The Philippines WT/TPR/S/149/Rev.1 
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) INTRODUCTION  
1. Since the last Review of the Philippines in 1999, there have been no major changes in the 
general or institutional framework, nor in the way tr ade policy is formulated or implemented.  The 
formulation of policies remains the joint responsibilit y of the executive and the legislative branches of 
Government.  The Philippines is committed to and stri ves to achieve transparen cy in the formulation 
of trade and investment policies and in the enforcem ent of laws and regulations .  In practice, however, 
these broad principles of good governance are not always met, and this undermines the economic 
reform process.1 
2. The Philippines, a member of the ASEAN FTA (A FTA), continues to participate actively in 
the WTO and remains committed to the multilateral system .  It also intends to pursue further regional 
trade agreements, bilaterally and collectively through ASEAN, where appropriate.  Since its last 
Review, the Philippines has in principle concluded majo r elements of its first bilateral agreement with 
Japan.  However, the Philippines’ main FTA activ ity has been through vari ous ASEAN FTAs being 
negotiated or considered.  The first parts of  the ASEAN-China Agreement on Comprehensive 
Economic Cooperation (ACFTA on goods) and the RT IA with India are operating.  ASEAN FTA 
negotiations are to start in 2005 with Japan, Kore a, Australia, and New Zealand.  Through such 
arrangements the Philippines is establishing a regiona l network of bilateral- type trade agreements. 
3. Investment policy has not undergone major cha nges since 1999;  the Philippines continues to 
encourage investment in "preferred" areas, which are listed in the Investment Priority Plan (IPP).  Tax 
and other incentives, often contingent on export performance and Filipino ownership, are still 
provided to attract investment. 
(2) TRADE POLICY FORMULATION AND IMPLEMENTATION  
(i) Objectives 
4. The Philippines' general trade policy objectiv es include moving towards a more outward-
oriented trade regime, strengthening and increasing overseas market access for exports, and greater 
integration into the world economy.  These objectives are being pursued through multilateral, bilateral 
and regional trade initiatives, in particular through ASEAN. 
5. Policies have been aimed at enhancing pr oduction and productivity through economic 
reforms, with a view to promoting more effici ent allocation of resources, while improving the 
environment for private domestic and foreign inv estment.  However, the recent slow-down in the 
reform process, especially the "recalibration" of the long-running unilateral tariff reform programme 
and recent selective increases in tariff rates, albeit intended to be temporary until 2006, suggest that 
the Government may be re-thinking some aspects of  its policies concerning trade liberalization.  
According to the authorities, the tariff increases affect 11% of all tariff lines and were  necessary to 
assist domestic producers.  These measures are, how ever, no substitute for the structural reforms 
needed to improve external competitiveness.  While e xports are expected to become a major engine of 
economic growth, recent policies seem to be detrimen tal to the sector.  Instead, to support the export 
sector, the authorities might aim at further liberalizi ng trade and investment and promoting structural 
reforms (e.g. in the power and banking sect ors) to develop efficient industries. 
                                                      
1 World Bank (2000). WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 18 
 
 
6. Despite its commitment to ASEAN and APEC, the Philippines recognizes that it is best 
served by a stable and increasingly liberalized multilateral trading system, which takes into 
consideration the needs of devel oping nations.  Thus, it takes an active role in the WTO, where the 
authorities have emphasized that negotiations need  to provide adequate flexibility for developing 
countries.  The authorities have indicated that the Philippines abides by its commitments to the WTO, 
and under the ASEAN Free Trade Agreement (AFTA ) and the Asia Pacific Economic Cooperation 
(APEC).2 
(ii) Institutional and legal framework 
7. The institutional and legal framework regard ing economic and trade policies has changed 
little since 1999.  The constitution divides the governi ng power in the Philippines into the executive, 
the legislative, and the judiciary. 
8. Executive power is vested in the President (elected  for a six-year term).  Bills that have been 
approved by Congress need to be signed by the President.  The President issues Executive Orders, according to the authorities, to implement the Cons titution and other laws passed by Congress.  They 
have the power of law, and the laws themselves gran t the President substantial authority (see below).  
The President may pass legislation while Congress is  in recess and this appears to happen frequently. 
9. Legislative power is vested in the bicameral  Congress, comprising a Senate (Upper House), 
which has 24 members elected directly by universal  suffrage (for a six-year term), and a House of 
Representatives (Lower House), which has a maximum of 250 members elected for three years.  The 
Lower House members are elected from each legislativ e district, and through a party-list system of 
registered national, regional, and sectoral parties, and organizations. 
10. Congress enacts bills, approves three kinds of r esolution (joint, concurrent, and simple) and 
deliberates on treaties (but only in the Senate).
3  Procedures for introducing and passing legislation 
through the different committees in the two House ar e similar.  Legislative proposals may originate in 
various ways, including through members of either  House, the executive branch of the Government, 
or through special interest groups (e.g. busin ess, religious, labour, and consumer and trade 
associations).  Every proposal, no matter where it originates, must be sponsored by a member of either 
House, with the exception of appropriation, revenue  or tariff bills, and private bills, which may only 
originate in the House of Representatives.  Once intr oduced, the bill is first deliberated in the House 
of which the sponsor is a member;  after approval, it is sent to the other House for consideration and 
concurrence.  To accelerate the process, legislati on may be introduced in both houses simultaneously 
in the form of companion (identical) bills.4 
11. Bills must be read three times in each of the Houses.  After receiving final approval in both 
houses the bill is submitted to the President, who either  signs it into law, or vetoes the bill and returns 
                                                      
2 NEDA (undated). 
3 Joint resolutions, like bills, require the approval of both houses and the President’s signature, and 
have the force of law.  Joint resolutions are also used for proposing Constitutional amendments.  Concurrent 
resolutions are used for matters affecting the operations of both houses.  They do not have the force of law and 
need not be signed by the President.  They are used to fix the time of adjournment of Congress and to express its 
opinion on a particular subject or issue.  Simple resolu tions deal with matters entirely within the prerogative of 
one house of Congress, such as adopting its own rules.  They are not considered by the other chamber, are not 
signed by the President, and do not have the force of a law. 
4 Philippine Senate (undated). The Philippines WT/TPR/S/149/Rev.1 
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it to the originating house for amendment.  A bill ma y become law if it is not signed by the President 
within 30 days of receipt, or if Congress overrides the President’s veto by a two-thirds majority vote.5 
12. The judicial system consists of the Supreme Court and other courts including the Court of 
Appeals, the Court of Tax Appeals, and regional, municipal and metropolitan trial courts.  A special 
court handles corruption cases.  The Supreme C ourt rules on the constitutionality of treaties, 
international and executive agreemen ts, laws, and other presidential re gulations (e.g. decrees, orders, 
and ordinances). 
(iii) Trade policy formulation and implementation 
13. The formulation of trade policies is the joint responsibility of the executive and the legislative 
branches of government.  The President appears to have substantial powers re garding the formulation 
and implementation of trade policies.  Many laws  grant the executive branch , through the President, 
discretionary powers to apply different measures.   For instance, the Customs Code allows the 
President to fix, within specific limits, tariff rates, import and export quotas, and tonnage and 
wharfage dues, and to take measures to counteract  trade practices deemed to be discriminatory. 
14. The agencies in charge of trade policy form ulation and implementa tion have not changed 
substantially since the previous Review of the Ph ilippines.  The Department of Trade and Industry 
(DTI) continues to be responsible for the implem entation and coordination of trade and investment 
policies as well as for promoting and facilitating trade and investment.  Key trade-related 
implementing institutions remain under the authority of the DTI (Table II.1).  The only change since 
the previous Review was the transfer of the Intell ectual Property Office to the Office of the President, 
but this was reversed in 2004.   
Table II.1 
Main institutions involved in trade po licy formulation and implementation, 2004  
Department/organization Trade-related functions 
National Economic and Development 
Authority Formulation of social and economi c policies, plans and programmes  
Tariff Commission  Tariff policies (including tariff con cessions, surcharges, and refunds)  
Department of Trade and Industry  Trade and industrial policies 
Board of Investment Investment policies and provision of incentives 
Bureau of Export Trade Promotion Export promotion 
Export Development Council Export policies 
Bureau of International Trade Relations Trade representation abroad, trade inform ation and export promotion;  conduct of 
Philippine trade relations at bilateral, regional, and multilateral level 
Garments and Textile Export Board Administration of export quotas 
Bureau of Import Services Administration of import regulation on selected items, initiates and conducts the 
preliminary investigations on dumping,  countervailing and sa feguard protests 
Bureau of Product Standards Development and implem entation of standards a nd technical regulations 
Bureau of Trade Regulation and Consumer 
Protection Consumer protection, and regulation of internal trade 
Intellectual Property Office Admini stration and implementation of the Intellectual Property Code 
Department of Finance Formulation and implementa tion of fiscal policies 
Bureau of Customs Collection of import/e xport duties, and VAT and excise taxes. 
Privatization Council Formula tion and implementation of th e privatization programme 
Table II.1 (cont'd) 
                                                      
5 Philippine Senate (undated). WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 20 
 
 
Department/organization Trade-related functions 
Department of Agriculture Agricultural policies 
Bureau of Plant Industry Plant protection, quarantine and inspection services 
Bureau of Animal Industry  Administration of  animal quarantine and inspection services 
Bureau of Fisheries and Aquatic Resources Administ ration of fish quarantine and inspection services 
Bureau of Agricultural and Fisheries 
Product Standards Development of standards and technical regulations 
National Food Administration  Administration of rice price stabilization programme and imports of rice 
Sugar Regulatory Administration Monitoring of suga r supply and administration of sugar export quotas 
Department of Tourism  Policy formulation and promotion of the tourism industry 
Central Bank of the Philippines Monetary and exchange rate policy 
Source: WTO Secretariat, based on various Departments' online information. 
15. The National Economic and Development Author ity (NEDA) is still the main agency in 
charge of formulating economic policies.  The NEDA, as mandated by the Constitution, is the 
country's independent economic deve lopment and planning agency.  It consists of the Secretariat and 
the Board, which is chaired by the President.  Sixteen Cabinet members and the Central Bank 
Governor are Board members. 
16. Five committees assist the NEDA Board, including the Committee on Tariff and Related 
Matters (TRM).  The TRM advises the President  and the Board on tariff and related matters, 
coordinates the different agencies' positions an d proposes national positions for international 
economic negotiations, and recommends to the Pr esident a continuous tariff rationalization 
programme.  The TRM, which is chaired by the Secretary of Trade and Industry, comprises the Committee Proper (cabinet level), the technical co mmittees, and the sub-committees.  Since the last 
Review of the Philippines, two new departments ha ve joined the TRM:  the Departments of Labour 
and Employment, and of Agrarian Reform.
6  In 1999, the NEDA Board created a Technical 
Committee on WTO Matters (TCWM).  Its main func tion is to discuss and provide recommendations 
on the Philippines’ implementation of WTO commitm ents and its continuing participation in the 
multilateral trading system. 
17. The Tariff Commission, an agency a ttached to the NEDA, undertakes public 
hearings/consultations on anti-dumpi ng/countervailing and safeguard inv estigations, and investigates 
petitions to vary or remove duty rates (including any cha nges in tariff classification).7  The Philippine 
Institute for Development Studies (PIDS), also attached to the NEDA, conducts policy research. 
18. According to the authorities, the Philippines pr omotes transparency in enacting and enforcing 
trade and investment related laws, rules, and regulations.8  Laws, rules, and re gulations cannot take 
effect until 15 days after their publication in the Official Gazette  or in a newspaper with general 
circulation in the Philippines.  Conducting public  hearings and consultations when formulating 
                                                      
6 TRM members include the Secretaries of Agrari an Reform, Agriculture, Budget and Management, 
Environment and Natural Resources, Foreign Affairs, Finance, and Labour and Employment, the Governor of the Central Bank, the Chairman of the Tariff Co mmission, and the Director-General of the NEDA. 
7 Philippine Tariff Commission (2001b). 
8  The Philippines ranks as one of the most opaque countries (45th among 48 countries) based on the 
2004 Opacity Index, which measures the degree to which coun tries lack clear, accurate, easily discernible and 
widely accepted practices governi ng the relationships among governmen ts, businesses, and investors 
(www.milkeninstitute.org).  The level of  opacity appears to be inversely related to foreign direct investment and 
growth. The Philippines WT/TPR/S/149/Rev.1 
 Page 21 
 
 
policies also enhance transparency, and the private sector and other groups are represented on certain 
government committees (e.g. th e Export Development Council). 9 
19. Despite these efforts, law enforcement seems somewhat inconsistent, and corruption remains 
a pervasive and longstanding problem.10  The Medium-Term Philippine Development Plan 1999-2004 
(MTPDP) recognized that improved governance w as essential to achieve growth and equity 
objectives.  It acknowledged weaknesses in the public  sector's capacity to implement policies and 
programmes, poor national and local government accountability, endemic graft and corruption, and 
lags in law enforcement and justice, incl uding rare convictions in high profile cases.11  The Plan 
provided for good governance, transparency, effective implementation of the rule of law, and reduced 
government red tape.  Electoral and judicial re forms to guarantee political stability were to be 
pursued, and the Bureau of Internal Revenue (BIR), the Bureau of Customs (BOC) and the 
government procurement system were to be re formed to help fight graft and corruption.12  These 
commitments were reiterated in the Preside nt's 2004 Budget Message and in the MTPDP 
2004-2010.13 
20. Several initiatives have been launched since the last Review of the Philippines to strengthen 
public and private governance, including anti-corr uption efforts.  The Presidential Anti-Graft 
Commission was created to investigate allegations of corruption involving presidential appointees and 
to recommend appropriate actions to the Preside nt.  The Governance Advisory Council was also 
formed, and the Presidential Committee on Eff ective Governance (the country's highest 
anti-corruption body) was strengthened. An e-proc urement system commenced, and the capacity of 
the Ombudsman's Office to deal with corrupt practices was improved.14  The President stated in her 
July 2004 State of the Nation Address (SONA) that gove rnment agencies needed to be "re-engineered 
to reduce waste and corruption."  Eighty offices under th e Office of the President have been abolished 
and another 30 are to be closed.15  To date, however, these initiatives seem to have produced limited 
results, and there is still a need to improve tran sparency, credibility, and predictability, including 
effective actions to enhance the regulatory syst em, curb corruption, and remove barriers to 
competition, which would increase investment opportunities and economic growth.16  T h e  
Government has, according to the authorities, made  every possible effort to strengthen public and 
private governance. 
(3) TRADE AGREEMENTS AND ARRANGEMENTS  
(i) WTO 
21. The Philippines, an original Member of the WTO,  grants at least MFN treatment to all trading 
partners.  As a developing country, it benefited from transition periods to implement commitments 
under various WTO Agreements, for instan ce, in relation to customs valuation.17  The Philippines 
                                                      
9 APEC (2003b). 
10 Transparency International's 2004 Corruption Perceptions Index, which measures business people's 
and analysts' perceptions of corrup tion among public officials and politicians  in 146 countrie s, ranked the 
Philippines 102nd with a score of only 2.6 out of 10, considerably below its 1999 score of 3.6 
(www.transparency.org). 
11 World Bank (2000). 
12 NEDA (undated). 
13 Government of the Philippine Republic (2004a and 2004b). 
14 World Bank (2001) and (2004). 
15 IMF (2004a). 
16 World Bank (2004). 
17 WTO document WT/Let/1/Rev.2, 22 May 1995. WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 22 
 
 
participated in the extended WTO negotiations on basic telecommunications and on financial services, 
but the relevant protocols are yet to be ratified by Congress (Chapter IV(5)).18 
22. Table AII.1 shows the Philippines' status in relation to notification requirements under the 
WTO Agreements as at October 2004.  Since its last  Review, the Philippines has been involved in six 
WTO dispute settlement cases, two as a complainan t, two as respondent, and two as a third party 
(Table II.2). 
Table II.2 
Dispute settlement in the WTO, 1999 to October 2004 
Dispute Raised 
by/against Request for 
consultation Panel 
established Appeal/ 
implementation Document 
series 
Complaints by the Philippines 
Measures affecting the importation of 
fresh pineapple into Australia Philippines/ 
Australia 18 October 2002   WT/DS271 
Measures affecting the importation of 
fresh fruit and vegetables into Australia Philippines/ 
Australia 18 October 2002 29 August 
2003  WT/DS270 
Complaints against the Philippines 
The preliminary and final 
determinations on anti-dumping 
measures regarding polypropylene 
resins  Korea/ 
Philippines 15 December 
2000   WT/DS215 
Measures affecting trade and 
investment in the motor vehicle sector United States/ 
Philippines 23 May 2000 17 November 
2000  WT/DS195 
Philippine participation as a third party 
Quarantine Regime for Imports European 
Communities/
Australia 16 April 2003 7 November 
2003  WT/DS287 
Rules of Origin for Textiles and 
Apparel Products India/ 
United States n.a. 24 June 2002 20 June 2003:  
Panel Report 
circulated  
21 July 2003:  Panel Report 
adopted by DSB WT/DS243 
n.a. Not applicable. 
Source : WTO document WT/DS/ OV/22, 14 October 2004. 
23. In preparation for the 1999 ministerial conf erence, the Philippin es jointly proposed the 
elimination of all forms of trade-distorting subsid ies in agriculture and those that contributed to 
fisheries overcapacity, and advocated special and di fferential treatment for developing countries in 
agricultural trade.19  It also proposed that a working group be established to study how the provisions 
of the various WTO Agreements corresponded to the needs of developing countries, with the results 
expected to be used as the basis to negotiate  appropriate modifications to the Agreements.20 
24. In the 2001 Ministerial Meeting, the Phili ppines stated its disappointment with the 
implementation of the Uruguay Round Agreements.  The opening of the domestic market had resulted 
in many businesses being closed down instead of i ndustries becoming more efficient.  Market access 
granted by developed countries was minimal,  dependence on essential but often unaffordable 
imported goods (such as medicines) had increased, and WTO provisions of relevance to developing 
countries could not be operationalized.  The Philippin es believed that the Doha Round agenda had to 
                                                      
18 WTO documents S/C/M/42, 9 May 2000;  and TN/S/M/10, 18 May 2004. 
19 WTO documents WT/GC/W/303, 6 August 1999;  and WT/GC/W/331, 23 September 1999. 
20 WTO document WT/GC/W/393, 25 November 1999. The Philippines WT/TPR/S/149/Rev.1 
 Page 23 
 
 
be broad enough to benefit all Members but no t too burdensome for developing countries to 
implement, as they were still struggling to im plement Uruguay Round commitments.  According to 
the Philippines, the necessary elements to launc h a new round of negotiations included providing 
sufficient safety nets for developing countries,  full integration of agriculture into the WTO 
framework, operationalization of special and differen tial treatment as a principle established to benefit 
developing countries, and opening of developed ma rkets for products of relevance to developing 
countries.  Public health concerns and the clarific ation of certain provisions of the TRIPS Agreement 
also had to be addressed.21  The Philippines jointly proposed an  amendment to the dispute settlement 
understanding (DSU).22 
25. At Cancun, the Philippines reiterated the need fo r fundamental agricultural reforms, including 
on domestic support, export subsidies, the intro duction of provisions allowing for exceptions for 
strategic products, and a special safeguard mechanism.   It submitted joint proposals in this regard.23  
On non-agricultural market access, the Philippine s proposed flexibility for developing countries 
covering not just longer time frames but also di fferent approaches to lowering tariffs and the 
possibility of exempting a number of sensitive products from such reductions.24  It also submitted 
proposals on how to deal with the Singapore Issues in the ongoing negotiations.25 
26. In the services negotiations, the Philippines has submitted sev eral joint proposals since 1999 
on the guidelines and procedures for negotiations on trade in services26 and on liberalizing mode 4.27 
(ii) Other arrangements 
(a) ASEAN 
27. The Philippines is a founding member of th e Association of South-East Asian Nations 
(ASEAN), established in 1967.28 
ASEAN free trade area (AFTA) 
28. The ASEAN Framework Agreem ent on enhancing economic co operation, signed in 1992, 
established the common effective preferential tariff  (CEPT) to achieve the AFTA.  It was initially 
agreed under the CEPT to reduce intra-ASEAN ta riffs on non-sensitive goods in the Inclusion 
List (IL) to 0-5% by 2008.  ASEAN-6 member s accelerated the timetable to 2003, and then 
subsequently to 2002, while Viet Nam is to achieve the 0-5% tariff goal by 2006, Lao PDR and 
Myanmar by 2008, and Cambodia by 2010.  Tariffs on sensitive goods included in the IL will also be 
eliminated by 2010 by ASEAN-6 members and by 2015 (with flexibility to 2018) by Cambodia, 
                                                      
21 WTO documents WT/MIN(01)/ST/8, 10 November 2001;  and IP/C/W/312 - WT/GC/W/450, 
4 October 2001. 
22WTO documents WT/MIN(01)/W/2, 9 October 2001;  WT/MIN(01)/W/2/Corr.1, 10 October 2001;  
WT/MIN(01)/W/3, 9 October 2001;  and WT/MIN(01)/W/3/Corr.1, 10 October 2001;  WT/GC/M/71, 
13 December 2001;  and WT/MIN(01)/W/4, 29 October 2001 
23 WTO documents WT/MIN(03)/W/6, 4 September 2003;  WT/MIN(03)/W/6/Add.1, 
9 September 2003;  WT/MIN(03)/14, 9 September 2003;  and WT/MIN(03)/ST/63, 10 September 2003. 
24 WTO document WT/MIN(03)/ST/63, 10 September 2003. 
25 WTO documents WT/GC/W/513, 23 August 2003;  WT/GC/W/514, 28 August 2003;  
WT/MIN(03)/W/4, 4 September 2003;  and WT/GC/W/522, 12 December 2003. 
26 WTO document S/CSS/W/13, 24 November 2000. 
27 WTO document TN/S/W/14, 3 July 2003. 
28 The founding members of ASEAN were Indonesia, Malaysia, the Philippines, Singapore, and 
Thailand.  Brunei Darussalam joined to become an "original" member in 1984 (ASEAN-6), Viet Nam in 1995, 
Lao PDR, and Myanmar in 1997, and Cambodia in 1999. WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 24 
 
 
Myanmar, Lao PDR, and Viet Nam (CMLV countries).29  ASEAN is also working towards 
eliminating non-tariff barriers;  harmonizing custom s nomenclature, valuation, and procedures;  
developing common product certificat ion standards;  and improving rules of origin under the CEPT. 
29. ASEAN members have made significant progress in lowering intra-regional tariffs, and 
according to the ASEAN Secretariat, the AFTA is now  virtually established.  Tariffs on over 99% of 
the products in the CEPT IL of ASEAN-6 members ha ve been lowered to 0-5%.  The Philippines has 
reduced duties to 0-5% on 98.98%  of all tariff lines included in the CEPT, according to the 
authorities.  CMLV countries are also well advanc ed in implementation of CEPT commitments, with 
almost 80% of products having been moved into their respective ILs.  Of these items, about 66% 
already have tariffs within the 0-5% tariff band.30 
30. ASEAN Sectoral Integration Protocols, whic h were signed recently, legally bind ASEAN 
members to undertake accelerated integration meas ures in 11 priority sectors, which accounted for 
over 50% of intra-ASEAN trade in 2003.31  Roadmaps attached to each protocol require tariffs in 
these sectors to be fully eliminated by 2007 for ASEAN-6 and 2012 for CMLV countries.  About 4,300 tariff lines are covered in the fast-track in tegration.  Longer time-fra mes were allowed for a 
negative list of sensitive or difficult sectors, which are capped at 15% of the total tariff lines covered 
by the roadmaps.  The Philippin es has used this flexibility.  Trade and investment facilitation 
measures are also to be enhanced, including development of an ASEAN single window, harmonization of product standards and technical re gulations, and mutual recognition of test reports 
and certification.  The Philippines has spearheaded  the formulation of the electronics roadmap, and 
has committed to fast-track tariff elimination for mo re than 1,000 electronics and ICT products, such 
as semiconductors and electronic data processing. 
31. The ASEAN Framework Agreement on Services (A FAS), signed in 1995, aims at eliminate 
restrictions to trade in services and enhance intr a-ASEAN cooperation in services.  Three rounds of 
negotiations have been concluded under AFAS, which included GATS-plus commitments in air 
transport, business services, construction, fina ncial services, maritime, telecommunications, and 
tourism.  The Philippines has submitted indica tive offers on business services, construction, 
telecommunications, and tourism.
32  Negotiation of mutual recognition agreements (MRAs), which 
should facilitate the flow of professional services providers in the ASEAN region, is a recent development under AFAS.  A number of areas (engin eering, architecture, accountancy, surveying and 
tourism) are currently being ne gotiated and considered for possible MRAs, and, according to the 
authorities, the Philippines is participating in the negotiations.
 33 
32. The Framework Agreement on the ASEAN Inv estment Area (AIA), signed in 1998, 
envisages liberalizing investment within ASEAN by 2020 .  It covers direct investment in areas such 
as agriculture, fisheries, forestry, manufacturing, mining and quarrying.  While, in principle, all members had to open all industries immediately to investment of ASEAN origin and grant national 
treatment to ASEAN investors, each member could submit a Temporary Exclusion List (TEL) and a 
Sensitive List.  Members' reservations scheduled in  the TELs were due to be eliminated by the 
ASEAN-6 by 2010, by Viet Nam by 2013, and by Lao PDR and Myanmar by 2015 for ASEAN 
                                                     
 
29 ASEAN Secretariat (undated). 
30 ASEAN Secretariat (2004b). 
31 The priority sectors are electronics, e-ASEAN,  healthcare, wood-based  products, automotives, 
rubber-based products, textiles and apparel, agri-bas ed products, fisheries, air travel, and tourism (10th ASEAN 
Summit, November 2004).   
32 Asia-Europe Institute (undated). 
33 ASEAN Secretariat (2004a). The Philippines WT/TPR/S/149/Rev.1 
 Page 25 
 
 
investors and by 2020 for non-ASEAN investors.34  The ASEAN-6 countries have accelerated this 
process to eliminate reservations in manufacturing by 2003 for ASEAN investors and remaining reservations for all investors by 2010.  The author ities indicate that the Philippines eliminated its TEL 
reservations in manufacturing on schedule in January  2003.  The 2003 review of the Sensitive List 
was deferred to 2005.
35 
Other free-trade agreements 
33. ASEAN is making progress in building coopera tive ties with other trading partners both 
within the region, including with other East Asia n countries, and outside the region.  An annual 
summit is held among leaders of ASEAN, China, Jap an, and the Republic of Korea (ASEAN +3);  in 
November 2002 they agreed to study and formulat e options to gradually establish, as a long-term 
vision, an East Asian Free Trade Agreement (E AFTA) as a means of realizing an East Asian 
community.  ASEAN members have also embarked on the formation of the ASEAN Economic Community by 2020, agreed in 2003, through a ser ies of FTAs since 2002:  framework agreements 
signed with a number of countri es all have an FTA component.
36  The Philippines' main FTA activity 
has been through its ASEAN membership, whereby it is  establishing a network of bilateral-type trade 
agreements.  It is negotiating an FTA with Jap an both collectively through ASEAN and bilaterally 
(see below). 
34. Under the ASEAN Framework Agreement on Comprehensive Economic Cooperation with 
China, an ASEAN-China free trade area is to be  established by 2010 for ASEAN-6 countries, with 
limited flexibility until 2012, and by 2015 for CLMV  countries.  An "Early Harvest" reciprocal 
programme has been implemented on specified agricu ltural products to generally reduce tariffs to zero 
within three years.37  However, the Philippines did not join this  programme immediately, and 
negotiations are continuing;  it was to have  participated by 1 January 2005.38  The Agreement on 
Trade in Goods of the Framework Agreem ent (ASEAN-China FTA (ACFTA)), signed in 
November 2004, commenced from 1 January 2005.  ASEAN-6 countries (including the Philippines), and China agreed to reduce tariffs above 5% to 20%, 15%, 10% or 5% from 1 July 2005 on items 
listed in the "normal track".
39  "Sensitive track" items, consisting of a "sensitive" list and a "highly 
sensitive" list, are to be reduced by ASEAN-6 c ountries and China to 20% by not later than 2012 and 
to 0-5% by 2018.  The number of items in each list has been capped.40  The Philippines has set the 
maximum number of 6-digit HS items at 267 for sensitive items and 77 for highly sensitive items. 
35. The Framework Agreement on Comprehensive Ec onomic Cooperation with India, signed in 
October 2003, was aimed at forming an ASEAN-Indi a Regional Trade and Investment Area (RTIA), 
                                                      
34 ASEAN Secretariat (2003b). 
35 ASEAN Secretariat (2003b). 
36 This section draws on Soesastro (forthcoming). 
37 All products in Chapters 01 to 08 at the 8/9-digit HS code are covered (live animals, meat, fish, dairy 
products, other animal products, live trees, edible vegetables, and edible fruit and nuts).  The Protocol of 
amendment to the Framework Ag reement, signed in October 2003, incorporat ed the rules of origin to be applied 
to the products of the "Early Harvest" programme and in cluded subsequent "Early Ha rvest" agreements between 
some ASEAN members and China, as well as clarifying the progra mme’s implementation. 
38 People's Daily,  "Philippines sees China-ASEAN free tr ade area to further China-Philippine 
economic, trade cooperation".  Available at: http://english.people.com.cn/200410/27/ 
print20041027_161723.html [14 March 2005].  
39 Tariffs will be reduced to 12%, 8% and 5% by 2007 , to 5% and zero by 2009, and removed by 2010.  
40 For ASEAN-6 and China, the maximum ceiling is 400 6-digit tariff items and 10% of the total value 
of imports in 2001.  The cap on the highly sensitive list is 40% of the total number of lines in the sensitive list or 100 6-digit items, whichever is the lower. WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 26 
 
 
which began on 1 July 2004.41  An "Early Harvest" programme whereby ASEAN-6 countries and 
India would eliminate tariffs by end-October 20 07 (end-October 2010 for CLMV countries), was due 
to commence on 1 November 2004, but has been delayed pending agreement on rules of origin.  Tariff reductions for items on the "normal track" will be from 1 January 2006 to end-2016 for the 
Philippines and India;  to end-2011 for Brunei Darussalam, Indonesia, Malaysia, Singapore, and 
India;  and to end-2016 for the CLMV countries. 
36. ASEAN negotiations with Japan were to start in 2005 to establish an ASEAN-Japan 
Comprehensive Economic Partnership covering trad e in goods and services by 2012 for ASEAN-6 
members, and 2017 for CLMV countries.
42  ASEAN is also to negotiate an FTA with Korea following 
the signing of the Joint Declaration on Comprehens ive Cooperation Partnershi p in November 2004.  
Negotiations, due to start in early 2005 and be comp leted within two years, are aimed at achieving as 
much liberalization as possible, with at least 80% of  products to have zero ta riffs in 2009, and with 
consideration of special and differential treatment  and additional flexibility for the CLMV countries.43  
In addition, ASEAN continues to cooperate with  Australia and New Zealand under the AFTA-CER 
(Closer Economic Partnership).  FTA negotiations were revived in N ovember 2004 when leaders at 
the ASEAN-Australia and New Ze aland Commemorative Summit annou nced their launch in early 
2005, to be completed within two years.  The FTA is to be comprehensive, covering the progressive 
liberalization of all barriers to trade in goods, services, and investment;  build on members' WTO commitments; have flexibility for CLMV countries;   and be fully implemented within ten years.  
37. ASEAN continues to cooperate  with the EC and the United States, including the Enterprise 
for ASEAN Initiative (EAI) announced in 2002.  It is  to develop FTAs between the United States and 
selected  ASEAN countries;  countries having a trade and investment facilitation agreement with the 
United States are eligible.  The Philippines has such an agreement.
44 
(b) APEC 
38. The Philippines, a founding member of the As ia Pacific Economic Cooperation (APEC), 
continues to view APEC as an important forum fo r promoting trade in goods and services, investment, 
and the transfer of technology and professional skills .  In its 2004 Individual Action Plan (IAP), the 
Philippines indicated that the planned uniform tariff  rate of 5%, except for "sensitive" agricultural 
products, planned by 2004 under the Tariff Reform Programme would not be implemented due to a 
need to modify certain duty rates in order to pr ovide temporary relief for local agricultural producers 
and manufacturers to allow them to fu rther enhance their global competitiveness.45  The Philippines 
enhances tariff transparency by participating in the APEC Tariff Database.  While APEC envisages 
open and free trade, including in services and in investment by 2020 for developing members (2010 
for developed economies), the Philippines has not made a definite commitm ent to reduce tariffs 
across-the-board to zero by 2020.  Non-tariff barriers (NTBs) are to be eliminated progressively according to the IAP.  The Philippines is to revi ew residual NTBs periodically to assess their need, 
and exchange information on them with APEC to ensure transparency.  On competition policy, the 
Philippines has agreed to renew its advocacy for the immediate passage of a comprehensive national 
                                                     
 
41ASEAN Secretariat (2003a). 
42ASEAN Secretariat (2003c). 
43 An option to achieve early results is also being co nsidered;  unlike the "Early Harvest" programme in 
the ASEAN-China agreement, this will not be confined  to agricultural products but will include both non-
sensitive manufacturing and agricultural products.  
44 The United States has concluded an FTA with Singapore, is negotiating one with Thailand and has 
discussed such possibilities with the Philippines. 
45 APEC (2004). The Philippines WT/TPR/S/149/Rev.1 
 Page 27 
 
 
competition or anti-trust law and the establishment of a Fair Trade Commission to enforce it.46  I t  
seems, however, that these voluntary commitments on competition policy have not been fully attained 
(Chapter III), although the MTPDP for 2004-10 advocates  the passage of a competition law by 2006.  
The Philippines' IAP also focuses on the impl ementation of WTO commitments and notes its 
participation in plurilateral arra ngements on conformity assessment w ithin APEC.  It continues to 
intensify efforts to liberalize the mobility of business people within APEC, and participates in the 
APEC Business Travel Card Scheme.47 
39. In the Bangkok Declaration (2003), APEC ec onomies reaffirmed the primacy of the 
multilateral trading system, and agreed that the Doha Development Agenda  (DDA) offered potential 
real gains for all economies, particularly developi ng countries, in the areas of agricultural reform, 
improved market access for goods and services, and the clarification and improvement of trade disciplines.
48  The Declaration also endorsed:  facili tation of business activities within APEC to 
reduce business transaction costs to 5% by 2006;  a dvancement of all pathfinder initiatives, including 
the APEC Sectoral Food MRA and Digital Economy Statement49;  fighting corruption;  strengthening 
regional efforts to promote sound and efficient fina ncial systems;  and accelerating structural reform 
in the APEC region.50  The Philippines participates in the pa thfinder initiatives on Trade and Digital 
Economy and Part B of the Revised Kyoto Conven tion on the Simplification and Harmonization of 
Customs Procedures. 
40. The Philippines underwent an APEC peer review in March 2005.  The review raised concerns 
about certain aspects of its tariff structure, in particular, tariff rates and bindings, and identified 
services, investment, and government procurement as areas requiring most progress to meet the Bogor 
goals.  The need to implement policy improvements,  especially in the areas of customs procedures, 
standards and conformance, competition policy, and intellectual property rights, was also stressed.51 
(c) ASEM 
41. The objective of the Asia-Europe Meeting (ASEM ) was to establish an informal process of 
dialogue and cooperation between Europe and As ia on political, economic, and cultural issues to 
strengthen their relationship.  ASEM has recently been enlarged to 39 partners, including the ten new 
members of the EC, and Cambodia, Lao PDR and Myanmar.  The Philippi nes has participated 
actively in the ASEM which has provided it with a forum in which to propose areas of cooperation.  
For instance, in the recent ASEM Summit, the Phili ppines proposed the Oceans Initiative to promote 
cooperation on scientific research and protecting the marine environment.52 
42. ASEM seeks to strengthen the economic relations between the two regions to promote growth 
and development.  Greater trade and investment among participating countries through liberalization 
and facilitation is also an important goal.  These initiatives are intended to complement efforts to 
achieve an open, rules-based trading system w ithin the WTO framework.  As a result, issues 
discussed at the recent ASEM 5 Summit (October 2004) included:  trade facilitation, trade and 
development, regionalism and multilateralism, inv estment policy, and the relationship between 
                                                      
46 Philippine Tariff Commission (2001e). 
47 APEC Secretariat (2003b). 
48 For more details on previous annual meetings held by APEC please refer to WTO (2004). 
49 The Shanghai Accord signed in October 2001, which sought to operationalize the Bogor Goals, 
established several "pathfinder initiatives".  These in itiatives allow economies ready to initiate and implement 
the cooperative arrangements to proceed, while those not ready to participate can join at later. 
50 APEC (2003a). 
51 APEC (2005a). 
52 OPS (2004). WT/TPR/S/149/Rev.1 Trade Policy Review 
Page 28 
 
 
competition and trade policy.  ASEM has also provided Asia and Europe a forum to discuss 
multilateral matters, especially during the preparation of WTO ministerial meetings.  In particular, 
leaders have discussed recent WTO developments and ways to deepen their commitment to the 
multilateral system.53 
(d) Bilateral 
43. In 2004, the Philippines and Japan commenced negotiations on a Japan-Philippines Economic 
Partnership Agreement (JPEPA), aimed at promot ing freer transborder flows of goods, persons, 
services, and capital.  The JPEPA also covers in tellectual property, competition policy, mutual 
recognition of electrical products, improvement of the business environment, and bilateral cooperation 
in areas such as human resource development, information and communications technology, and 
small and medium enterprises.  Agreement, in principle, on major elements of the JPEPA was 
announced in November 2004.  Both countries c onfirmed it would be finalized expeditiously, 
including negotiation of the JPEPA's text.  Tariffs are to be eliminated (Japan immediately) on 
"almost all" industrial goo ds within ten years from its commencem ent.  The Philippines has agreed to 
eliminate immediately tariffs on ir on and steel products covering more  than 60% of Japanese  exports 
and mutually on "almost all" textiles and apparel ite ms, and on all autos and auto parts by 2010 (with 
some tariffs removed immediately).  Japan is also to eliminate over ten years tariffs on a "major part" of agricultural, forestry and fishery products, while  the Philippines is to remove immediately tariffs on 
grapes, apples, pears, etc.
54  State-traded products (rice, wheat, barley and designated dairy products), 
and other sensitive commodities (beef, pork, starches, fishery products under import quota) are to be 
either excluded or re-negotiated. 
44. Studies are ongoing for a Philippines-U.S. FTA and a possible Philippines-Chinese Taipei 
FTA.55 
45. In negotiating FTAs, the Philippines follows th e principles of flexibility for developing 
members through special and differe ntial treatment;  the need to recognize needs and concerns of 
local industries;  transparency;  consistency w ith WTO rules;  and comprehensiveness whereby FTAs 
should not be limited to trade in goods but also  cover services, investment, and at a minimum 
economic cooperation designed to addr ess its developmental requirements.56    
(4) FOREIGN INVESTMENT REGIME  
46. The Philippines' FDI regime does not seem to have changed substantially since its last 
Review.  The 1991 Foreign Investment Act (FIA) a nd the Omnibus Investment Code (OIC), still 
regulate the entry and establishment of foreign invest ors, and the provision of investment incentives to 
both national and foreign investors.  The FIA c overs all areas except banking and other financial 
services, and contains the Foreign Investment Negative List (FINL), which has two annexes enumerating areas where FDI is restricted (Table  AII.2).  Annex A lists activities reserved for 
                                                     
 
53 Europa (2004). 
54 Joint Press Statement, A Japan-Philippines Economic Partnership Agreement , 29 November 2004. 
Available at:  http://www.mofa.go.jp/region/asia-paci/Ph ilippine/joint0411.html.  JPEPA is to include Japan's 
introduction of tariff quotas on sugar, chicken meat, pineapples;  elimination of tariffs over ten years on small 
bananas, while seasonal duties on "other bananas" are to fall over ten years from 20% to 18% in winter and from 
10% to 8% in summer;  and elimination of tariffs ov er five years on fresh, chilled or frozen yellowfin and 
skipjack tuna (tariffs on other tuna species to be re-negotiated within five years or earlier upon the conclusion of 
current WTO negotiations). 
55 APEC (2005b). 
56 APEC (2005b). The Philippines WT/TPR/S/149/Rev.1 
 Page 29 
 
 
nationals or restricted by the Constitution and specific laws.57  Annex B restricts foreign ownership 
(generally to 40%) on grounds of national security, de fence, public health, safety, and morals, and 
also to protect local SMEs by limiting foreign owne rship to no more than 40% in firms investing less 
than US$200,000 and producing for the domestic ma rket.  The FINL seems to have undergone few 
changes since the previous Review.58 
47. All national and foreign investors, including t hose not wishing to receive incentives or with 
investments that are not eligible for incentives (i.e. th e activity is not listed in the Investment Priority 
Plan (IPP), or the investor does not intend to export at  least 70% of production), must register with the 
Securities and Exchange Commission (SEC) for partners hips and corporations, or with the Bureau of 
Trade Regulation and Consumer Protection (BTRCP) fo r single proprietors.  There are no restrictions 
on capital repatriation or profit remittances.  Howe ver, the authorities indicate that foreigners 
purchasing foreign exchange domestically to repatriate  capital and remit profits must register with the 
Central Bank (Bangko Sentral Ng Philipinas). 
48. Registration with the BOI and its approval ar e only required to qualify for incentives provided 
under the OIC.  Approval is usually automatic.  A regi stration application is de emed to be approved if 
the BOI does not act upon it within 20 working days . The annual IPP issued by the BOI contains the 
general and specific guidelines for approving appl ications.  Since 1999, the BOI has rejected no 
applications, according to the authorities.  In general,  once approved by the BOI the investment can be 
registered with the SEC or BTRCP.  However, ac cording to the BOI, procedures are expedited by 
allowing an investor to file an application simultaneously with it and the SEC/BTRCP.  Investors 
locating in an economic zone must register for a pproval by the Philippine Economic Zone Authority 
(PEZA).59  The Philippines has recently established a one-stop centre to assist foreign and other 
investors to deal with the opaque and time-cons uming regulations and pro cedures required by various 
government bodies.60 
49. Investment incentives, mainly tax exemptions a nd concessions, apply to priority (or preferred) 
investment areas listed in the IPP (Table AII.3).61  However, the incentives also depend upon the 
share of domestic ownershi p, and on export performance.   To be registered under the IPP and receive 
incentives, an applicant/enterprise must be at least 60% Filipino-owned and export at least 50% of production or where Filipino ownership is less, engage in a pioneer project or export at least 70% of 
production.  Export activities remained an investment  priority in the 2004 IPP along with  "mandatory 
                                                     
 
57 Amendments to List A can be made at any time to reflect amendments to existing laws.  The 
Constitution reserves at least 60% owners hip in certain sectors, including public utilities to Philippine citizens or 
entities (Article XII, sections 10 and 11).  It also e ffectively forbids land ownership by foreigners or by 
corporations with over 40% foreign ownership (Article XII, sections 3 and 7). 
58 Amendments to List B can only be made biennially.  Changes to the FINL since the last Review 
include:  placing agriculture and fisheries in the list of professions foreigners cannot practice;  opening to 
foreign investment retail trade enterprises with a paid -up capital over US$2.5 million;  allowing up to 20% 
foreign equity in private radio communication networks, 25% in defence construction contracts, and 40% in the 
production, milling, and trading of grains, except fo r corn and rice (based on the Fifth Regular Foreign 
Investment Negative List (Executive Order No. 139), 22 October 2002).  The President signed the Sixth  Regular 
Foreign Investment List on 30 November 2004 (Executive Order No. 309), effective 7 January 2005, but details 
were not available in time for this Review. 
59 BOI (undated b). 
60 However, its effectiveness appears to be limite d, as it functions mainly as a coordinating and 
information centre directing investors to the various bodies (APEC, 2005b). 
61 According to the authorities, IPP activities are selected accordi ng to Domestic Resource Cost, 
Revealed Comparative Adva ntage, and Economic Internal Rate of Return. WT/TPR/S/149/Rev.1 Trade Policy Review 
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inclusions" (activities included under existi ng laws) and "other preferred activities".62 The 2003 IPP 
adopted a regional approach, through industry clustering.63  A separate list of investment priority areas 
applies to the Autonomous Region of Muslim Mindanao (ARMM). 
50. IPP activities that are granted pioneer status are entitled to incentives even if 100% foreign-
owned.64  Subject to constitutional and statutory limit ations, such enterprises may be fully foreign-
owned for the first 30 years of their operation.  Ho wever, they must attain Filipino status (60% 
domestic ownership) within 30 years (or a longer  period if so determined by the BOI), unless all 
production is exported.  The final products made from pioneer status  activities must substantially use 
or process domestic raw materials, when available.65  To be granted pioneer status an exporter must 
export at least US$10 million annually, source at least 50% of inputs for exports from SMEs, and 
provide SMEs with financing, raw material s, components, equipment, or technology. 
51. Since its previous Review, the Philippines has signed bilateral investment agreements with 
Argentina, Austria, Bahrain, Cambodia, India, Indonesia, Kuwait, Mongolia, Pakistan, Portugal, Sweden, and Venezuela.  They generally provide fo r reciprocal protection and non-discrimination;  
free transfer of capital, payments, and earnings;  and freedom from expropriati on and nationalization.  
Since 1999, the Philippines has signed bilateral agr eements on the avoidance of double taxation with 
Bahrain, Bangladesh, Belgium (Protocol amendi ng the existing agreement), China, the Czech 
Republic, Sweden (renegotiation), Sw itzerland, Turkey, and Viet Nam.   
52. The Philippines is a member of the Multilateral Investment Guarantee Agency (MIGA) and is 
a signatory to the International Convention on the Settlement of Investment Disputes (ICSID). 
                                                     
 
62 "Mandatory inclusions" are:  industrial tree plantations;  iron and steel projects;  exploration, mining, 
quarrying and processing of minerals;  publication or prin ting of textbooks;  refining, storing, marketing and 
distribution of petroleum products;  and ecological and solid waste management projects 
(PricewaterhouseCoopers, 2004).  "Oth er preferred activities" support gove rnment programmes and include:  
the modernization of agriculture/fisheries production and processing;  energy;  logistics;  manufacture of drugs 
and medicines, and engineering products;  development of information and communications technology;  
infrastructure and mass housing projects;  R & D activities (including bio-technology);  provision of social services;  tourism-related projects endorsed by the Department of Tourism;  production of motion pictures 
(limited to historical and socio-cultural films, and docu mentaries);  printing facilities;  environmental projects 
and petrochemicals (Department of Trade and Industry, 2004b). 
63 Industry clustering is aimed at concentrating allie d industries and services geographically to facilitate 
cooperation. 
64 Activities with pioneer status are:  manufacturing of goods or raw materials not previously produced 
commercially in the Philippines;  use of a design, formula, scheme, method, process or system of production 
new to the Philippines;  agricultural, forestry and mining activities, and services, including food processing where deemed essential for self-sufficiency;  and the production of non-conventional fuels and of equipment 
utilizing non-conventional energy sources (BOI, undated b). 
65 The authorities indicate that the Philippines eliminated these requirements in compliance with the 
WTO Agreement on Trade-rela ted Investment Measures.