One percentage point for US-Philippines FTA

In a briefing last week by Joey Salceda, chair of the Institute for Risk and Strategic Studies Inc. (also known as Salceda Research), with members of the Monday Circle, he described President Marcos’ one percentage point reduction in the US tariff from 20 percent to 19 percent as “much ado about nothing.”

What the Philippines hopes to gain in exchange, Salceda claims, is the opportunity to finally secure a free trade agreement between the US and the Philippines. He claims that the one percentage point tariff reduction that President Marcos secured was more a goodwill measure to keep talks going toward an FTA.

He explained that very little could be adjusted without compromising the US overall strategy and that the 19 percent tariff rate we got was “already the lowest in the region.” The adjustment, Salceda said, could be interpreted as a signal from the US that it is “interested.”

According to Salceda, Trump’s 20 percent tariff was a threat on just 27 percent of  Philippine goods as  the majority or 73 percent were already exempt in April when the President’s trade negotiating team was able to secure their inclusion in Annex II of Executive Order 14257.

Annex II goods,  he said, are exempt from the headline reciprocal rates. Instead, they are subject to preferential tariff rates already existing under multiple trade agreements because of exemptions under Annex II of EO 14257 as of April 2, 2025, as amended. Examples Salceda cited include the Information Technology Agreement of the World Trade Organization which exempts most intermediate goods for electronics manufacturing from any tariffs.

The exemptions, he added, were reaffirmed in the July 31 EO, explaining that there was just a change in tariff nomenclature, but the list of products remained the same.

Salceda added that the US tariff threat was just on 23 percent of our exports, but the effective tariff on Philippine exports to the US is much less than 20 percent, or just 19 percent after negotiations. Most chemicals, fuels, electronics, rubber and wood exports of the Philippines were exempt. The effective tariff, he said, was 6.65 percent pre-negotiation, and was reduced to 6.33 percent after negotiations.

Indonesia’s effective tariff rate after negotiations, Salceda said, was much higher at 12.45 percent, almost double what the Philippines was able to secure. Almost all Philippine chemical, fuel, metals, electronics, rubber, plastics and wood exports were exempt from high tariffs. However, he acknowledged that Malaysia was able to secure lower effective tariffs of 5.21 percent because their export composition was mostly exempt, with their tariff already lower than what we had to begin with.

The cost of the higher tariff though, the former legislator admitted, would increase to $597.52 million compared to the pre-Trump baseline tariff cost of just $169.68 million.

Philippine government revenue loss due to an expected three percent import contraction would be $30.59 million or P1.74 billion. Philippine export volume loss to the US would be $988.81 million or in peso value, P56.36 billion. Job loss from an export decline  would be 19,776 jobs and from an import decline – 6,118 jobs. In GDP loss, it would amount to $395.52 million or P22.54 billion.

Government, however, Salceda said, is studying a package to be called Support for Tariff-Exposed Enterprises and Employees Recovery or STEER that would give a wage subsidy of P8,000 a month for up to six months for workers of affected firms. The wage subsidy would be disbursed via SSS-verified payroll. To qualify for the support package, though, companies must maintain a 90 percent employment baseline. This would cost the government an estimated P4.8 billion.

Government is also eyeing a TESDA upskilling program that would involve a P10,000 cash grant upon enrollment, with programs capped at 60 days and aimed at prioritizing  high-absorption sectors. This would cost P900 million.

Another program is offering unemployment insurance of a lump sum amounting to between P20,000 and P30,000 for laid-off workers in verified tariff-hit industries, but those who want to claim unemployment insurance must be able to produce a DOLE certificate and a TESDA enrollment or job search registration. The unemployment insurance would amount to P500 million.

In total, the STEER package would need an outlay of P6.2 billion.

Salceda argues that securing an FTA in exchange for the mere one percentage point US tariff reduction would yield a much higher financial gain for Filipinos of between $89 million and $620 million, or in peso terms, between P5.07 billion and P35.34 billion.

He revealed further that there is growing bipartisan support for a US-Phl FTA in the US House Committee on Foreign Affairs that is being pushed by California Representatives Young Kim (Republican) and Ami Bera (Democrat), chair and ranking member of the subcommittee on East Asia and Pacific.

Likewise, Salceda said, leading think-tanks that are also pushing for the FTA are the American Enterprise Institute and the Center for a New American Security. He cited one AEI commentary that an FTA could “maintain our recent alliance momentum and avoid China being able to use its economic influence with Manila.” Similarly, he cited a CNAS commentary on the FTA and the Luzon Economic Corridor that “we’re going to have to connect our economic interests with our strategic interests to make that local chain clear for both this administration and, of course, for the Congress as well.”

Local skeptics, however, believe that negotiations for a US-Phl FTA will take years and would likely not be completed under the term of President Trump in the face of the number of tariff negotiations that the US is still continuing to iron out. The fact that the US already secured a zero tariff concession from us already does not put any urgency on it to fast-track FTA negotiations for our benefit. On the contrary, it can continue to negotiate at the same glacial speed it has done in the past.

In my almost 40 years of being a journalist, I’ve seen that the Philippines has not had much success in securing a US-Phl FTA, with one of the more contentious provisions involving transparency in financial transactions.