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IV. TRADE POLICIES BY SECTOR
(1) INTRODUCTION
1. As discussed in Chapter III, since its first Review in 1993 the Philippines has liberalized its
trade and investment regimes.  This has resulted in and required the adoption of more neutral sectoral
policies;  however, these remain tinged with re mnants of earlier import substitution and "picking
winners" strategies.  These changes, and the general development of the economy, have beenaccompanied by significant structural changes;  the share in GDP of agriculture and fisheries declined
from about 21% in 1993 to just under 19% in 1997, while the share of the services sector increased
from some 46% to 49% and that of manufacturing remained generally stable.  Agricultural exports
declined but manufacturing exports, particularly of electronics, and automotive products grew
substantially (Table AI.3).
2. Notwithstanding the clear progress in recent years towards a more neutral set of inter-sectoral
incentives, certain policies still clearly protect some sectors while implicitly taxing others.  Thus,
effective protection rates estimated by the authorities indicate that sectoral policies tend to favour
agriculture and related processing activities (food processing, beverages, and tobacco) over other
primary activities (forestry, fishing, and mining) and manufacturing industries such as mineralprocessing, machinery, and chemicals (Chart IV.1).
05101520
Overall weighted average
Agriculture
Fishery
Forestry
Mining
Food processing
Beverages and tobacco
Textile and leather
Wood and wooden furniture
Furniture and fixtures
Paper, rubber, leather and plastic
products
Chemicals
Non-metal mineral products
Basic metal 
Machinery
Other manufacturingWeighted avera ge per cent Chart IV.1
Effective protection rates by major product group, 1999
Incorporates all tariff modifications up to E.O 63.
WTO Secretariat calculations, based on data provided by the Philippine authorities.Note:
Source :
3. The authorities have made considerable progress in raising the competitiveness of domestic
producers by the liberalization and privatization of a number of service sectors, including financial
services, telecommunications, and power generation, the latter being particularly noteworthy givenWT/T PR/S/59 Trade Policy Review
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the grave problems affecting the Philippines at the time of the first Review.  However, restrictions in
foreign equity participation remain in many key services sectors.
4. Tariffication and reductions in tariff rates over the past six years have gone a long way
towards offsetting the traditional anti-export bias in the Philippine import regime, which pushed up
exporters' costs through competition from the protected import-competing sectors.  At the same time,
a tendency towards export-orientation can be seen in the support given to exporters through a complexsystem of concessions and incentives such as the duty drawback scheme and tax rebates (described in
Chapter III).  These schemes have clearly helped a number of industries to take advantage of imported
inputs, often by operating in special economic zones.  However, as noted in the Secretariat report for
the previous Review, these schemes have been criticized for their coverage and implementation, and
because they do not fully eliminate the trade regime's anti-export bias.  Moreover, the dynamism ofspecial economic zones demonstrates the advantages of a liberal trade regime, and suggests that
further benefits would flow from a more outward-oriented, as opposed to export-oriented, regime
focusing on neutrality of treatment between domestic and export-oriented production.
5. Sectoral policies continue, by their very nature, to focus on "picking winners".  The
authorities have thus identified, for example, products with the greatest potential in terms ofproduction and exports (e.g. electronics, garments, footwear, automotive products, processed food) as
well as sectors warranting assistance to promote export development (e.g. decorative ceramics,
garments, and footwear).  Assistance provided to those activities includes tariff increases in 1999 for
yarns (from 7% to 10%), threads (10% to 15%), fa brics (15% to 20%), garments (20% to 25%) and
wire rods (3% to 10%), which were deemed necessary to provide temporary relief from the negative
effect on the economy of Asian financial crisis.
(2) A
GRICULTURE , FORESTRY AND FISHERIES
(i) Structural developments
6. Agriculture remains an important sector for the Philippine economy in terms of output,
employment, and trade:  it represented close to 19% of GDP and 41% of employment in 1997.  The
shares of agriculture in total exports and imports in 1997 amounted to 8.1% and 9.2%, respectively,
both lower than in 1993.  Rice (palay), corn and coconuts are the main agricultural commodities in
terms of value of production (Table IV.1).
(ii) Policy objectives and instruments
7. The primary objectives of Philippine agricultural policy are to "promote industrialization and
full employment based on sound agricultural development and agrarian reform, through industries that
make full and efficient use of human and natural resources, and which are competitive in bothdomestic and foreign markets".
1  Increasing productivity has also been a main policy focus, in
addition to promoting land ownership by a larger share of the population.
8. Support for Philippine farming has been based on border measures and production support
programmes.  For grain, high-value  commercial crops, livestock, and fisheries, production support has
been implemented under "Gintong-Ani" programmes.   For example, under the Gintong-Ani for
grains, launched in May 1996, the Government distributed seeds of hybrid corn, and provided
technical and infrastructural support, such as constructing reservoirs.  Other Gintong-Ani programmes
also provide technical and infrastructural support as well as marketing promotion, training, and
                                                     
1 Philippine Constitution, Article XII, Section 1.The Philippines WT/T PR/S/59
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various inputs. According to the authorities, the Philippines does not provide any other form of direct
production, input, or food subsidies, except through disaster relief programmes.
Table IV.1
Value of production of major agricultural crops, 1993-97
(Pesos million ;  per cent between parentheses)
1993 1994 1995 1996 1997
Total crops 171,492 191,672 222,042 259,832 268,233
Palay 50,190 59,119 77,685 91,284 88,574
(29.3) (30.8) (35.0) (35.1) (33.0)
Coconuts 23,110 22,862 20,955 27,397 29,529
(13.5) (11.9) (9.4) (10.5) (11.0)
Corn 21,591 22,822 26,010 27,108 27,164
(12.6) (11.9) (11.7) (10.4) (10.1)
Bananas 10,564 11,749 12,422 13,811 14,921
(6.2) (6.1) (5.6) (5.3) (5.6)
Sugarcane 9,624 12,348 13,153 16,662 13,438
(5.6) (6.4) (5.9) (6.4) (5.0)
Pineapples 5,394 5,805 5,079 7,418 11,090
(3.1) (3.0) (2.3) (2.9) (4.1)
Mangoes 6,716 9,409 9,903 11,197 10,554
(3.9) (4.9) (4.5) (4.3) (3.9)
Coffee 2,844 5,561 7,350 5,010 5,020
(1.7) (2.9) (3.3) (1.9) (1.9)
Onions 537 1,083 1,002 1,443 1,129
(0.3) (0.6) (0.5) (0.6) (0.4)
Tomatoes 787 1,091 714 763 1,038
(0.5) (0.6) (0.3) (0.3) (0.4)
Garlic 765 875 949 1,548 902
(0.4) (0.5) (0.4) (0.6) (0.3)
Others 39,370 38,948 46,820 56,191 64,874
(23.0) (20.3) (21.1) (21.6) (24.2)
Source : Data provided by the Philippine Bureau of Agricultural Statistics.
9. The Agricultural and Fisheries Modernization Act (AFMA) of 1997 (RA 8435) is aimed at
enhancing food production and lowering the domestic price of primary commodities.  Under the Act,
modernization programmes have been launched to raise the level of self-sufficiency in rice, to
promote technological development, and to strengthen the fisheries and livestock industries.  Under
the administrative order implementing Section 109 of  the AFMA, agriculture and fishery enterprises
are entitled to duty-free importation of selected i nput and machinery items that are used exclusively
by those enterprises, items which would otherwise be subject to applied tariffs ranging from 3% to
10%.    The AFMA also requires the Government to establish strategic agriculture and fisheries
development zones and to provide and facilitate various support services to enhance productivity.
10. The average annual income of families in rural areas remains lower, by some 60%, than that
of urban families.  This has given impetus to land reform, particularly  to transfer substantial public
and private land to a large number of small-farm owners.2  Since access to credit in the agriculture
sector is also a problem, the authorities plan to amend the Agri-Agra Law to strengthen the
requirement that Philippine banks make available a statutory minimum percentage of their loans to
regional enterprises, small- and medium-sized enterprises and agricultural concerns, including small-
                                                     
2 Land reform measures are described in GATT (1993),Vol.1, p. 147.WT/T PR/S/59 Trade Policy Review
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scale farmers;  with this aim, a bill to amend the Law has been sent to the Congress prohibiting banks
from using the funds set aside for rural credit to purchase government treasury bills.
11. Foreign direct investment in the sector is generally encouraged, as provided in the annual
Investment Priorities Plan, which specifies agricultural activities eligible for registration with the
Board of Investment (BOI) for investment incentives under the Omnibus Investment Code
(Chapter III(4)(i)).
12. As a result of the Uruguay Round, the Philippines introduced tariff quotas through the
Minimum Access Volumes (MAV) system to replace the import prohibitions previously maintained
under various laws;  quantitative import restrictions no longer exist except for rice, which is imported
solely by the Government through the National Food Authority (NFA).  Details of changes made
since 1993 to import prohibitions, import licences, and import quotas affecting agricultural productsare discussed in Chapter III(2)(v) and (viii).
13. In 1999, in-quota tariffs ranged from to 3% to 50% on live horses and cattle, and sugar,
respectively;  out-of-quota tariffs ranged from 3% on live cattle to 65% on sugar (Table AIV.1).
Quota volumes and quota utilization rates since 1995 are listed in Table IV.2.  According to the
authorities, some tariff quotas have been substantially underutilized because of lack of domesticdemand, partly due to a rise in the price of imports as a result of the depreciation of peso since 1997.
Under the WTO Agreement on Agriculture, the Philippines reserved the right in its Schedule to apply
the Special Safeguard Provisions, as stipulated in Article 5 of the Agreement, to about 13% of
agricultural tariff lines;  such provisions have not been invoked by the Philippines since 1995.
Table IV.2
Minimum access volume (MAV) utilization rates 1995-98
1995/96 % 1997 % 1998 %aHdg.
No.DescriptionMAV utilized MAV utilized MAV utilized
Per head
01.01 Live horses 86 100.0 57 100.0 57 10.5
01.02 Live cattle 18,752 100.0 13.556 100.0 14,461 100.0
01.03 Live swine 3,885 100.0 2,570 0.0 2,570 39.3
01.04 Live goats 75,919 0.0 54,982 0.0 58,514 0.0
01.05 Live poultry 8,202,780 45.2 6,342,356 0.0 6,765,181 14.3
Tonnes
02.01 Beef 6,987 100.0 4,261 0.0 4,436 100.0
02.03 Pork 49,985 7.6 36,135 21.2 38,545 15.8
02.04 Goat meat 1,030 0.0 745 0.0 795 0.0
02.07 Poultry meat 22,525 10.9 16,160 9.9 16,701 16.2
07.01 Potatoes 1,430 77.0 1,035 1.9 1,102 7.0
09.01 Coffee 932 6.7 993 92.5 1,060 100.0
10.05 Corn 200,061 100.0 144,623 99.1 154,266 100.0
10.06 Rice 91,378 100.0 65,079 100.0 97,061 100.0
17.01 Sugar 59,069 100.0 42,701 87.8 45,547 99.9
a Utilization of data for 1998 for 01.01, 01.02, 01.03, 01.04, 01.05 as at November 1998.
Source: WTO Schedule LXXV;  and information provided by the Philippine Bureau of Agricultural Statistics.The Philippines WT/T PR/S/59
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14. The authorities have indicated that there are no no price controls on agricultural commodities.
The NFA continues to implement a price stabilization mechanism for rice and corn, through its
regular procurement and distribution of such staples, to help stabilize farmgate, wholesale, and retail
prices (Chapter III(4)(iii)).  For rice and corn, domestic prices have consistently exceeded world
prices by over 200% (Table IV.3).
Table IV.3
Comparison of Philippine and world prices of rice and corn, 1993-9 7
(In P/kg.)
Prices 1993 1994 1995 1996 1997
Rice
World (white rice 35% broken, f.o.b., Bangkok) 5.19 5.77 7.46 7.23 7.27
Domestic (wholesale, special) 10.78 12.11 15.07 17.38 16.94
Difference (5.59) (6.34) (7.61) (10.15) (9.67)
Corn
World (corn, #2 yellow, f.o.b., Gulf) 2.77 2.84 3.18 4.35 3.45
Domestic (wholesale, yellow grain) 5.60 6.20 7.40 7.71 7.63
Difference (2.83) (3.36) (4.22) (3.36) (4.18)
Source: Information provided by the  Philippine  Bureau of Agricultural Statistics.
15. The Philippines does not maintain export controls on agricultural commodities, except for a
ban on exports of genetic material.  Exports of coffee require prior approval from the Department of
Trade and Industry (DTI) in its role as an International Coffee Organization certifying agency.  The
authorities confirm that there are no private monopolies controlling exports and imports of major
commodities, and that the Philippines has not extended export subsidies to any agricultural productsince 1993.
16. The authorities note that the main impact of the WTO Agreement on Agriculture on
Philippine agriculture has been the increased attention the Government has given to the sector, both in
terms of policy and budgetary allocations, which despite increases are still regarded by the authorities
as being inadequate to raise the level of domestic support for the sector.  Main laws and regulationsintroduced as a result of the adoption of the WTO Agreement on Agriculture include the AFMA of
1997 (RA 8435);  an Act Replacing Quantitative Impor t Restrictions on Agricultural Products, Except
Rice, With Tariffs Creating the Agricultural Competitiveness Fund, and For Other Purposes (RA
8178) of 1996;  the Rules and Regulations for th e Implementation of the Agricultural Minimum
Access Volumes (Department of Agriculture Admi nistrative Order No. 9) of 1998;  as well as
Executive Orders replacing quantitative restrictions with tariffs and implementing the Government's
Tariff Reform Programme (Chapter III(2)(iv)).
3
(iii) Main subsectors
(a) Rice
17. The volume of Philippine rice production increased by about 20% between 1993 and 1997
(Table IV.4).  During the same period,  the  value of rice production increased by 76% (Table IV.1).
The volume of rice imports also increased during the period, by about 3.6-fold (Table IV.5), while the
                                                     
3 The Executive Orders include EO 2858 of 1995, EO 313 of 1996, EO 465 and EO 486 of 1998, and
EO63 of 1999.WT/T PR/S/59 Trade Policy Review
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value increased from about US$35.8 million to US$211.3 million (Table IV.6).  In 1997, the volume
of rice imported into the Philippines was about one tenth that of domestic rice production.
Table IV.4
Production of major agricultural commodities, 1993-97
('000 tonnes)
1993 1994 1995 1996 1997
Production
Rice 6,170 6,892 6,894 7,379 7,370
Corn 4,798 4,519 4,129 4,151 4,332
Sugarcane 22,915 24,695 17,774 23,142 20,997
Coconuts 11,328 11,207 12,183 11,368 12,053
Mangoes 440 542 595 625 670
Bananas 3,144 3,193 3,489 3,304 3,391
Pineapple 1,287 1,331 1,443 1,542 1,631
Coffee 134 133 134 119 121
Onions 61 74 88 83 85
Garlic 12 16 17 19 19
Tomatoes 138 151 156 163 166
Beef 126 136 147 161 177
Carabeef 52 52 50 48 51
Chevon 40 42 43 44 44
Pork 881 922 970 1,036 1,086
Chicken (dressed) 364 377 400 455 497
Source: Data provided by the Philippine Bureau of Agricultural Statistics.
Table IV.5
Imports and exports of principal agricultural commodities (unprocessed), 1993-97
('000 tonnes)
1993 1994 1995 1996 1997
Imports
Rice 202.0 0.2 264.2 866.9 724.9
Corn 0.7 0.9 208.0 405.4 307.6
Coconuts 0.0 0.0 0.0 0.0 0.0
Mangoes  0.0 0.0 0.0 0.0 0.0
Bananas 0.0 0.0 0.0 0.0 0.0
Pineapples 0.0 0.0 0.0 0.0 0.0
Coffee 0.0 0.0 0.0 0.0 4.9
Onions 0.2 0.0 0.0 1.4 0.8
Garlic 0.5 0.0 0.0 1.7 5.4
Beef 17.2 27.0 26.2 32.7 39.6
Carabeef 0.4 9.2 16.7 23.8 30.2
Pork 0.4 0.7 2.2 6.1 10.4
Chicken (dressed) 0.1 0.2 0.2 0.2 1.0
Exports
Rice 0.0 0.0 0.0 0.0 0.0
Corn 0.0 0.0 0.1 0.0 0.0
Coconuts 2.8 3.7 2.6 4.2 3.8
Mangoes 0.0 0.0 0.0 0.0 0.1
Table IV.5 (cont'd)The Philippines WT/T PR/S/59
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1993 1994 1995 1996 1997
Bananas 0.8 1.2 1.2 1.3 1.2
Pineapples 0.2 0.2 0.2 0.2 0.1
Coffee 1.0 4.8 2.9 0.1 1.2
Onions 7.4  5.3 10.6 7.3 4.9
Garlic 0.0 0.0 0.0 0.0 0.0
Beef 0.0 0.0 0.0 0.0 0.0
Carabeef 0.0 0.0 0.0 0.0 0.0
Pork 0.0 0.0 0.0 0.0 0.0
Chicken (dressed) 0.0 0.0  0.0 0.0 0.0
Source: Data provided by the Philippine Bureau of Agricultural Statistics
Table IV.6
Value of imports and exports of principal agricultural products, 1993-97
(US$ million)
1993 1994 1995 1996 1997
Imports
Rice 35.8 0.1 75.7 294.0 211.3
Corn 0.3 0.4 33.4 85.7 54.1
Chicken 4.7  4.0 7.4 6.6 4.7
Beef 26.1 47 57.3 75.9 97.0
Pork 0.2 0.4 0.6 6.7 12.4
Cereals and cereal preparations 352.2 394.7 533.2 843.1 771.1
Manufactured fertilizer 124.9 169.6 194.5 194.6 214.0
Dairy products and bird eggs 260.5 316.4 409.5 388.5 406.0
Feeding stuff for animals (excluding unmilled
cereals)234.3 194.9 263.1 197.3 310.7
Tobacco and tobacco manufactures 96.5 177.9 118.8 71.5 141.48
Coffee, tea, cocoa, spices and their
manufactures32.2 44.9 52.2 50.0 78.9
Fish, crustaceans, and molluscs and their
preparations48.8 52.8 58.76 68.9 70.2
Meat and meat preparations 29.5 57.3 69.0 96.7 129.9
Vegetables and fruit 65.9 99.4 96.8 122.7 137.3
Fixed vegetable oils and fats 13.1 24.3 18.2 32.3 32.8
Exports
Rice 0.0 0.0 0.0 0.0 0.0
Corn 0.5 1.6 1.3 2.5 3.5
Chicken 0.1 0.1 0.1 0.1 0.1
Sugar 101.7 60.6 65.9 136.2 82.7
Coconut oil 357.6 475.2 826.1 570.6 673.4
Bananas 226.1 215.3 223.7 236.4 216.6
Pineapples in syrup 94.0 90.2 80.8 93.2 85.8
Copra oil 45.3 53.0 66.9 56.3 52.5
Desiccated coconut 83.7 70.2 68.2 84.9 88.3
Frozen tuna (except fillets) 149.9 169.0 154.1 162.6 164.6
Raw or green coffee (not roasted) 0.9 8.5 7.1 1.3 1.2
Copra 7.1 8.7 12.9 1.4 2.6
Source: Data provided by the  Philippine  Bureau of Agricultural Statistics.
18. The Government, acting through the NFA, continues to be the sole legal rice importer.
According to the authorities, the NFA does not directly allocate its imported or locally sourced riceWT/T PR/S/59 Trade Policy Review
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stocks to domestic consumers;  the rice stocks it handles (NFA rice) are placed particularly in grain
deficit areas and in areas where calamities or natural disasters occur.  Access to NFA rice is open to
NFA accredited and licensed retailers, who must sell the rice to consumers at a price set by the
Government.4
(b) Corn
19. Imports of corn have increased substantially since 1993, from US$0.3 million to
US$54 million in 1997.  The value of corn exports  increased seven-fold during the same period,
although from a low base.  Importation of corn is subject to the MAV system, with tariff quotas
typically fully utilized (Table IV.2).
20. According to the authorities, the NFA acts as  an "import consolidator" for corn only upon
request from small- and medium-scale livestock and poultry producers.  The role of the NFA as animport consolidator includes bidding, negotiation, preparation and signing of contracts;  preparation
of pre-arrival documentation and coordination wi th concerned agencies;  preparation of import
documentation;  monitoring of loading and unloading operations;  and the management of distribution
of consignees.
(c) Sugar
21. The share of sugarcane in the total value of ag ricultural crops declined slightly from 5.6% in
1993 to 5.0% in 1997 (Table IV.1).  Revenue from sugar exports (including sugar products) dropped
from about US$102 million in 1993 to US$83 million in 1997 (Table IV.6).
22. The Philippine sugar market is classified into four categories:  the A category is for exports to
the United States;  the B category is for domestic sale;  the B1 category for sugar-using food
exporters;  and the C category for domestic reserves.  Sugar importation is subject to the MAV
system.  The importation of raw sugar no longer requires prior import approval but applied tariffsremain high:  50% for in-quota imports and 65% for out-of-quota imports.
23. Sugar and molasses exports require prior authorization from the Sugar Regulatory
Administration under the Department of Agricultur e.  The allocation to domestic producers of the
Philippine share of the U.S. sugar tariff-rate quota is also the responsibility of the Sugar Regulatory
Administration.
5  The U.S. Government granted a 146,243 tonnes sugar tariff-rate quota allocation to
the Philippines for the quota year October 1998 to September 1999, one of the largest allocations.
(d) Coconuts
24. Coconut products have traditionally been among the top net foreign exchange earners of
Philippine agricultural crops.  Coconut oil remained the largest agricultural export item between 1993
and 1997, amounting to US$673 million in 1997 (Table IV.6).  However, the share of coconut
production in total agricultural crops declined, from 13.5% in 1993 to 11.0% in 1997 (Table IV.1).
25. Current applied tariff rates for coconuts and coconut oils are 20%.  Non-tariff border
measures appear not to be in use.  Due to substantial cutting of coconut palms for lumber and because
of the age of the trees, coconut production declined in 1994.  Against this background, the Coconut
Preservation Act (RA 8084) was enacted in 1995 to arrest the cutting of productive palms.  Throughthe Coconut Investment Fund and the Coconut Consumers Stabilization Fund, the Government
                                                     
4 WTO document G/AG/R/7, 26 November 1997.
5 See WTO (1999), Chapter III(2)(ii)(b) for the details of the U.S. sugar tariff-rate quota system.The Philippines WT/T PR/S/59
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apparently collects levies from coconut producers to finance, inter alia , government-owned coconut
oil mills.  All local soap and detergent manufactures are required to use at least 60% of locally
produced surfactant (Chapter III(4)(ii)).
(3) MINING AND ENERGY
(i) Overview
26. Total energy consumption in the Philippines grew at an annual average of close to 18%
during 1993-96 (most recent period for which data were available);  the share of indigenous energy in
total energy consumption rose from about 29% to almost 44% during the same period.  Agri-waste
energy, e.g. wood and coconut husks, was a main contributor to this rise (Table IV.7).
Table IV.7
Energy consumption by source, 1993-97
(Million barrels of fuel-oil equivalent;  share of total in parentheses)
Energy Source 1993 1994 1995 1996 1997a
Total 136.82 146.85 209.75 222.86 228.58
Indigenous Energy 39.28 42.51 92.25 97.13 96.00
(28.7) (28.9) (44.0) (43.6) (42.0)
Conventional energy 25.49 28.14 27.41 28.98 26.95
(18.6) (19.2) (13.1) (13.0) (11.8)
Oil 1.19 0.55 0.03 0.45 0.08
(0.9) (0.4) (0.0) (0.2) (0.0)
Coal 5.86 6.59 6.09 5.06 4.00
(4.3) (4.5) (2.9) (2.3) (1.7)
Hydro 8.67 10.11 10.71 12.17 10.40
(6.3) (6.9) (5.1) (5.5) (4.5)
Geothermal 9.77 10.90 10.58 11.30 12.48
(7.1) (7.4) (5.0) (5.1) (5.5)
Non-conventional energy 13.79 14.03 64.84 68.15 69.05
(10.1) (9.6) (30.9) (30.6) (30.2)
Bagasse 4.90 5.21 4.15 7.89 5.31
(3.6) (3.5) (2.0) (3.5) (2.3)
Agriwaste 8.42 8.28 .. 60.01 63.34
(6.2) (5.6) .. (26.9) (27.7)
Others 0.47 0.55 0.10 0.25 0.39
(0.3) (0.4) (0.0) (0.1) (0.2)
Imported Energy 9 7 . 5 41 0 4 . 3 41 1 7 . 5 11 2 5 . 7 31 3 2 . 5 8
(71.3) (71.1) (56.0) (56.4) (58.0)
Oil 94.79 102.19 113.98 117.40 120.78
(69.3) (69.6) (54.3) (52.7) (52.8)
Coal 2.75 2.16 3.53 8.34 11.80
(2.0) (1.5) (1.7) (3.7) (5.2)
.. Not available.
a Preliminary data to 30 May 1998.
Note: Details may not add up to totals due to rounding;   data on non-conventional energy based on actual production,
plus household consumption.
Source : Data provided by the Philippine authorities.WT/T PR/S/59 Trade Policy Review
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27. Since 1993, the Philippine energy policy has been aimed both at liberalizing the downstream
petroleum industry and encouraging the search for alternative sources of energy to reduce the
dependence on imported fossil fuel.  In 1999, import tariffs on mineral fuels and products (HS 27)
range from 3% to 10%, with a simple average of 3.6%.  Import licensing requirements are imposed on
coal and coal derivatives as well as radioactive materials (Chapter III(2)(viii)).
(ii) Petroleum and petroleum products
28. Demand for petroleum products, in volume terms, increased on average by 7.4% annually
between 1993 and 1997.  The upsurge in demand encouraged the three incumbent oil refiners, Petron
Corporation, Shell Petroleum Corporation and Caltex, Inc., to expand their existing oil refining
infrastructure and improve their operations.  Shell and Caltex are both 100% privately owned;  Petron
Corporation is 40% government-owned, 40% owne d by Saudi Aramco, the remaining 20% having
been sold through a public offering.   The total distilling capacity in the Philippines stood at
417 million barrels per day (MBSD) in 1998, with Petron contributing 175 MBSD.
29. Since 1993, the Philippines has implemented various measures to liberalize the downstream
oil industry.  In 1996, under the Act Deregulating the Downstream Oil Industry and for Other
Purposes (RA 8180), the Philippines liberalized the importation and exportation of crude oil andrefined petroleum products as well as the entry of new firms in the operation of refineries and other
downstream oil sectors.  The Philippines also adop ted an automatic formula to set domestic prices,
based on monthly changes of prices in major foreign markets.  EO 365 abolished an additional import
levy of P0.95/litre on crude oil and the P1.00/litre on refined petroleum products, except on
lubricating oils and other solvents.
30. In 1997, EO 392 abolished foreign exchange fo rward cover previously extended to any
private importation of crude oil and refined petroleum products;  abolished the Oil Price StabilizationFund (OPSF), which had been operated by the Energy Regulatory Board (ERB) to adjust domestic-
international price differentials;  and removed pricing regulations and reduced the product coverage of
the automatic pricing formula on crude oil and refined petroleum products.  LPG, regular gasoline,
and kerosene are covered by the automatic pricing formula pursuant to RA 8479 of 1998.
31. In 1998, the Downstream Oil Industry Deregulation Act (RA 8479) amended RA 8180 to,
inter alia, liberalize the importation, exportation, manufacturing, marketing, and distribution of
petroleum and petroleum products;   prohibit cartels from fixing prices or from any act that restrains
free competition;  and granted incentives for five years from the time of registration with the Board of
Investments.
32. Against a background of growing liberalization, since 1993 more than 30 firms have invested
in bulk storage, LPG refilling plants, and petroleum product retailing.  In petroleum-product retailing,
six new companies currently operate gasoline stations.  Likewise, LPG refilling plants increased to
118, of which 39 are owned by new entrants.  In 1998, new entrants contributed 4.3% of the total
sales of petroleum products and about 22% of the total importation of refined petroleum products.
33. Only Filipino nationals are allowed to participate in retailing (Chapter III(4)(x)).  In general,
foreign direct investment in the sector is restrict ed to an equity holding of less than 40%; however,
foreigners may apparently invest in gasoline stations. Out of the 35 new entrants in the downstream
oil industry since 1993, ten are jointly owned by foreign and local companies while 25 are wholly
Filipino-owned.  The majority of locally owned firms seem to be engaged in bulk fuel marketing
while wholly and partially foreign-owned companies are mostly in large-scale operations requiringThe Philippines WT/T PR/S/59
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large investments, such as refining, and LPG refilling and marketing.  The authorities affirm that all
firms engaged in the downstream oil industry receive national treatment.
34. In petroleum exploration and extraction, up to 100% foreign equity participation is allowed,
provided that the President of the Philippines ente rs into agreements with foreign-owned corporations
involving either technical or financial assistance for large-scale exploration, development or
utilization.  The criteria to enter into such agreements include their contribution to Philippineeconomic growth and general welfare, as well as the promotion of the development and use of local
scientific and technical resources.
6
(iii) Coal
35. In 1998, domestic coal consumption amounted to 5.5 million tonnes, about 60% of which was
supplied by imports.  Applied tariffs on coal and coal products (HS 27.01) ranged from 3% to 10% in1999.
36. In 1998, 19 companies including the state- owned National Power Corporation (NPC)
imported coal.  The NPC must use local coal for at least 10% of its total requirements, a measure
implemented to ensure the viability of the domestic coal industry and adequate coal supply for users.
Importation of coal is not allowed as long as local coal is available to meet domestic demand.  Thismeasure was originally adopted as part of a balance-of-payments restriction under GATT
Article XVIII:B (Chapter III(2)(xi)).
(iv) Electric utilities
37. Electricity-generating capacity and actual power generation in the Philippines increased about
47% and 50%, respectively, between 1993 and 1997;  of 39,815 million kilowatt-hours of electricity
generated in 1997, about 42% came from private generators (independent power producers) that
started operation after 1993.  The problem of power sh ortages, one of the major issues raised in the
previous Trade Policy Review  of the Philippines, thus appears to have been largely overcome.
However, the high cost of electricity, another issue in the 1993 Review, remains:  peak rates for
electricity amount to US¢10.3 per kilowatt-hour, among the highest in the ASEAN region.
7
38. To address the issue of power shortages, the Electric Power Crisis Act (RA 7648) was
promulgated in 1993 granting the President of the Philippines emergency powers to enter intonegotiated contracts for the construction, repair, rehabilitation, and maintenance of power plants.  In
addition, the Build-Operate-Transfer (BOT) Law (RA 6597 as amended by RA 7718 of 1994)
specified the eligible areas for infrastructure projec ts open to the private sector.  The authorities note
that the primary aim of the BOT scheme was to relieve the Government of the investment burden and
related debt for power infrastructure.  Private sector participation in power generation through theBOT and similar schemes increased installed capacity of independent power providers from
1,564 megawatts (MW) in 1995 to 5,016 MW in mid 1997, while the wholly state-owned National
Power Corporation (NPC) generated 8,000 MW in 1995.
8  RA 7718 also entitled build-own-operate
and BOT projects costing P1 billion and above to incentives provided under the Omnibus Investment
Code (Chapter III(4)(i)).  The distribution of electricity and related facilities also became open toBOT schemes.
                                                     
6 Philippine Constitution, Article XII, Section 2.
7 World Bank (1997)
8 The amendment of RA 6957 thro ugh RA 7718 expanded the definition of BOT to include such
schemes as build-own-operate, build-lease-transfer, build-transfer-operate, contract-add-operate, develop-operate-transfer, rehabilitate-operate-transfer and rehabilitate-own-operate.WT/T PR/S/59 Trade Policy Review
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39. The ownership and operation of transmission lines and substation facilities, including grid
interconnection, is monopolized by the NPC.  As in other public utilities sectors defined under the
Philippine Constitution, foreign equity participation in certain activities of the electric utilities sector
is limited to less than 40%.  All executive and managing officers of firms operating electric utilities
must be Philippine citizens.  The generation and distribution of electricity is undertaken by private
utilities, cooperatives, and local government units.  Foreign entities may participate in electricgeneration subject to applicable laws.
40. Energy Regulations (ER) 1-95, issued by the Department of Energy (DOE) in 1995,
promulgated amended rules and regulations to implement the provisions of EO 215 of 1987, which
opened power generation to the private sector.  Under ER 1-95, the DOE has overall jurisdiction in
the accreditation of qualified private sector generating facilities (PSGFs), which include certaincogeneration facilities, renewable resource power production facilities, and electric-generating
facilities that use indigenous energy resources as their primary energy source.
9  T h e  N P C  i s
responsible for the strategic and rational devel opment of Philippine power grids, including the
construction of associated generating facilities and the setting up of transmission line grids in Luzon,
Visayas and Mindanao islands.  The private sector may construct and operate electric generatingplants and associated transmission facilities.
41. The DOE is the main regulator of the electric utilities sector, while the National
Electrification Administration (NEA) oversees electric cooperatives and makes recommendations to
the DOE regarding cooperatives' applications to build and operate power generation facilities for self-
generation.  The Energy Regulatory Board (ERB) re gulates power rates of investor-owned electric
distribution utilities, electric cooperatives, and the NPC.
42. DOE Department Circular No. 97-01-001 of 1997  amended certain provisions of ER 1-95,
stipulating that any proposed electric generating facility must submit to the Energy Industry
Administration Bureau (EIAB) of the DOE a power supply agreement of at least ten years with the
NPC, and must demonstrate the facility's potential to provide net foreign exchange savings for the
Philippines.  In early 1999, Congress was considering a bill on power sector restructuring that would
result in the privatization of the NPC, the removal of cross-subsidies across the NPC power grid, thecreation of competition in generation, and free access to the transmission and distribution system.
(4) M
ANUFACTURING
(i) Overview
43. In 1997, the manufacturing sector accounted for 22.3% of GDP and 9.9% of employment in
the Philippines.  Gross output in the sector (including food products) grew from P793 billion in 1993to P1,008 billion in 1997.  The share of manufactured products in Philippine total exports increased
from 79% in 1993 to 86% in 1997.  Electronics and electrical equipment have been the largest and
fastest-growing export items, followed by mach inery and transport equipment.  Manufactured
products also account for a substantial share in the Philippines' imports, at 61% of total imports in
1997 (Table AI.5).
44. The 1999 the simple average tariff  for manufactured goods was 10.1%, with tariff rates
ranging from zero to 65% (HS25-97, Table III.4).  Since 1993, applied tariffs on some manufactured
products have been increased under various Executive Orders.  Non-tariff import restrictions exist in
the form of import licences applied to colour re production machines, motor vehicles including trucks
and parts, and other products (Table III.7).  Certain manufacturing activities are subject to trade-
                                                     
9 ER 1-95, Article 1, Section 3.h.1.The Philippines WT/T PR/S/59
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related investment measures, i.e. local-content requirements and foreign exchange requirements for
motor vehicle manufacturing, and local-content requirements for coconut-based chemicals
(Chapter III(4)(ii)).
45. Since the Asian financial crisis in 1997, the Philippine authorities have provided ad-hoc
support to certain manufacturing industries.  For example, under EO 63 of 1999, tariffs on  carbon
wire rods were increased from 3% to 10%, unless the importer met certain requirements, e.g. theimporter is a legitimate user defined by the BOI, and the product to be imported is not locally
available.  EO 63 also increased tariffs on hot-r olled coils from 3% to 7%, but to protect downstream
producers, the 3% rate is still applied if capacity utilization of the National Steel Corporation is lower
than 50%.
(ii) Electronics
46. The manufacture of electronic and electrical equipment (semiconductors, electrical machinery
and apparatus, computers, and consumer electronic apparatus) has grown strongly since 1993;  this
was supported by large and growing investment, which increased from US$224 million in 1993 to
US$1.3 billion in 1997.  Between 1993 and 1997, exports of electronics, including semiconductors,
grew annually by about 44%;  semiconductors grew at the same pace and amounted to about 77% oftotal electronics exports in 1997.
10  There are some 3,000 electronics firms registered with the Board
of Investment.
47. In 1999 the simple average applied tariff on the imports of the electric machinery, equipment,
parts, etc. (HS 85) was 7.7%, ranging from 3% to 20% (Table AIII.1).  Tariffs on parts and
components, including semiconductors, are largely at 3%, while assembled products are generally
subject to higher tariffs;  for example some audiovisual equipment, radios and television sets are
subject to a 20% import duty.  According to the aut horities, no trade-related invest measures, such as
local-content, trade-balancing and capital-origin requirements, exist in the sector.  Many electronics
manufacturers operate in the special economic zones, thus benefiting from duty-free status.
48. As the electronics industry is dominated by labour-intensive, low value-added operations,
such as simple assembly and testing, the authorities are concerned that the levels of growth achieved
in recent years may not be sustainable in the future.  For example, average local content is only about20% in semiconductors.
11  Thus, the Government has drawn up an Electronics Master Plan aimed at
improving the industry's value added and maintaining its annual export growth at some 30%.  Under
the Plan, the Government has selected products considered attractive to investors, taking into account
the existing industry and infrastructure capabilities of the Philippines;  the products include mobile
telephones, computer software, computers, integrated circuits, and television sets.  Investorsproducing the selected products are entitled to receive an incentive package, based on the size and
value of the investment, such as corporate tax exemption for up to ten years, and immediate reduction
of import tariffs, as well as modification to the ways in which investors work with government
departments.
(iii) Garments and textiles
49. In 1997, garment and textile exports accounted for 3.9% of Philippine exports, while imports
of garments and textiles accounted for 10.5% of Philippine imports.  The gross value of output of the
textile industry increased by 24% between 1993 and 199 5 (the most recent available data), while that
of the garment (including footwear) industry declined by 2% during the same period (Table IV.8).
                                                     
10 Industry Development Council (1998)
11 World Bank (1997)WT/T PR/S/59 Trade Policy Review
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The authorities are of the view that the rise in the average price of garment exports, despite a decline
after the start of the Asian financial crisis, is indicative of a movement of products from low
value/high volume to the medium to high end of the quality range (Table IV.9).
Table IV.8
Gross value of output of manufacturing establishments, 1993-95
(Pesos million;  shares in parentheses)
1993 1994 1995
All manufacturing establishments 793,282 825,564 1,008,157
Food 161,083 169,191 208,632
(20.3) (20.5) (20.7)
Beverages 55,139 47,678 53,008
(7.0) (5.8) (5.3)
Tobacco 22,804 26,973 27,573
(2.9) (3.3) (2.7)
Textiles 26,071 26,639 32,381
(3.3) (3.2) (3.2)
Garments and footwear 36,848 36,536 36,036
(4.6) (4.4) (3.6)
Wood and cork 10,571 9,166 8.251
(1.3) (1.1) (0.8)
Furniture and fixtures 5,900 5,650 5,140
(0.7) (0.7) (0.5)
Paper 14,375 17,266 23,030
(1.8) (2.1) (2.3)
Printing 14,770 10,980 13,130
(1.9) (1.3) (1.3)
Leather 1,142 1,202 3,019
(0.1) (0.1) (0.3)
Rubber products 11,210 9,848 10,375
(1.4) (1.2) (1.0)
Chemicals 82,211 86,041 68,741
(10.4) (10.4) (6.8)
Petroleum and coal 91,567 111,690 124,623
(11.5) (13.5) (12.4)
Non-metallic mineral products 5,236 6,007 6,739
(0.7) (0.7) (0.7)
Base metal 54,874 52,972 73,064
(6.9) (6.4) (7.2)
Metal products 14,316 16,418 18,995
(1.8) (2.0) (1.9)
Non-electrical machinery 10,484 11,535 21,519
(1.3) (1.4) (2.1)
Electrical machinery 81,397 102,221 125,955
(10.3) (12.4) (12.5)
Transport equipment 45,405 51,060 60,049
(5.7) (6.2) (6.0)
Miscellaneous 47,879 26,527 87,897
(6.0) (3.2) (8.7)
Note: Data are for establishments with an average total employment of ten or more persons.
Source : Data provided by the Philippine authorities.The Philippines WT/T PR/S/59
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Table IV.9
Average price of garment exports, 1995-98
(Currency unit per square metre equivalent)
Destination of exports 1995 1996 1997 1998
United States 1.13 3.03 3.34 3.44
European Union 0.99 2.68 2.88 3.15
Note: Data include only exports covered under bilateral quotas.
Source : Data provided by the Philippine authorities.
50. Imports of garments and textiles have generally been liberalized, except for imports of used
clothing and rags, which are prohibited for health reasons.  For garments and textiles overall (HS 50-
63), tariff rates ranged in 1999 from 3% to 25% (Table AIII.1).  There is a strong degree of tariff
escalation (Chart III.4);  for example, in 1999 fibres  were subject to a 3% import duty, yarns to 10%,
thread to 15%, fabric to 20%, and apparel and other made-up articles to 25%.
51. Exports of natural fibres (including ramie and abaca) require prior approval from the Fiber
Industry Development Authority.  Exports of abaca, buri and ramie seeds, seedlings, and root stocks
are prohibited.    Classified as regulated commodities (Chapter III(3)(ii)), exports of most garments
and textiles require prior approval from the Garments and Textiles Export Board (GTEB) of the DTI;
their export is subject to bilateral quotas under the WTO Agreement on Textiles and Clothing (ATC).
Garment exporters must submit their company profile to the GTEB, which administers quota
allocations and domestic regulations including the issuance of import and export licences.
52. In 1996, exports subject to bilateral agreements under the ATC accounted for nearly 78% of
total Philippine garment exports.  These consist primarily of exports to the United States
(approximately 63% of total garment exports) and the European Union (about 13%).  Infants' wear for
the U.S. market was integrated in the ATC in 1996.  Between 1993 and 1998, the average rate ofquota utilization by the Philippines decreased from about 72% to about 39% (quota into Canada),
66% to 22% (quota into the European Union) and 82% to 73% (quota into the United States).
53. The domestic allocation of quotas under bilateral agreements is based on the level of exports
involved.  Up to trigger level and consultation level, quotas are allocated daily to any exporter;  above
these levels, quota allocation is generally based on past export performance and allowed only tomanufacturers.  Underutilization of quotas may result in a fine on the quantity unperformed and a
decrease in the amount of quota for the next quota year.  The transfer of quotas is allowed for up to
40% of the quota held by a firm.  Swaps of quotas between quota holders may be allowed up to 100%.
54. Since 1997, textile manufacturing has been categorized as an export-oriented industry and is
thus entitled to receive incentives under the Omni bus Investment Code (Chapter III(4)(i)(b));  to
receive the incentives, foreign-owned companies (i .e. firms with more than 40% of foreign-held
equity) must export at least 70% of their production, while the minimum export requirement fordomestic companies is 50%.
(iv) Motor vehicles
55. The Philippine motor vehicle sector has grown strongly since the previous Review.  In 1996,
the last year for which data were available, exports by the industry totalled US$10.2 billion.  That
year, vehicle production and local sales amounted to about 129,000 units and 89,000 units,respectively.  Domestic production, which is dominated by foreign-affiliated firms, is largely based onWT/T PR/S/59 Trade Policy Review
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the importation of completely-knocked-down (CKD ) or semi-knocked-down (SKD) vehicles for
assembly in the Philippines.
56. Although the motor vehicle industry has undergone considerable liberalization in recent
years, including reductions in tariffs on automotive products, it remains one of the most protected
sectors of the Philippine economy.  Regulated commodities, parts and components as well as used
motor vehicles are subject to import licences from the DTI and BOI;  according to the authorities, this
is to ensure human safety.  Only participants in the Car Development Program (CDP) seem to be
allowed to import CKDs, SKDs, or parts and components for assembly purposes, subject to BOI
approval.  Participants in the CDP who export at  least 50% (if Filipino-owned) or 70% (if foreign-
owned, i.e. more than 40% of a firm's equity) may receive approval to import SKDs for domestic sale
provided they remain engaged in assembly operations.
57. In 1999, applied tariffs on motor vehicles and parts ranged from 3% to 40%.  Tariff escalation
within the sector appears strong:  imports of passen ger motor cars (HS 8703) are generally subject to a
40% tariff rate, the tariff on CKDs or SKDs (HS 8703.90.10) imported by CDP participants is 10%,
while tariffs on individual parts other than CKDs range from 3% to 20%.
58. An array of other policy instruments are maintained to promote the development of the
domestic auto assembly and component manufacturing industries, in particular those that are export-
oriented.  The Philippines has restrictions on and provides incentives to automotive firms through the
Motor Vehicles Development Program, an umbrella scheme encompassing the CDP, the Commercial
Vehicle Development Program (CVDP), and the Motorcycle Development Program (MDP).  Filipino-
owned and foreign-owned companies organized under Ph ilippine law seem to be equally eligible for
the programmes.  The approval criteria for an applicant to  participate in the CDP include that the
applicant establishes a technical licensing agreement with a foreign CKD supplier and invests at leastUS$10 million in the manufacture of parts and components for domestic and export markets.  The
criteria for participation in the CVDP and MDP are the same as for the CDP, except that the minimum
capital investment is US$8 million and US$2 million, respectively.
59. Participants in the CDP must fulfil a local-cont ent requirement of 40%, while the requirement
ranges from 35% to 45% for participants in othe r programmes (Chapter III(4)(ii)).  Participants in
these programmes must obtain 5% to 75% of their foreign exchange through their own exports,
depending on engine size and types of vehicles, although they may be given a 10% concession on the
foreign exchange earnings requirement for the first two years of operation if their foreign equity is
less than 70%;  a further 10% concession may be provided for the first two years of operation to firms
that encourage joint ventures between their parts vendors and local parts manufacturers.
60. Under the Agreement on Trade-Related Invest ment Measures (TRIMs), the Philippines
notified in April 1995 the investment-related instru ments maintained in relation to the motor vehicles
industry (Chapter III(4)(ii)).
(5) S
ERVICES
(i) Overview
61. In 1997, the Philippine was the world's 28th importer and 23rd largest exporter of commercial
services.  Balance-of-payments statistics indicate a net surplus in services trade.  Overall, the
Philippine's services sector has expanded its share in production and employment since 1993
(Table I.1).  Among the larger segments, public administration and financial services have grown
significantly, contrasting with transport and comm unication, whose share in GDP have declined since
1993.The Philippines WT/T PR/S/59
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62. State involvement in some sectors, such as air transport, is significant but decreasing as a
result of the privatization of banks and an airline (Chapter III(4)(iii)).  In many services subsectors,
foreign participation is limited to certain fractions of total shares of a company, but recent policy
initiatives have liberalized foreign equity participation in, inter alia , financial services.
63. The Philippine's Schedule of Specific Commitments under the General Agreement on Trade
in Services covers financial, communication, tran sport, and tourism and travel-related services.12 The
inclusions are subject to a variety of general limitations (horizontal commitments) covering, for
example, limitations on national treatment concerning access to domestic credit, and market-access
limitations regarding foreign land ownership and foreign participation in the governing body of
majority Filipino-owned corporations.  National treatment is guaranteed, except for the limitations
listed in the GATS Schedule.13  The Philippines' list of GATS Article II (MFN) exemptions covers the
entry and temporary stay of natural persons for all sectors, and commercial banking, investment
houses, liner cargo trade and cabotage transport services.14
(ii) Financial services
64. The financial services subsector, including banking and insurance, has grown rapidly in
recent years;  real value added expanded at an annual average rate of 5.3% between 1993 and 1997.The share of financial services in GDP and employment was 4.7% and 2.5%, respectively, in 1997,
compared with 4.0% and 2.1% in 1993 (Table I.1).
15
65. As a result of the WTO Financial Services Negotiations, concluded in 1997, the Philippines
made new commitments with respect to banking, insurance, and other financial services, as reflected
in its GATS Schedule.16  Specifically, the Philippines:
- raised the foreign equity participation limit in existing domestic banks and newly
incorporated banking subsidiaries from 49% to 51%, and in existing or newlyincorporated insurance companies from 40% to 51%;
- grand-fathered the foreign equity participation in existing banks and insurance
companies beyond the 51% level;
- increased the allowable additional branches of foreign banks from four to six;
- allowed cross-border trade in marine hull and marine cargo insurance;  and
                                                     
12 According to the author ities, maximum 100% foreign equity pa rticipation is allowed in tourism
activities, except for specialty restaurants that are not part of hotel facilities, where no foreign equityparticipation is allowed; and pension house, tourist inn,  apartel, professional congress organizers, and travel
agencies, where foreign equity participation is limited to 40%.  Employment in certain areas of the sector is
limited to the citizens of the Philippines.  The share of the tourism sector in GDP and employment was about9%, according to a study conducted in 1997 by th e World Travel and Tourism Council and Wharton
Econometrics Forecasting Associates.  The estimate does not correspond with the classification in nationalaccount statistics.
13 WTO documents series GATS/SC/70.
14 WTO documents series GATS/EL/70.
15 The employment figures include the real estate an d business services subsectors and are as of April
each year.
16 WTO documents GATS/SC/70/Suppl.3, 16 February 1998, and GATS/EL/70/Suppl.2,
26 February 1998.WT/T PR/S/59 Trade Policy Review
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- reduced the scope of its MFN exemptions based on reciprocity in commercial
banking by excluding from the exemptions the authorization to expand existing
operations, but leaving the authorization to establish commercial presence subject to
the reciprocity test.
The Philippines had yet to sign the Fifth Protocol of the GATS as of May 1999.
(a) Banking
66. The banking system in the Philippines is classified into three institutional categories,
commercial banks, thrift banks, and rural banks.  Commercial banks hold about 85% of the system’s
total deposit liabilities, while the shares of thrift banks and rural banks were 7.7% and 7.3%,
respectively.  In mid 1998, there were 53 commercial banks, including 18 foreign banks, 1,467 thrift
banks, and 1,935 rural banks. Commercial banks specialize in short- and medium-term commercialand industrial credits and housing loans;  thrift banks mainly provide credit to small and medium-
sized industries and individuals, and rural banks mostly provide agricultural credit facilities.
67. There are three wholly or partly government-owned banks:  the Development Bank of the
Philippines (DBP), the Land Bank of the Philippi nes (LBP) and the Al-Amanah Islamic Bank of the
Philippines (AAIIB). The DBP primarily provides banking services for medium- and long-term needs
of agricultural and industrial enterprises; the LBP primarily provides financial support for agrarian
reform; the AAIIB provides banking, financing, and investment operations for the development of the
Autonomous Region of Muslim Mindanao.  The shar e of government holdings in the DBP, LBP and
AAIIBP is P12.5 billion, P9.0 billion and P30 million, respectively.
68. Commercial, thrift and rural banks are governed by the General Banking Act (RA 337) of
1948, the Thrift Banks Act of 1995 (RA 7906) and the Rural Banks Act of 1992 (RA 7353).
Commercial banks are further classified into expanded commercial banks, and regular commercialbanks.
69. Branches of foreign banks operating in the Philippines that apply for a licence to operate as
expanded commercial banks are required to have, initially, a minimum capital of P2.5 billion;  they
should also show satisfactory performance in the past with respect to the management of financial
resources and general compliance with banking laws and regulations
17;  moreover, they should
indicate that their key personnel have the appropriate knowledge, competence, experience, and
integrity;  and they should submit a project feasibility study indicating the following information:
organization and management, corporate strategy, and financial projections.  In the case of local
commercial banks applying for an expanded commercial banking licence, the governing guidelines
are similar except for the following:  the minimum capital required is P4.5 billion, the projectfeasibility study shall include information on capitalization and ownership, financial capability, and
previous year's operation;  and at least 10% of the required minimum capital must be offered to the
public.  Expanded commercial banks or unibanks with minimum capitalization of P4.5 billion may
engage in stock-brokering or underwriting of secu rities, exercise authority of investment houses,
                                                     
17 "Satisfactory performance" refers to the non-incurrence of deficiency in the required capital to risk
assets ratio (10%), non-incurrence of net deficiencies in its reserves against deposit liabilities and/or deposit
substitute liabilities for the three-month period immediately preceding the filing of applications, substantialcompliance with banking laws or orders, instructions, or regulations issued by the Monetary Board of BSP ororders, instructions or rulings by the Governor of BSP, as well as substantial compliance with the capitalrequirements prescribed under Sections 5 and 7 of BSP Circular No. 51.The Philippines WT/T PR/S/59
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invest in equity of non-allied undertakings and own up to 100% of the equity of a financial
intermediary other than a commercial bank.18
70. The Central Bank of the Philippines (Banko Sentral ng Pilipinas - BSP) is responsible for
supervising the operation of banks.  Banks, domestic and foreign, are required to obtain a licence from
the BSP to operate;  they must also register their articles of incorporation and any amendment to them
with the Securities and Exchange Commission.  The BSP issues rules and regulations to ensure that
banks conduct their business on a sound financial basis.
71. According to the authorities, there are neithe r monopolies, legal provisions that encourage
monopoly in the banking sector, nor  obligation on any domestic economic entity to use specified
banks.  Each banking institution must set aside at least 25% of its loanable fund to provide for
agrarian reform credit and other agricultural credit, and at least 6% and 2% of their loan portfolio forsmall and medium enterprises credit, respectively.
72. In the context of prudential requirements, there is generally no distinction between
subsidiaries or branches of foreign banks and domestic banks, except for the minimum capital
requirement, which, in the case of subsidiaries, is P5.4 billion for expanded commercial banks (EKB),
P2.8 billion for regular commercial banks, and P210 million for foreign banks with full bankingauthority and foreign banks with existing branches in the Philippines.  The capital of a Philippine
branch of a foreign bank authorized to operate as an EKB may consist of its permanently assigned
capital plus the "net due to" account, provided that the aggregate capital does not fall below
P2.5 billion, or other amounts that may be prescribed by the Monetary Board.  Subsidiaries and
branches of foreign banks are allowed to perform the same functions, enjoy the same privileges as a
Philippine bank of the same category and are subject to the same limitations.
73. The BSP has yet to formally adopt the standard of capital adequacy ratio (8%) set by the Bank
for International Settlements (BIS), pending the passage by Congress of the relevant amendment to
the General Banking Act.   As of end March 1998, commercial banks' average capital to risk assets
ratio stood at 17.3%, higher than the 10% statutory requirement.  However, the authorities stated that
the banking system as a whole had met the BIS standard.  There are no geographic areas of the
country, including special economic zones, where banks are subject to differing levels of regulation orsupervision.  At least two thirds of the board members of any commercial bank must be Philippine
citizens.
74. Subsidiaries or branches of foreign commercial banks are subject to RA 337 and the Act
Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines (RA 7721) of
1994.  RA 7721 amended RA 337, which in 1948 had closed foreign entry to the banking sector,except for four foreign banks already operating, i.e.  Hongkong and Shanghai Bank, Bank of America,
Standard Chartered Bank and Citibank.
75. Under RA 7721, foreign banks are allowed to enter the domestic market by setting up
branches with full banking authority or subsidiaries , or by acquiring the voting stock of an existing
bank.  Foreign participation is limited to 60% ownership for the establishment of a local subsidiary oracquisition of the shares of an existing local bank, thus going beyond the Philippines' GATS
commitments;  the number of foreign-affiliated banks in these modes of entry is unlimited.  Majority
Filipino-owned domestic banks should, at all times, control at least 70% of total banking system
                                                     
18  Investment houses are enterprises that engage in the underwriting of securities of other corporations.
Unibanks or expanded commercial banks (EKB) are banks whose authority may, in addition to commercialbanking powers, exercise the powers of investment houses, invest in the equity of non-allied undertakings, andown up to 100% of the equity of a financial intermediary other than a commercial bank.WT/T PR/S/59 Trade Policy Review
Page 96
assets, as mandated under Section 11(d) of BSP Circular No. 51, series of 1994.  The authorities
indicated that the BSP enforces this measure through a review of existing policies on:
- the granting of authority to establish additional subsidiaries and branches;
- the granting of authority to engage in expanded commercial banking and trust
activities;  open a foreign Currency Deposit Unit;  collect taxes and customs
duties;  and invest in the equity of other entities;  and
- access to rediscoun ting facilities.
76. Since RA 7721 became effective, entry by establishing branches is allowed for up to ten
banks within five years, upon approval by the BSP.   Each foreign bank permitted to enter under this
mode of entry is allowed up to six branches;  each  of the four foreign-owned banks operating in the
Philippines before 1948 may open an additional six branches.  There is no restriction on the location
and capitalization of the first three branches, but for additional branches the location is designated by
the BSP and a minimum additional capitalization of P35 million is required for every branch.  In
terms of capitalization, the minimum capital for locally incorporated subsidiaries of foregn banks
must be the same as that prescribed for domestic banks of the same category.  On the other hand, a
foreign bank authorized to establish branches with full banking authority must, for example, remit aspermanently assigned capital, the U.S. dollar eq uivalent of P210 million at the exchange rate
prevailing on 5 January 1994 (i.e. P26.949 per dollar).
77. Since 1994 ten new foreign banks, out of 25 applicants, have been granted licences by the
BSP to establish branches with full banking authorit y.  In addition, two foreign banks acquired up to
60% of the voting stock of an existing bank, while another two invested in a new banking subsidiary
incorporated under Philippine law.  The criteria employed to select these banks included geographical
representation and complementation, trade and investment relationship between the Philippines andthe country of incorporation of the bank, the capability of the bank to promote trade with and to bring
foreign investments into the Philippines, global reputation, reciprocity with requirements of general
application set in the applicant's country, and the bank's willingness to fully share technology.
According to the authorities, geographical representation and complementation is to ensure
representation from different parts of the world and/or the international financial centres;  with respectto strategic trade and investment relationship criteria, consideration is given to countries that have
provided substantial financial assistance to, and loans and investments, past and present, in the
Philippines, and with which the Philippines has significant trade volume, particularly involving
substantial net exports;  willingness to fully share technology is an undertaking to ensure that
domestic banking technology is updated with the latest developments and trends.
78. The Philippines Deposit Insurance Corporation (PDIC), a government corporation created
under RA 3591, as amended, provides deposit protection through deposit insurance.  Except for
Islamic banks, all banks, including subsidiaries and branches of foreign banks, engaged in business of
deposit taking in the Philippines are required to  be members of the PDIC for deposits to be insured.
The maximum amount of deposit insured is P10,000 per individual (natural or juridical person) perbank. Deposits in overseas branches of local banks are not insured with the PDIC.
(b) Insurance
79. The Philippines' insurance sector is classified into three main sectors:  life insurance, non-life
insurance and reinsurance.  In early 1999, the Philippines had 149 licensed insurers:  36 life, 106 non-
life, four reinsurance, and three composite companies.  In 1997, the top five life and non-life
insurance companies in terms of premium income accounted for about 78% and 30% of the total lifeThe Philippines WT/T PR/S/59
Page 97
and non-life insurance premiums, respectively;  about 57% of the total life insurance premiums were
placed in ten foreign companies.  Insurance companie s play a significant role as major investors in the
Philippine financial markets.  In 1997, total inve stment by insurance companies amounted to P95.2
billion.  Direct premiums written in the Philippines insurance sector amounted to about US$816
million in 1997.
80. The Insurance Code of 1978 (PD 612, as amended)  sets out the regulatory framework for the
insurance industry. No self-regulatory system by indus try associations appear to exist.  The Insurance
Commission under the Department of Finance is the main regulatory agency;  it regulates and
supervises the insurance industry, monitors the solvency of insurance companies and their
intermediaries, and protects policyholders.   A licence from the Commission is required for any private
company to carry out insurance business in or from th e Philippines.   To be eligible for a licence, an
applicant must, inter alia , possess a minimum paid-up capital and assets as required by law; and
undergo an evaluation process with the Insurance Commissioner, who reviews the qualifications of
the executive officers and other key officials of companies.
81. An insurance company may offer both life and non-life policies provided it has been
authorized as a composite company to do so.19  The authorities indicated that to qualify for a
composite licence, a company should have a minimum paid-up capital of P150 million and
contributed surplus of P100 million.  Health and accident policies may be sold either by life or non-
life insurance companies.  No insurance company is allowed to offer banking services and no bank is
allowed to sell life and non-life insurance policies.  However, the revised manual for banks  allows
banks to own up to 50% of the total equity of insurance companies.
82. Under current prudential requirements, the minimum equity capital required ranges from P 50
million to P 500 million, depending on the date of establishment, types of insurance offered, and thedegree of foreign shareholding (Table IV.10);  maximum limits exist in investment in housing
projects (25% of the total admitted assets) and investment in real property (25% of the total admitted
assets).  Other relevant restrictions include regula tion of the investment of life insurance companies in
housing projects and real properties for the production of income (Section 202 of the Insurance Code);
investment by a non-life insurance company in real es tate with building thereon, solely for office use
under Section 198 of the Code;  and limits to foreign investment exposure, including foreign
securities, as mandated by Circular Letter No. 9-97.  
83. The minimum margin of solvency requirements for insurance companies, under Section 194
of the Insurance Code, are:
- for domestic life insurance companies, P500,000 or at least two per mille of
the total amount of its insurance in force as of the preceeding calendar year
whichever is higher; and
- for domestic non-life companies, P500,000 or 10% of the total amount of its
net premium written during the preceeding calendar year whichever is higher.
84. Premium rates for insurance policies are subject to prior approval by the Insurance
Commission.  The Philippine Insurance Rating Association (PIRA) recommends the rates for certain
non-life policies subject to the approval of the Insurance Commission.  All policy contract forms
issued or delivered within the Philippines mu st be previously approved by the Insurance
Commissioner.  Any insurance company or group of insurance companies may also file their own set
                                                     
19 Existing composite companies, as of July 1999, are Philippine American Life and General Insurance
Co., Urbancorp Life and General Insurance, Inc. and MAPRE ASIAN Insurance Corporation.WT/T PR/S/59 Trade Policy Review
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of rates for approval by the Commission.  PIRA is  licensed by the Insurance Commission and is also
subject to examination like other insurance companies.
Table IV.10
Minimum capital requirements for insurance companies
Capital requirement
For companies existing before March 1992
Life P50 million
Non-life P50 million
Reinsurer P100 million
For companies established after March 1992
Where foreign equity is 60% or more P250 million (and a "contributed surplus" of P50 million)
Where foreign equity is more than 40% but less than 60% P150 million and a "contributed surplus" of P50 million
Where foreign equity is 40% or less P75 million and a "contributed surplus" of P25 million
For professional reinsurance companies
Where foreign equity is 60% or more P500 million
Where foreign equity is more than 40% but below 60% P300 million
Where foreign equity in a new company is 40% or less P150 million
Source : Information provided by the Philippine authorities.
85. A firm incorporated overseas may operate in the Philippines only when licensed by the
Insurance Commission.  Commercial presence in the Philippines is required to obtain a licence.  The
authorities indicated that domestic and foreign-affiliated insurers were subject to the same prudential
supervision.  In March 1992, the Government allowed the licensing of new insurance companies, andforeign equity participation up to 40%.  With the issuance of Department Orders 100-94 and 100-94A
on 24 October and 18 November 1994, respectively, foreign equity was allowed up to 100%, thus
exceeding the Philippines' GATS commitments.  Direct branching of a foreign incorporated insurance
company is allowed, provided that the company does not use other modes of entry, e.g. subsidiaries.
Since 1992, 16 foreign-affiliated firms have been granted licences:  six firms with partial foreign
equity participation ranging from 50% to 80%, and ten companies with 99.9% foreign equity
participation.
86. Cross-border supply of direct insurance is permitted only in marine hull and cargo insurance.
Cross-border reinsurance transactions are permitted only through Insurance Commission registered
resident agents of foreign insurers or brokers.  All non-life insurance companies operating in the
Philippines apparently must cede to the National Reinsurance Corporation of the Philippines at least
10% of outward reinsurance placements to foreign reinsurers not authorized in the Philippines.
87. According to the authorities, there are no ca rtels or monopolies operating in the Philippines'
insurance sector.
88. Some categories of insurance business are administered and provided by the Government,
including:
- the Government Service Insurance System (GSIS), which administers a
compulsory insurance and retirement programme for government workers
and general non-life insurance for properties with government interest;
- the Social Services System (SSS), which administers an insurance and
retirement programme for private workers;The Philippines WT/T PR/S/59
Page 99
- the Philippine Crop Insurance Corporation (PCIC), which administers crop
insurance for the grain industry such as rice and corn, livestock, high value
crops (i.e. cut-flowers), sugarcane, and agricultural assets such as farm
machinery and warehouse;
- the Philippine Deposit Insurance Corporation (PDIC), which administers
insurances of bank deposits;
- the Home Insurance Guarantee Corporation (HIGC), which administers home
insurance for loans financed under the government unified housing
programme; and
- the Philippine Health Corporation, which administers medical insurance for
workers.
Compulsory insurance includes government-administe red insurance, except for crop insurance, and
motor car insurance with a P50,000 indemnity limit for third-party personal injury liability. Only the
government-owned insurance system may generally provide coverage for government-funded
projects, and build-operate-transfer (BOT) projects.
(iii) Telecommunications
89. The Philippines' telecommunications network has undergone rapid expansion during the
1990s, the telephone density index having risen from 0.86 main lines per 100 persons in 1989, with
less than half a million lines,  to a density of 9.05 in June 1998.  As of 31 December 1998,  there were
75 private telephone operators;  two domestic satellite operators;  11 international gateway facility
providers;  five nationwide cellular operators;  958 CATV operators;  ten public repeater network
operators;  one international satellite operator;  and 70 Internet service providers.
90. The principal legislation governing telecommunications in the Philippines is the Public
Telecommunications Policy Act (RA 7925) of 1994.  The Department of Transportation and
Communication (DOTC) is responsible for formul ating overall telecommunications policies, while
the National Telecommunications Commission (NTC ) attached to the DOTC is responsible for
overseeing the regulation of the sector.
91. Public telecommunications services are largely provided by private entities;  most
government-owned facilities, e.g. those of former Luzon telecom and 36 public calling offices,  were
privatized pursuant to RA 7925.  A franchise from th e Congress is required to lodge an application
before the NTC for  a certificate of public convenience  (CPC) to install, operate and maintain a
public telecommunications service.  An applicant must be legally, technically, and financially
qualified, his/her proposed service technically and economically feasible, and the approval of theapplication must be in the interest of public service.  The authorities noted that an application for a
CPC undergoes a quasi-judicial process with due notice to and hearing of all affected parties.  The
franchise and CPC specify geographical area, type or classification of activities, and rates authorized
to the franchisee.
92. Under RA 7925, the NTC establishes tariffs that are "fair and reasonable" and that provide for
the economic viability of telecommunications entities and a fair return on their investments.
According to the authorities, what constitutes "fair and reasonable" rates is determined in a quasi-
judicial process.  The NTC may exempt specific telecommunications services from a rate or tariff
regulation if there is sufficient competition to ensu re fair and reasonable rates or tariffs. Rates and
tariffs, including for international services, are fixed by a quasi-judicial process of notice and hearing.WT/T PR/S/59 Trade Policy Review
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93. Telecommunications services are regarded as a public utility and, thus, the provision of
telecommunications services is limited to Filipino ci tizens or to corporations, associations or entities
owned at least 60% by Filipino citizens.  The number of foreigners on the Board of Directors of a
telecommunications entity must be proportionate to the aggregate share of foreign capital of that
entity.  Foreigners are not allowed to become executives and managers.  Only Filipinos or companies
whose capital is at least 60% Filipino-owned may own land or acquire public lands through lease.
94. The Philippine Long Distance Telephone Co., Inc. (PLDT) enjoys a dominant position in
basic telecommunications, although since 1994 ten firms participating in the Basic
Telecommunications Program (BTP) have entered the sector.  As in other activities, competition is
safeguarded by a provision in the Constitution that regulates or prohibits monopolies
(Chapter III(4)(x));  Section 17 of RA 7925 also  provides that a healthy competitive environment be
fostered.
95. EO 59 was issued in 1993 to encourage greater private sector investment and ensure that all
users of the public telecommunications service had access to all other users of the service, wherever
they may be within the Philippines, at an acceptable standard of service and at reasonable cost;  EO 59
requires facility-based carriers providing domestic or international gateway services to interconnectwith all local exchange carriers, to ensure that users of public telecommunications services have
access to all other users of the service within the Philippines.  Interconnection between the facility-
based carriers and providers of other services, such as value-added services, is also mandatory.  The
terms and conditions of interconnection, including charges,  must be commercially negotiated under
EO 59, which prescribes the guidelines for compulsory interconnection;  if the parties fail to reach an
agreement, the NTC may, on application of any of the parties involved, determine the terms and
conditions that appear to the NTC to be reasonable to effect a workable and equitable interconnectionand traffic settlement. All interconnection agreements must be submitted to the NTC for approval.  A
service supplier requesting interconnection with another supplier has recourse to the NTC to resolve
disputes regarding appropriate terms, conditions a nd rates for interconnection.  Penalties in case of
violation of EO 59 include administrative fines, suspension of licences, and disqualification of
directors or employees.
96. Under the "local service provisioning scheme" provided for in EO 109 of 1993, the country
was divided into eleven service areas, where each of five nationwide mobile telephone companies and
nine international gateway facility providers were obligated to install and operate, as a universal
service requirement, 300,000 and 400,000 telephone lines, respectively, in assigned areas.  Cross-
subsidization is allowed in order to attain universal services.
97. Call-back services are not permitted in the Philippines. The implementing rules of RA 7925
specifically provide that “call-back, dial back or any other similar scheme which results in the same
prohibited operation is not and will not be authorized".
20  Resale or leasing of licensed networks are
also prohibited.
98. Under the WTO Negotiations on Basic Telecommunication Services, the Philippines, as
reflected in its GATS Schedule21, agreed to liberalize commercial presence to up to 40% foreign
ownership in the following services on a facilities basis, using wired or wireless technology except
cable television and satellite:  voice telephone, data transmission services, and cellular mobile
telephone services in all market segments (local, long distance and international).  The Philippines
also accepted to bind market access for new entrants subject to the criteria of public convenience and
                                                     
20 Section 940 of the implementing rules of RA 7925.
21 WTO document, GATS/SC/70/Suppl.2, 11 April 1997.The Philippines WT/T PR/S/59
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necessity.  As of May 1999, the Philippines had not signed the Fourth Protocol of GATS resulting
from the negotiations on telecommunications.
99. The Philippines is a Member of the International Telecommunications Union (ITU) and a
signatory to the 1992 ITU Constitution and Convention.
(iv) Transport
(a) Air transport
100. Air transport plays an important and growing role in the Philippines' trade;  the share of
exports carried by air reached about 50% in value terms in 1996, compared with about 30% in 1993.
The Philippines Airlines (PAL), the largest Philippine-based airline, carried about 28% and 32% of
total incoming and outgoing air cargoes, respectivel y, in 1997.  The share of PAL in international air
passenger transportation (incoming and outgoing) was 37% in 1997.
101. Following widespread practice, scheduled international services are regulated under a regime
of bilateral agreements, which cover, inter alia , designation of carriers, frequencies, capacities and
route schedules.  In addition to the agreements, the main regulations governing the sector are specified
in the Civil Aeronautics Act (RA 776) of 1952, as amended, EO 219 establishing civil aviation
liberalization policy, and pursuant to the Act, Economic Regulations by the Civil Aeronautics Board(CAB).
102. The Department of Foreign Affairs is the lead agency for air services negotiations.  The CAB,
affiliated to the Department of Transport an d Communication (DOTC), is responsible for policy
related to air transportation, allocating flight destinations and frequency, as determined through
bilateral agreements, as well as for approving aircraft procurement.  The CAB is mandated by
Section 10 of RA 776 to "approve or disapprove increa se and/or decrease of capital, lease, purchase,
sale of aircraft of carriers engaged in air commerce", and Economic Regulation No. 3 on purchase ofaircraft declares that no air carrier shall purchase an aircraft without previous approval of the CAB.
Scheduled airline services and route distribution are managed through a permit system.  Airlines are
required to file their proposed tariffs with the CAB.  Slot allocation in regard to incoming and
outgoing international flights is coordinated by the Air Transportation Office and the airport
authorities concerned.
103. There are three Philippines-based commercial airlines providing scheduled international
services, namely PAL, Pacific East Asia Cargo Airlines Inc., and Grand International Airways.  They
are considered national flag carriers when operating along government designated routes.  No special
privileges are granted to national flag carriers, however, Filipino civil servants are obliged to use them
for official travel overseas.   Air transport services are considered public utilities, and foreign
participation, other than international airline servi ces provided by foreign-based companies, is limited
to  40%.    Cabotage transportation is allowed only by Philippine air carriers.
104. There are four international airports, which are managed by separate airport authorities , and a
further 83 domestic airports, managed by the Air Transportation Office.  Air traffic control services in
all the international airports are provided by the Air Transportation Office, while navigation aids forterminal use are mainly provided by the respective airport authorities.
(b) Maritime transport
105. Maritime transport is crucial for the Philippine’s international trade;  about 90% of its tonnage
is carried by sea.  A total of 68,343 million tonnes of cargo, including cabotage cargo transport, wereWT/T PR/S/59 Trade Policy Review
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handled in Philippine ports in 1997.   As of late 1998, there were 290 Philippine-registered vessels
(5.58 million gross registered tons) for international maritime transport.  All the vessels in the fleet are
privately owned and/or operated.  The share of the Philippine overseas fleet in the carriage of
Philippine trade was about US$2.0 million or 3.7% of total trade (in f.o.b. value) in 1996. The
authorities indicated that statistics in terms of total trade volume were not available.
106. The Maritime Industry Authority (MARINA), under the Department of Transport and
Communication (DOTC), is the main authority for overall economic and safety matters concerning
shipping.  The general conditions for the registration, documentation, and licensing of ships in the
Philippines are prescribed in the Revised Philippine Merchant Marine Rules and Regulations
(PMMRR) of 1997.  Under the PMMRR, both Philippine and foreign nationals may register ships in
the Philippines and fly the Philippine flag.  Cabotage transport is limited to Philippine-flag vessels,regardless of ownership.  Rules and regulations for the temporary registration in the Philippines of
foreign-flag ships are prescribed in PD 760 of 1975, PD 866 of 1976, PD 1711 of 1980, the respective
implementing rules and regulations, and various MARINA Memorandum Circulars.  No specific
legislation regulates bulk or liner shipping operations in the Philippines.
107. Accreditation with the Philippine Shippers Bureau of the DTI is required of Philippine
nationals engaged as freight forwarders, break-bulk agents, cargo consolidators and non-vessel ocean
common carriers (NVOCCs).  Registration and accreditation with MARINA is required for entities
wishing to engage in overseas ship-owing and sh ip-chartering.  The Philippine Ports Authority
accredits private entities engaged in the provision of port-related auxiliary service activities.
Accreditation with the Philippine Overseas Employment Administration (POEA) is required of
companies wishing to engage in the business of manning or crewing overseas-going vessels.  Except
for freight forwarders, break-bulk agents, cargo consolidators, NVOCCs manning or crewingagencies, and entities engaged in providing port-related auxiliary services activities, all other entities
engaged in maritime or maritime-related activities need to accredit with the MARINA.
108. Under the Cargo Reservation Law (PD 1466) of  1978, Philippine-flag vessels must be used
whenever the export or import of cargoes or their transportation is paid by the Government, or by the
proceeds of government loans and credits.  Exemptions are permitted only when suitable Philippine-flag vessels are not available at reasonable freight rates and within a reasonable period;  when a
relevant international agreement or convention entered into by the Philippine Government provides
otherwise;  on the basis of reciprocity;  or in the case of export commodity groups determined as
exempted by the Philippine Export Council.
109. As in the case of air transport, no franchise or authorization for the operation of maritime
transport services is granted only to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines and of which at least 60% of the capital is owned by
Filipino citizens.  Foreign nationals may be employed within the first five years of the operation of an
enterprise provided that the person is qualified to hold technical positions;  each employed foreign
national must have at least two Filipino understudies.
110. Philippine-registered vessels must be 100% manned or crewed by Philippine nationals, except
in the case of specialized vessels or when a supernumerary is employed for a maximum period of six
months.  Key officers of shipping companies and of  auxiliary services suppliers must be Philippine
nationals.
111. The authorities stated that there were no monopolies in the overseas shipping, domestic
shipping, shipbuilding or ship repair and maritime manpower subsectors.  No competition laws orThe Philippines WT/T PR/S/59
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regulations apply to activities in the maritime tran sport sector other than the Philippine Constitution,
which prohibits any combination in restraint of trade or unfair competition.
112. Conferences or consortia, including sharing of capacities and fixing of prices, are not covered
by any Philippine legislation.  Shipping lines forming conferences under the U.N. Code of Conduct
for Liner Conferences (Liner Code), in which the Philippines participates, need not notify to any
government entity, but are requested to advise the Philippine Shippers' Bureau (PSB) of any freightrate increases and their corresponding justification.  The PSB may question freight rate increases if
deemed unjustified.  The Philippines-Japan Freight Conference is the only conference involving
Philippine lines of which the authorities are aware.
113. The Philippine Ports Authority (PPA) is res ponsible for the administration, operation and
development of all ports in the Philippines;  the PPA does not oversee ports in special economiczones. Auxiliary services performed in the port, excluding cargo handling, porterage and pilotage
services, are regulated by PPA Administrative Order 08-96 of 1996.  The authorities indicated that the
PPA has encouraged 100% private sector participat ion in the management of ports, cargo handling
and port services;  the PPA takes over when there is failure of management on the part of the private
sector.  All Philippine-owned or -registered vessels must be repaired or drydocked at domesticshipyards or ship repair facilities registered with MARINA.
114. The Philippines participated in the WTO Negotia tions on Maritime Transport Services, which
were suspended until the next round of services negotiations, scheduled to start by 2000.  The
Philippines' GATS Schedule covers a range of maritime transport services, including international
transport, leasing/rental of vessels without crew, and maintenance and repair of vessels.The Philippines WT/T PR/S/59
Page 105
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APEC (1998), Individual Action Plan - The Philippines.
Bagko Sentral ng Pilipinas (1999a), The Philippines:  Sustaining the Recovery,  Manila.
Bangko Sentral ng Pilipinas (1999b), Annual Report-1998, Manila .
EIU (1999), Country Report, The Philippines, 2nd quarter Economist Intelligence Unit, London.
Free Trade Asia Consulting (1996), Setting the Agenda For Competition Policy in the Philippines,
Manila
GATT (1993), Trade Policy Review – The Philippines , Geneva.
Government of the Philippines (1997), The President's 1997 Socioeconomic Report, Manila.
Industry Development Council (1998), Industrial Development Plan of the Philippines, Manila.
World Bank (1997), The Philippines – Managing Global Integration , Report No. 17024-PH,
Washington, D.C.
WTO (1999), Trade Policy Review – the United States (forthcoming), Geneva.