RP to compensate Singapore for high tariffs on 11 petrochem products

The Philippines will have to compensate Singapore roughly $7 million for the three-year period it maintained a tariff wall on 11 petrochemical products, even if the Executive Order on the lowering of the rates on the specified petrochemical products is signed before the end of this year.

Even then, however, it will still take about four and half years, or up to 2011, for the Philippines to complete the $7-million compensation to Singapore, according to Ramon Vicente Kabigting, director of the Bureau of International Trade Relations (BITR).

In an interview with The Star, Kabigting said that the meter on the Philippines’ compensation to Singapore would stop once the EO lowering the tariff rates on the 11 petrochemical products is signed and issued.

All in all, Kabigting explained, the total compensation to Singapore would roughly amount to $7.5 million.

However, the Philippines has been able to pay an initial amount of $609,000.

The slow compensation, Kabigting explained, is due to the fact that because of the gradual lowering of tariff walls under the ASEAN Common Effective Preferential Tariff (CEPT) scheme, the Philippines has only been able to use two petrochemical products to offset what it has to pay to Singapore.

The Philippines has been looking for other products to lower tariffs on as part of its compensation package to Singapore, the original agreement for which covers only a two-year period starting in September 2003 and was supposed to end this year.

The Philippines is paying Singapore compensation in terms of an offsetting arrangement for the maintenance of a between seven-to 10-percent tariff cover on 11 petrochemical products whose tariffs should have been brought down to five percent under the ASEAN CEPT scheme.

Kabigting dsclosed that since 2003 when the request for exclusion from CEPT coverage was requested by the Philippines for the 11 petrochemical products, the Philippines has paid Singapore roughly $609,000 in compensation through the reduction of tariffs from three percent to zero on two petrochemical lubricating products.

While the agreement for compensation was reached in August or September 2003, Kabigting clarified, implementation of the offsetting was only done in January 2004 and the $609,000 figure only represents about half a year.

Government actually estimates that the tariff reduction on those two petrochemical products alone would result in foregone revenue of $2.5 million, Kabigting said.

However, the government still needs to present a document to Singapore proving that such amount of petrochemical imports came into the country at zero tariff.

Furthermore, Kabigting said, the Philippines is also gathering pertinent import documents covering other petrochemical products which are used as raw materials by export processing firms that came in at zero tariff and should be considered as part of the compensation to Singapore.

Tariff protection for the 11 products was maintained upon the appeal of local petrochemical manufacturers who claim that the entry of such products, which they manufacture locally, would threaten their viability.

After more than five years of trying to protect the local petrochemical manufacturers, however, the Arroyo administration has finally decided to go ahead with the tariff reduction since proponents of a proposed naphtha cracker plant have still not been able to go ahead with their project.