Asean members to review AFTA rules of origin

The Philippines, along with its Association of Southeast Asian Nation (ASEAN) neighbors, have agreed to improve the ASEAN Free Trade Agreement’s (AFTA) rules of origin (ROO) as well as accepting substantial transformation rules for wheat flour, wood-based products, aluminum products and iron and steel, as a co-equal or alternative rule to the 40 percent value-added rule.

This was reported by Trade and Industry Secretary Peter B. Favila following his attendance of the 37th Meeting of the ASEAN Economic Ministers (AEM) in Vientiane, Laos where the Philippine delegation likewise secured policy space for the Philippines to manage its tariffs.

"This is still another manifestation of our alignment with ASEAN. We are glad to join them in reforming our ROO regime to address the need of the business sector for simpler rules that will protect their preferential treatment and reflect the latest trends in production processes due to globalization," Favila said.

Relaxing the ROO rules are important for countries which are not primary producers but rely on a lot of imported raw materials to manufacture other goods. Particularly affected are the garments sector which rely on imported textiles.

The Philippines, for instance imports a lot of textiles which it then manufactures into various garments.

However, under strict ROO rules certain garments exports may still be classified as coming from the country of the origin of the raw material unless substantial transformation has been made by the exporting country.

Thus, if the textile comes primarily from China, which is not a member of AFTA, garments exports emanating from the Philippines using Chinese textiles may not be able to avail of the preferential tariff under the Common Effective Preferential Tariff scheme of zero to five percent and may instead be subject to much higher tariffs.

Earlier, Favila had reported that the Philippine delegation was able to secure policy space for the country to manage its tariff program under the CEPT-AFTA.

"At the AEM related meeting of the AFTA Council, we won ASEAN endorsement for trade officials to work towards an acceptable mechanism that would address Philippine concerns about unforeseen economic or financial difficulties that could compel an AFTA member to raise tariffs in situations that could arise after the year 2010, the target milestone when AFTA members are committed to bring 100 percent of tariff lines to zero," Favila said.

"Negotiations are always fluid interactions," Favila said, adding that "but the Philippine team remained fixed upon its true worth, and we got essentially the equivalent of what the Cabinet Committee on Tariff and Related Matters (TRM) gave us as our mandate."

"The Philippines first reassured the Council that we are not deviating from the 2010 target for reaching 100 percent at zero," he said.

"But we reiterated our previous disclosures that the Philippines is encountering difficulty in achieving the interim milestone target of zero tariff for 80 percent of all tariff lines by 2008. This is because of our fiscal deficit, and we are still studying how we can possibly hit the ASEAN target," Favila said.

"Despite the operation of Article 6 of the AFTA Agreement, the Philippines has had to invoke the 1995 decision of the defunct ASEAN Interim Technical Working Group (ITWG)," the trade chief said.

Favila said that Article 6 may be used to justify upward adjustments in tariffs only upon proving that the CEPT tariff reduction schedule is causing injury to domestic industries.

On the other hand, the ITWG decision, though never really officially approved by the AFTA Council, allows a member to raise tariffs in the range of zero to five percent with less procedural requirements.

Certain ASEAN members wanted to rescind this facility.

"This is what we strongly opposed. And we came away with less stringent provisions than the guidelines that were proposed by other parties for governing the use of the ITWG decision," Favila said.

Trade Undersecretary and Board of Investment managing head Elmer C. Hernandez, who was with Secretary Favila at the meeting said, "the negotiations were frank, open and vigorous."

Hernandez noted, however, that the Philippines convinced the Council to allow members to adjust even duty-free items to as high as five percent.

"The Council was originally intending to shut out this flexibility for items already at zero tariff," Hernandez revealed.