The Philippines WT/TPR/S/149/Rev.1 
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IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. The main changes in the contribution of the different sectors to nominal GDP since 1999 have 
been the decline in agricu lture's share (including forestry and fishing), from 17.1% to 15.3% in 2004, 
and an increase in that of manufacturing, from 21.6%  to 23.0%.  Services remains the largest sector, 
accounting for 60.7% of GDP in 2004, almost unchanged since 1999 (60.6%).  It is also the major employer, accounting for 53.9% of employment in 2004, followed by agriculture (36%) and manufacturing (9.7%).  Agricultural policy continu es to aim mainly at self-sufficiency, while the 
remnants of the earlier import substitution and "pic king winners" strategies remain in the policies 
affecting the manufacturing sector.  These include what seems to be at least partial rolling back 
recently of the unilateral tariff reform programme and "re-calibration" of the tariff structure to 
temporarily assist domestic producers and to prom ote industrial development in priority areas like 
steel and petrochemicals.  Policy in the energy sector has also been aimed at promoting self-sufficiency by diversifying energy sources.  Subs tantial efforts have gone into restructuring the 
electricity sector.  Liberalization in services has co ntinued but with slow progress in key areas, such 
as electricity. 
2. The agriculture sector remains important as some 70% of the poor depend on it or on related 
activities.  Protection in agriculture is aimed at promoting growth;  however, productivity in the sector 
remains low.  Deteriorating international compe titiveness in major products, such as sugar, coconuts 
and fruits has hampered export performance.  Agricultu re's share of total exports has remained low, 
rising slightly from 5% in 1999 to 6% in 2003.  Agriculture remains protected by relatively high 
tariffs, tariff quotas, and non-tariff barriers, mainly  a quantitative restriction on rice and strict SPS 
regulations (e.g. on fruit and meat products).  Sugar production and processing remains protected and 
highly regulated, and while catering for the domestic  market, relies heavily on higher priced exports 
to the United States under the preferential export quot a.  To avoid having to reduce the applied out-of-
quota tariff rates of 65% on raw and refined suga r, increased bindings from 50% to 80% were 
negotiated within the WTO from July 2003.  Price s upport by the National Food Authority still exists 
for rice and corn, mainly to attain food security, and was more recently extended to sugar.  However, 
trying to achieve food security through protection to support higher prices to raise farm incomes is inefficient and costly to the economy, distorting resource allocation by inducing production.  It also taxes consumers, especially the poor, and is inconsis tent with goals of maintaining affordable prices. 
3. Production in the manufacturing sector is concen trated in food, beverages and tobacco, 
electronics and communications equipment, and garments.  Apart from mainly these latter two products, which represented almost  70% and 6% of merchandise e xports in 2003, respectively, 
manufactured goods are produced for the domestic ma rket.  The Philippine tariff shows escalation in 
certain industries, which has promoted the devel opment of a manufacturing sector concentrating on 
processing components.  Export-oriented industries, such as electronics, are ma inly located in export 
processing zones and operate under a pref erential regime, taking advantage, inter alia , of duty-free 
imports.  Textiles and clothing exports, which relie d on preferential quota access to protected markets, 
especially the United States, are likely to be adve rsely affected by their removal in 2005.  The 
Government has acknowledged the need to improve the industry's productivity so it can compete with 
lower-cost suppliers.  The motor vehicle industry remains relatively highly assisted, despite the 
elimination of the export balancing and local-c ontent requirements as planned by mid 2003, and 
reduced tariff protection.  The Motor Vehicle De velopment Plan continues to promote inefficient 
assembly operations and component manufacture by ap plying preferential tariffs of 1% and 3% on 
imported completely-knocked-down k its (provided they exclude locally available components) that WT/TPR/S/149/Rev.1 Trade Policy Review 
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are well below rates of mainly 30% on imported vehicles.  Assistance will increase if the courts 
uphold the general import ban on used mo tor vehicles announced in late 2002. 
4. The Government supports the need to libera lize utilities and other key services to promote 
efficiency through competition and private sector par ticipation.  These reforms would be facilitated if 
supported by effective measures to stem anti-competi tive behaviour.  After lengthy delays, electricity 
restructuring and deregulation, including privati zation, is continuing w ith renewed vigour.  
Generating plants representing 70% of the National Power Company's capacity will be privatized by 
end 2005.  TRANSCO, the holder of the transmis sion monopoly, will also be privatized through 
concession to a single operator by mid 2005.  A wholesale electricity market is planned to operate 
from mid 2006, and retail competition and open acces s in the Luzon grid is still scheduled for 
July 2006.  Cross subsidies between electricity users are being phased out.  Foreign investment in utilities (apart from generation) is constitutionall y capped at 40%, thereby restricting competition. 
5. Since 1999, the Government has taken substantia l steps to strengthen the financial sector, 
especially banking, including revamping the regulat ory and supervisory framework in line with BIS 
recommendations, such as introducing risk-based capita l-adequacy requirements.  Foreign ownership 
of domestic banks has increased since 1999;  howev er, foreign banks, including branches, accounted 
for only 14% of total bank assets at the end of 200 4, still below the 30% allowable limit (majority 
domestic-owned banks must hold at least 70% of total bank assets).  Government policy has been 
directed at bank rationalization by reducing the num ber of smaller banks.  A three-year moratorium 
against establishing new banks, including foreign subsidiaries, was implemented in June 2000 to 
encourage bank "buy outs", and was subsequently  extended.  The 60% ce iling on foreign ownership 
in domestic banks was also lifted until June 2007 to  allow overseas investors to own up to 100% of 
one bank, subject to Monetary Board authorization.   New foreign branches also remain effectively 
prohibited following the granting of the extra ten licences in the mid 1990s.  These restrictions may 
potentially reduce competition.  The banking sector suffers from high levels of non-performing loans 
(NPLs), equivalent to 12.5% of total loans at e nd 2004;  these NPLs, along with deficiencies in loan 
classifications and continuing large Philippines Depos it Insurance Corporation (PDIC) support, raise 
prudential concerns, including possible bank under-capitalization. 
6. Market access remains unrestri cted in most telecommunication services and competition is 
boosted by relatively unfettered market entry and exit.  However, geographical separation of the 
market may restrict competition to the benefit of the dominant supplier Philippine Long Distance 
Telephone Company (PLDT).  Interconnection, alt hough mandatory, has been slow and may also 
have hindered competition somewhat.  Currently, access charges provide cross-subsidies to fund 
unprofitable local services, which is not only incons istent with a competitive market, but has made 
interconnection less transparent and raised acc ess charges.  Compe titive wholesale cost-based 
interconnection charges are being adopted.  Foreign equity in telecommunications is constitutionally 
capped at 40%;  its relaxation would facilita te greater market access and efficiency. 
7. During the period under review, efforts have be en made to liberalize air transportation 
services.  However, Philippine Airlines (PAL) continu es to be virtually the only domestic air carrier 
authorized to provide international services, and bilateral air service agreements remain relatively 
restrictive.  Foreign equity in Philippine carriers is still constitutionally limited to 40%.  Deregulation 
of maritime transportation is much more adva nced, with rates (seemi ngly excluding third-class 
passenger fares and certain non-containerized basi c commodities) and routes deregulated, except in 
cases of monopoly or ineffective competition.  Howeve r, cabotage is prohibited and foreign equity is 
constitutionally capped at 40%.  Investment incentiv es were introduced in 2004 to support domestic 
shipping and the shipbuilding industry;  imports of vessels are also to be restricted progressively as of 
2014, pending an evaluation of domestic shipbuilding capacity. The Philippines WT/TPR/S/149/Rev.1 
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(2) AGRICULTURE  
(i) Overview 
8. Agriculture's share of GDP at current prices fe ll from 17.1% in 1999 to 15.3% in 2004 (14.8% 
in 2003), despite relatively high levels of pr otection aimed at promoting the sector's growth 
(Table I.2).1  Nevertheless, agriculture accounted for 36% of employment in 2004 (38.8% in 1999), 
and 70% of the poor depend on farm ing or related activities.  Agricultural exports, mainly coconut 
products and fruit, rose slightly from 5% in 1999 to 6%  of total exports in 2003.  Agricultural growth 
is handicapped by low labour a nd land productivity, and the dete riorating competitiveness of 
traditional products undermines export performance.2  This is due mainly to small-scale farming, 
inefficient and inadequate public investment includi ng in core services, poor farm policies, and an 
institutional framework that has distorted economic incentives.3 
9.  Smallholders dominate agriculture, with farm s averaging about 2 hectares.  Some 15% of 
farmland (the same as in 1990) is i rrigated, about half of the potential area.  Rice, corn, and coconuts 
cover about 85% of farmland.  Some 60% of output is crops, mainly rice (22% of total agricultural 
value in 2003), coconut (7%), bananas (6%), corn  (6%), sugarcane (4%), mangoes (3%), pineapples 
(2%), and coffee (1%).  Coconuts (mainly as oil), fruit (bananas, pineapples, and mangoes) and sugar 
remain the main agricultural exports.  Livestock prod uction is mainly poultry (18%) and pigs (17%).   
(ii) Policy developments 
10. Agriculture protection increased substantially from 1994 to 1998 following "tariffication" of 
non-tariff barriers with high tariffs and/or out -of-quota rates, and these measures along with 
quantitative import restrictions for rice (and seemi ngly fish) and SPS arrangements for issuing import 
permits, contribute to relatively high agricultural protection.4  Rice is also subject to a 50% tariff, and 
tariff quotas on coffee, corn, live animals and meats, potatoes, and sugar are restrictive, often being 
unfilled and subject to relatively high out-of-quota dut ies of generally 40% (Chapter III).  High tariffs, 
mainly up to 40%, also apply to certain vegeta bles, fruit, and meat products.  The National Food 
Authority (NFA), the Government's grains marke ting arm, controls rice imports, and provides price 
support to growers of rice, corn and, since 2004, sugar.  Protection is aimed at self-sufficiency, 
especially in rice, and ensuring sufficiently high an d stable food prices to enhance farm incomes and 
alleviate rural poverty, while also maintaining afford able consumer prices.  High protection, however, 
has contributed to the sector's non-competitiveness  by reducing incentives fo r farmers to minimize 
production costs and raise efficiency, and by lesseni ng the perceived urgency for the Government to 
fund essential agricultural public infrastructure and support services.5  
11. The 1997 Agriculture and Fisheries Modernization Act (AFMA) continues to govern 
agricultural (and fisheries) policies.  It was ai med at improving competitiveness and promoting self-
sufficiency through modernization.  The AFMA provided for tariff exemptions on a wide range of imported agricultural (and fishery) inputs until February 2003.  RA 9281 of 2004 prolonged the 
minimum annual public sector support of PhP20 billion to agriculture until 2015, and further 
                                                     
 
1 Includes forestry and fishing, which are relativ ely minor.  GDP shares given in this chapter are 
nominal, based on current prices.   
2 World Bank (2004a).  GDP and employment shares in 2003 suggest that agricultural labour 
productivity was just over one third of the national average. 
3 David (2003). 
4 Clarete (2005);  and David (1997). 
5 Clarete (2005), p. 12. WT/TPR/S/149/Rev.1 Trade Policy Review 
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increased it by at least PhP17 billion.   This is  to be at least partly  funded by tariff revenues, and 
countervailing, anti-dumping and special saf eguard duties on agricultural imports.  
12. Nominal rates of protection, which measure the extent to which consumers are penalized by 
domestic prices exceeding world levels, rose during the 1990s on rice, corn and sugar.  From 1995 to 
2000, the nominal rate averaged 71% on rice, 87% on corn and 106% on sugar, up from 19%, 76%, 
and 81% in 1990-94.6  Nominal rates on pork and chicken re mained relatively high at 29% and 45%, 
respectively, in 1995-00, although falling from previ ous years.  The continued use of tariff and non-
tariff barriers to shelter farmers from import compe tition suggests that nominal rates have remained 
high in agriculture.  Assistance through price suppor t and import barriers is heavily distorting and 
inefficient, since higher farm prices directly en courage production.  Contrary to policy objectives, 
protection that raises prices of staples may worsen  poverty and detract from food security by reducing 
the capacity of the poorest to purchase food. 
13. Disparities in effective rates of protection (derived from nominal protection levels and 
measuring net protection to the activity's valu e added) between activitie s and sectors tend to 
misallocate resources both inter- and intra-sectorally.  Although effective rates of protection for 
manufacturing once exceeded agriculture, the reverse is  now true (Table IV.1).  Thus, while overall 
effective protection had declined to 16% in 1 999 and to 14% in 2004, it fell more slowly in 
agriculture during the 1990s, partly due to higher  levels of protection for rice, corn and sugar.7  
Relative protection between agriculture and manufactur ing shifted from one biased against agriculture 
in 1990-95 to one increasingly for agriculture since 1996.8  In 2004, effective protection in agriculture 
was 19.8% compared to 15.2% for manufacturing.  Average agricultural tariff s (based on out-of-quota 
tariffs) significantly exceeded manufacturing in 2004 (Chapter III).  Thus, the current assistance 
structure favours agricultural over manufacturin g activities and import-competing products over 
exports, especially of manufactured products.  Protec tion disparities appear also to have widened, 
including between and within the agriculture a nd manufacturing sectors, thereby suggesting less 
efficient resource use and potentially offsetting at le ast some of the economic gains associated with 
reduced levels of protection.9 
14. The Agricultural Modernization Credit and Financing Program (AMCFP) provides farm 
credit using market-based mechanis ms, including market interest rates.  The AMCFP serves as the 
umbrella financing and credit guara ntee programme for agriculture and fisheries, and is replacing the 
fragmented subsidized directed credit programm es (DCPs) operated by non-financial government 
agencies to assist, among other sectors, agriculture.  Over 85 DCPs existed in the late 1990s, 
administered by 21 agencies.10  While credit provided to agriculture through the DCP's amounted to 
almost PhP20 billion in 1996 (almost 40% of total DC Ps), such subsidized credit policies were costly 
and ineffective in improving farmers' access to credit,  due to large-scale loan defaults and consequent 
dwindling of credit funds.11  Under the AMCFP, government  financial institutions act as 
administrators of wholesale credit funds to encourage private institutions to provide rural loans.  Its 
implementation has slipped substantially.  DCPs in agriculture were to be phased out over four years 
(i.e. by 2002).  The Agricultural Credit Policy Coun cil, responsible for DCP consolidation, started 
consolidating the Department of Ag riculture's 38 DCPs in 2002, for wh ich funds are expected to total 
                                                      
6 Nominal rates of protection were estimated as the percentage difference between the domestic 
wholesale price and the border price at the official exchange rate (David, 2003).   
7 Hill (2003). 
8 Clarete (2005) .  In 1988, manufacturing protection of 55.5% was well above agriculture of 5.2%. 
9 David (2003);  Aldaba (2005);  and Clarete (2005). 
10 Llanto, Geron and Tang (1999).  
11 Llanto (2001). The Philippines WT/TPR/S/149/Rev.1 
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PhP5.5 billion.12  Supplementary government funds have been delayed, and some agencies still 
provide subsidized credit to farmers.13 
Table IV.1 
Effective rates of protection, 1999-04 
(Per cent) 
Sector 1999 2000 2001 2002 2003 2004 
Agriculture, fisheries and forestry 14.8 14.8 15.7 13.8 14.0 14.4 
Agriculture 19.6 19.6 21.5 20.0 19.3 19.8 
Fisheries 6.3 6.3 4.3 0.7 3.9 4.3 
Forestry 2.8 2.8 2.8 3.1 1.5 1.5 
Mining 0.4 0.4 0.4 0.2 0.4 0.4 
Manufacturing 17.8 17.8 14.3 15.3 14.4 15.2 
Food processing 32.5 32.5 27.0 32.6 30.5 31.6 
Beverages and tobacco 13. 7 13.7 7.8 1. 9 4.2 8.5 
Textiles, garments and footw ear 11.8 11.9 8. 4 6.2 3.1 3.4 
Wood and wood products 15.9 15.9 10.0 5.6 7.7 7.0 
Furniture and fixtures 10.3 10.4 12.1 9.0 9.4 9.4 
Paper, rubber, leather & plastic products 10.5 10.0 8.6 6.5 7.0 6.8 
Chemical & chemical products 6.7 6.7 5.3 4.1 4.2 4.9 
Non-metallic mineral products  3.7 3.7 3.3 3.1 3.3 3.3 
Basic metals and metal products 8.3 7.9 6.6 4.3 4.9 4.9 
Machinery 8.2 8.2 6.2 5.0 4.4 4.2 
Miscellaneous manufactures 4.9 4.9 3.5 2.6 3.1 3.0 
Overall 16.3 16.3 14.1 14.3 13.7 14.4 
Note: EPR estimates are based on the 1988 Input/Output table. 
Source:  Philippine Tariff Commission. 
15. Uncertainties exist over land reforms.  Land certif ication has slipped below the annual target 
of 100,000 hectares.  Beneficiaries of agrarian refo rms cannot sell or transfer land within ten years 
from certification, and then can only dispose of up to five hectares;  the remainder must be sold to the 
Government.  This has prevented the development of efficient land markets and limited the use of 
land as collateral for loans, thereby di scouraging investment in agriculture.14  Foreign investment in 
agriculture is generally prohibited.15  Foreigners (including corpor ations with 60% or less domestic 
equity) cannot own farmland, but can lease it for 25 years (extendable for another 25 years) subject to 
area limitations. 
                                                      
12 At end October 2004, Quedancor, a government financial institution, had released credit totalling 
PhP171 million to 33 private financial institutions (inc luding cooperatives and rural banks) of PhP300 million 
received from the AMCFP. 
13 The 1988 Comprehensive Agrarian Reform Law (RA 6657) caps farm interest rates on preferential 
loans, and the 1992 Magna Carta for Small Farmers (RA 7607) limits them to 75% of market levels.  
14 David (2003). 
15 Up to 40% foreign equity is allowed in the production, milling, processing, and trading (except 
retailing) of rice and corn.  Full foreign ownership is allowed if, within 30 years, a minimum of 60% of foreign equity is divested to Filipinos.  WT/TPR/S/149/Rev.1 Trade Policy Review 
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(iii) Selected activities 
(a) Rice 
16. The Philippines is nearly self-sufficient in ri ce;  production rose almost 2% to 13.5 million 
tonnes in 2003 (11.8 million tonnes in 1999) and ther e are minimal exports.  Rice is protected by a 
tariff of 50% and an import quota, set annually by  an inter-agency committee (chaired by the 
Secretary of the Department of Ag riculture), to reflect the shortfa ll in domestic production.  In 2004, 
the quota level of approximately 800,000 tonnes w as fully utilized and substantially exceeded the 
minimum access volume committed under the WTO Ag reement on Agriculture (238,940 in 2004, up 
from 134,400 tonnes in 2001).  The Philippines has therefore met its multilateral commitments on 
rice, which was exempted from "tariffication" until 20 05.  However, the import quota is unlikely to be 
removed as scheduled in 2005.16  The authorities indicate that the use of imported rice is unrestricted 
and sold to consumers through licensed and accredit ed retailers.  The NFA commenced paying the 
50% rice tariff in 2002, and despite minor deregula tion, effectively remains the sole importer (and 
exporter) (Chapter III).17  
17. NFA procures paddy rice nationally from indi vidual and organized small-scale farmers at 
support prices (currently PhP10 per kg.) that are set as the minimum needed to achieve a "reasonable" 
return on investment (Chapter III).  It also opera tes several indirect market intervention programmes, 
such as the Farmers' Incentive Rice (FAIR) Pu rchase Programme, to encourage sales to NFA.18  Rice 
subsidy programmes exist for the poor, such as the Targeted Rice Distribution Programme (TRDP), 
whereby rice is distributed to targeted beneficiaries in depressed regions.   In 2001, the latest year for 
which figures are available, the Philippines spent Ph P3.1 billion (PhP4.3 billion in 2000) to support 
rice prices.19  In 1999, the  NFA's  annual cost to the economy on top of its annual budget was 
estimated at PhP49 billion.20  It continues to require additional public funding because of its poor 
financial position.  
(b) Sugar 
18. Sugarcane production rose by 16% in 2003 to 24.0 million tonnes (production was 
23.8 million tonnes in 1999).  Exports have declined  over the longer term, but increased substantially 
to US$53 million (f.o.b.) in 2003 (US$33.1 million in  1999), representing some 10% of the value of 
production.  The Sugar Regulatory Authority (SRA) tightly manages supply, including growing, processing, and exporting.  The industry relies heavily on exports at above world prices to the U.S. market under its preferential quota;  sales to other markets are minimal.
21  The U.S. export quota has 
remained at approximately 137,350 tonnes by cane weight (around 142,000 tonnes of refined sugar), 
equivalent to about 6% of produc tion volumes.  The authorities indicate that the quota is regularly 
                                                      
16 The Philippines is negotiating the continuation of the special treatment for rice and the extension of 
the import quota for up to ten years with nine WTO Members.  
17 The authorities indicate that the NFA's rice import monopoly was lifted in July 2003 when the 
Farmers as Importers Programme (FAI) was introduced to  allow palay farmers and other private bodies to 
import some of the country's requirements, subject to payment of tariffs.  This was done to share the financial 
burden of importing rice with the private sector, to rel ease scarce NFA resources to more aggressively procure 
domestic production, and to prepare the domestic market for possible eventual opening.  However, such imports are relatively minor, and the NFA utilizes any remaining quota.  
18 FAIR encourages farmers to sell paddy to NFA by allowing them to buy back within six months 
from date of sale up to 25% of the rice equivalent of total palay stocks for their own consumption. 
19 WTO document G/AG/N/PHL/23, 22 August 2002. 
20 Roumasset (2000). 
21 The Philippine authorities indicate that the current average price per tonne of sugar exported to the 
United States (about US$864) exceeded the domestic pri ce (US$725), which itself was well above world levels. The Philippines WT/TPR/S/149/Rev.1 
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filled unless otherwise directed by the U.S. authorities, as happened for the three consecutive quota 
years 1999-00 to 2001-02, when quota utilization fell to  55%.  This situation was expected to occur 
again in the 2004-05 quota year, when only about 97,000 tonnes (about 70% of the quota) is likely to be exported owing to U.S. requests.  S ugar remains relatively highly protected.   A tariff quota (62,627 
tonnes in 2004), with in-quota rates for raw and refined sugar of 50% and out-of-quota rates of 65% 
(50% for beet sugar), restricts imports.  In res ponse to pressure from domestic sugar producers, the 
Philippines concluded WTO Article XXVIII negotiations to raise to 80%  the bound out-of-quota tariff 
rates on raw cane sugar (tariff item 1701.11) and cane or beet refined sugar (tariff item 1701.99) from 
the final level of 50%, agreed in the Uruguay Round, starting 1 July 2003.
22 
19. The SRA divides sugar into several categori es to control production and share the price 
premiums on U.S. exports and domestic sales am ong cane growers and processors.  Production quotas 
are implemented through the " quendan " system.23  Sugar is classified as "A" (U.S. market sugar), "B" 
(domestic sugar), "C" (reserved sugar as needed), and "D" (world market sugar).24  I t  m u s t  b e  
deposited in registered m ill-owned warehouses and only quendan  holders can withdraw sugar.  
According to authorities, this system ensures the industry's economic viability by allowing cane 
growers and millers to receive a "fair" return on investment.  However, such supply management 
distorts incentives and generates gr owing and milling inefficiencies.  In particular, averaging prices 
across the higher priced U.S. and domestic markets distorts price signals and hence production.  The 
revenue-sharing arrangement that allocates 60-70% of returns to growers and the rest to millers 
(RA 809) is also distorting, and reduces incentives to investment.25  However, the authorities indicate 
that while this system needs improvement, mill e fficiency has increased.  Measures being considered 
to encourage efficiency include a pplying a base payment on cane quality.   
20. In 2004, the NFA extended market price support to stabilize sugar prices.  According to the 
authorities, growers needed better returns to prevent surplus production from depressing prices to 
unacceptable levels.  The NFA procured "C" sugar at  a total cost of PhP612 million (44,248 tonnes at 
a "gross liquidation" price of PhP700 to 720 per 50 kg. bag).  While this is be ing continued in 2005, it 
is considered temporary. 
(c) Other 
21. Coconut production in nut terms rose by 1% in 2003, to 14.3 million tonnes 
(12.1 million tonnes in 1999).  The Philippines is a major exporter of coconut products.  Coconut oil, 
its leading agricultural export, increased shar ply in 2003 to US$505 million (US$342 million in 
1999), representing 1% of total expor ts and 22% of agricultural exports.  Imports of coconuts and 
coconut products are dutiable at MFN tariffs of generally 15%. 
                                                      
22 WTO document G/MA/TAR/RS/93, 1 July 2003;  and Clarete (2005), p.9.  The Philippines Uruguay 
Round commitment was to reduce the bound out-of-quota rate on the two tariff items in equal annual 
instalments from 100% in 1995 to 50% in 2000.  The applied out-of-quota rate was reduced from 80% to the 
current level of 65% in 1999.  Since the applied rate s exceeded bound rates, the Philippines requested WTO 
negotiations in January 2000 to raise bindings.  By raising the bound rate to 80% instead of to the applied rates of 65%, it has retained scope to increas e rates in future to pre-1999 levels. 
23 Quedans  are permits proving ownership and must be given to the SRA to release sugar. 
24 The SRA estimates sugar production and consumption at  the start of the crop year to allocate "B" and 
"A" sugar.  Surplus production is allocated as "D" suga r.  During production peaks,  "seasonal excess" of "B" 
sugar is classified as "C" sugar, and is not consumed do mestically until reclassified to "B" sugar, usually in the 
off-milling season.  
25 David (2003). WT/TPR/S/149/Rev.1 Trade Policy Review 
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22. The Philippine Coconut Authority (PCA) is res ponsible for the industry's development.  Its 
marketing functions include matchi ng importers and local buyers with  the right producers/suppliers;  
investment, product and marketing promotion;  a nd monitoring and disseminating market data.  
Growers, processors, and traders must register with the PCA.  It issues export and commodity 
clearance requirements.  These requirements are cu rrently suspended in order to promote exports, 
except for coconut planting materi als, such as seedlings and seed nuts, which require SPS certificates 
to export.   
23. The Government's interests in processing plants (o il mills, refineries, and desiccating plants) 
were sold in the 1970s.  Private operators acquire d several oil mills using funds from the Coconut 
Consumer's Stabilization Funds, a tax levied on pr ocessors until 1982 to subsidize prices of mainly 
copra and cooking oil.26  According to the authorities, the only remaining processing regulation is on 
the establishment and capacity of desiccating plants to ensure that new plants are located in non-
saturated areas with ample coconut supplies, in order to avoid excessive competition and inferior 
products.   
24. Bananas and pineapples, the main fruit exported, accounted for  21% of agricultural exports 
(22% in 1999) and 1% of total exports in 2003.   Production of bananas rose by 2% in 2003 to 
5.4 million tonnes (4.6 million tonnes in 1999) and th at of pineapples by 3% to 1.7 million tonnes 
(1.5 million tonnes in 1999).  Fruit has a tariff of  up to 15%, e.g. bananas 15% and pineapples 10%.  
Imported fresh fruit requires an import risk analysis and a phytosanitary certificate.  Entry restrictions into banana cultivation effectively allow growers to determine export levels, and support a cartel.
27 
(iv) Fisheries 
25. In 2003, fishing and fish processing contributed some 2% of GDP and 4% of employment.  
Exports of fish products amounted to US$524 million in 2003 (US$480 million in 1999), and 
accounted for 1% of total exports.  Imports of fish products are negligible, at least partly due to 
government regulation, including import (and export) controls to ensure food security. 
26. Fishing continues to be regulated by the 1998 Fisheries Code and implementing rules and 
regulations passed in 2000.  The Code aims to preser ve, protect, and manage fisheries in a sustainable 
manner, and to optimally utilize offshore resources to ensure food security.  Despite efforts to 
introduce sustainable fisheries management, over-fishi ng has heavily depleted fishing stocks.  Special 
incentives were extended to commercia l fishermen for five years (until 9 February 2005) to encourage 
fishing further offshore.  These included long-ter m loans to build or improve fishing vessels and 
equipment, tax- and duty-free importation of fishing v essels not older than five years, and equipment.  
Tax and duty rebates on fuel consumed were also  provided indefinitely.  Board of Investments 
incentives are also available to  registered fish processors. 
27. A fisheries access licensing system, to be implemented by the Department of Agriculture 
(DOA), based on catch quotas set acco rding to scientifically determin ed maximum sustainable yields 
(MSY) was envisaged in the Fisheries Code to a void over-fishing.  However, this has not been 
implemented and fishing licences are still issued  largely unrestricted, including by municipal 
governments, even though according to the authorities mo st of the pelagic and demersal fisheries have 
reached MSY levels.  The current access regime a nd licensing policies are still being reviewed as part 
of the Government's "precautionary approach" to  fisheries management, and the authorities indicate 
that the proposed licensing system will be implemented when the national fishing fleet inventory and 
one-year moratorium on issuing new commercial fishing vessel and gear licences, planned to have 
                                                      
26 On-going litigation is determining whether these oil mills are state owned. 
27 David (2003). The Philippines WT/TPR/S/149/Rev.1 
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commenced from 30 October 2005, are completed.28  Provisions to  raise fees for Commercial Fishing 
Boat Licences (CFB) to reflect "resource rents" of fish stocks as part of sustainable fisheries management have also not been implemented.  Sustainable fishing is presently enforced through 
various laws, such as regulations on net mesh size  and prohibiting destructive fishing methods.  The 
1991 Local Government Code and the Fisheries C ode guide the division of responsibilities between 
municipalities and the national government.  Prefer ences on the use of marine resources are given to 
local communities adjacent to municipal waters.  Small and medium-size commercial fishing boats 
require a permit from the local chief executive to fi sh certain species in the subzone of municipal 
waters. 
28. Tariffs on live fish ranged from 1% to 15%, and averaged 6.9% in 2004, down from 9.5% in 
1999.  Respective rates on processed fish were 3% to  15%, and 9.8%, also lower than the average rate 
in 1999 (13%).  Non-tariff barriers mainly restrict  fish imports.  They are only allowed when certified 
as "necessary" by the DOA in consultation with the Fisheries and Aquatic Resources Management Council (FARMC).  A "certificate of necessity" will  be issued if importation is essential for achieving 
food security (taking into account demographic chang es, domestic and international trends in fish 
trade, and supply and demand) and imports would not in jure or threaten injury to the domestic fishing 
industry.  Once issued, any importer may file an application to import fresh, chilled or frozen fish, 
which also requires an import permit from the Bure au of Fisheries and Aquatic Resources (BFMR).  
Fish imported for canning or processing, includi ng by institutional buyers, does not require a 
certificate but must have a permit.   All imported fish products must pass microbiological analysis and 
physical examination to be issued a Fishery Sani tary and Phytosanitary Certificate per shipment.
29  
The regulation of imported live exotic species and live prawn and shrimp is based on "import risk 
analysis" and existing biosafety laws. 
29. Fish exports are regulated to ensure food secur ity, to protect human health, and to meet the 
sanitary requirements of export markets.  They re quire a permit per shipment from BFMR.  Permits 
are valid for 30 days, and unused permits are automa tically cancelled.  While live fish exports are 
prohibited, unless from accredited hatcheries and ponds , this has not been implemented according to 
authorities.  Exports must be processed in establis hments certified by BFAR as compliant with the 
Sanitation Standard Operating Procedures (SSOP)  and the HACCP system.  The BFMR conducts 
preshipment inspection. 
30. The use and exploitation of fishery and aquatic r esources is reserved exclusively to Filipinos.  
The Constitution prohibits foreign equity in fish eries, and it is capped at 40% for deep-sea 
commercial fishing vessels.  Fish processing plants in special economic zones can be fully foreign 
owned. 
                                                      
28 The registration inventory of all (licensed and un licensed) Philippine commercial fishing vessels and 
gear was to have been completed by 21 July 2004 to enable the moratorium to start from 22 July 2004 (BFAR, 
Fisheries Administrative Order No. 2003, 29 December 2003).  However, these dates were extended to 29 and 30 October 2004, respectively (BFAR, Fisheries Administ rative Order No. 223-1, 27 Ju ly 2004).  No clearances 
to import fishing vessels are to be issued during the moratorium, which excludes fishing vessels operating in 
distant or international waters or waters of other c ountries, which allow such fishing operations and those 
imported for distant water fishing, and long line fishing vessels. 
29 If imported products do not meet the required quality standards, the entire shipment is stored for 
further random laboratory examination.  Shipments found unfit for human consumption or not meeting required standards are returned to the exporter.  WT/TPR/S/149/Rev.1 Trade Policy Review 
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(3) MINING AND ENERGY  
31. The main goals of the 2004-13 Energy Plan are to secure a stable energy supply at "fair and 
reasonable" prices that allow recovery of "just" co sts and a reasonable return, and to diversify energy 
sources, including doubling renewable energy capacity.  It aims to further raise self-sufficiency from 
55% to 58% by 2013.  In 2004, im ported oil (36%) and gas (8%) were  important energy sources, and 
it is planned to reduce their relative importance to  30% and 4% respectively, by 2013, and to use 
substantially more domestic gas (11%). 
32. The Department of Energy (DOE) continues to oversee the sector's performance.  It monitors 
supply, demand, inventory levels, and the prices  of certain products.  The DOE has no regulatory 
powers or functions, including over energy prices.  It tries to ensure competitive behaviour in the 
sector. 
33. Tariffs on petroleum products in 2004 generally ranged from 3% to 7%, and averaged around 
4%.  Coal and most mineral tariffs were 1%, 3%, 5% and 7%, and averaged 5%.  Tariffs on oil and 
refined products of 3% were raised to 5% from 2005;  according to the authorities, this is a 
transitional revenue-enhanci ng measure until additional oil taxes are enacted. 
34. Special investment incentives appl y to energy contractors and developers of oil, gas, and 
geothermal projects.  These cover exemption from all non-income taxes, including taxes and duties on 
imported machinery, equipment, and spare parts,  and a Filipino Participation Incentive Allowance 
(FPIA).30  Mining operators and devel opers are eligible for tax incentives under the Omnibus 
Investment Code.  Exploration, mining, quarr ying, minerals processing, and development of 
renewable energy sources are preferred activities liste d in the IPP and are eligible for BOI and non-tax 
incentives. 
35. Mineral exploration and processing licences are ope n to full foreign equity participation.  
Foreign equity in mineral agreements, such as production-sharing agreements (the most common), 
joint venture agreements (not operational) and co -production agreements is capped constitutionally at 
40%.  However, foreign investment in mining is likel y to be boosted by the recent court decision that 
100% foreign equity in financia l or technical assistance minerals agreements was constitutional.31  
These are reserved for large projects (over US$50 mil lion) in which the Government receives 50% of 
net mining revenue (revenue less gross mining costs), including direct taxes and fees paid by the project.  Small-scale mining is reserved for Filipinos. 
(i) Petroleum and petroleum products 
36. There have been no major changes in the downstream oil industry during the period under 
review.  RA 8479 deregulated the industry in February  1998.  This removed th e transitional automatic 
import parity pricing mechanism to enable the market to set prices, and abolished the Oil Price Stabilization Fund administered by the Energy Regulatory Board (ERB) to absorb differences 
between administratively set domestic and international prices.  Accompanying measures were 
introduced to strengthen competition:  cartelization,  predatory pricing, and other acts restraining 
competition were prohibited.  The DOE and DTI prom ote fair trade to try to prevent anti-competitive 
                                                     
 
30 Grants of up to 7.5% of gross proceeds are paid if there is a minimum Filipino interest of 15%. 
31 The Supreme Court ruling in December 2004 reversed  a January 2004 court decision that provisions 
of the 1995 Mining Act permitting 100% foreign equity were unconstitutional.  The Philippines WT/TPR/S/149/Rev.1 
 Page 81 
 
 
practices.  A joint DOE and Justice Department Task Force examines consumer complaints of 
"unreasonable" price increases.  The DOE is currently reviewing RA 8479.32 
37. Domestic prices reflect import parity prices (subject to excise taxes, tariffs, and transport 
costs);  no cross-subsidies exist.33  DOE monitors domestic wholesale and retail prices of refined 
products as well as supply, demand, and inventory le vels.  Refiners and importers are required to 
maintain minimum inventories at their own expe nse.  The Minimum Inventory Requirement (MIR) 
was activated in January 2003 to ensure adequate  supply of reasonably priced petroleum products 
given geopolitical tensions in the Middle East.  It was lowered after the Iraq war to 15 days of stocks 
for refiners and 7 days for bulk and LPG suppliers.34   
38. Since the market (retailing, bulk marketing, di stribution, and storage) was deregulated, new 
entrants need only notify in advance and provid e a business plan to the Oil Industry Management 
Bureau, and obtain "normal" business and other pe rmits and clearances.  Operators must notify 
import/export shipments and submit monthly and a nnual reports on sales, inventory (by crude and 
product), local purchases, and imports.   New entrants have mainly relied on imports to compete with 
the traditional refineries (Shell Petroleum Corporation and Petron Corporation, which is still 40% 
state owned).35  New competitors (over 80 companies) include local firms such as Flying V and 
Unioil, and foreign firms, such as PTT of Tha iland, Petronas of Malaysia, Total of France and 
Liquigas of the Netherlands.  They held 14% of  the overall market in 2004 (over 40% of the LPG 
market).  The number of gasoline stations has in creased substantially; entry, including unrestricted 
foreign equity, was deregulated in 2000.   The Government plans to pass the Bioethanol Fuel Act in 
2005 requiring oil companies to use 5% ethanol within two years and 10% before 2010, for 
environmental and rural development reasons, with sugar to be the main ethanol source.36  
39. Improved tax and contractual te rms for oil exploration and development were introduced 
recently, especially for deepwater ac tivities.  Full foreign equity is allowed in petroleum exploration 
and extraction.  Service contracts, subject to the President’s approval, may cover any area, including 
national reserves, and are granted by public bidding  or by negotiation with DOE.  However, the past 
practice of issuing them by negotiation for areas defined by the contractor on a "first come first serve" 
basis was replaced with a system of "competitive public contracting rounds" in 2003, whereby the 
DOE awards exploration licences by offering large areas and allowing bids on selected sub-areas.  The service contractor receives a stipulated fee while the Government retains ownership of all 
discovered reserves and provides financing.  The first round opened in August 2003 and covered 
46 offshore blocks.  Bidding by domestic and fo reign investors meeting specified technical and 
financial requirements, such as minimum working ca pital levels and a maximum debt/equity ratio of 
3:1, closed in March 2004.  Bids are evaluated b ased on the work programme and other factors, such 
as local content (10%). 
                                                     
 
32 The review will examine ways to improve the legislation, including the balance between industry and 
consumer interests ( The Philippine Daily Inquirer,  "Gov't names oil deregulation review panel", 1 March 2005). 
33 Specific excise taxes are highest for gasoline and other non-socially-sensitive products.  Kerosene 
and diesel have lower rates, while household (LPG) and industry products (fuel oil for electricity generation) are untaxed.  The Government is proposing to raise petroleum excise taxes as part of its revenue reforms.   
34 Previous levels were 30 days for refiners, 15 days for bulk suppliers and 7 days for LPG suppliers.   
35 The authorities indicate that there are no plans to divest Petron, since this enhanced the Government's 
strategic role in ensuring continuous and sufficient supply of reasonably-priced petroleum products.  Caltex 
closed its refinery in late 2003 and now imports petroleum products. 
36 The Philippine Star,  "GMA to certify bill mandating oil companies to use ethanol", 
28 February 2005. WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 82 
 
 
40. The state-owned Philippine National Oil Comp any (PNOC) is responsible for maintaining 
stable oil supplies.   It has also diversified into non-oil and gas exploration, such as petrochemicals, 
energy development (geothermal, natural gas, and electricity), coal mining, and shipping.  While no 
plans exist to privatize PNOC, some subsidiaries are being divested.  The sale of 49% of its stake in 
the Malampaya gas project (through PNOC-EC) is being finalized, and its geothermal arm (PNOC-
EDC) is to be privatized in 2005.  PNOC Shi pping and Transport Corporation (PSTC) and PNOC 
Development and Management Co rporation (PDMC) are also slated for privatization. 
(ii) Coal 
41. Total coal reserves are estimated at 330 million tonnes.  Coal output rose from 
2 million tonnes in 2003 to 2.7 million tonnes in 2004.  Imported coal accounted for 71% of total coal 
requirements in 2004 (down from 90% in 2000).37  Consumption of 9.4 million tonnes in 2004 is 
expected to rise to 16.9 million tonnes by 2013, mainly  due to electricity generation.  Small-scale coal 
mining is widespread, and most coal is low grade.   Coal is procured by the PNOC-EC and blended 
with higher-grade imported coal and sold to the state-owned National Power Corporation (NPC) and 
other users, such as cement manufacturers.  NPC co mplies with DOE policy to buy at least 10% of its 
coal domestically.  The rest is imported, mainly fr om China and Australia at an MFN tariff of 7%, and 
from Indonesia at a lower preferential (ASEAN) tari ff of 3%.  Imported coal must have a maximum 
1% sulphur content.  The authorities indicate that  the same standards apply to domestic coal.  
(iii) Natural gas 
42. The gas industry is in its early development.   Government policy is to promote gas self-
sufficiency as a cleaner energy source and to reduce reliance on fuel imports.  This will require an 
expanded pipeline network and other substantial investment.  A singl e gas supplier owns one of the 
two pipelines from the gathering facilities to the power  stations.  A consortium of Shell, Chevron, and 
PNOC is developing significant offshore natural gas reserves.  Piped gas has supplied three electricity 
plants since 2002, which account for about 20% of the country's total capacity. 
43. Gas demand is projected to rise from 103 billion cubic feet (BCF) in 2003 to 198 BCF in 
2012, mainly from converting thermal power generation plants to gas.  A pipeline network to supply 
such plants is planned from 2006.  Imports of li quefied natural gas (LNG)  will commence following 
the opening of an LNG import terminal planned for 2006, and are forecast to rise to 23 BCF in 2008 
and to 194 BCF in 2012.  Connection to the Trans- ASEAN Gas Pipeline may also enable natural gas 
to be imported. 
44. The DOE is the lead agency for developing the na tural gas industry.  It issues permits for the 
construction, operation, an d maintenance of pipelines and related supply facilities.38  The Government 
will confine its primary role to policy and regula tion, and leave the private sector to finance, 
construct, and operate natural gas infrastructure projects in the downstream sector.  PNOC-EC may 
take a lead role, however, to start a strategic project, if needed.  This is happening in several projects, 
such as the Bat-Man 1 project (due for comple tion in 2007), for which the DOE granted PNOC-EC 
the permit to construct-own-a nd-operate the pipeline in 2003.   Competition is to be enhanced by 
liberalized entry and adopting pro-competitive and fair-trade measures. 
45. Natural gas is considered a public utility, and private operators must first obtain a statutory 
non-exclusive franchise from Congress to supply gas for 25 years (extendable for another 25 years).  
                                                      
37 The Manila Bulletin,  "Coal utilization up 28.7%", 3 March 2005. 
38 Permits are to be issued provided the pipeline or  facility is consistent with overall policy, the 
applicant has the necessary financial resources and tec hnical capacity, and it is to be operated competitively. The Philippines WT/TPR/S/149/Rev.1 
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Only Filipino citizens or locally incorp orated companies may hold a franchise.   Foreign equity is 
limited constitutionally to 40%.39   
46. The Natural Gas Law is due to be passed in  2005.  Interim rules and regulations governing 
transmission, distribution, and supply of natural gas were promulgated in August 2002.  Vertical 
integration or cross-ownership in different industry segments (transmission, distribution, and supply) 
is allowed in order to promote economies of scale and to mitigate risks for new investors.  The Energy 
Regulatory Commission (ERC) will set charges for services (transmission, distribution, and supply) and retail gas prices based on a methodology that allows  recovery of just costs and a reasonable rate 
of return to ensure the entity's viability.
40  Price regulation will continue until the DOE deems the 
market to be competitive.  Cartels and other collu sive and anti-competitive behaviour that restrict, 
prevent or distort competition are prohibited, in cluding predatory and excessive pricing, misuse of 
dominant position, bundling and other vertical restrain ts, denial of access to essential facilities on fair 
terms, and discriminatory conditions.  The DOE wi ll issue regulations to promote competition and 
will be required to adopt necessary measures to restore competition. 
47. Non-discriminatory third-party access to essential facilities is mandatory (gas transmission 
and distribution systems) on terms consistent with an access code to be developed by DOE;  however, 
it can be deferred by DOE in "early years" for up to three years (transmission) or five years (distribution), subject to reasonable extensions.
41  Third-party access is to be negotiated between 
operators.  The DOE must first approve proposed  access conditions, such as technical and economic 
feasibility of access and procedures for negotiations in good faith.  Access charges are to be set by the 
ERC using a prescribed methodology.   The DOE is developing a third-party-access code. 
(iv) Electricity 
48. Since the last Review of the Philippines, the Government has undertake n substantial reforms 
aimed at deregulating and restructuring the electricity market.  The Electric Power Industry Reform Act (EPIRA), enacted in 2001, stipulated the indust ry's restructuring by separation into generation, 
transmission, distribution, and supply.  However, implementation, including privatization, has proved 
difficult and slow, but is again a top government priority.  The DOE is overseeing the industry's 
restructuring and setting policy for the electricity sector.  Replacement of the Energy Regulatory 
Board with the ERC in 2001, as the independent quasi-judicial regulator of the electricity market, separated the regulatory function from the DOE's polic y formulation role.  The ERC's functions are to 
promote competition, encourage market development,  ensure customer choice, and to penalize abuse 
of market power, including by issuing cease and desist orders where a ppropriate.  ERC draft 
competition rules are being finalized after further industry consultations.   It also released a Magna 
Carta to protect rights of residential electricity consumers in June 2004. 
49. According to the 2005-14 Power Development Plan , substantial new investment in generation 
is required to raise capacity by the 40% needed to  meet the forecast annual demand growth (7% by 
2014).  In 2003, after the opening of three natural gas power plants, the share of electricity generated 
from natural gas increased to 24.9% from 18.1% in 2002, while coal-based generation fell from 
                                                     
 
39 The Constitution also limits participation of foreign investors in the governing body of any public 
utility enterprise to their proportionate capital share, and all executive and managing officers must be Filipino.    
40 Rates for transmission, distribution or supply shall be "just and reasonable" and be set on an 
"unbundled" basis.  Prices between gas supplier and larg e end-users, such as power plants, are contracted via 
sales purchasing agreements without requiring ERC approval. 
41 Deferment is granted when it can be shown that it is necessary to enable efficient planning of the 
infrastructure and aggregation of the initial demand necessary to justify investment in transmission or distribution systems, and is nece ssary to ensure stable supply. WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 84 
 
 
33.3% to 27.5%.  This raised the country's power self-sufficiency from 33% in 1998 to 53% in 2002.   
Policy is to raise the relative share of electricity gene rated by natural gas at the expense of oil and coal 
plants. 
50. The NPC provided 75% of electricity in 2003.  Well over half of production (62%, up from 
42% in 1999) was by private generators (independent  power producers) that have been allowed to sell 
electricity to NPC on contract since 1993.  Most non-NPC generated electric ity is from natural gas 
(64%).  Distribution to consumers is undertaken under franchise by privately owned utilities, such as 
the Manila Electric Company (Meralco), numerous electric cooperatives, and a few local government-
owned utility companies.  The National Electrification Administration (NEA) provides electricity 
cooperatives with credit, loans, and other financial help as well as technical assistance, such as design 
and maintenance of distribution systems.   The DOE is promoting  investment management contracts (a 
type of concession contract for accessing private cap ital and management expertise) to help electricity 
cooperatives restructure and raise efficiency.42    
51. The NPC has suffered large losses.43  These rose to 1.5% of GDP in 2004, on average 
PhP1.27 per kWh.44  A provisional rise of 40% in the NPC's average electricity tariffs awarded by the 
ERC in September 2004, along with expected lower interest costs on debt, should reduce its losses to 
0.75% of GDP in 2005.45  NPC profitability is also reduced by the requirement for distribution 
utilities to provide low-income households an ERC-set lower "lifeline rate" for at least ten years.  
About 35% of consumers are eligible and receive di scounts of between 10% and 50%.  The ERC is to 
eventually include an additional component in the universal charge on consumers that will fund the 
removal of all other cross-subsidies.46  This charge currently covers only missionary electrification 
and the environmental charge.47 
(a) Generation 
52. Entrants to the generation market require only a certificate of compliance from the ERC.  
Foreigners may invest in electricity generation w ithout equity limits.  To promote competition, no 
company or related group can own, operate or contro l more than 30% of the grid's installed generating 
capacity and/or 25% of the nati onal installed generating capacity. 
53. The EIPRA stipulated progressive privatization of the NPC by divesting its power generation 
plants.  The Power Sector Assets and Liabilities Management Corporation (PSALM) was created to 
manage the disposal of its assets.  The EIPRA requi red that at least 70% of  NPC's generation capacity 
                                                      
42 They will retain ownership and control of assets and continue to be regulated by the ERC. 
43 Since about one third of NPC's liabilities are in foreign currency loans and bonds, it is heavily 
exposed to exchange rate movements, especially the peso's depreciation against the U.S. dollar.  Its borrowings 
have accounted for about half of total contingent liabilities of state-owned entities.   
44 NPC, Power Hotline , 30 August 2004.  
45 To facilitate privatization the Government absorbed PhP200 billion of NPC's debt from 2005. 
46 Cross-subsidies apply, for example, between Luzo n and especially Manila customers, who pay much 
higher prices than those in the Visayas and Mindanao grids, and between industrial and commercial users to 
residential users.  Grid cross-subsidies are due to be fully phased out by October 2005, and as of August 2004 
some 56 distribution utilities had phased out cross-subsidie s to varying degrees between customers (ten fully 
and another eight by two thirds).  These are due to be fully removed by July 2006.  After liberalization and 
commencement of the competitive spot market the UC will also include a consumer levy to cover NPC's 
"stranded" debt, and rural electrification. 
47 The EPIRA required a universal charge on end-users to cover (a) stranded NPC debts and contract 
costs, including distribution utilities, (b) missionary elect rification, (c) the equalization of taxes and royalties 
between indigenous or renewable resources of energy and imported energy fuels, (d) environmental charge, and (e) "mitigation" fund for removal of cross-subsidies.   The Philippines WT/TPR/S/149/Rev.1 
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in Luzon and Visayas be privatized w ithin three years (by June 2004), and the rest within eight years.  
However, the privatization plan approved in Oct ober 2002, to have commenced in December 2003, 
has slipped.48  The 70% privatization  target is now due to be met by end 2005 (30% by end 2004).  
The first of 12 power plants to be privatized in th e first half of 2004, coveri ng some 16% of installed 
capacity in Luzon and Visayas, were fully divest ed in March, and another plant was sold in 
June 2004.  To date PSALM has sold five mini- hydroelectric power plants and a coal-fired plant, 
totalling about US$570 million, and corr esponding to 11% of generating assets.   However, PSALM 
still intends to meet the end 2005 ta rget, and expects to privatize 50% of NPC's generation capacity by 
mid 2005.49  Filipino participation is encouraged but foreigners may purchase NPC plants.   
54. NPC has retained responsibility for electric ity generation in rural areas (missionary 
electrification) through its state-owned Small Po wer Utilities Group (SPUG).  The Government's goal 
to electrify all villages (barangays) by 2006 has slipped to 2008.  As of May 2004, some 91% had 
been electrified.  Private investment in missionary  areas is encouraged, and guidelines prescribing the 
transfer of SPUG's generation function to the priv ate sector in several provinces/islands have been 
issued.  A DOE programme to competitively select new private providers (NPPs) for these locations 
is to be completed for three pilot areas by mid-2005.   
55. The ERC will continue to regulate generation prices until the Wholesale Electricity Spot 
Market (WESM) starts operation to allow pow er to be competitively traded (see below).   In 
September 2003, the ERC provisionally approved th e introduction of the long run avoidable cost 
(LRAC) methodology for setting generation rates in  the Luzon, Visayas, and Panay/Bohol grids.50 
This was subsequently reversed in January 2004 due to failure to comply with certain legalities, and 
the ERC instructed NPC/PSALM to make refunds.   Generation rates continue  to be set using the 
NPC's generation rate adjustment system (GRAM)  and the incremental currency exchange rate 
adjustment (ICERA), which allow regular adjust ments for costs of fuel and purchased power from 
IPPs. 
(b) Transmission 
56. The ERC regulates transmission and sets rates.51  The National Transmission Corporation 
(TRANSCO), which is owned by the PSALM, was created in 2001 to run NPC's national 
transmission monopoly.  TRANSCO must provide  all electricity users with open and non-
discriminatory access to the grid. 
57. TRANSCO is to be privatized by sale to a single operator.52  This was scheduled for early 
2005, but has been delayed by several months following the Government's decision in October 2004 
to terminate bilateral negotiations with potential investors and to proceed again with competitive 
                                                      
48 Two hydropower stations are excluded from priv atization until 2010.  The NPC will continue to 
operate all unsold generation assets on behalf of PSALM under an operation and maintenance contract.   
49 The authorities hope to raise US$4-5 billion to help repay NPC's debts of US$9 billion ( Financial 
Times,  "Manila power plant sell-off delayed amid transport strike", 26 November 2004).  
50 The LRAC methodology sets prices to ensure the long-term viability of the generation sector.  It 
incorporated (a) average weighted cost  of capital, (b) capital costs from plan t construction, (c) fixed and variable 
operating and maintenance costs, (d) fuel costs, (e) insurance, and (f) variations in the peso-U.S. dollar exchange 
rate. 
51 Generation and transmission tariffs have been set separately by the ERC since June 2002. 
52 The EPIRA provides for competitive guidelines to ensure the independence of the transmission 
provider (section 45).  No generation company or distribution company is allowed to hold an interest in TRANSCO or its concessionaire directly or indirectly. WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 86 
 
 
bidding.53  This is to be conducted in the first half of 2005.  As transmission is regarded as a public 
utility, the franchise needed fro m Congress will be transferred to the selected concessionaire for 
25 years, renewable for a further 25 years, and fore ign equity is constitutionally capped at 40%.  The 
Government, through PSALM, will reta in ownership of the grid and related transmission assets, but 
will not fund the transmission network.  Instead, th e concessionaire will be expected to invest in 
accordance with TRANSCO's ten-year Transmission De velopment Plan (2004-13).  Long delays in 
enacting the enabling legislation (TRANSCO Franchi se Bill) to allow the automatic transfer of the 
franchise to the concessionaire have created uncer tainty among potential bidders.  However, to 
facilitate privatization until then, a two-phase co ncession structure is being applied to allow 
TRANSCO to be sold without the transferable franchise.  Initially, the concessionaire will undertake 
only functions that do not require  a franchise and will provide cons ultancy services to TRANSCO on 
non-delegated functions until these are transferred. 
58. The ERC applies an incentives- based price control formula to set transmission charges (so-
called "wheeling" rates).  It is subject to a re venue cap (known as the maximum allowed revenue or 
MAR) and rates are set to recover costs and provide a reasonable rate of return based on the weighted 
average cost of capital.  During the first regul atory period (2003-05), the MAR is based on the 
revenue from September 2002 tariffs, adjusted annually by the CPI.54  In the second and third 
regulatory periods (2006-10 and 2011-15) the MAR is to be based on yearly revenue and adjusted 
annually.55 
(c) Distribution 
59. The ERC continues to regulate the distribution of electricity to end-users and to approve 
distribution charges.56  Distribution will continue to be undertaken under franchise by private 
companies, local governments or organized as cooperativ es.  As this is a public utility, foreign equity 
is capped constitutionally at 40%.  Distribution u tilities must provide open and non-discriminatory 
access to end-users, including to suppliers and "aggr egators" (purchasers and sellers to end-users on a 
group basis), and provide universal services. 
(d) Supply 
60. Competition in the retail sector to allow consum ers to choose among suppliers was originally 
scheduled for June 2004, at least for large consum ers.  Franchises to supply power will not be 
required.  Suppliers will need only a technical licen ce from the ERC to operate.  No restrictions will 
apply on foreign equity  and suppliers' prices w ill be unregulated.  A key requirement for retail 
competition is the formation of the WESM to enable short-term buy ing and selling of bulk 
electricity.57  The Philippine Electricity Markets Cor poration was established to run WESM in 
                                                      
53 Initial bidding in 2003 was rejected as only one bid was received. PSALM th en invited submissions 
from interested parties, and in Augu st 2004 received four offe rs, but these were subseq uently terminated.   
54 For 2005, TRANSCO will be allowed to increase the MAR by the changes in the weighted index 
(composite of local and U.S. CPI and exchange rate movements) and to recover any shortfall in 2004.   
55 The MAR is to be set by reference to the utility's (a) regulated asset base, (b) operating and 
maintenance expenditure, (c) company and other tax payments, (d) regulated depreciation, and (e) return on capital.  It will be adjusted annually using the change in the weighted index (local and U.S. CPI), exchange rate 
movements, and actual adjustment factors to correct for over or under recovery in the previous year. 
56 Charges are to be based on full recovery of "prudent and reasonable economic costs, or such other 
principles to promote effici ency" as determined by th e ERC (EIPRA, Section 25). 
57 Other EIPRA reforms needed before retail competition could be introduced included approval of 
unbundled transmission and distribution wheeling charges;   initial implementation of the cross-subsidy removal 
scheme;  privatization of at least 70% of the total capac ity of generating assets of NPC in Luzon and Visayas;  The Philippines WT/TPR/S/149/Rev.1 
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November 2003.  However, WESM's operation has been delayed until mid 2006.  Competition in the 
sector is now scheduled to start by July 2006 for th e Luzon grid and by January 2007 for the Visayas 
grid.  In the Luzon Grid competition will initiall y cover end-users with a monthly average peak 
demand over 1 MW, to be reduced to 750 kW from July 2008. 
(4) MANUFACTURING  
(i) Introduction 
61. Manufacturing as a share of GDP increased slightly to 23% in 2004 (21.6% in 1999).  Its 
employment share has remained at around 10% since 1999.  Labour productivity in manufacturing has fluctuated, but substantially exceed ed other sectors during the 1990s.
58  Food, beverages and tobacco, 
which, on average, receive among the highest effectiv e rates of protection along with "furniture and 
fittings", continue to dominate manufacturing, accounting for over 40% of output.59  The contribution 
of other labour-intensive industries, especially el ectronics and clothing, to output has increased since 
the early 1990s, while that of heavy industries has contracted.  Manufacturing exports increased during the 1990s, almost entirely from electronics,  which accounted for almost 70% of merchandise 
exports in 2003, and from clothing (5%).  FDI is significant in manufacturing, with foreign-owned 
firms generating well over half of out put and a high share of exports. 
(ii) Policy developments 
62. Trade liberalization during the 1990s changed the sector's output structure.
60  It benefited 
labour intensive industries in which comparativ e advantage is strongest, and placed competitive 
pressures on heavy industries that had difficu lties adjusting to lower tariff protection.61  The unilateral 
trade reforms since the 1980s have impr oved resource allocation and competitiveness.62  However, the 
long-standing unilateral tariff reduction programme , boosted by the passing of the Tariff Reform 
Programme (TPR IV) in January 2001 (EO 334), wh ich was aimed at lowering rates to a low and 
nearly uniform maximum of 5% by July 2004  (excluding a few sensitive agricultural and 
manufactured products, such as certain meat produc ts, rice, corn, and sugar) was put on hold.  In 
March 2002 (EO 84), January 2002 tariff rates we re extended to 2004 on various agricultural 
products.63  Tariffs were subsequently frozen at 2002 levels in January  2003 (EO 164) on a substantial 
number of products, and rates were substantially "recalibrated" in October (EO 241) and December 
2003 (EO 264) to selectively raise many agricultural and manufacturing tariffs (covering 11% of tariff 
lines), largely at the request of local producers (Chapter III).64  This followed a review of tariff levels 
that recommended, in November 2003, the rolling b ack of tariffs for many industries to their 1998 
                                                                                                                                                                     
and transfer of at least 70% of management and control of the total energy output of power plants under contract 
with NPC to IPP Administrators. 
58 Hill (2003).  GDP and employment shares in 2003 suggest that labour productivity in manufacturing 
was more than double the national average. 
59 Aldaba (2005), e.g. meat processing, and rice and corn milling have effective rates over 40%. 
60 Medalla and Aldaba (2003). 
61 Previous trade policies had created an "imperfec tly competitive structure characterized by unrealized 
scale economies and poor economic growth performance" by favouring heavy over light industry, import competing manufacturing over exports and agriculture, and of consumer goods over capital and intermediate 
goods (Medalla, 1998). 
62 Austria (2001b).  
63 Medalla and Aldaba (2003);  and Aldaba (2005), p.  3.  TRP IV, enacted before President Estrada was 
impeached, was short-lived as the inco ming administration respo nded to pressure from special interest groups 
by delaying tariff restructuring either by raising tariffs or postponing scheduled rate reductions. 
64 Medalla and Aldaba (2003);  and Aldaba (2005). WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 88 
 
 
levels.65  Further tariff increases have occurred, such as on certain petrochemicals (EO 161) and steel 
products (EO 375), again seemingly to protect domestic  producers by more actively using tariffs to 
promote industrial development.66  Average MFN tariffs, after falling from 9.7% in 1999 to 5.8% in 
2003, rose to 7.4% in 2004, increasing in manufacturi ng from 5.0% to 6.9% (Chapter III).  While the 
authorities do not rule out the possibility of reinsta ting the uniform tariff programme, the priority is on 
recalibrating the tariff structure consistent with na tional development goals, and they do not preclude 
the possibility of further tariff rises consistent with WTO commitments.67 
63. Policy is also aimed at promoting ten priority sectors selected on competitiveness grounds.68 
(iii) Selected activities 
(a) Electronics 
64. While exports declined slightly in 2003, to US$24.2 billion, they ha ve grown by about 12% 
annually since 1999.  Most growth has come fro m foreign-owned multinational firms assembling 
imported components in export-processing zones (EPZ) .  The electronics industry covers mainly 
semiconductors (70% of electronic exports in 2003) , electronic data processing equipment, office 
equipment, telecommunications equipment, automo tive and consumer electronics.  MFN tariffs on 
electronics and other electrical goods generally ranged in 2004 from zero to 15%, and averaged below 
5%, compared with rates ranging from 3% to 20%, and an average of almost 8% in 1999. 
65. The Government intervenes minimally in the sector.  As a preferred activity listed on the 
BOI's Investment Priority Plan (IPP), registered elec tronic firms as well as those located in EPZs that 
export at least 70% of production are entitled to  tax and non-tax incentives (Chapter II(4)). 
(b) Textiles and clothing  
66. Exports of textiles and clothing peaked at US$3.1 billion in 2000 (US$2.3 billion in 1999) 
and declined by 4.3% in 2003 to  US$2.6 billion;  clothing accounted for almost 90% of these exports 
in 2003.  Clothing exports were mainly to the quota-protected markets of the United States (74% in 2003), EU (13%), and Canada (2%) under the Agreement on Textiles and Clothing (ATC).
69  T h e  
Garments and Textile Export Board (GTEB) of the De partment of Trade and Industry allocated export 
quotas using a complex system based essentially on th e exporters' past performance as determined by 
value of exports and local value added (Chapter III).   The minimum level of local value added (f.o.b. 
value less cost of imported raw materials) was 34% of  f.o.b., and a financial penalty of 10% applied to 
                                                      
65 Such tariff reversals may undermine efficiency ga ins from previous trade lib eralization (World Bank, 
2004g);  and Clarete (2005). 
66 Clarete (2005).  For example, increased MFN tari ffs from 3% to 7% on hot-rolled and cold-rolled 
steel coils were reportedly linked to expansion of steel facilities in Iligan City after the sale of the financially insolvent National Steel Corporation to a consortium seeking protection ( Today Business , "DTI pushing to 
review WTO commitments", 6 February 2005).  Similarly, the relatively high tariffs, including an increase from 
7% to 10% on certain finished plastic products of downstream industries were reportedly linked to establishing 
the country's first naptha cracker f acility, which has not yet occurred ( The Philippine Star,  "TRM rejects JG 
Summit Petrochem’s bid for another extension", 28 February 2005).   
67 APEC (2005b), p. 10. 
68 Construction materials, electronics, food, giftware and holiday decor, home furnishings, IT and IT-
enabled services, marine products, motor vehicle parts and components, organic and natural products, and "wearables" e.g. leather goods, footwear, jewellery, and hats. 
69 In 2004, the average quota utilization rate was 52.4% for 53 product categories subject to specific 
restraints;  54.9% for the United Stat es (30 product categories, but averag ing 92.6% for 14 of these), 46.2% for 
the EU (9 product categories), and 38.3% for Canada (14 product categories). The Philippines WT/TPR/S/149/Rev.1 
 Page 89 
 
 
any value added shortfall.  Export quotas had to be  surrendered within a prescribed time period to 
avoid penalty for unutilized balances.  Exporters coul d temporarily or permanently transfer or swap 
quotas (up to 40%).  Incentive programmes provided extra  quotas to manufacturer-exporters 
undertaking productivity enhancement activities.  The GTEB launched the Garment Export Industry 
Transformation Plan and Assistan ce package in 2002 to prepare the industry for greater competition 
from low-cost suppliers in the United States and othe r key markets following quota removal in 2005.  
It also provided development assistance to impr ove productivity and eliminated quota fees in 2004, 
saving the industry some US$3.2 million. 
67. Textiles and clothing exports were deregulated  from 2005 when export quotas were removed, 
and all quota-related preshipmen t licensing/documentation procedures eliminated.  The GTEB is 
being abolished. 
(c) Motor vehicles 
68. Traditionally highly assisted, the industry has faile d to become efficient and internationally 
competitive.70  Assembled motor vehicles and components are mainly sold domestically where the 
relatively small domestic market has become a major limitation to efficiency as firms cannot reap 
economies of scale.  Substantial excess capacity ex ists, and several measures, such as the Export 
Development Programme, have been used to try to address this problem.  There are no foreign 
investment restrictions.  Japanese firms dominate, mainly as joint ventures, some with majority 
equity. 
69. Assistance to motor vehicles remains relatively hi gh, with an effective rate of protection of 
76% in 2004 (lower than in 1999).71  In 2000, MFN tariffs on imported passenger cars, trucks, and 
motorcycles were reduced from 40% to 30%, and on buses from 30% to either 15% or 20%.   
However, the Motor Vehicle Development Plan (MVDP) continues to assist assembly by allowing 
plan participants to import completely-knocked-down (CKD) kits at preferential tariff rates of 1% and 
3%.72  The incidence of vehicle excise taxes may al so still be heaviest on imports, which, as well as 
having bigger engines, are more expensive, even with the changed tax base from an ad valorem  rate 
levied according to engine capacity to a progr essive rate scale applied to purchase price.73   
70. New MVDP guidelines were issued in December 2002 under EO 156.  These provided for the 
removal by 30 June 2003 of e xport-balancing and local-content requirements, which assisted 
component producers by requiring assemblers to meet minimum local content on cars, commercial vehicles, and motor cycles in order to import CKD kits at lower duties (Chapter III).
74  The number of 
models assembled is no longer restricted, as long as they are registered with BOI.75  New domestic 
and foreign assemblers must have a technical li censing agreement with the overseas CKD supplier to 
provide technical assistance, and are required to invest at least US$10 million in assembly operations 
and associated parts manufacture within one year to produce passenger cars, US$8 million for commercial vehicles, and US$2 million for motor cycles. 
                                                     
 
70 Aldaba (2000). 
71 Aldaba (2005), p. 12. 
72 The tariff rate on CKD kits used in assembling passenger cars was reduced from 10% to 3% in 2004. 
73 The excise rates are 2% up to PhP600,000;  20% from PhP600,000 up to PhP1.1 million;  40% from 
PhP1.1 million up to PhP2.1 million;  and 60% from PhP2.1 million. 
74 The local-content plan contributed to the high cost of assembly since many domestic parts were not 
competitive (Aldaba, 2000).  Local-content plans primarily determine the distribution of total assistance, which 
is set mainly by tariffs on vehicles imports, be tween assemblers and component manufacturers. 
75 Registration is needed, according to authorities, to avoid assemblers copying models (i.e. having one 
model/brand registered to one authorized assembler) and to ensure the model's marketability and viability.  WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 90 
 
 
71. At present, CKD kits can be imported at preferential tariff rates if they promote efficiency in 
the motor vehicle industry, increase value added, create jobs, and transfer skills and technology.  
Granting preferential tariffs on CKD kits is also  contingent on the availability of domestic 
components, which is determined by BOI.  To be included in a CKD kit, components must not be 
produced domestically;  these must be imported sepa rately under individual (non-preferential) tariff 
rates.   This assists component suppliers in much the sa me way as a local-content plan.  In addition, 
semi-knocked down (SKD) kits may no longer be imported. 
72. According to the authorities, MFN rates under th e MDVP have been modified to the extent 
allowed by law taking into account its objectives a nd rates in neighbouring countries.  The Philippines 
is also adopting relatively uniform tariffs of  3% on components and 5% on passenger cars under 
AFTA-CEPT, which may increase competitive pressur es on the industry and require restructuring.76 
73. EO 156 banned all imports of used motor cycl es, components, and motor vehicles, except for 
certain trucks (gross vehicle weight above 6 tonn es), buses (gross vehicle weight above 12 tonnes), 
and special purpose vehicles.  However, the ban, which authorities indicated was for environmental 
and safety reasons, is not operating since the Court of Appeal ruled it unconstitutional.  Used and new 
vehicles therefore continue to be imported at th e same tariff rates, pending the Supreme Court's 
decision of the ban's legality.77  Some government and industry bodies are monitoring used vehicle 
imports, although not legally required to do so.  All imported vehicles must comply with emission 
standards. 
74. Special export incentives on cars and components are being implemented in accordance with 
"international commitments" and "existing laws".   These are all projects under the ASEAN Industrial 
Cooperation Scheme and as provide d under EO 244 (as amended by EO 312).  Manufacture of parts 
and components is a BOI IPP and is entitled to in come tax holidays and other investment incentives. 
(5) SERVICES  
75. The services sector accounted for 60.7% of GDP and well over half of total employment in 
2004 (Table I.2).  The main sectors are trade (14.1%  of GDP in 2004, helped, according to authorities, 
by entry of foreign retailers), private services (12.5%), government services (8.1%), transport and 
communications (7.6%), ownership of dwellings and real estate (6.1%), cons truction (4.5%), finance 
(4.4%) and electricity, gas, and water (3.2%). 
76. The Philippines' commitments under the Genera l Agreement on Trade in Services (GATS) 
included financial services, communications, transport,  and tourism and travel-related services.  The 
Philippines significantly expanded commitments on financial services under the WTO financial 
services negotiations and on basic telecommuni cations under the WTO negotiations on basic 
telecommunication services.  However, it has not accepted the Fourth (basic telecommunications) or Fifth (financial services) Protocols of the GATS.
78  The Philippines' GATS commitments have not 
changed since its previous Review as services negotiations are on-going. 
                                                      
76 Aldaba (2000). 
77 The President is reportedly planning to raise tariffs on imported used vehicles if the Supreme Court 
rejects the Government's appeal and confirms the ban's illegality ( The Philippines Star,  "Palace seeks tax hike 
on used vehicle imports", 1 March 2005).  
78 Under the Constitution, ratification requires acceptan ce by the Senate.  Both protocols were sent to 
Congress for approval in December 2004;  it is expected in the near future (APEC, 2005b, p. 13).  The Philippines WT/TPR/S/149/Rev.1 
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(i) Financial services 
77. The financial services subsector has grown by on average 7% since 1999.  Banking is the 
predominant activity, and accounts for about three quar ters of total financial sector assets.  The main 
change in market access arrangements in financia l services during the period under review has been 
the moratorium on new bank offices and branches, fro m September 1999, and its extension to include 
new banks in June 2000, initially for thre e years, but extended indefinitely.   
78. Significant reforms have also been made to the regulatory and supervisory framework 
covering financial services.  The Central Bank (BSP) is the principa l regulatory and supervisory body, 
regulating all banks;  however, many quasi-banks79, and affiliates engaged in allied activities (e.g. 
investment houses, securities dealers and brokers a nd finance companies), are regulated by both the 
BSP and the Securities and Exchange Commission (SEC), or by the Insurance Commission (IC) in the case of insurance companies.  This has create d a comprehensive, but complex and fragmented 
regulatory framework, causing duplication and uncer tainty of regulatory responsibilities in certain 
areas.
80  To share joint supervisory responsibiliti es more efficiently, BSP and SEC signed a 
Memorandum of Agreement in July 2002, operative from July 2003, which, inter alia,  delineated 
jurisdictional responsibilities.  For example, it gave BSP sole regulatory power over investment 
houses affiliated with banks.  They also agreed to conduct joint inspecti on of non-bank financial 
intermediaries, to consult on respective findings, a nd to extend technical assistance and to share 
relevant information.  A Supplementary Memora ndum of Agreement was signed in May 2004;  and 
the Financial Sector Forum (FSF) was created in July 2004, to improve coope ration and exchange of 
information among supervisory and regulatory agencies (BSP, SEC, IC and Philippine Deposit 
Insurance Commission (PDIC)), and to help avoi d regulatory gaps.  The FSF operates with three 
technical working groups or multilateral committees :  the Supervision Methodology and Regulatory 
Policy Coordination Committee, the Reporting, Info rmation Exchange and Dissemination Committee, 
and the Consumer Protection and Education Committee.   
(a) Banking 
79. Banks include universal banks, commercial banks , thrift banks, rural banks, cooperative 
banks, and Islamic banks.81  Banking is dominated by commercial banks, especially universal banks, 
which accounted for 90% and 73% of total banking assets, respectively, at end-2004.  There are 
42 commercial banks (18 are univer sal banks), 87 thrift banks, 720 rural banks, and 44 cooperative 
banks.  Foreign banks (covering 3 universal bank branches, 11 commercial bank branches, and 
4 foreign commercial bank subsidiaries) hold 13.8 % of total bank assets (13.4% at end-March 2003 
and 6.2% in 1995).82 
                                                      
79 Quasi-banks are engaged in borrowing funds th rough issuing, endorsing, or accepting deposit 
substitutes for re-lending or purchasing receivables  and other obligations. 
80 IMF (2004c), p. 9;  and Milo (2002). 
81 Universal banks are commercial banks that have expanded functions, such as:  performing activities 
of investment houses;  investing in non-allied enterprises;  owning up to 100% of a thrift bank, rural bank, or 
allied financial or non-financial enterprise, or 51% of insurance companies.  Regular banks (commercial banks) can do likewise, except that they ma y not own insurance companies and their equity in other NBFIs (e.g. leasing 
and credit card companies) is capped at 40%.  Thrift banks comprise savings banks, private development banks, 
and stock savings and loan associations.  One Islamic bank exists (Al-Amanah Islamic Investment bank of the Philippines), and is supervised by the BSP.  There are also two other specialized government banks 
(Development Bank and the Land Bank), which provide finance to specific activities or sectors, such as 
agricultural and industrial development. 
82 Private domestic universal banks account for 57.6% of total bank assets.  WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 92 
 
 
Market structure 
80. The BSP prevented the opening of new bank offices and branches from September 1999, and 
the entry of new banks from 13 June 2000 (except in areas with no banking services), to slow down 
expansion of the banking system and to conso lidate the industry.  Several commercial banks, 
including the two biggest foreign banks (Citiban k and HSBC), also acquired thrift banks, and a 
number of mergers were implemented.  The number  of private domestic commercial and universal 
banks fell from 30 in 1999 to 21 in 2004 (Table IV.2).83  The top five commercial banks accounted for 
almost half of total commercial, including universal, bank assets in 2004.84 
Table IV.2 
Head offices of commercial banks, by bank type, 1999-04  
Type of bank 1999 2000 2001 2002 2003 2004 
Total 52 45 44 42 42 42 
Private domestic bank 30 23 23 20 21 21 
Universal 16 12 12 12 12 12 
Commercial 14 11 11 8 9 9 
Branch of foreign bank 13 13 13 14 14 14 
Universal 2 2 3 3 3 3 
Commercial 11 11 10 11 11 11 
Foreign bank 6 6 5 5 4 4 
Government bank 3 3 3 3 3 0 
Domestic exita 0 1 0 0 0 0 
Mergers & acquisitions 1 6 0 3 0 0 
Foreign entry 0 0 0 2 0 0 
Foreign exitb 0 0 1 1 1 0 
a Refers to bank closures. 
b Due to mergers with or acquisitions by other commercial banks. 
Source:  Central Bank of the Philippines.  
81. Greater foreign participation in the banking sector  is reflected in the ownership structure of 
private domestic commercial and universal banks.  In  2003, less than half we re 100% Filipino owned, 
and of the top 20 banks, only seven remained fully Filipino owned (Table IV.3).85  However, the share 
of foreign equity is generally mode rate, with only 4 of the top 20 banks  having more than 20%.  There 
are three government-owned commercial banks, and these accounted for 11.1% of total bank assets at 
end 2004.86  
                                                      
83 The total number of universal and commercial banks declined during this period from 52 to 42, as 
did the total number of banking institutions, from 976 to 893.  
84 The top five banks and respective shares of total bank assets were Metropolitan Bank (13.6%), Bank 
of the Phil Islands (10.4%), Land Bank (8.3%), Equ itable PCI Bank (8.3%), and Citibank, N.A. (6.5%).   
85 Another bank, Philippine Trust Company, was 99.9% Filipino owned. 
86 The three specialized government banks were upgraded to universal banks in the mid 1990s.  The 
Philippine National Bank (PNB) was partially privatized in 1989 (30%) and in 1996 (24%).  Its remaining 46% state equity was subsequently divested, and it is currently 19% foreign owned. The Philippines WT/TPR/S/149/Rev.1 
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Table IV.3 
Ownership structure of private domestic banks, 2003 
(Per cent) 
Name of bank Filipino Foreign Name of bank Filipino Foreign 
Allied Banking Corp. 100 0 Me troBank & Trust Co. 87 13 
Asia United Bank 70 30 Phil Bank of Communications 74 26 
Banco de Oro 100 0 Phili ppine National Bank 81 19 
Bank of Commerce 84 16 Philippine Trust Co. 99.9 0.1 
Bank of the Philippine Islands 70 30 Philippine Veterans Bank 100 0 
China Banking Corp. 91 9 Prudential Bank 89 11 
East West Bank 100 0 Security Bank Corp. 91 9 
Equitable PCI Bank 93 7 Union Bank of the Philippines 100 0 
Export & Industry Bank 77 23 United Coconut Planters Bank 100 0 
International Exchange Bank 100 0 Rizal Comm'l Banking Corp. 87 13 
Source:  Pasadilla and Milo (2005).  
Non-performing loans (N PLs) and bank efficiency 
82. The banking sector proved quite resilient to the Asian financial crisis.  There were no major 
bank collapses and there was no need  for publicly funded rescue plans.87  However, banks currently 
hold an important amount of non-performing assets  (NPAs).  These have substantially raised 
intermediation costs and have become a prudentia l concern, particularly given the banks' low 
provisioning, thus contributing to  the banking system's fragility.88  NPA's as a share of total bank 
assets were 11.8% at end 2004 (13.2% end 2003).  These consist of non-performing loans (NPLs) and 
real and other properties owned or acquired (ROPOAs).89  Bank NPLs totalled 12.5% of total bank 
loans (14.2% at end-June 2004).  This decline la rgely reflected the successful "auction" of NPLs 
valued at PhP16.4 billion to foreign asset mana gement companies via Special Purpose Vehicles 
(SPVs).90  The Special Purpose Vehicle (SPV) Act of 2002 (RA 9182) allowed for the creation of 
private asset management firms as stock companies (with a minimum authorized share capital of PhP500 million) to acquire NPAs of financial in stitutions, thereby enabling banks to voluntarily 
dispose of bad loans and other assets.  Tax exemp tions (e.g. stamp duty, capital gains, and VAT) and 
50% reductions in certain registration and tran sfer fees were extended to qualified SPVs until 
8 April 2005 to encourage such acquisitions.
91  The price of NPAs is negotiated between the bank and 
the SPV.  Despite an initial unwillingness by banks, BSP had approved transfers of NPAs totalling 
PhP4.5 billion for 18 banks to SEC-registered SPVs as at October 2004, and was processing 
applications from 19 banks to transfer further NPAs  totalling PhP34.4 billion.  An SPV may be fully 
foreign owned, except if it intends to acquire land assets from banks, in which case it must be at least 
60% Philippine owned.   
83. Competition in the sector, especially in the later 1990s (prior at least to the moratorium), 
seemed to have increased with entry of new (inc luding foreign) banks, and there is no evidence of 
monopoly or collusive behaviour.92  This has helped reduce interest  rate spreads between bank deposit 
                                                      
87 Two commercial banks suffered difficulties due to th e crisis but were acquired by two new foreign 
banks.  Two other commercial banks failed in the aftermath of the crisis (Orient Bank in 1998 and Urban Bank 
in 2000), but mainly due to fraud/insider abuse (Milo, 2002) 
88 IMF (2004a), pp. 11 and 18.  
89 ROPOAs are property and chattels used as collateral and acquired by banks to settle loan defaults. 
90 The Philippine Star Business,  "Banks' NPL ratio down to 12.72% as of Dec '04", 28 February 2005. 
91 There is a bill proposing the extension of the SPV legislation. 
92 Pasadilla and Milo (2005). WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 94 
 
 
and lending rates, on average, from 5.9 percentage  points (based on savings rate) and 4.2 percentage 
points (based on short-term time deposit rate) in 1998- 99 to 4.6 percentage points and 3.5 percentage 
points, respectively, in 2000-03 (Table IV.4).  This possibly reflects greater bank efficiency and 
dissipation of possible monopoly profits of larg e banks following bank liberalization during the 
1990s. 
Table IV.4 
Commercial banks' interest rate spreads, 1998-99 and 2000-03 
(Per cent)  
Year Bank average 
lending ratea 
(1) Savingsb 
(2) Short-term 
deposit rate 
(3) Bank spread 
(1) – (2) Bank spread 
(1) – (3) 
1998-99 15.07 9.14 10.92 5.93 4.16 
2000-03 10.41 5.82 6.94 4.59 3.47 
a Starting December 1992, monthly rates reflect the annual percenta ge equivalent of sample co mmercial banks' actual monthly 
income on their peso-denominated  loans to the total outstanding levels of th eir peso-denominated loans, bills discounted, 
mortgage contract receivables, and restructured loans. 
b Refers to the annual percentage equivalent of the ten sample  commercial banks' actual monthly interest expenses on peso-
denominated deposits to the total out standing levels of these deposits. 
Source:  Pasadilla and Milo (2005), Effect of Liberalization on Banking Competition , PIDS.  
Restrictions on bank entry and branching 
84. Following the liberalization of the banking sect or in the 1990s, a moratorium on new bank 
offices and branches, was established from Septem ber 1999, and applied from 13 June 2000 to new 
commercial banks for three years (i.e. until 13 June 2003) under the General Banking Law of 
May 2000, RA 8791, subject to Monetary Board auth orization (as per implementing guidelines issued 
pursuant to the Foreign Banks Liberalization Act, RA 7721).93  Subsequently, the moratorium was 
extended indefinitely, except for "microfinance-or iented" banks, especially in areas without such 
services.   The moratorium, aimed at bank consolidation, encouraged mergers and entrants to acquire 
existing banks in order to reduce the number of small banks.  Buying an existing bank is the only 
means of entry for nationals and foreigners.  Forei gn banks can no longer establish a local subsidiary 
with less than 60% ownership of voting stock.  Ho wever, to facilitate foreign "buy outs", the 60% 
ceiling on foreign ownership of voting stock allowe d in a domestic bank was lifted temporarily to 
allow overseas banks to acquire up to 100% of  only one bank within seven years (i.e. until 
13 June 2007), subject to Monetary Board authorization.94  New foreign branches remain effectively 
prohibited following the establishment of an add itional ten foreign bank branches in the mid 1990s. 
85. The moratorium, along with mandated increases in  minimum capital requirements, reflects 
the BSP's policy of encouraging bank consolida tion, including encouraging mergers and foreign 
"buy ins", to promote greater financial stability.  The rules and regulations on bank mergers have been 
rationalized, and the package of incentives was ex tended in 2000 including, with Monetary Board 
approval, possible temporary relief from certain prudential obligations.95  Foreign banks, including 
branches, can perform the same functions and enjoy the same privileges as domestic banks of the same category, and are subject to the same lim itations.  However, RA 8791 and RA 7721 require the 
                                                     
 
93 Bank of China was granted a licence in 2000 to replace the Development Bank of Singapore, which 
surrendered its licence in order to buy 60% of Philippine-based Bank of Southeast Asia in 1998.  
94 This provision also allowed foreign banks that acquired 60% of the voting stock of a domestic bank 
prior to RA 8791 to acquire up to 100%, again subject to Monetary Board Authorization.  Four banks have done 
this and raised their ownership to 100%. 
95 Future policy is to subject all applications for mergers and consolidation to stress testing to ensure 
their viability without such incentives.  The Philippines WT/TPR/S/149/Rev.1 
 Page 95 
 
 
banking system to remain "effectively controlled by Filipinos", with majority domestic-owned banks 
holding at least 70% of the banking system’s resour ces or assets.  Currently, foreign-controlled banks 
hold about 14% of the banking sector's assets, less th an half of the allowed limit.  The Philippine 
banking arrangements in 1999 were more liberal th an its GATS commitments, and this still seems to 
be the case.  However, while the moratorium might have reduced bank competition, assessing its 
impact is difficult.  While overseas banks are no longer allowed to establish domestic subsidiaries 
with up to 60% ownership, this limit on foreign ownership of domestic banks has been temporarily 
lifted to allow 100% ownership, but only in one bank. 
Prudential and supervisory requirements 
86. The New Central Bank Act (RA 7653, 1993) define d the BSP's general functions, operations 
and powers relating to the banking sector and other fi nancial institutions subject to BSP supervision 
under special laws.96  RA 8791 of 2000 further extended th ese and was a major step, according to the 
authorities, towards "institutionalising" banking refo rms, such as providing a strong legal basis for 
consolidated banking supervision.  Banks, domestic and foreign, are required to obtain a licence from 
the BSP prior to starting operations.97  The BSP issues rules and re gulations on conduct and standards 
of operation, and monitors compliance through regular investigations to ensure that banks operate on 
a sound financial basis.  RA 8791 also stipulated th e BSP's regulation of banks, quasi-banks, and trust 
entities.98  It tightened licensing requirements by including an assessment of a bank's ownership 
structure, directors and senior management, and requi red banks to appoint two independent directors.  
It also incorporated BIS and other internationa lly accepted standards and practices into the BSP 
prudential and supervisory processes.  RA 8791 defined bank exit procedures and reinforced 
enforcement aspects to ensure prompt corrective action, including placement of banks and quasi-
banks under "conservatorship", recei vership and invol untary liquidation.99  Other legislation relevant 
to bank supervision, which seems to be still in fo rce, includes the Thrift Banks Act of 1995 (RA 7906) 
and the Rural Banks Act of 1992 (RA 7353).  The Ph ilippine Deposit Insurance Corporation (PDIC) 
also monitors bank activities, using BSP data.  A lthough BSP supervises rural banks, the PDIC also 
oversees them.100 
87. The Authorities indicate that there is no distinction in the application of prudential 
requirements between foreign and domestic banks, except for the pegging of the minimum capital 
levels for foreign bank branches at the U.S. dolla r equivalent of PhP210 million, and PhP35 million 
for every new office, and limiting the number of offices of foreign bank branches to six (the location 
of three of which is determined by the Monetary  Board).  The same minimum capital requirements, 
which differ between bank type and are highest for universal banks, are applied to domestic and 
foreign banks.  The current minimum capital require ments of PhP4.95 billion for universal banks and 
PhP2.4 billion for commercial banks have applied since 1999.101  BIS-prescribed risk-based capital 
adequacy requirements (Basle I) were adopted fro m July 2001, and from 1 July 2003 were extended 
                                                      
96 The Constitution expressly assigns the supervision of banks to the BSP. 
97 Banks' articles of incorporation must be register ed with the SEC.  This requires a certificate of 
authority to operate issued by the Monetary Board. 
98 Quasi-banks are engaged in borrowing funds th rough issuing, endorsing, or accepting deposit 
substitutes for re-lending or purchasing receivables  and other obligations. 
99 The Monetary Board may appoint itself as conservator of a troubled bank until it is satisfied that the 
bank can operate on its own.  For an insolvent bank, it may appoint the PDIC as receiver, which has 90 days to 
decide whether to rehabilitate or liquidate the bank.  Assets of liquidated banks are sold to pay creditors in accordance with th e Civil Code. 
100 RA 7653 transferred receivership and liquida tion of rural banks from the BSP to the PDIC. 
101 Minimum capital requirements are PhP325 million within metro Manila, and PhP52 million 
elsewhere for thrift banks, and range from PhP2.6 to PhP26 million for rural banks, depending on location. WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 96 
 
 
to include the BIS market-risk-based capital ade quacy requirements.  The minimum risk-weighted 
capital adequacy ratio was set at 10% (two per centage points above BIS recommendations).  The 
average ratio for all banks (excluding rural/coopera tive banks) was 17% (on a non-consolidated basis) 
at end June 2004 (15.7% end 2001).102  Proposed amendments to the BSP Charter are intended to 
provide bank supervisors with  adequate legal protection for effective regulation. 
Deposit insurance 
88. The Philippine Deposit Insurance Corporation (PDIC) , attached to the Department of Finance, 
provides mandatory deposit insurance covering a ll peso and foreign currency savings, and time, 
current demand or cheque deposits.  All banks, including foreign, operating as subsidiaries or 
branches must belong to the PDIC.103  As of September 2004, there were 893 members, comprising 
42 commercial banks, 88 thrift banks, and 763 ru ral banks.  The maximum deposit insurance cover 
was raised from PhP100,000 to PhP250,000 from A ugust 2004.  This increased insurance cover from 
91% in December 2003 to 95% of deposit accounts as of September 2004 (from 21% to 27% by 
value).  The PDIC's Deposit Insurance Fund (DIF) stood at PhP41.6 billion as of November 2004 and, 
according to authorities, is deemed adequate to meet deposit insurance calls from high-risk banks.104  
The PDIC's authority was also reinstated to ex amine banks with prior approval from the Monetary 
Board.  This allows PDIC surveillance of banks  in close coordination with BSP to better assess and 
manage the risks to the DIF by enabling on-site ex amination and prompt remedial action, such as 
providing financial assistance, where necessary. 
89. The PDIC extends assistance to rehabilitate dist ressed banks through direct loans, deposit 
placements, temporary or permanent purchase of non-performing loans (NPLs), assuming obligations 
to settle certain liabilities, and providing "quasi-equ ity" when its operation is seen as essential to 
provide adequate services or to maintain financial stability.105  Financial assistance from 1970 to 2004 
covered 50 banks and totalled Ph P110.2 billion, of which 65% was direct loans and 33% NPL 
purchases.  Some 96% of assistance has been provide d since 1999.  Funds are sourced from the DIF 
except for large sums required in systemic cases,  which are funded by the BSP.  On-going PDIC 
liquidity support is of prudential concern.106 
(b) Insurance 
90. The sector consists of life, non-life, and professional reinsurers and remains 
underdeveloped.107  Although insurance company assets repres ented 7% of GDP in 2003, insurance 
penetration (premiums as a per cent of GDP) is low (1.3% in 2003).  In 2003, there were 
141 insurance companies (32 life, 102 non-life, 4 composite, and 3 professional reinsurers).  None 
were state-owned (except for the 30% state-ow ned National Reinsurance Commission);  119 were 
                                                      
102 Possible weaknesses in accounting practices, such as valuation of ROPOAs, and understatement of 
distressed assets due to deficiencies  in loan classifications, may conceal much lower true capital adequacy 
ratios, and re-capitalization may be needed to increase the sector’s resilience (IMF, 2004a, p. 11;  and IMF 
2005, p. 14). 
103 Includes Islamic banks;  but, because only conventional deposits are covered, general and special 
investment deposits with these banks are excluded from deposit insurance. 
104 Should unexpected bank failure lead to a drain on the DIF, the PDIC may borrow from the BSP or 
any bank designated as a government depository or fiscal agent, and issue notes (with Presidential approval).  
105 Deposit placements involve PDIC depositing funds, usually as time deposits, with distressed banks.  
Financial assistance is only to be provided where the PDIC determines its estimated cost is below that of deposit 
insurance pay-offs, receivershi p, and liquidation expenses net of recove ries should the Monetary Board close the 
bank, or when the Board decides there are systemic consequences of bank closure.  
106 IMF (2005). 
107 Milo (2003), p. 14. The Philippines WT/TPR/S/149/Rev.1 
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domestic companies, 17 were foreign controlled (i.e . had 50% or more foreign equity) and 5 were 
domestically incorporated foreign branches.  Fore ign insurance companies can operate as branches, 
subsidiaries or joint ventures provided they have b een in the top 200 world foreign companies for the 
past ten years.  There are no limits on foreign equity.  Foreign branches provide mainly non-life 
insurance, while foreign-owned companies offer bo th life and non-life policies.  The life insurance 
market is concentrated, with the top five firms taking 70% of total premiums (the top two 40%) in 
2003.  The top five non-life firms account for about 35% of total premiums (top two 18%). 
91. The non-independent but operationally autonomous  Insurance Commission (IC), attached to 
the Department of Finance, regulates and supervises the industry, including licensing.  It monitors the 
solvency of companies and their intermediaries to protect policyholders.  The 1978 Insurance Code 
continues to provide the regulatory framework.  The IC is revising the Code, and the latest proposed amendments cover mostly prudential and solvency requirements. 
92. Companies need to meet prudential requirement s, including minimum capital levels to obtain 
a licence.  Prudential requirements do not seem to have changed since 1999.  These are the same for 
life and non-life companies, and increase according to the share of overseas ownership, from 
PhP75 million for 40% or less foreign equity , to PhP150 million for 40% to 60%, and to 
PhP250 million for over 60%.  Composite comp anies (offering both life and non-life) require 
minimum capital of PhP150 million.  Reinsurance companies are subject to higher minimum capital 
requirements, which also vary according to foreign equity.
108  In addition, foreign companies  and 
domestic and foreign reinsurance companies  must deposit with the IC approved securities valued at  
PhP300 million and PhP500 million, respectively, for each branch.109  Other prudential requirements, 
such as minimum solvency requirements and limits  on investment portfolios, apply uniformly to 
companies irrespective of domestic equity and do no t discriminate against foreign companies.  The 
authorities indicate that insurance laws a pply equally to domestic and foreign firms.   
93. The IC must approve all life and non-life prem iums and products, including policy forms, 
certificates and contracts, application forms, warra nties, and endorsements.  Policy forms must not 
contravene law, morals, and pub lic policy, and are approved in accordance with standard clauses in 
the "Pattern Book".  Non-life premiums are a pproved generally based on recommendations by the 
Philippine Insurance Rating Association (PIRA).  Th e authorities indicate that there are no incentives, 
such as tax deductions, to encourage insurance. 
94. The "pre-need" industry (providing future payments  at the time of need for health, education 
or pensions) partially competes with insurance and is  regulated by the SEC.  This had been relatively 
liberal compared with the IC's regulation.110  However, in 2000, the SEC introduced steps to remove 
disparities in regulation, such as setting limits on the investment portfolios of pre-need companies.  
Also, in August 2001, the SEC implemented new ru les on registration and sale of pre-need plans 
under the Securities Regulation Code to strengthe n prudential requirements.  These raised the 
minimum paid-up capital requirements for new pre- need companies to PhP100 million and extended 
the moratorium on registration of such companies to 30 April 2002111;  existing firms had until then to 
meet revised capital levels.  All pre-need plans must be registered with the SEC and a permit 
obtained.  The SEC must approve the selling price, terms and conditions of plans, and the opening and 
closure of branches.  At least 10% of pre-need pl ans investments must be in government securities.  
                                                      
108 Minimum capital requirements are PhP150 million for up to 40% foreign equity, 300 million for 
40%-60% foreign equity, and PhP500 million for more than 60% foreign equity. 
109 Milo (2000).  Reinsurance companies are to invest in government bonds, unless approved by the 
Department of Finance. 
110 Milo (2000). 
111 The moratorium excluded companies acquiring existing firms meeting the new capital levels. WT/TPR/S/149/Rev.1 Trade Policy Review 
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(ii) Telecommunications 
95. Telecommunications was deregulated during the 1990s with the introduction of a regulatory 
framework implemented by the National Teleco mmunications Commission (NTC) that included 
mandatory non-discriminatory interconnection to netw ork facilities.  There have been few changes in 
this regulatory framework since 1999.  The prin cipal legislation governing telecommunications 
remains RA 7925, the 1995 Public Telecommunicati ons Policy Act.  However, the communications 
policy function of the Department of Transporta tion and Communication (DOTC) was transitionally 
transferred to the Commission on Information a nd Communications Technology (CICT) in August 
2004 pending the formation of the Department of Information and Communications Technology 
(DOICT).  The NTC still regulates the sector an d was transferred as an "attached agency" for 
administrative purposes to CICT (until DOICT's es tablishment).  The authorities indicate that the 
quasi-judicial NTC is fully independent and deci sions are challengeable through the courts.   
96. Reforms during the 1990s created market entry opportunities, lowered prices, and improved 
the availability, quality, and choice of service.112  The industry has benefited from relatively 
unfettered market entry and exit, and increased competition.113  Market access was liberalized in most 
services:  local, national long-distance, international,  mobile, data, telex, leased line, paging, cable 
television, and satellite.114  There are at least two operators of fixed line services in every region.  The 
tele-density of subscribed fixed lines was 4.1 per 100  persons in 2003 (3.9 in 1999).  Mobile services 
have grown rapidly ahead of fixed services.  In 2002, there were 22.5 million mobile subscribers 
(6.5 million in 2000), corresponding to a teledensity  of 27.8% (8.5% in 2000).  Some 70% of the 
population has access to a mobile signal.115  Substantial excess capacity exis ts in fixed lines, with only 
48% of lines subscribed in 2002;  this partly reflects past regulatory requirements for mobile and 
international gateway providers to install fixed lines.116 
97. The privately owned (with 40% foreign equity) Philippine Long Distance Telephone 
Company (PLDT) remains the dominant provider and the largest national long-distance operator.  It 
had 64% of the fixed line market in 2003, and th rough its subsidiary, Smart, 51% of the mobile 
market (45% in 2000).  Its dominance is greatest in Metro Manila, the most lucrative service area.  
The next largest supplier of mobile services is Globe , with 45% of the market in 2003 (40% in 2000).  
Digital has expanded, especially in Luzon, and ha d 12% of the fixed line and 2% of the mobile 
markets in 2003. 
98. The Government's commercial involvement in  telecommunications is limited to providing 
"pioneering" services in unserved or underserved areas through the Telecommunications Office.  
These services account for under 2% of the market .  To install, operate, and maintain a public 
telecommunications service, a franchise issued by Congress is required (normally for 25 years) along 
with a Certificate of Public Convenience and N ecessity (CPCN) issued by the NTC.  The NTC 
requires applicants to be legally, technically, and fi nancially qualified and for the service offered to be 
economically viable.  The CPCN specifies geographical  area, and type or classification of activities.  
                                                      
112 APEC (1998).  
113 ITU (2002). 
114 In 2002, there were 74 local exchange operators (76 in 1999), 14 inter-exchange operators (12), 
11 international gateway providers, 7 mobile phone opera tors (5), over 180 providers of value-added services 
(128), including 53 Internet service providers, and 19 satellite operators. 
115 The target was for 100% mobile coverage of provincial capitals and cities by 2004. 
116 Each international gateway and mobile provider  had to install 400,000 and 300,000 fixed lines, 
respectively, within five years, and the nine operators concerned installed some 4 million extra lines by 2000, 
only 29% of which were used.  Thus, while teledensity of installed fixed lines rose rapidly, and was targeted to 
rise from 9.1% in 2000 to 12.7% in 2004, teledensity on subscribed lines has increased much more slowly.   The Philippines WT/TPR/S/149/Rev.1 
 Page 99 
 
 
NTC usually grants provisional approval, initially for 180 days, if the proposed service is 
economically feasible, sufficiently in demand, and in  the "public interest".  This provides adequate 
time to verify that the installed service is complia nt, after which a three-year extension is provided, 
during which the operator must comply with all requirements and show that the service is 
commercially viable, efficient, and in the public inter est.  This appears to be a type of economic needs 
test.  If satisfied, the NTC extends permanent author ity by issuing the CPCN, which is generally valid 
for the term of the franchise.  The CPCN contai ns the rates chargeable and the regulations for 
providing the service.  NTC approval is needed to terminate any service.  Although carriers have national franchises, only the PLDT operates local exch ange services (including public calling offices) 
nationally.
117  Other franchised carriers can supply these services in specific geographic areas.  The 
authorities indicate, however, that any person holding a national franchise could apply to the NTC for authority to operate these services.  Geographical market segmentation may prevent new carriers from 
gaining scale economies and network externalities, limiting their potential to compete with PLDT.
118 
99. The NTC may exempt specific telecommunications services from rate regulation in markets 
sufficiently competitive to ensure  "fair and reasonable" prices.119  It must otherwise adopt 
administrative processes to facilitate entry of qua lified providers, and a pric ing policy to generate 
sufficient returns to enco urage them to operate basic services in unserved or underserved areas and to 
establish "fair and reasonable" rates for the entities' economic viability.  It sets price ceilings based on 
the findings of an independent analyst, and operato rs must submit tariffs to the NTC for approval.  
Cross-subsidies, such as charging higher prices on in ternational calls to maintain lower local call 
rates, are allowed.  Local calls are generally  free and covered by a monthly subscription. 
100. Interconnection, although mandatory, has been  slow and may have somewhat hindered 
competition.120  Complaints against PLDT, the network owner, and other entities on interconnection 
are common;  these include being too slow, insufficient or with unequal access settlements.121  The 
level and structure of access charges vary depending upon the type of interconnection, and are either 
per minute or based on revenue sharing.122  Interconnection charges, which have to be "reasonable and 
fair" and provide for the "cross subsidy of unprof itable local services" to promote telephone access, 
are negotiated between parties or by the NTC if an agreement cannot be reached.  Access charges are 
thus set to cross-subsidize users to meet universal  service goals.  This is inconsistent with a 
competitive market, and helps PLDT maintain high er access fees to squeeze margins of entrants.123  In 
July 2002, the NTC issued new rules and speci fic guidelines on competitive wholesale charging for 
interconnection.  Interconnection agreements are negotiated commercially on a cost-recovery basis 
taking into account the attributable costs of the servi ce, share of business overhead costs, and rate of 
return, estimated on a fair and reasonable basis.124  Interconnection agreements  must be reported to the 
NTC, which determines access charges if agreement cannot be reached. 
                                                      
117 Its franchise to offer any telecommunication se rvice nationwide was extended in 1991 until 2028.  
118 Abrenica and Llanto (2003). 
119 While "sufficient competition" is not defined, the legislation provides for a "healthy competitive 
environment" whereby "carriers are free to make business decisions and to interact in providing services with 
the end in view of encouraging their financial viability while maintaining affordable prices".  
120 ITU (2002). 
121 Abrenica and Llanto (2003). 
122 PLDT's agreements provide for per minute access charges on internationa l gateway and mobile 
interconnection for local calls, and revenue sharing on  toll calls for inter-excha nge and mobile carriers. 
123 Abrenica and Llanto (2003). 
124 Charges are to recover only attributable shares of the efficient operating and maintenance costs;  the 
return of an efficient level of investment in assets used to provide the service over their reasonable economic life (i.e. economic depreciation);  and to encomp ass a reasonable return on investment.  WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 100 
 
 
101. The NTC aims to foster fair and efficient market conduct, including protecting entities from 
"unfair trade practices" of other carriers and consumers from the misuse of monopoly or quasi-monopoly powers.  It must approve mergers and tran sfers of leases.  Entities must provide reasonable 
and non-discriminatory services to end-users and not impede competition, such as engaging in 
unhealthy and unfair competition e.g. price or  output fixing. 
102. Call-back services, "refilling", international simple resale (ISR) or leasing of licensed 
networks are prohibited.  Carrier number portability and pre-selection are unavailable.    
103. Telecommunication services are regarded as a public utility and foreign equity is limited 
constitutionally to 40%.  This restricts market en try, especially in more capital-intensive segments, 
such as broadband.  Foreign ownership is already at this limit in PLDT and some other firms.  
Foreigners cannot become executives or manage rs and the number of foreign directors of a 
telecommunications firm must be proportionate  to its aggregate share of foreign capital. 
104. Cross-ownership restrictions apply in telecommunications.  No entity can have a franchise in 
both telecommunications and broadcasting (radio or te levision), either through airwaves or by cable.  
Foreign equity in a private radio communication netw ork is limited to 20%.  Operation of cable TV 
and other forms of broadcasting and media are c onstitutionally reserved for Filipino nationals.  The 
NTC authorizes the operation of cable TV. 
(iii) Transport 
(a) Air transport 
105. The Philippines has 85 airports.  International ai rports are located in Manila (Ninoy Aquino 
International Airport, NAIA), Clark, Subic a nd Cebu.  National passenger movements fell from 
6.1 million in 1999 to 5.5 million in 2003, but increased to 7.1 million in 2004.  International 
passenger movements rose from 7 million in 1999 to  7.9 million in 2004, when they accounted for 
just over half of total passenger movements.  To tal freight carried increased from 348,000 tonnes to 
432,000 tonnes in the same period;  in 2004, over two thirds was international cargo.  Some 65% of 
total passenger traffic and 10% of cargo pass thro ugh NAIA.  Air transport services are considered 
public utilities and foreign equity in Philippine Ai rlines (PAL) and other carriers is capped at 40%. 
106. EO 219 of 1995 remains the policy framework  for progressively liberalizing air 
transportation.   Domestic services were liberalized from the mid 1990s.  Removal of PAL's monopoly 
allowed new entrants and its passenger market shar e fell to 49% by 1999;  after rebounding to 67% in 
2003, it fell to 50% in 2004.   Restrictions on domestic routes and frequencies were also removed, and 
airfares de-controlled (subject to filing), except on ro utes with a single operator.  Policy is to have at 
least two operators on all except unprofitable routes.   Scheduled domestic airline services and route 
distribution are managed through a permit system in  which traffic rights are granted on a first-come-
first-served basis.  Carriers must have a franchise issued by Congress, or have a Certificate of Public Convenience and Necessity (CPCN) issued by the Civil Aeronauti cs Board (CAB).  Carriers must 
also meet safety and other technical regulations set by the Air Transportation Office (ATO) of the 
Department of Transport and Communication ( DOTC).  Strong competition seemingly exists on 
major routes.
125   
                                                      
125 Austria (2001a). The Philippines WT/TPR/S/149/Rev.1 
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107. Liberalization of international air services was also envisaged, inter alia,  to allow new 
Philippine carriers to compete with PAL.126  EO 219 provided for withdrawal of an airline's approval 
if it did not fly within six months so that other pa rties could operate.  However, few reforms appear to 
have been implemented.127  PAL is still the sole designated official flag carrier on most international 
routes.128   
108. In 1999, the Government launched the progressive  liberalization of bilateral air services 
agreements (ASAs), largely to facilitate tourism.129  The Philippines currently has some 60 ASAs, of 
which about half operate.130  However, ASAs remain generally restrictive, controlling capacities and 
frequencies, and requiring fare approval by both partners.131  The authorities note, however, that 
liberalization has occurred through "open skies"  by increasing capacity or  frequencies gradually 
according to market demand.  Since 1999, new ASAs  have been concluded with Mongolia, Nepal, 
UAE, New Zealand, and Papua New Guinea, and sever al agreements have been reviewed offering 
more capacity, greater frequencies, and multiple airline designations.  Charter arrangements are also restrictive unless scheduled services are not significantly affected.   Cabotage is prohibited. 
109. The DOTC formulates air transport policy.  The CAB, an "attached agency" of the DOTC for 
administrative purposes, is a quasi-judicial body responsible for the regulation of air services, 
including licensing of domestic and international airlines, regulating fares, enforcing the economic 
provisions of the legislation, arranging franchise s, and participating in the negotiation of ASAs.   
Carriers may employ foreigners in technical positions within the first five years, and each foreigner 
employed should have at l east two Filipino understudies.
132  CAB is also responsible for eliminating 
rate discrimination, unfair competition and deceptiv e practices, and for approving airline mergers.  
These matters are handled by public hearings, partic ularly if there are opposing parties or complaints. 
110. Separate airport authorities manage intern ational airports, for example, the Manila 
International Airport Authority (MIAA).  Only the MIAA and Mactan-Cebu International Airport 
have been corporatized.  The ATO manages other ai rports and sets airport fees and charges.  Landing 
fees for international flights are higher than for domestic flights.  According to the authorities, 
auxiliary services are provided privately a nd there are no limits on foreign equity. 
(b) Maritime transport 
111. Maritime transport accounts directly for about 0. 5% of GDP.  Some 99% of Philippine freight 
(66% in value terms) is transported by sea.  A bout 54% of cargo was domestic in 2003.  Most cargo 
(71% in 2003) is non-containerized (bulk or loos ely packed).  Passenger traffic numbers reached 
51.7 million in 2003.  The reported high inter-isl and shipping costs undermine efficiency and 
competitiveness.133 
112. The Maritime Industry Authority (MARINA), an "attached agency " of the DOTC, is 
responsible for the regulation, supervision, promo tion, and development of the four maritime sectors 
                                                      
126 An additional carrier was to be permitted to ensure at least two international carriers, and more 
allowed if the designated carriers could not service existing ASA entitlements. 
127 Austria (2001c). 
128 In 2004, PAL had 28% of the international passenger market and foreign carriers had 70%.  The 
domestic carrier, Cebu Pacific, operated limited intern ational flights and had a 2% share of this market 
129 Austria (2001c), p. 4. 
130 The main traffic rights negotiated ar e third, fourth, and fifth freedoms. 
131 Austria (2001c). 
132 APEC (2005b), p. 14. 
133 World Bank (2004f).  WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 102 
 
 
(domestic and overseas shipping, shipbuilding/repa ir, and manpower).  National regulations and 
international conventions, such as that of the International Maritime Organization (IMO), govern 
maritime safety;  and other international vessel stan dards, such as the International Maritime Safety 
Management (ISM) Code and the In ternational Ship and Port Facilit y Security (ISPS) Code, apply to 
Philippine-registered vessels.  Only Filipino nationa ls or locally incorporated entities authorized to 
engage in overseas shipping and with a maximum of  40% foreign equity may register a vessel.  
Philippine-registered vessels must be completely manned by Filipino crews except in approved cases 
where a "supernumerary" may be allowed for up to  six months, provided the functions performed are 
not those of the crew and do not interfere with the ship's management.   
113. Cabotage is prohibited, and national (including inter-island) shipping is limited to Philippine-
flagged and owned vessels engaged in domestic trade;  in specific cases, however, MARINA may 
issue Exemption or Special Permits temporarily allowing Philippine-registered ships engaged in 
international trade to conduct domestic trade.134  Special permits of up to one year (renewable for one 
year) are also required for Philippine vessels to switch from domestic to international shipping.   This 
enables vessels engaged in domestic trade to e xpand operations globally under certain conditions.135  
Government cargo (including that paid for by gove rnment loans and credits) is still reserved to 
Philippine-flagged vessels.136  Investors in overseas shipping are entitled to a ten-year income tax 
holiday and tax and duty exemptions on imported vessels until 27 July 2014.137 
Ports 
114. There are about 950 private and public ports.  The Philippine Ports Authority (PPA) 
administers, operates, and develops most major ports ;  the rest are mainly municipal public ports run 
by local government units, including fishing ports and wharves.  PPA-administered ports currently 
number 507, of which 114 are state-owned and 393 are private.  Private ports handled 51% of total 
cargo in 2003, comprising mainly oil, petroleum products, and wheat.  Independent port authorities run some public ports, such as Cebu and Subic Bay, ma inly formed as part of special economic zones.  
The PPA encourages private sector investment and participation in port ma nagement and operation, 
cargo handling, and port services, subject to require ments of national security, public safety and rules 
and regulations governing the operati on of private ports.  Incentives are provided to private operators 
of PPA-registered ports, such as a 50% reduction in  port charges for wharfage, berthing, and usage 
fees.  As ports are regarded as public utilities, fore ign equity is constitutiona lly capped at 40%.  PPA 
also regulates certain auxiliary po rt services, excluding pilot services. 
115. The authorities indicate that port competition, in cluding between private ports regulated by 
the PPA and public ports, has increased.  The la rgest ports, the Manila ports of the Manila 
International Container Terminal (MICT), South,  and North Harbours, are publicly owned, but 
                                                     
 
134 Special permits can be issued when (a) no existing vessel is operating in the proposed route or area, 
(b) no suitable local vessel is available that meets th e shipping requirements, (c) the proposed vessel is 
contracted by private/public entities, and (d) for touris t passenger vessels, the itinerary includes operating calls 
at domestic ports.  Cargo rates are not taken into account in determining the availability of suitable domestic 
services.  Special permits are for up to three mont hs and exemption permits are limited to one year.  
135 Vessels engaged in domestic trade that may be issued Special Permits are those (a) operating in the 
Brunei-Indonesia-Malaysia-Philippi nes (BIMP)-East Asian Growth Area (EAGA), (b) engaged in liner 
operations that include foreign ports in  their trading routes, or (c) involved in occasional overseas trading.  Such 
vessels must be fully managed, operationally controlled, and manned by Filipinos. 
136 Limited exemptions are permitted,  such as when suitable Philippine -flagged vessels are unavailable 
at reasonable freight rates within a reasonable period. 
137 Provided that (a) at least 85% of net income is reinvested in ship construction, modernization or 
acquisition, including of related equi pment, and (b) such amounts remain in vested either for the period of the 
income tax exemption or until fully paid, whichever happens first. The Philippines WT/TPR/S/149/Rev.1 
 Page 103 
 
 
privately operated under long-term concessions using the "landlord" model.138  Nevertheless, while  
the largest commercial private port, the Harbour Cent re Port Terminal Inc (HCPTI), also in North 
Harbour, competes with the privately run public ports  of South and North Harbours by operating both 
domestic and foreign services, including for grains handling, it has no permit for handling foreign 
containerized cargo and thus cannot compete fully with MICT.139  The PPA, however, has increased 
competition by allowing its South Harbour port, privat ely run by Asian Terminals Inc (ATI), to also 
service domestic ships since November 2002 , and to construct a super terminal. 
116. Competition appears to remain restricted, however, particular ly between private and public 
ports, and among cargo handling opera tors.  The PPA, by regulating private sector entry through the 
issuance of permits to construct and operate por ts, functions as a port developer, operator and 
regulator, thereby creating potential conflicts of interest between its commercial and regulatory 
functions that may stifle competition.140  The PPA generally designates only one cargo-handling 
operator per port, generally for 25 years (renewable fo r 25 years).  It also fixed port handling charges, 
but the authorities indicate that private commerc ial ports can now set these rates without PPA 
approval. 
117. The PPA may also encourage private investment in the development, operation, and 
management of infrastructure projects at pub lic ports through build-operate-transfer (BOT) 
arrangements.  These  must conform to BOT legislation.  The Passenger Terminal Building (PTB) 
project at the Calapan Port was initially considered  such a project.  Another option is a PPA joint 
venture with the private sector to develop port infr astructure.  Such arrangements must be initiated by 
top management and are limited by relevant laws.  Maximum PPA  equity would be 49%.   
Domestic shipping  
118. Shipping is the major means of coastal and in ter-island cargo and passenger transportation.  
Deregulation of cargo and passenger sh ipping rates was completed in 2000.141  Since then, rates have 
not been set, except for third class passengers and class C non-containerized basic commodities 
(mainly rice, corn, cereals, fruit, and vegetables).142  The Domestic Shipping Development Act (RA 
9295 of May 2004) reaffirmed that ship operators are authorized to set their own rates provided there 
is effective competition and the public interest is served.143  MARINA will intervene on monopoly 
routes:  where competition is ineffective, or where prac tices restrain trade;  if justified complaints are 
received against the rates charged and/or services provi ded;  if its monitoring activities detect adverse 
findings;  and in any other "analogous" instances. 
119. Routes have also been liberalized.  All routes that had been serviced by a single operator for 
at least five years were opened in 2000 to allow entry of at least another operator, unless this would 
                                                      
138 The MICT, for example, is managed and operated by International Container Terminal Services Inc 
(ICTSI) under a 25-year concession whereby it pays PPA fixed and variable fees.  
139 The permit issued by PPA to HCPTI in June 2002 covers full domestic commercial operations, 
including all vessel types and cargoes whether or not containerized, but excludes foreign containerized cargo.  
140 World Bank (2004f). 
 141 The process of rate setting by the Domestic Shipping Consultative Councils (composed of shippers, 
consumers, operators and government representatives) was eliminated.  
142 Third-class passenger rates are fixed below cost and are cross-subsidized by cargo rates (Austria, 
2002).  Operators must allocate 50% of passenger cap acity to third class unless exempted by DOTC for 
upgrading their vessels or facilities.  
143 MARINA determines the "fairness" of passenger and cargo rates on monopolized routes and has 
authority to adopt necessary rules to ensure "reasonable stability of passenger and freight rates and to intervene to protect the public interest". WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 104 
 
 
cause "ruinous" competition.144  However, it seems that MARINA still provides licences to operate 
any given route based on traffic volumes.145  It also approves sailing schedules and frequency of 
service.  In addition to the licence, operators require  a Certificate of Compliance (CPC).  They must 
be financially capable of providing and maintaining a safe, reliable, and adequate service, and prove 
to MARINA that the proposed service would promote the public interest.  Such  considerations cover 
the economic and beneficial effects of the propo sed service to the region, including expected port 
dues and charges, increased volume of passengers and cargo, taxes paid to local government units, 
and job creation. 
120. Despite the beneficial effects of deregulation, such as improved quality of service, and certain 
rate reductions, domestic shipping remains relatively expensive and highly concentrated, both for 
passenger and cargo services.146  Many major routes appear to have ineffective competition.  
Five shipping lines have 90% of passenger and car go business on almost all primary and secondary 
shipping routes.147  No separate competition laws or regulati ons apply to maritime transport except for 
the Constitution, which prohibits restraint of trade or unfair competition.  The authorities believe that 
the deregulation of entry and exit from routes reinforced by RA 9295 will boost competition.  
However, RA 9295 reaffirmed that cabotage was prohibited.  Allowing cabotage so as to expose 
domestic shipping to internationa l competition would improve efficiency and reduce shipping costs.148 
121. Government policy is to develop domestic shipping based on private investment and a 
competitive environment.  RA 9295 introduced a range of investment incentives, including 
accelerated depreciation and exemption for ten years from VAT on purchases of passenger and cargo 
vessels of 150 gross tons and above.149  Imports are only eligible for the exemption if they are not 
manufactured domestically in sufficient quantity and of comparable quality at reasonable prices, and 
are imported directly by a MARINA-re gistered domestic shipping operator.150 
Shipbuilding and ship repair 
122. There are no foreign equity limits in shipbuildin g and ship repair.  All Philippine vessels must 
be repaired or dry docked at domestic shipyards or  ship-repair facilities registered with MARINA.  
Exemptions apply, subject to a waiver from MARI NA, such as when emergency repairs are required 
while overseas, or when the Philippines is not a port of call. 
123. In order to promote the industry, VAT relie f and other tax incentives were extended to 
shipbuilding and ship repair in 2004.  In addition,  imports of vessels will be restricted progressively 
after ten years (i.e. 2014) if comparable vessels can be constructed domestically.  These restrictions 
will be based on annual assessments by MARINA of th e capacity of registered shipyards to build 
sufficient vessels below 500 gross tons to meet de mand.  If found sufficient, domestic ship operators 
                                                      
144 Competition would be ruinous if an existing operator (a) carried cargo below the "annual break-even 
load factor" as determined by MARINA or (b) made audited losses for the last two years or (c) for any other 
"analogous" circumstance determined by MARINA.   It may still approve another operator if it is in the public 
interest.  Pioneering operators, i.e. those providing a service on a new route or introducing a technologically-
advanced service on an existing route, are protected from competition for up to five years. 
145 World Bank (2004f). 
146 Austria (2002).  
147 World Bank (2004f). 
148 Austria (2002). 
149 The VAT exemption also applied to other items, such as engines and spare parts. 
150 Imported vessels must also be "reasonably-needed", exclusively used by registered domestic 
shipping operators, and approved by MARINA.  They must not exceed 15 years in age for passenger and cargo 
ships, 10 years for tankers, and 5 years for high-speed passenger craft. The Philippines WT/TPR/S/149/Rev.1 
 Page 105 
 
 
will be discouraged from importing such vessels, a nd those built in MARINA-registered shipyards 
will be given priority for entry in the Philippine registry. 
(iv) Tourism 
124. The Government has identified tourism as a "pilla r for growth and development."  It accounts 
for some 9% of GDP and is one of the top foreig n exchange earners.  Tourism has been adversely 
affected by international developments, intern al security concerns, and the SARS epidemic.  
Nevertheless, foreign tourist a rrivals, which had decreased from 2.2 million in 1999 to 1.9 million in 
2002, rebounded in 2004 to 2.3 milli on visitors, due largely, according to the authorities, to the 
aggressive marketing efforts by the Department of  Tourism (DOT) and stronger support by the private 
sector.    Most are from the United States (20.4% in 2004), Japan, and Korea;  Asian arrivals 
accounted for over half of visitors.  The DOT is responsible for policy formulation, and has "super 
cabinet" status, giving it greater avenues to coordina te with relevant government agencies, the private 
sector, and local government units in implementi ng national tourism marketing and development 
programmes.    
125. The 1991-2010 Tourism Master Plan (TMP) remains the blueprint for tourism development.  
Policy reforms and programmes in the TMP have b een integrated into the various Medium-Term 
Philippine Development Plans (MTPDP).  MTPDP 2004- 10 focuses on key tourism markets, such as 
China, Japan, Korea, and North America.  Eight prio rity destinations have also been identified for 
aggressive promotion, including Cebu/Bohol/Camigui n, Palawan, Manila, and Tagaytay.  "Tourism 
enterprise zones" identified by the DOT are being established, according to authorities, to remove 
barriers and promote the free flow of investment a nd tourists to and within the country.  Tourism 
marketing and promotion will be complemented with  development of tourism-related infrastructure 
and major policy revisions affecting visa entry, ai r services, and necessary infrastructure.  Visitor 
numbers are targeted to rise to 2.7 million in 2005 and to 5 million in 2010. 
126. Construction and development of new resorts ar e being led by the private sector.  There are 
no foreign investment restrictions on ownership of tourism infrastructure or resorts and 100% foreign 
equity is allowed in accommodation facilities, travel  agencies, tour operators, and organization of 
professional conferences.  Full foreign equity is al so allowed in restaurants and "domestic market 
enterprises" provided minimum paid up capital excee ds US$2.5 million and US$200,000 respectively;  
otherwise it is limited to 40%.  Tourist transport services are constitutionally limited to Filipinos, and 
some other businesses dealing with tourists classifi ed as "retail services" may be subject to a 40% 
investment ceiling.151  For tourist projects valued at a minimum of US$5 million, foreigners 
(including companies with over 40% foreign equi ty) may lease land for 50 years (instead of the 
general period of 25 years), re newable for another 25 years.152  The Department of Labour and 
Employment regulates employment of  foreign nationals in tourism.153 
127. The DOT endorsed 30 tourist investment projects from January to August 2004 as eligible to 
receive tax incentives under the BOI's annual IPP.  These covered accommodation and tourist 
                                                      
151 APEC (2005b), p. 15. 
152 Also applies to other priority land uses like es tablishment of industrial estates, assembly or 
processing plants, agro-industrial enterprises, and development for industrial or commercial use (APEC, 2005).  
153 Foreigners can be employed as tourist guides on ly if no Filipinos are available (APEC, 2005).  WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 106 
 
 
transport facilities with aggregate investment of PhP767.8 million.   Tourism enterprises located in 
"tourism enterprise zones" may also  receive investment incentives. 
128. The Philippine Tourism Authority (PTA), an a ttached agency of DOT, is responsible for 
implementing infrastructure programmes.  The PTA also manages a range of fully and partially 
owned resorts and other tourist facilities;  some ar e already being offered for privatization.  PTA 
collects the travel tax levied on departing Filipino citizens and resident and non-resident aliens who 
have lived in the Philippin es for more than one year. 
 The Philippines WT/TPR/S/149/Rev.1 
 Page 107 
 
 
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