Analyzing the Potential Impact of the ASEAN Trade in Goods Agreement (ATIGA)

on Philippine Trade Policy

and on Industry and Agriculture by Riza Bernabe

for the Trade Advocacy Group

Background

The concept of a comprehensive trade in goods agreement was first formally discussed during the 21st AFTA Council meeting held in the Philippines in August 2007

Context: ASEAN was deep into the implementation of AFTA-CEPT (98.58 % of total

ASEAN products were already phased into the AFTA-CEPT Inclusion List)ASEAN was working on the elimination of non-tariff barriers ASEAN was developing guidelines on Rules of Origin

Objectives of ATIGA

ASEAN felt there was a need to develop a comprehensive trade in goods agreement (TIG) that would:

- accelerate economic integration in the region- bring AFTA into a rules based system- Harmonize CEPT with the different ASEAN

FTAs with trade partnersSource: Joint Media Statement of the Twenty First ASEAN AFTA Council Meeting

held in Makati City, Philippines on August 23, 2007

Expected Benefits from ATIGA

• Minimal economic barriers and deeper economic linkages within ASEAN

• Lower business costs • Increased trade and investment • Better economic efficiency• Larger market with greater opportunities• Larger economies of scale • Competitive business

Lens in the study

• Maintaining the economic viability of small producers

• Trade in the context of its contribution to sustaining domestic production economy

Key Provisions of the ASEAN Trade in Goods Agreement

(ATIGA)

1. Creation of an ASEAN Trade Repository (Article 13)

The ASEAN Trade Repository shall contain the following informationTariff nomenclature

MFN tariffs, preferential tariffs under ATIGA and other ASEAN agreementsRules of OriginNon-tariff measures National trade custom laws and proceduresProcedures and documentary requirementsAdministrative rulingsBest practices in trade facilitation List of authorized traders of Member States

2. Tariff Liberalization (Chapter 2)

1. Elimination of import duties on all products traded within ASEAN (Article 19)2010 - ASEAN 6 (Brunei Darussalam, Indonesia, Malaysia, Thailand, Singapore and the Philippines)2018 - CLMV (Cambodia, Laos, Myanmar and Vietnam

Exception: Products in the negative list under the Priority Integration Sectors; tariff reduction only for unprocessed agricultural products under Schedule E

Expected Policy Action in the Philippines: Tariff Commission Hearings, Passage of Executive Orders

3. Elimination of Tariff Quotas

(Article 20) Prohibition against the introduction of new tariff

quotas Removal of tariff quotas with special flexibility

for Thailand and Vietnam (TRQ removal in tranches)

Expected Policy Action in the Philippines: Tariff Commission Hearings, Passage of Executive Orders

4. Provisions on suspension of

concession (Article 23) • Suspending party must notify the AFTA

council at least 180 days before the suspension of concession is to take effect

• Consultations with affected (supplying) Member states;

• Compensation for the suspension of concessions

• AFTA Council to decide if consultations do not yield positive results

5. Special treatment on rice and sugar (Article 24)

• Protocol to provide special consideration for rice and sugar, adopted in August 2007

Expected Policy Action in the Philippines: Tariff Commission Hearings, Passage of Executive Orders (in the case of sugar); Amendment of RA 8178 to remove rice QRs

6. Rules of Origin (Article 25)

Products considered as originating from ASEAN

• Wholly obtained goods or produced (enumerated in Article 26)

• Not wholly obtained or produced goods

Expected Policy Action: Development of administrative guidelines

Not Wholly Obtained or Produced Goods (Article 28)

• Products with a Regional Value Content (RVC) or ASEAN Value Content of 40%

• If all non-originating materials used in the production have undergone a change in tariff classification (CTC)

Formula for Calculating Regional Value Content (Article 29)

Direct method

Indirect Method

Rules of Origin

• Issuance of Certificate of Origin (Form D) Article 38

• Creation of Sub-committee on Rules of Origin (Article 39)

7. Elimination of Non-tariff Barriers (NTBs) Article 42

• Brunei, Indonesia, Malaysia, Singapore and Thailand shall eliminate NTBs in three tranches

• The Philippines shall eliminate by Jan 1 2010, 2011 and 2012

• CLMV to eliminate by 2013, 2014 and 2015

Expected Policy Action: Passage of executive orders/Development of administrative guidelines

8. Provisions on Import Licensing Procedure (Annex 44)

• Transparency in the use of import licensing procedures

• Notification on import licensing procedures

• Import licensing procedures must not impede trade

Expected Policy Action: Development of administrative

guidelines

9. Development and implementation of an ASEAN work program on trade facilitation

(Article 45)Principles guiding trade facilitation (Article 47)• Transparency • Communication and consultation• Simplification, practicability and efficiency • Non-discrimination • Consistency and predictability• Harmonization, standardization ad recognition• Modernization and the use of new technology • Due process• Co-operationAssessment of Members’ implementation of trade facilitation measures every 2

years (Article 48)Agreement on Trade Facilitation Framework ( Article 48)

10. Establishment of an ASEAN Single Window (Article 49)

11. Customs administration (Chapter 6, Articles 51 – 70)

• Consistency, transparency and predictability in the administration of custom laws

• Simplification and harmonization of customs procedures

• Efficient, economic and expeditious administration of customs laws and procedures

• Greater cooperation among custom authorities

12. Standards, Technical Regulations and Conformity Assessment Procedures

(Chapter 7, Articles71-)

General Principle and Objective: To ensure that the standards, technical regulations and conformity assessment procedures are not used as obstacles to trade while recognizing the legitimate needs of members for such measures

Standards, Technical Regulations and Conformity Assessment Procedures

(Chapter 7)

Core features:Must be consistent with the WTO agreement on

Technical Barriers to Trade

Provides for the development and implementation of ASEAN Mutual Recognition Agreements

Development of an ASEAN Marking Scheme

Adoption of relevant international standards in developing national and regional standards

Adoption of principles of most favored nation and national treatment

13. Sanitary and Phytosanitary Measures (Chapter 8)

Key objective: Protection of human, animal and plant life and health

Consistent with the WTO Agreement on Sanitary and Phytosanitary measures

SPS to facilitate trade

Transparency in the implementation of SPS measures. Records on SPS to be readily available to all members (Annex 9).

Equivalence arrangements guided by relevant international and

regional standards

14. Trade Remedy Measures (Chapter 8)

• Retains provisions on safeguard measures and countervailing and anti-dumping duties;

15. Dispute Settlement (Article 89)

Dispute settlement through the:

1. ASEAN Consultations to Solve Trade and Investment Issues (ACT) and the ASEAN Compliance Monitoring Body

2. AFTA Council/SEOM/Coordinating Committee on the Implementation of ATIGA (CCA)

Philippine Trade with ASEAN

The Philippines is a consistent net importer of ASEAN products

Philippine Trade with ASEAN, 2003 -2008

6.5 6.8 7.18.1 8

76.8

8.38.8

10.2

12.8

14.3

0

2

4

6

8

10

12

14

16

2003 2004 2005 2006 2007 2008

(in US $ Billion)

Export Import

Data Source: Department of Trade and Industry

The Philippines has a negative trade balance

with 7 out of 9 co-members in ASEAN RP Trade Balance with ASEAN, 2008

-3,338.7

-1,277.3

-1,268.7

-486.5

-862.1

7.5

-2.1

5.9

-71.0

-4,000.0 -3,500.0 -3,000.0 -2,500.0 -2,000.0 -1,500.0 -1,000.0 -500.0 0.0 500.0

Brunei

Cambodia

Indonesia

Laos

Malaysia

Myanmar

Singapore

Thailand

Vietnam

(in US $ million)

Data Source: Department of Trade and Industry

Industrial imports outpace industrial exports.

RP Industrial Trade with ASEAN, 2003-2008

6,420.5 6,710.4

7,734.9 7,528.5

6,510.36,146.8

7,614.1 7,785.8

9,150.9

11,556.5 11,807.9

6,257.1

0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

2003 2004 2005 2006 2007 2008

(in US $ million)

Industry export Industry Import

Date Source: DTI, BAS

The country has a negative industrial trade

balance with 7 out of 9 ASEAN members RP Industry Trade Balance, 2008

8,488

-3,319,922

-84,964

-682,489

-361,100

-2,151

-787,944

3,168

-73,138

-3,500,000

-3,000,000

-2,500,000

-2,000,000

-1,500,000

-1,000,000

-500,000 0 500,000

Brunei

Cambodia

Indonesia

Laos

Malaysia

Myanmar

Singapore

Thailand

Vietnam

(in US $ '000)

Date Source: DTI, BAS

Agricultural imports outpace agricultural exports. In 2008, the value of agricultural

trade deficit was at US $ 1.9 billion. Philippine Agricultural Trade with ASEAN, 1994 -2008

0

500

1000

1500

2000

2500

3000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

(in US $ million)

Export Import

Data source: Bureau of Agricultural Statistics

The Philippines has a negative agricultural trade balance with 7 out of 9 ASEAN

members RP Agricultural Trade Balance with ASEAN Countries, 2008

-594,838.00

-1,183,762.00

-18,803.00

-125,425.00

-74,230.00

-924.00

2,788.50

0.00

2,117.50

-1,400,000.00

-1,200,000.00

-1,000,000.00

-800,000.00

-600,000.00

-400,000.00

-200,000.00

0.00 200,000.00

Brunei

Cambodia

Indonesia

Laos

Malaysia

Myanmar

Singapore

Thailand

Vietnam

(in US $ '000)

Share of Sectors to Total Exports to ASEAN, 2008

Agriculture8%

Industry92%

Share of Sectors to Total Imports from ASEAN, 2008

Agriculture18%

Industry82%

Agriculture’s share to total ASEAN trade is generally small

Agriculture’s share to total imports is higher than Its share to total exports

Data Sources: DTI, BASData Sources: DTI, BAS

Indicative list of products traded between the Philippines and ASEAN Members2008

Country

Export

Import

Brunei Prefabricated materials, aviation fuel, breeding fowls, mango juice, tuna, corned beef, chewing gum

Crude or petroleum oil, metal mountings and fittings, worn clothing, underwater cameras

Cambodia

Chewing gun, lubricating oil, creams and skin solutions, deodorants, worn clothing, soft candies

Pin tables, slot machines, garments,

Indonesia

Milk products, electrical and electronic machinery, parts and accessories for motor vehicles, semi-conductor devices

Coal, crude petroleum oil, copper ore and concentrates, palm kernel oil

Lao PDR

Cigarette paper, semi-conductor devices, woven fabrics, electrical and electronic machinery,

Electrical apparatus for telephony,

Malaysia

Semi-conductor devices, electrical and electronic machinery, parts of machines, optical disk drives, cathodes, crude oil

Crude petroleum oil, dice, liquefied petroleum gas, other fuel oils, palm kernel oil, other vegetable oil, urea,

Myanmar

Newsprint in rolls, other liquefied petroleum gas, homogenized or reconstituted tobacco

Dried leguminous vegetables, white beans, beauty and make-up products

Singapore

Semiconductor devices, other fuel oils, electronic micro assemblies, bananas, aircraft parts, aviation fuel

Dice of any kind, other fuel oils, crude petroleum oil, wafers and discs for electric circuits, parts for the manufacture of electrical machinery, other semi-conductor devices

Thailand

Cathodes and sections of cathodes, parts for vehicles, semi-conductor devices, electronic micro=assemblies, integrated circuits frames, wheat flour

Rice, vehicles, non-dairy creamer, dice, television receivers

Vietnam

Cathodes and section of cathodes, chewing gum, mineral or chemical fertilizers, coconut/copra, banana chips or crackers, milk products

Rice, assembled circuit boards, cassava starch, coffee, MSG

Data Source: Department of Trade and Industry

Top agricultural products traded between the Philippines and ASEAN, 2008

Exports

Imports

Milk and cream (solid for,), cigarettes, coconut oil, mineral or chemical fertilizers, chewing gum, fresh banana, coconut oil cakes, natural rubber, yellowfin tunas, pineapples, tea preparations, wehat flour, cereal products, natura rubber, banana chips

Rice, Palm kernel oil, non-dairy creamer, mixed condiments and mixed seasonings, urea, soyabean fats and oil, palm oil, infant food, other natural rubber, beverage concentrates, cassava starch, seaweeds and other algae for use in dyeing, tanning, etc, coffee,

Source: Bureau of Agricultural Statistics

The prices of rice imported from Thailand and Vietnam are very low compared to domestically

produced rice Comparative Rice Prices, 2003 - Sept, 2008

14.08

28.50

14.3313.26

11.47

8.09

27.26

13.5713.2612.2410.81

7.38

18.3019.12

20.93 21.39

22.59

29.81

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

y 2003 Y 2004 Y 2005 Y 2006 Y 2007 Y 2008 (Jan toSep)

(in Philippine Peso/kg)

Thail rice 25% Vietnamese rice 25% Philippine rice

Source: Rice Watch and Action Network

Research Findings

• Gains from further regional trade liberalization can only be realized if competitiveness issues (in terms of price and supply capability) are addressed

• As with most trade arrangements, there are winners and losers. The biggest losers are in the agriculture sector, where stakeholders are poorest and most vulnerable to displacement;

Research Findings

• Formula of near-uniform liberalization schedules as prescribed in ATIGA is not appropriate for the Philippines given the great disparity in competitiveness levels among the different sectors.

• The sections relating to NTBs, SPS, customs, administration and import licensing procedures are are not yet fully developed, and may be influenced to strengthen government’s capability to regulate trade

Research Findings

• The poor level of competitiveness of local producers is the main threat to their economic viability

• Trade liberalization, such as through ATIGA, exacerbates this threat

• There is a need for appropriate policy sequencing (i.e. programs to improve competitiveness before full scale liberalization)

Research Findings

Implementation of ATIGA will require policy changes, including the: 1. Amendment of RA 8178: removal of rice QRs

2. Passage of executive orders on tariff reduction, phasing out of tariff quotas, removal of NTMs

3. Development of administrative orders and guidelines on import licensing, customs administration, NTB and SPS enforcement

CSOs and Business: Spectrum of Possible Positions

1. Rejection of ATIGA 2. Delay of ATIGA implementation to give time

for local industries to improve competitiveness levels

3. Refashion ATIGA to reflect the following: • Provision of SP and SSM like features in the agreement • Strengthen rights of members states to enforce CSO version

of better customs administration, import licensing procedures, TBTs and SPS

CSOs and Business: Spectrum of Possible Positions

4. Strengthen government capacity to maximize sufficiently ambigous provisions in ATIGA that can provide it with greater flexibility to safeguard the economic viability of local producers (TBTs and SPS, customs administration, ROO implementation, retention of import licensing power)

5. Grin and bear it