of trade finance in the Philippines as a result of banks raising their lending The Philippines Trade Brief World Trade Indicators 2009/10 halved to 0.9 percent in 2008 from 2 percent the year Economic and Social Commission for Asia and the before. Pacific (ESCAP). March 2008. E-TISNET Monthly News. United Nations. ———. May 2008. E-TISNET Monthly News. United Notes Nations. 1. TTRI calculates the equivalent uniform tariff that Economist Intelligence Unit (EIU). 2008. Country Profile would keep domestic welfare constant. It is weighted by 2008: Philippines. EIU. import shares and import demand elasticity. Food and Agriculture Association of the United Nations 2. Office of the US Trade Representative, 2009. (FAO). 2009. ―Policy Measures Taken by 3. The ASEAN Industrial Cooperation (AICO) scheme Governments to Reduce the Impact of Soaring aims to foster joint manufacturing and industrial Prices (As of 15 December 2008).‖ FAO, New complementarity within ASEAN. ESCAP, March 2008, York, NY. p. 4. Global Trade Alert. June 2009. ―Philippines: Provisional 4. FAO, 2009. Safeguard on Steel Angle Bars for 200 Days.‖ 5. ESCAP, May 2008, p. 5. . 6. WTO, 2009, p. 72. Office of the United States Trade Representative. 2009. 7. Global Trade Alert, 2009. ―2009 National Trade Estimate Report on Foreign 8. MA-TTRI calculates the equivalent uniform tariff of Trade Barriers.‖ Washington, DC. trading partners that would keep their level of imports Tongzon, Jose L, April 1,2005,Trade policy in the constant. It is weighted by import values and import Philippines: treading a cautious path. ASEAN demand elasticities of trading partners. Economic Bulletin 9. Bilaterals.org, 2008, 2009a–d. World Bank PREM Trade Group. April 21, 2009. 10. World Bank PREM Trade Group, 2009, pp. 6–7. Update on Trade Measures and Sector-Specific 11. World Bank, April 2009, p. 51. Support. ———. June 6, 2009. Philippines: Quick Measures to Boost Exports in Response to the Global Financial References Crisis. Bilaterals.org. October 9, 2008. ―RP-Japan Free Trade ———. June 4, 2009. Summary of PRMTR Trade Pact Approved.‖ . Finance Survey. ———. April 2009a. ―AANZFTA.‖ . Battling the Forces of Global Recession. ———. April 2009b. ―China-ASEAN.‖ . TPRB from the Director-General on the Financial ———. April 2009c. ―India-ASEAN.‖ . Developments. ———. April 2009d. ―Japan-ASEAN.‖ .