Manila Bulletin | 18 July 2005
Free trade deal with US hinges on RP agricultural sector proposal
by BERNIE CAHILES-MAGKILAT
The likelihood of forging the US-Philippines free trade agreement (FTA) largely hinges on the Philippine agricultural sector in folding into the proposal.
This scenario, on the other hand, strongly lends into the proposed duplication of a selective FTA or the Qualified Industrial Zones (QIZs) model.
Trade and Industry officer-in-charge Thomas G. Aquino said the agricultural sector is a key component in the proposed FTA.
"But I still have to see the agricultural sector buy into it," Aquino said hinting it is not feasible to go ahead with an FTA without the agriculture sector.
The huge government subsidy to American farmers is seen as the biggest fear among local farmers in joining the proposed FTA.
On the other hand, local farmers do not receive any government subsidy.
Local farmers fear that with the huge subsidy to the US agricultural sector, influx of cheap imported American agricultural will flood the market once the FTA is implemented.
This scenario has made the selective FTA or the QIZ model an attractive option to a comprehensive FTA.
Earlier, Ramon Kabigting, director of the Bureau of International Trade Relations of the Department of Trade and Industry, said that QIZs under the Middle East peace process can be replicated here to enable the Philippines to export to the US specific value-added products at preferential tariff rates to enable the country to benefit from enhanced trade with the US prior to the FTA.
"Some businessmen looked at QIZs as a bridge mechanism while the FTA is still being resolved," he said
Kabigting said that QIZs may have to be implemented regardless of what comes out in the discussion process for FTA saying that the Philippines have not explored other options outside of FTA.
Confederation of Garment Exporters of the Philippines chairman George Siy said the industry is pushing for this sort of QIZs as a transition phase towards the discussion process for FTA.
Siy said that at present, Philippine garment exports to the US are slapped with 7 to 30 percent tariff. Garment can be considered a QIZ-eligible product.
The only constraint, however, in the implementation of the QIZs was that this was authorized by the U.S. Congress in 1996 as part of the Middle East peace process. The mechanism also appeared complicated.
Under the QIZ mechanism, Egypt and Jordan are allowed to export products to the United States duty-free, as long as these products contain inputs from Israel.
This trade initiative supports the Middle East peace process by encouraging regional economic integration. Egypt, Israel, and the United States reached an agreement to establish the Egyptian and Israeli trade partnership necessary to take advantage of this 1996 legislation.
In order for a QIZ article to gain duty-free entry, QIZ factories must add at least 35 percent to the value of the article. This 35 percent minimum content figure can include costs incurred in Israel, Egypt, or the United States. By agreement between Egypt and Israel, Egypt and Israel must each contribute at least one-third (11.7 percent) of the 35 percent minimum content requirement.
QIZs must encompass portions of Egypt and Israel, though the areas do not have to be contiguous. The United States has approved the request of Egypt and Israel to designate three QIZs - the Greater Cairo QIZ; the Alexandria QIZ; and the Suez Canal Zone QIZ that includes an industrial area of Port Said.
The President has given the United States Trade Representative (USTR) the authority to approve QIZs, and USTR has announced its approval of the EgyptIsrael QIZ plan. Until now, QIZs have been established only in Jordan.
Since 1999, thirteen QIZs have been designated in Jordan. During that period exports from Jordan to the United States grew from $31 million in 1999 to $674 million in 2003.
QIZs are Jordan’s strongest job creator. Jordan estimates that more than 35,000 jobs have been created in the QIZs. Investment in Jordan’s QIZs is currently at between $85-100 million and is expected to grow to $180 to $200 million. Similar benefits are expected to flow from the QIZs in Egypt.
Meantime, Foreign Affairs Undersecretary Edcel T. Custodio said that the most important thing to do now is to have a thorough analysis of the implications of the proposed FTA.
PCCI president Donald Dee also noted that while there are still a lot of things to sort out, an FTA with the U.S. is inevitable.
The U.S. is the country’s biggest trading partner and the U.S. is trying to expand its economic relations in ASEAN via the forging bilateral FTAs. So far, it has forged an FTA with Singapore and is firming up one with Thailand. It has other FTAs in the region including Australia and has ongoing negotiations with several countries.