Merchandise Trade

• The Philippines has been a member of World Trade Organization (WTO) since January 1, 1995.
   
• The Department of Trade and Industry remains responsible for the implementation and coordination of trade and investment policies as well as for promoting and facilitating trade and investment.
   
• The Philippines grants most favoured nation (MFN) treatment to all WTO members. The Philippines' simple average MFN tariff was 7.1% in 2016 and 6% of its applied tariffs is 20% or higher. All agricultural tariffs and about 60% of non-agricultural tariff lines are bound under the Philippines' WTO commitments. The simple average bound tariff in the Philippines is 23.5%.
   
• Imported manufactured goods competing with locally produced goods face higher tariffs than those without local competition. The Philippine government cites domestic and global economic developments to justify the modification of applied rates of duty for certain products to protect local producers in the agriculture and manufacturing sectors.
   
• The Philippines eliminated tariffs on approximately 99% of all goods from the Association of South East Asian Nations (ASEAN) trading partners as a commitment under the ASEAN Free Trade Area (AFTA) agreement. The Philippines has been a member of ASEAN since 1967.
   
• Food products and agricultural inputs are exempt from value-added tax (VAT) which is typically 12%. Excise taxes are levied on alcoholic beverages, tobacco products, automobiles, petroleum products, minerals, perfumes and jewellery.
   
• A vast range of goods are subject to licences or permits when imported. For certain products, multiple permits or licences are required and informal payments have been reported by the business community.
   
• About 80% of standards are aligned to international norms. There are 72 mandatory technical regulations covering a wide range of goods. The Philippines Accreditation Bureau has accredited 243 conformity assessment bodies. The Philippines has reformed its food safety regime based on a 'farm-to-fork' approach to enhance food safety. A new Food Safety Act was promulgated in 2013 and its implementing legislation entered into force in 2015. However, the Philippines' sanitary and phytosanitary measure (SPS)-related import requirements for food, which appear to be complex, remain largely unchanged. During the period of 2013 to 2015, the Philippines submitted 46 technical barriers to trade (TBT) notifications and over 200 SPS notifications. Members have not raised any specific trade concerns regarding its SPS and TBT measures.
   
• Philippine marking and labelling requirements are specified in the Consumer Act of the Philippines (Republic Act No. 7394) and Philippine National Standards (PNS). The Department of Trade and Industry's Bureau of Philippine Standards (BPS) is the national standards body that develops and implements the PNS. All consumer products sold domestically, whether manufactured locally or imported, must contain the following information on their labels:
  • Correct and registered trade name or brand name
  • Registered trademark
  • Registered business name and address of the manufacturer
  • Importer or re-packer of the consumer product in the Philippines
  • General make or active ingredients
  • Net quality of contents, in terms of weight and country of manufacture (if imported)
     
• The BPS implements a product certification mark scheme to verify conformity of products to PNS and other international standards. This includes critical products such as electrical equipment and electronics, as well as consumer, chemical and construction and building materials. Products manufactured locally must bear a Philippine Standard mark, while imported products must bear Import Commodity Clearance certification marks duly issued by the BPS.

Sources: WTO – Trade Policy Review, Fitch Solutions

Trade Updates

The government is actively seeking new free trade agreements (FTAs) with key trade partners, such as the European Union (EU), and remains committed to reducing current tariff lines for certain products in order to boost competitiveness and ease the trading process for businesses.

Multinational Trade Agreements

Active

1. The Philippines is a member of WTO (effective date: 1995).
2. AFTA: Came into effect in January 1993. AFTA reduces tariff and non-tariff barriers between 10 member states – Brunei, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Laos, Myanmar, Indonesia and Cambodia.
    
3. ASEAN-Australia-New Zealand FTA (AANZFTA): Signed on February 27, 2009, AANZFTA is ASEAN's first FTA with two developed countries simultaneously and the first ASEAN FTA done in a single undertaking. AANZFTA represents ASEAN's most ambitious FTA to date, covering 18 chapters, including new areas that ASEAN had previously never negotiated on, such as competition policy and intellectual property. The AANZFTA also includes an AANZFTA Economic Cooperation Support Programme, which will provide technical assistance and capacity building to the parties of the agreement with the aim of supporting the implementation of it, as well as to support the overall regional economic integration process. The agreement entered into force for all parties in 2012 and work is currently underway to resolve and implement the built-in agenda as stipulated under the agreement. The agreement aims to eliminate tariffs on 99% of exports to key ASEAN markets by 2020.
    
4. ASEAN-Mainland China: The ASEAN-Mainland China FTA covers goods and services. The FTA for goods came into force on January 1, 2005, and the FTA for services came into force on July 1, 2007. The agreement aims to eliminate tariffs, encourage investment and address the barriers that impede the flow of goods and services. The ASEAN-Mainland China Free Trade Area came into force on January 1, 2010 and was upgraded in 2014. In 2019, the ASEAN was the recipient of 14.4% of Mainland China's exports and the source of 13.6% of imports. Total merchandise trade between the ASEAN and Mainland China hit a record high of USD642 billion in 2019.
    
5. ASEAN-South Korea: The ASEAN-South Korea FTA (AKFTA) came into force in June 2007 and May 2009 for goods and services, respectively. The investment agreement entered into force in June 2009. AKFTA aims to create more liberal, facilitative market access and investment regimes between South Korea and ASEAN. A business council was set up in December 2014 to enhance economic cooperation between parties and boost total trade to USD200 billion by 2020. ASEAN was the recipient of 17.5% of South Korea's exports in 2019 and the source for 11.2% of imports. Total trade between the ASEAN and South Korea has more than doubled between 2007 and 2019.
    
6. ASEAN-Japan FTA: Japan provides a huge market for a wide range of goods, with tariff-free trade. This benefits a number of important sectors, including manufacturing, agriculture, mining and chemicals production. Philippines only bilateral free trade agreement is also with Japan, called the Philippines – Japan Economic Partnership Agreement (PJEPA), which covers trade in goods and services, investments, movement of natural persons, intellectual property, custom procedures, improvement of the business environment and government procurement. PJEPA was implemented in December 2008 and provides duty free access to 80% of Philippine exports to Japan, consisting of 7,476 products such as food products, garments and textiles, furniture, metal manufactures, minerals, machinery and equipment parts, electronics, motor vehicle parts and chemicals.
    
7. ASEAN-India FTA: The ASEAN-India Trade in Goods Agreement was signed at the seventh ASEAN Economic Ministers-India Consultations on August 13, 2009. The Agreement entered into force on January 1, 2010 for India and some ASEAN member states. The ASEAN-India Trade in Services and Investment Agreements were signed in November 2014. The Philippines benefits from trade preference in terms of tariff exemption or reduction under the AIFTA, which is a trade bloc agreement between India and ASEAN. This will help member states in terms of trade growth and diversification given the size and performance of the Indian economy and other ASEAN member states.
    
8. ASEAN-Hong Kong FTA (AHKFTA): Hong Kong and ASEAN commenced negotiations of an FTA and an Investment Agreement in July 2014. After 10 rounds of negotiations, Hong Kong and ASEAN announced the conclusion of the negotiations in September 2017 and forged the agreements on November 12, 2017. The agreements are comprehensive in scope, encompassing trade in goods, trade in services, investment, economic and technical co-operation, dispute settlement mechanism and other related areas. The agreements will bring legal certainty, better market access and fair and equitable treatment in trade and investment, thus creating new business opportunities and further enhancing trade and investment flows between Hong Kong and ASEAN. The agreements will also extend Hong Kong's FTA and Investment Agreement network to cover all major economies in South East Asia. The agreement came into force on January 1, 2019, but will take time for all members of ASEAN to comply as implementation is subject to completion of the necessary procedures. Hong Kong is a key export market and the reduction of tariffs will ease the trading process. Hong Kong's potential as a key export market increases the importance of AHKFTA.
    
9. Philippines-European Free Trade Association (EFTA) FTA: The FTA covers trade in goods, services, investment, competition, the protection of intellectual property rights, government procurement and trade and sustainable development with EFTA states (Iceland, Liechtenstein, Norway and Switzerland). All customs duties on industrial products are abolished and the Philippines will gradually lower or abolish duties on the vast majority of such products.
    

Under Negotiation

1. Regional Comprehensive Economic Partnership (RCEP): A regional economic agreement that involves the 10-member ASEAN bloc and their FTA partners: Australia, Mainland China, Japan, New Zealand and South Korea. Negotiations on a framework agreement for the RCEP have stalled after India announced its withdrawal from the trade pact at a RCEP summit held in Bangkok in November 2019. Expectations had been for negotiations to conclude in 2019, paving the way for the agreement to enter force by late 2020. RCEP negotiations without India may now be concluded in 2020, but the withdrawal of India represents a setback to attempts to counter the growing wave of protectionism in the US and other parts of the world. The RCEP is envisioned to be a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement that aims to advance economic cooperation, and broaden and deepen integration in the region. The RCEP will lower tariffs and other barriers to the trade of goods among the 15 countries that are in the agreement, or have existing trade deals with ASEAN.
    
2. Philippines-EU FTA: Negotiations are underway to further increase trade flows between the EU and the Philippines under an FTA. The issues of high tariffs for EU automotive exports remain high on the agenda.
    
3. Philippines-South Korea FTA: Negotiations are underway to strengthen bilateral trade between the two states under an FTA. Semiconductors are the most traded product between the two countries, with South Korea also shipping auto parts, pharmaceutical goods and petrochemical products to the Philippines. The Philippines exports agricultural products and garments to South Korea. Negotiations which commenced in June 2019 are anticipated to be concluded in H120.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 12%
• Corporate Income Tax: 30%

Sources: Philippines Bureau of Internal Revenue, Fitch Solutions

Important Updates to Taxation Information

In September 2019, Philippines reformed the corporate tax system through the CIT and Incentives Rationalization Act, which will reduce CIT from 30% to 20% over a 10-year period as well as introduce specific tax incentives for capital expenditure and labour up-skilling.

Business Taxes

Sources: National Sources, Philippines Bureau of Internal Revenue, Fitch Solutions
Date last reviewed: April 19, 2020

Alien Employment Permit (AEP)

The AEP authorises an individual to work in the country and is valid for either one year or for the length of time stipulated in the employee's contract (but no longer than three years). The AEP is only valid for the respective position and applicable company and a new AEP is required when an employee takes on a new position or joins a different company. Intra-corporate transfers do not require a new AEP. The application for an AEP may be made by either the employee or the employer. The AEP is issued by the Department of Labour and Employment.

9(G) Visa

The AEP is required before obtaining the 9(G) Visa. The 9(G) Visa, or the pre-arranged employment visa, allows for the employment of individuals with skills or qualifications which are not available within the Philippines. The Bureau of Immigration issues this visa and candidates must have secured a job with a company based in the country. A holder of a 9(G) Visa may only work for the employer specified by the visa. If the individual changes employers, the 9(G) Visa automatically downgrades to a tourist visa, requiring the individual to reapply for the 9(G) Visa. The visa is valid for an initial period of one, two, or three years, and can be extended up to three years at a time (depending on the duration of the employment contract) and may be renewed multiple times.

9(D) Visa

The 9(D) Visa (also known as the Treaty Trader Visa) only applies to nationals from Japan, Germany and the United States. To qualify, foreign nationals must prove that they or their employers are engaged in substantial trade, involving investment of at least USD120,000 between the Philippines and their country of origin, they intend to leave the Philippines upon the completion or termination of their work contract, they hold the same nationality as their employer or company's major shareholder and they hold a position of a supervisor or executive in the company. The visa is valid for up to two years.

Provisionary Work Permit

The Provisional Work Permit (PWP) may be obtained while the 9(G) or 9(D) visas is being issued. The AEP is needed for a PWP. The permit is valid for six months.

Sources: Government websites, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators

Sources: World Bank, IMD, Transparency International

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: April 19, 2020