SCAD CouncilJuly 22, 2009

Draft Executive Order:Uniform Tariff Treatment of

Shipmentsfrom PEZA Zones and Freeports

Background

Draft EO seeks to amend EO 293, s.2003

To cover other Free Trade Agreements (e.g. ASEAN-China, ASEAN Japan, ASEAN-Korea, ASEAN-India)

To provide for uniform tariff treatment for goods ‘imported’ from PEZA zones and Freeports

EO 293 covered only the ASEAN Free Trade Agreement (AFTA)

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Tariff Environment

Present average tariff rate is roughly 7%

Free Trade Agreements provide for even lower rates

Tariff rates for Raw Materials and Semi-finished Goods are LOWER than rates for Finished Goods

Different Tariff Environment for PEZA zones as against Freeports

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PEZA Tariff Treatment

For goods manufactured in PEZA zones and sold in the domestic market

Duty rate of RAW MATERIALS is applied on the Value of the Raw Materials

The effective tariff rate used is LOWER than the rate for Finished Goods

Value of local processing is not ‘taxed’

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Clark-Subic Tariff Treatment

For goods manufactured in Clark and Subic Freeports and sold in the domestic market

Duty rate of FINISHED GOODS is applied on the Value of the Raw Materials

The effective tariff rate used is HIGHER than the rate for Raw Materials

Value of local processing is not ‘taxed’

NOTE: PEZA tariff treatment is however applied in the case of YOKOHAMA (a Clark locator) and Texas Instrument (a PEZA locator)

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Conclusion

Goods manufactured in Clark and Subic Freeports and sold in the domestic market are ‘taxed’ higher than goods coming from PEZA zones

Subic and Clark locators are at a disadvantage (except for Yokohama) compared to PEZA locators

Subic and Clark goods are more ‘expensive’ (because of higher duty rates) than PEZA goods

Draft EO will provide for harmonized tariff treatment for locators of both PEZA zones and Freeports

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Thank You

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