Ecozone products with 40% Southeast Asian content to enjoy special tariffs

The government has agreed to apply special tariffs on products manufactured in export processing zones and sold in the domestic market, but only if they contain at least 40 percent raw materials from Southeast Asian countries.

The government is planning to adjust the rates on products manufactured in special economic zones but they would be considered imported products if sold locally.

A draft executive order being prepared by the Department of Finance (DOF) indicated that the tariff rate would be based on the applicable rate under the Common Effective Preferential Tariff (CEPT) agreement of the Association of Southeast Asian Nations (ASEAN).

The applicable rate would cover all manufactured goods including capital goods and processed agricultural products.

The executive order would implement the decision of the National Economic and Development Authority (NEDA) board to impose CEPT rates on qualified imports from ecozones, based on the recommendations of the Committee on Tariff and Related Matters.

According to the executive order, the laws that created the special economic zones vested them with the status of a separate customs territory. This means that products bought from special economic zones are considered as "originating from abroad."

Moreover, the DOF said the CEPT agreement has a provision that considers a product to originate from a distinct territory if it carries a local content of 40 percent and above.

Under existing rules, foreign-owned companies located inside the special zones are required to export 70 percent of their production and only 30 percent are allowed for sale to the local market.

Locally-owned export companies, on the other hand, are required to export 50 percent and the rest could be sold domestically.

However, the portion that would be allowed for sale to the domestic market, according to the proposed executive order, would be considered imported products and therefore subject to import duties.

Products manufactured in ecozones with at least 40 percent of their product content originating from any ASEAN-member country would be able to take advantage of the low CEPT rates that now range from zero to five percent.

If sold in the Philippines, the EO said the government would impose the applicable CEPT rates subject to qualifications under the Rules of Origin under the CEPT agreement.

However, if the country’s Most Favored Nation (MFN) rates of duty on any of the manufactured articles covered under the CEPT scheme are reduced to a rate lower than the prescribed CEPT rate, the lower rate would be applicable.

This year, the Philippines had made commitments to eliminate the duties on 60 percent of products in the so-called inclusion list and CEPT rates should go down to five percent or lower on almost all other products.