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3. Barriers to trade
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3.1 Tariff and tariff administrative measures

3.1.1 Tariff peak

The Philippine authorities selectively raises tariff rates on some goods through the so-called "tariff rate recalibration" which has raised import duties on the goods whose rates had been lowered previously. Especially since 2003, the simple average rates of the Philippines have been raised from 5.8 percent to 7.4 percent in 2005. In line with the Executive Orders 418 and 419, the Philippine authorities raised tariff rates on part of auto imports from 20 percent to 25 percent and an additional tax of 500,000 pesos (about 78,000 yuan) each was levied on the import of some used autos in April 2005. In July 2005, the import duty of mixed fruit juice was heightened from 3 percent to 47 percent. The tariff rate of imported vegetables such as chives, broccoli, lettuce, cabbage, carrot, radish, cucumber, legume, peas, beans, spinach and ginger was raised to a uniform 25 percent. The ever- increasing tariff rates of the Philippines have constituted substantial barriers to the imported goods from China. Such administrative measures with random changes in tariff rates have brought uncertainty to imported goods. The Chinese side is concerned about it.

In 2005, tariff rates of lower than 5 percent on imports accounted for 64.5 percent of the total, yet 3.2 percent of the imported goods were levied high duties of over 20 percent. These goods included live animals, pork, meat of poultry, vegetables, rice, sugar, coffee, powered vehicles and motorcycles. The average tariff rate reached 43.5 percent. High tariff rates have led to negative impact on Chinese export enterprises and the Chinese side is concerned about it.

3.1.2 Tariff quotas

Some imports to the Philippines are subject to tariff quotas, including agricultural products such as rice, livestock and meat thereof, potatoes, corn, coffee, sugar, etc., among which, imported rice was shifted to tariff quotas from quotas in July 2005. Meanwhile, the quota for rice import was raised from 238,900 tons to 350,000 tons with the in-quota tariff rate being lowered from 50 percent to 40 percent and out-of-quota tariff rate maintained at 50 percent. China exports some of the above-mentioned goods such as rice. China welcomes the relaxation of the import restrictions on rice, but the quota for rice import is much lower than the annual demand for rice in the Philippines and the out-of-quota tariff rate is still very high. The Chinese side hopes that the Philippine side can keep on lowering the tariff rate for rice.

3.2 Barriers to customs procedures

Though the Philippine government has specified different customs procedures for shipments with different levels of risk to enhance the efficiency of customs clearance, over 80 percent of the imports have to channel through the "red lane" due to such reasons as anti-smuggling, etc. Shipments through the "red lane" are subject to both strict documentary review and physical inspection at the port. Cumbersome documentary review and physical inspection have prolonged the customs clearance time, causing negative impact on the imports.

Since August 2005, the Philippines has imposed tariffs on the imports of tyre, certain glassware, soda powder, yellow phosphorus, flour and tiles from China on the basis of the reference prices provided by the Philippine Trade and Investment Center in Guangzhou, China instead of the import prices provided by importers. As the investigation leading to the reference prices is limited to the sales prices in certain markets located in certain regions, the prices are not representative but generally higher than the real import prices. The practice has aggravated the tariff burden on those products. The Chinese side hopes that the Philippine side can strictly abide by the relevant stipulations of the Agreement on Customs Valuation under the WTO and set the taxable prices of the Chinese exports reasonably so as to avoid negative impact on Sino-Philippine bilateral trade.

3.3 Discriminatory taxes and fees on imported goods

The Philippine authorities impose different duties on imported liquor and domestically-produced liquor. The government imposes 8.96 peso/liter excise tax on liquor distilled by using the raw materials available locally while the liquor made from imported raw materials is subject to excise taxes varying from 84 to 336 peso/750ml on retail price. For low alcohol-contained wine such as 14 percent or below, the excise tax is 13.44 peso/liter. 26.88 peso/liter excise tax is levied on drinks with alcohol content ranging from 14 percent to 25 percent. If the alcohol content is higher than 25 percent, the tax of the product is levied as liquor. The imposition of excise duties on imported liquor has had negative influence on the export of Chinese alcoholic drinks.

3.4 Technical barriers to trade

The Bureau of Product Standards (BPS) under the Department of Trade and Industry (DTI) of the Philippines specifies that from January 2006, all color TV sets or black and white TV sets with sizes from 14 inches to 29 inches should be subject to the inspection and certification by the testing center of BPS and Solid Laguna Corporation. Products can not be put on the market without the designated certification labels. The practice of appointing Solid Laguna Corporation as the sole "third party" inspection agency will result in inconvenience in importing business and increase the cost of the imports. The Chinese side is concerned about it.

In September 2005, BPS under DTI modified and published Philippine National Standards (PNS) 155:2005 regarding specifications for porcelain dinnerware. The new standards specify the requirements for the materials, design performance and manufacture of porcelain dinnerware and greatly upgrade the standards. The tolerance for whiteness was raised from "65 percent minimum" to " 86 percent minimum", the tolerance for whiteness was changed from "not more 0.5 percent" to "0 percent", the tolerance for dissolved lead was changed from "limited to 5.0ppm" to "not exceed to 3.0ppm", and the boiling time for testing water absorption was changed from "4 hours" to "5 hours". The Chinese side will pay attention to the impact of the new standards on Chinese export enterprises of porcelain dinnerware.

3.5 Trade remedies

Up to the end of 2005, the Philippines had initiated seven cases of trade remedies against China. The outstanding trade remedy cases include the anti-dumping case of sodium tripoly phosphate initiated in 1999 and reviewed in 2004, the safeguard measures case of printed glass, float glass and mirrors filed in 2004, the safeguard measures case of imported tiles initiated in 2004 and the 2004 special safeguards case of onions imported from China. The Chinese side hopes that the Philippines will restrain itself from adopting trade remedy measures to maintain normal bilateral trade.

3.6 Government procurement

The Philippines is not a signatory to the Agreement on Government Procurement under the WTO. The legislation of the Philippine government requires counter-purchase if government institutions or government-controlled companies want to purchase goods worthy of more than US$1 million. The Department of Trade and Industry requires that foreign suppliers should be obliged to purchase Philippine goods worth more than half the value of its supply from the international trading company of the Philippines; otherwise they shall be fined. In addition, the Philippines has specified the eligibility of contractors in the government procurement for infrastructure projects such as water, electricity, telecommunications, and transportation, requiring that the contractors for infrastructure projects should be at least 60 percent Filipino-owned. Such regulations constitute obstacles to Chinese enterprises in bidding for the Philippine government projects. The Chinese side is concerned about it.

3.7 Export subsidies

The Philippines offers export subsidies to auto manufacturers through implementing the export incentives program for domestically manufactured automobiles. The program allows any auto manufacturer which exports finished vehicles from the Philippines to receive a benefit equivalent to US$400 per vehicle for year one and two, US$300 for year three, and US$100 by year five. In October 2005, the coverage of export subsidies was extended to auto parts. The Chinese side is concerned over the inconformity between the export subsidy measures of the Philippines and the relevant rules and regulations of the WTO.

3.8 Barriers to trade in services

3.8.1 Banking

The Philippines specifies that foreign ownership of bank assets should not exceed 30 percent of the total banking system assets of the Philippines and that the total capital should not exceed 50 percent. It is also required that the branches of foreign banks should not take from or provide to its mother banks and/or other banks loans more than four times of its permanent capital. Furthermore, only ten foreign banks are permitted to open full service branches in the form of wholly-owned subsidiaries in the Philippines. Foreign banks are limited to six branches each. Four foreign-owned banks that had been operating in the Philippines prior to 1948 are each allowed to operate up to twelve branches.

3.8.2 Insurance

The Philippines allows foreign insurance companies to set up wholly-owned foreign insurance institutions, but the minimum capital requirement on foreign insurance companies is on the rise. Foreign-funded insurance companies are not allowed to be engaged in insurance business of government-funded projects and private BOT projects, which has constituted apparent barriers to foreign insurance companies.

3.8.3 Securities and other financial services

The Philippines allows foreign securities companies to have access to its domestic securities market, yet foreign equity in securities underwriting is limited to 60 percent. Membership on a board of directors of foreign-invested mutual funds is limited to Philippine citizens.

3.8.4 Basic telecommunications

The Philippines does not provide access for foreign satellite telecommunications services to its domestic market and limits foreign ownership of telecommunications firms to 40 percent.

3.8.5 Public utilities

Relevant laws in the Philippines stipulate that foreign ownership of contractors of infrastructure works such as water, electricity, communications, and transportation system should not exceed 40 percent and that the managers of the contractors are limited to Philippine citizens.

3.8.6 Professional services

The Philippine authorities reserve the practice of licensed professions of engineering, architecture, law, medicine, and accountancy to Philippine citizens.

3.8.7 Shipping

The Philippines prohibits foreign- flagged vessels from engaging in the provision of domestic carriage services. The country's bareboat chartering laws stipulate that Philippine-flagged vessels should be manned by a Filipino crew and disallows foreign crew or officers, except as supernumeraries.

The Philippines exercises 24-hour monitoring of the activities of the vessels on shore from socialist countries including China and limits scope of activities of the crew. The Chinese side hopes the Philippines to remove the afore-mentioned unreasonable measures at an early date.

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