Tariff 1: Fundamentals of Tariff System PDF

TARIFF 1 FUNDAMENTALS OF TARIFF SYSTEM  FREE TRADE AGREEMENT Philippine Opposition to Free Trade  Free trade Filipino people on the matter were also expressed by their two Resident Commissioners to the United States, Benito Legarda and Pablo Ocampo. Commissioner Legarda stated tha...

TARIFF 1 FUNDAMENTALS OF TARIFF SYSTEM  FREE TRADE AGREEMENT Philippine Opposition to Free Trade  Free trade Filipino people on the matter were also expressed by their two Resident Commissioners to the United States, Benito Legarda and Pablo Ocampo. Commissioner Legarda stated that the proposal to establish free trade between the Philippines and the United States would tend to divert the Philippine sugar and tobacco products from their natural markets in China and Japan to several thousand miles away, and that the duty-free entry of American products into the Philippines would result in a big deficit in the revenue for the Philippine treasury. The wisdom with which Commissioner Legarda ably thought futilely fought for the Philippine cause may be noted from the following quotation. “If instead of the free admission without limitation as to the quantity of American products into the Philippine Islands, this bill provided only the free entry there of agricultural machinery and other commodities of prime necessity, such as cotton cloth, and which are needed for the agricultural and industrial development of those Islands,…” American Opposition to Free Trade The opposition to free trade among Americans themselves stemmed not only from the fear of American agricultural interests that they would be ruined, but also out of belief that free trade would not be in the interest to the Philippines. Senator Elihu Root of New York declared that free trade would secure their or for the United States "an undue advantage over the weak people of the Philippine Islands. Senator Tom F. Core of Oklohama believed that the real beneficiary would be the Americans rather than Filipinos. The Establishment of Free Trade  The Payne-Aldrich Tariff Act The opposition of both the Philippines and the sentiments of the American people against free trade was nevertheless over ridden by its proponents. The Payne-Aldrich Tariff Act was approved August 5, 1909 to take effect the following day. Philippine manufactured products were allowed duty-free entry into the United States provided the value of the foreign material content of the product concerned was not more than 20 percent of the value of the finished product. Certain Philippine products were also made subject to fixed quotas. The quota for sugar fixed at 300,000 gross tons; wrapper tobacco 3,000,000 lbs.; filler tobacco 1,000,000 lbs.; and cigars 150,000,000 pcs. Rice was excluded from the duty-free entry. Simultaneously, with the approval of the Payne-Aldrich Tariff Act, a similar Act with the same name was approved for the Philippines to govern the importation of United States as well as other foreign products into the Philippines. This act [Philippine Tariff Act of 1909] provided that the same shall take effect on sixty days after August 5, 1909. It provided for the duty-free entry of all United States articles except rice. No limitations as to quantity of foreign material content were imposed with respect to United States products imported into the Philippines. Free trade was thus established between the Philippines and the United States. The duty-free trade was also subject to the compilation that no drawback of customs duties has been allowed on the shipment of the goods must be direct.  Underwood Tariff Act On October 3, 1913, the US Congress passed what is now known as the Underwood Tariff Act [Tariff Act of 1913] which took effect the following day. This act of the US Congress constituted the final step in the establishment of free trade between the Philippines and the United States. This act maintained the provision under the Tariff Act of 1909 (Payne-Aldrich Tariff Act) with respect to foreign material content of Philippine product exported to the US, the non-granting of drawback of customs duties and direct shipment as conditions for duty-free trade. However, it eliminated the quota limitations on Philippine products exported to the US. The act furthermore repealed Section 19 of the Philippine Tariff thereby abolishing export duties on Philippine exports. Rice which was dutiable under the Philippine Tariff Act of 1909 was made duty-free either way under the Tariff Act of 1913.  Jones Law Under the Jones Law — on August 29, 1916, the United States made manifest its desire to grant independence to the Philippines as soon as stable government could be established in the country. It has provided for a more autonomous government for the Philippines. The Jones Law authorized Philippine Government to enact a tariff law for Philippines subject to the condition that the same shall not become law until approved by the US President, immediately after independence was granted, both the Philippines and the Unites States may impose full duties on the products of the other. The Aftermath of Free Trade The Aftermath of Free Trade Free trade with the United States brought about beneficial and detrimental consequences to the Philippine economy. It enabled the Philippines to develop rapidly its industries whose products found ready and preferred market in the United States, thereby enabling the people to raise their standard of living far above that of their Asian brothers within relatively short period of time, however the same free trade relationship with the US encouraged the establishment of a lopsided Philippine economy unable to stand on its own in this highly competitive world.  The Aftermath of Free Trade It would be noted that whereas in 1906 before the inauguration of the free trade between the Philippines and the United States, imports of the Philippines from the latter was only 17% of its total imports. Immediately thereafter or in 1910, its imports from the United States is more than doubled. In the years that followed, the proportionate share and the actual value of Philippine imports from the United States steadily grew. Passage of the tariff legislation for the Philippines by the US Congress was motivated by three important reasons, namely: (1)To provide revenue with which to support Philippine government budgetary requirements; (2) To promote the economic development of the Philippines; and (3) To promote American interest by increasing the margin of privilege preference for American products. These objectives were often in conflict. High tariffs widened the margin of preference for American goods but the extent to which they restricted the entry into the country of goods from other countries other than the United States serve to reduce the revenue of the Philippine government. The Aftermath of Free Trade In brief, it may be stated that before the outbreak of World War Il, the balance of trade of the Philippines with the United States was in general highly favorable. The Philippines did not suffer from balance of payments difficulties. After Independence After Independence The Philippines emerged from World War Il literally in ruins. The Industries of the country were laid at stake, the people suffered from malnutrition, and the government machinery was wrecked — all of these needed funds with which to prime up activities but the coffers of the state were empty. About half of the transition period prior to independence was spent by the Philippines under Japanese Occupation. "The Republic at its inauguration on July 4, 1946 was faced with bleak prospects." After Independence: War Damaged Act American Aid and the 1946 Trade Agreement with the United States. The US Congress came to the aid of the Philippines by approving the Philippine Rehabilitation Act of 1946, otherwise known as the "War Damaged Act". The Act would bring millions of US Dollars for the rehabilitation and construction of the country, subject, however, to the condition that no war damage payment in excess of 500 million dollors could be made until an Executive Agreement providing for the trade relations between the two countries shall have been concluded. After Independence: Bell Trade Act An act passed by the US Congress which provides an Executive Agreement regarding duty-free trade relations and preferential trade relationship between the US and the Philippines. This act likewise provided preferences to US citizens in the Philippines in terms of immigration, utilization, development and exploitation of the Philippine natural resources including operation and maintenance of public utilities. After Independence: Bell Trade Act * Salient Provisions of the Bell Trade Act 1. The act contains terms which would govern the trade and other relationships between the Philippines and the US. 2. Provides for a twenty-eight (28) yeas of duty-free trade and preferential trade between US and the Philippines. 3. Provisions which inhibits the Philippines from imposing quotas on US trade products, however, US can impose fixed absolute quotas on traditional exports coming from the Philippines. 4. Provides certain limitation and inhibition to the Philippines pertaining convertibility and par value of the Philippine currency. 5. Provides special preferences to US citizens in the Philippines in terms of immigration, utilization, development and exploitation of the Philippine natural resources including operation and maintenance of public utilities otherwise known as the "parity rights" — equal rights, treatment and opportunities granted to the US citizens coming or living in the Philippines, with their Filipino counterparts.  After Independence: Bell Trade Act Effects of the Bell Trade Act to Majority of Filipinos and to the Philippine Economy 1. Inhibits the Philippines to impose quotas on US Made products brought into the Philippines while US fixed absolute quotas on Philippine made products being exported to US. 2. US made products being imported/ dumped into the Philippines directly competes with locally made products and likewise delay and retard the development of our industries. 3. Developed the colonial mentality attitude among Filipinos specifically on matters of purchasing goods/items. 4. The Philippine economy became totally dependent with the US and consequently, our currency was tied upon the US dollars. 5. The Filipinos were deprived of the opportunity to establish or manage a service- oriented and related industries due to stiff competition with a more technological capability of the Americans After Independence: Laurel-Langley Agreement A trade agreement signed in 1955 between the United States and its former colony the Philippines. It expired in 1974. It was an amendment to the Bell Trade Act, which gave full parity rights to American citizens and businesses. **Provisions** The Laurel–Langley Agreement ended the free American market for sugar produced in the Philippines; it had been, before the agreement, exported to the U.S. duty-free. After the 1960s, exports from the Philippines increased significantly due to the American embargo against Cuba. The agreement also ended the authority of the United States to control the exchange rate of the Philippine peso. Up until the agreement, it had been pegged to the American dollar at the rate of two pesos to one dollar. After Independence: Laurel-Langley Agreement * The Tariff Provisions of the Laurel-Langley Agreement 1. The agreement provides for the accelerated imposition of Philippine duties on US articles being imported into the Philippines which includes taxes, fess chargers and other exactions. 2. Provides that the Philippines may also imposed countervailing duties and dumping duties if necessary, on US articles being imported into the Philippines in addition to the accelerated customs duties and other taxes agreed by both countries. 3. Provides for the importation of Special Import Tax on visible imported items from US. 4. Provides limitations with regards to administration and control of the nation's currency as well as provisions on immigration provided under the Bell Trade Act. 5. Provides that the traditional exports of the Philippines to the US are no longer subject to quotas, however will be subject to tariff quotas and duties. PROMOTION OF FOREIGN TRADE 25  CMTA: Sec. 1609. Promotion of Foreign Trade. 1.For the purpose of expanding foreign markets for Philippine products as a means of assisting in the economic development of the country, in overcoming domestic unemployment, in increasing the purchasing power of the Philippine peso, and in establishing and maintaining better relations between the Philippines and other countries, the President, shall, from time to time: 1. Enter into trade agreements with foreign governments or instrumentalities thereof; and 2. Modify import duties, including any necessary change in classification and other import restrictions as are required or appropriate to carry out and promote foreign trade with other countries; Provided, That in modifying import duties or fixing import quota, the requirements prescribed in subsection (a) of Section 1608 of this Act shall be observed; Provided, However, That any modification in import duties and the fixing of import quotas pursuant to the various trade agreements the Philippines has entered into, shall not be subject to the limitations of aforesaid subsection (a) of Section 1608.  CMTA: Sec. 1609. Promotion of Foreign Trade. 2. The duties and other import restrictions as modified in subsection (a) of tins section, shall apply to goods which are the growth, produce, or manufacture of the specific country, whether imported directly or indirectly, with which the Philippines has entered into a trade agreement; Provided, That the President may suspend the application of any concession to goods which are the growth, produce, or manufactured product of the specific country because of acts or policies which tend to defeat the purposes set in this section, including the operations of international cartels; and the duties and other import restrictions as negotiated shall be in force and effect from and after such time as specified in the order, without prejudice to the Philippine commitments in any ratified international agreement or treaty.  CMTA: Sec. 1609. Promotion of Foreign Trade. 3. Nothing in this section shall be construed to give any authority to cancel or reduce in any manner the indebtedness of any foreign country to the. Philippines or any claim of the Philippines against any foreign country. 4. Before any trade agreement is concluded with any foreign government or instrumentality thereof, reasonable public notice of the intention to negotiate an agreement with such government or instrumentality shall be given in order that interested persons may have an opportunity to present their views to the Commission. The Commission shall seek information and advice from the DTI, DA, DOF, DENR, DFA and BSP, and from such other sources as it may deem appropriate.  CMTA: Sec. 1609. Promotion of Foreign Trade. 5. In advising the President, on a trade agreement entered into by the Philippines, the following shall be observed: 1. The Commission shall determine whether or not the domestic industry has suffered or is being threatened with injury and whether or not the wholesale prices at which the domestic products are sold are reasonable, talcing into account the cost of raw materials, labor, overhead, a fair return on investment, and the overall efficiency of the industry. 2. The NEDA shall evaluate the report of the Commission and submit recommendations to the President.  CMTA: Sec. 1609. Promotion of Foreign Trade. 5. In advising the President, on a trade agreement entered into by the Philippines, the following shall be observed: 3. Upon receipt of the report of the findings and recommendations of the NEDA, the President may prescribe adjustments in the rates of import duties, withdraw, modify or suspend, in whole or in part, any concession under any trade agreement, establish import quota, or institute such other import restrictions, as the NBDA recommends to be necessary in order to fully protect domestic industry and the consumers, subject to the condition that the wholesale prices of the domestic products shall be reduced to, or maintained at, the level recommended by the NEDA unless, for good cause shown, an increase thereof, as recommended by the NEDA, is authorized by the President. Should increases be made without such authority, the NEDA shall immediately notify the President who shah allow the importation of competing products in such quantities as to protect the public from the unauthorized increase in wholesale prices..  CMTA: Sec. 1609. Promotion of Foreign Trade. 6. This section shah not prevent the effectivity of any executive agreement or any future preferential trade agreement with any foreign country. 7. The NEDA and the Commission shah promulgate such reasonable procedures, rules and regulations as they may deem necessary to execute their respective functions under this section.  TARIFF COMMISSION PROCEDURE: MODIFICATION, WITHDRAWAL OR SUSPENSION OF TARIFF CONCESSION UNDER CMTA SEC.1609 (PROMOTION OF FOREIGN TRADE) 32  Tariff Commission Procedure: 1. What is Section 1609 of the Customs Modernization and Tariff Act (CMTA)? Section 1609 (Promotion of Foreign Trade) of the CMTA provides the legal basis by which the President may enter into trade agreements with foreign governments and modify import duties and other import restrictions as part of these trade agreements.  Tariff Commission Procedure: 2. Who can file and what are the filing procedures under Section 1609 for petitions for tariff modification and withdrawal/suspension of concessions under international trading arrangements? Interested parties may file their petitions under Section 1609 with the Tariff Commission (TC). A petitioner is required to accomplish either TC Form 3 (Request for Tariff Modification) or TC Form 4 TC conducts investigations on the petitions it receives during which public hearings are held to afford interested parties reasonable opportunity to present their views. TC submits its findings and recommendations to the National Economic and Development Authority (NEDA), which then schedules these for deliberation by the Tariff and Related Matters (TRM) Technical and Cabinet Committees. Final approval is granted by the NEDA Board after which, TC prepares the implementing Executive Order.  Tariff Commission Procedure: 3. Are there any fees to be paid by petitioners? Petitions found to be meritorious under Section 1609 are subject to a filing fee of Five Thousand Pesos (P5,000.00) per tariff heading, per petitioner, which is collected prior to the conduct of a public consultation. A Legal Research Fund Fee of Fifty Pesos (P50.00) per tariff heading is also collected. Petitioners also share in the publication cost of TC’s Notice of Public Consultation which is published in two (2) newspapers of general circulation. A petitioner’s share of the publication cost is based on the number of products he is petitioning for withdrawal/suspension of tariff concession and subject of the public consultation.  Tariff Commission Procedure: 4. What is the timetable of a Section 1609 investigation? 1. Tariff Modification. TC completes its investigation and submits its Report of Findings and Recommendations to NEDA within thirty (30) days after the termination of the public consultation. 2. Withdrawal or Suspension of Tariff Concessions. Taking into account unforeseen difficulties that stakeholders may face as the Philippines implements its international tariff commitments, TC investigates and submits its Report of Findings and recommendations to NEDA within sixty (60) days from receipt of a properly documented petition. Commission Order No. 02-01 provides the rules and regulations governing the conduct of TC’s formal investigation on the withdrawal and/or suspension of tariff concessions. Any Questions? THANK YOU 38