PHILIPPINE exports are expected to lose big from China’s decision to cut tariffs on nearly 1,500 consumer goods, as they will face stiff competition for access to the Asian superpower’s market, the Department of Trade and Industry (DTI) said.
Initial assessment done by the DTI’s Export Marketing Bureau (DTI-EMB) indicated that the Philippines will not benefit from China’s recent effort to fix its global trade surplus. In a bid to boost its imports, China reduced its average tariff rate to 6.9 percent, from 15.7 percent, on 1,449 products from most favored nations (MFN).
The move may sit well with Beijing’s trading partners, but not with members of the Association of Southeast Asian Nations, such as the Philippines. The sweeping tariff cuts, the DTI-EMB argued, will “erode” the competitive advantage of Asean member-states in trading with China.
“Reduction in MFN rates ranges from 1 percent to as high as 25 percent. Indicatively, the reduction of MFN tariff will have minimal impact on Philippine goods exports, since these tariff lines already enjoy preferential rates under the ACFTA [Asean-China Free Trade Area],” the DTI-EMB said.
The Philippines, as a member of the Asean, is covered by the regional bloc’s trade deal with China. The ACFTA allows Asean economies to export 90 percent of product lines to China at lower or 0-percent duty, and vice versa.
However, preferential tariffs under the ACFTA would practically be of no use, as dozens of goods traded by Asean member-states to China will have drastically lower duties starting July 1.
“However, this move to reduce MFN rates may increase competition from non-Asean countries exporting to China. MFN rates have been reduced significantly for products such as handbags [10 percent], tuna [7 percent], face powders [5 percent] and soaps [2.5 percent], which may erode the competitive advantage of the Philippines vis-à-vis non-ACFTA partner-countries supplying this product,” the DTI-EMB pointed out.
It added the Philippines will certainly feel the pang of China’s new tariff regime, as its top exports were also covered by the list. “Furthermore, the adjusted 5 percent MFN rates on pineapples in can, pineapple juice, satchel bags and paper boxes, which are also top export products to China, are now at par with ACFTA preferential rate,” the DTI-EMB said.
The agency vowed to continue evaluating the impact of Beijing’s tariff cuts and how Manila will fare with its new competitors. “The [DTI-EMB] will continue the assessment on the Philippines’s competition from non-ACFTA economies supplying these products to China,” it said.
Trade lawyer Anthony A. Abad of Abad Alcantara and Associates said the Philippines is on the losing end of China’s decision to unilaterally cut duties on hundreds of products. Advantage is lost, he added, and the country cannot do anything about it, as it is within China’s jurisdiction to adjust its tariff regime.
What the government and exporters can do instead, Abad said, is they can take advantage of other agreements covered by the ACFTA.
“If you have a free-trade area or preferential trading agreement, of course you will have trade diversion issues. You do lose your advantage [in the process], but that’s a country’s prerogative to unilaterally lower tariffs,” the said.
“However, you also have to take into consideration that a free-trade area is not just about tariff removal. There are other chapters that deal with other disciplines that may involve investments, investment protection and other things like intellectual-property rights,” he added.
“A free-trade arrangement is a confidence-building measure between and among the countries. Yes, you can say [China] opened up competition on the basis of tariff-free treatment, but you still have an advantage because of other components of [the ACFTA],” the trade lawyer said.
China decided to cut import tariffs on nearly 1,500 products to boost its imports—a move that Trade Secretary Ramon M. Lopez described as proof of its “seriousness in helping balance its global trade surplus.” Duties on consumer items, including apparel, home appliances, processed food, cosmetics and drugs, were significantly reduced.
Tariffs on footwear, headgear, kitchen supplies, apparel and fitness products were slashed to 7.1 percent, from 15.9 percent; washing machines and refrigerators to 8 percent, from, 20.5 percent; and processed food and mineral water to 6.9 percent, from 15.2 percent.
MFN rates on cosmetic, medical and health products were also pulled down to 2.9 percent, from 8.4 percent. Duties on several drugs, including penicillin, cephalosporin and insulin, were scrapped.
China is a major trading partner of the Philippines. Last year total traded value between the two countries was at $23.82 billion, higher than the $21.94 billion recorded in 2016.
This ranks China as the country’s fourth-largest export destination—just behind Japan, the United States and Hong Kong—and top import source. However, the balance of trade still weighs heavily toward the Asian superpower at $9.84 billion.