Less exports qualify for JPEPA tariffs

THE PHILIPPINES’ usage of a trade deal with Japan declined last year, with less exports qualifying for preferential tariffs, official data showed.

Roughly 2% of shipments to that Northeast Asian economy enjoyed the lower duties provided by the Japan-Philippines Economic Partnership Agreement (JPEPA) versus 4% in 2009, based on National Statistics Office (NSO) data made available toBusinessWorld yesterday.

The Bureau of Customs said lower Japanese demand for exports were to blame, but other experts suspect that the traders’ flagging compliance with JPEPA criteria and weak government systems were behind the decline seen just before both countries review implementation of the pact this year.

"One of the factors to look at is the recession in Japan," George N. Manzano, University of Asia and the Pacific economist and former Tariff Commissioner, said in a telephone interview yesterday.

"Or it could be the compliance with the rules of origin," Mr. Manzano said, referring particularly to provisions which require a certain level of local content for a product to qualify for lower tariffs under the pact.

A check with the latest available Philippine export data, however, showed that outbound shipments to Japan had already recovered in 2010 and grew by more than a quarter from year-ago levels to $7.798 billion.

Despite this growth in Japanese demand, only $134.724 million worth of exports qualified for JPEPA tariffs, according to NSO’s breakdown, or nearly half the $263.582 million recorded in 2009.

This was reflected in export sales of wiring harnesses for cars, a key export.

While sales of this product to Japan grew 39.2% to $409.697 million in 2010, those that were JPEPA-eligible dropped by 96.8% to $26,219.

The Customs office at the Port of Manila similarly recorded a decline: the state agency issued JPEPA certificates of origin for just $469,630 worth of exports, down 81.8% from year-ago levels.

Compared to NSO data on exports leaving this port, JPEPA-eligible products comprised just 0.04% of the total in 2010 versus 0.3% in 2009.

"Japan was affected by global recession like all other countries," Louis C. Adivento, export division chief at the Custom’s port office, said in an e-mail.

But officials of export groups instead complained of the allegedly complex rules firms had to hurdle to secure preferential tariffs.

JPEPA requires exporters to prove that the merchandise contains a minimum level of locally made materials or that it was processed enough to cause a change in tariff classification. The thresholds for these vary per product and can be computed either by subtracting the foreign content or by summing up the value added.

All these have to be accomplished despite differences between Japan’s and the Philippines’ tariff codes for classifying products. Even as both codes use the harmonized system, Japan’s features 3,356 more tariff lines, according the JPEPA overview on the Trade department’s Web site.

"It’s hard to comply with the technical machineries," Philippine Exporters Confederation President Sergio R. Ortiz-Luis Jr. said in a telephone interview on Tuesday.

"Even the government processors are confused with the tariff classifications," Mr. Ortiz-Luis said.

"Perhaps before, Customs didn’t scrutinize the applications. But on the second year, maybe implementation became stricter."

Roberto C. Amores, president of the Philippine Food Processors and Exporters Organization, Inc. echoed this concern in a text message yesterday, saying: "There are lots of confusing conditions for compliance."

Both countries’ tariff codes are not optimally harmonized, with the current set up "working only in favor of Japan," Mr. Amores claimed.

The government would do well to raise this issue at the JPEPA review slated this year, Mr. Manzano said.

Dates for the review could be finalized when officials of both countries meet on Feb. 28 to review the pact’s implementation, Trade Undersecretary Adrian S. Cristobal, Jr. said in a separate telephone interview.

"But at the same time, it’s important to work on how exporters can surmount the rules of origin requirements," Mr. Manzano said.

Mr. Cristobal concurred, noting that the department will be ramping up its education campaign for exporters next month after holding information seminars on using trade agreements back in November.

"And in partnership with the Bureau of Customs, we’re streamlining the process and trying to simplify it further," he added.

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