INSTRUCTIONAL MATERIALS

FOR

THE

SUBJECT

INTERNATIONAL BUSINESS AND TRADE

(BUMA 20043)

Respectfully submitted by:

PEDRO D. AVILA
 INTERNATIONAL BUSINESS AND TRADE

INTRODUCTION/OVERVIEW
The purpose of this Program is to provide students an understanding on concepts,
principles and practices today’s dynamic International Business and Trade. Students
will likewise understand why key corporate players, economic models, trading partners,
product offerings and the like keep on evolving, changing. Learners will come to
appreciate the importance of governments’ need to be proactive, strategic, and
development-oriented in its International Trade programs and directions. And lastly,
students will observe ever-changing skills, practices and standards in labor markets the
world over.

COURSE OUTCOMES
• The entire program will lead students to understand the entire process of how a
domestic business is operated within the framework of an international market
setting.
• The students will likewise know that the Philippine government through its
various agencies can help business enterprises and entrepreneurs on how to
import their raw material requirements; and export their finished products in
regional and global markets.
• While trying to learn the entire range of international trade and business,
students should be able pinpoint some employment opportunities and the skills
needed to fit in those job opportunities.
• From a macro point of view, the students will learn the importance of international
business and trade vis-à-vis the economic development of the Philippines
through trade agreements, aggressive export ventures and decreased
importation of non-essential consumer goods.
• The students will understand the interplay of supply and demand of goods,
services and currencies.
• Also, the students will appreciate the need for changing the mind-set of Filipino
consumers relative to their product/service preference: not all imported products
and services are better, essential and cheaper.

TABLE OF CONTENTS

1. Introduction to International Business and Trade

2. Forms of International Business
3. Early stages of International Business and Trade in the Philippines
4. Recent Trade Policies and Economic directions of the Philippines
5. How International Trade and Business help propel the Economy
6. Roles of Government Agencies that are involved in International Trade
7. Trade Agreements
 8. Factors that affect International Trade and Business
9. Steps to take on how to Import
10. How to Start and Operate an Export Business
11. Challenges in International Business and Trades

Topic No. 1 - INTRODUCTION TO INTERNATIONAL BUSINESS AND TRADE

Definition

International Trade refers to transfer of products and services from one country to another
either by way of exports (shipping out of goods from one country to a country); and imports –
goods and services enter the country of buyer.

Why does international trade exist?*

Nations trade internationally when there are not the resources or capacity to satisfy
domestic needs and wants domestically. By developing and exploiting their domestic
resources, countries can produce a surplus. They may use this surplus to buy goods
they need from abroad, i.e., through international trade. International trade has existed
for more than 9,000 years. Long distance trade – before the existence of nation states
and national borders – goes back much further. In fact, it goes back to when pack
animals and ships first came onto the scene. Our modern industrialized world would not
exist if countries did not import and export. Put simply; international trade is at the heart
of today’s global economy. Global interdependence is a fact of life for every country
today. We import goods and services for several reasons. Below are some reasons:

- Price: a foreign company can produce something more cheaply.

- Quality: may be superior abroad. For example, Scotch whisky from Scotland,
in most people’s opinion, is superior to any local alternative. That is why
Scotland exports about 37 bottles of Scotch every second.
- Availability: it might not be possible to produce the item locally. Therefore,
the only way consumers can buy it is by importing it. A raw material, such as
oil, iron, bauxite, gold, etc. might not exist at home. Japan, for example, has
no domestic reserves of oil. However, it is the fourth largest consumer of oil in
the world. Japan imports virtually all its oil.
- Demand: might be greater than local supply. To satisfy the difference, it is
necessary to import.

Advantages of international trade

- Comparative Advantage: trade encourages a nation to specialize in
producing or supplying only those goods and services which it can deliver
more effectively and at the best price, after taking into account opportunity
cost.
- Economies of Scale: if you sell your goods globally, you will have to produce
more than if you sold just domestically. Producing in higher volumes provides
greater economies of scale. In other words, the cost of producing each item is
lower.
 - Competition: international trade boosts competition. This, in turn, is good for
prices and quality. If suppliers have to compete more, they will work harder to
sell at the lowest price and best quality possible. Consumers benefit by
having more choice, more money left over, and top-quality goods.
- Transfer of Technology: increases thanks to international trade. Transfer of
technology goes from the originator to a secondary user. In fact, that
secondary user is often a developing nation.
- Jobs: great trading nations such as Japan, Germany, the UK, the USA, and
South Korea have one thing in common. They have much lower levels of
unemployment than protectionist countries.

Topic No. 2 - FORMS OF INTERNATIONAL BUSINESS

International business refers to any business activities conducted across national
boundaries. There are a number of ways to internationalizing a domestic business,
namely:

1. Importing and/or exporting - Imports: a good or service brought into one country
from another. Exports: a good or service produced in one country then get marketed to
other country. Import-export is the most fundamental and the largest international
business activity, and it is often the first choice when the businesses decide to expand
abroad as it is the easiest way to enter the market with a small outlay of capital.
2. Licensing - Licensing is one way to expand the business internationally. Licensing is
usually used in manufacturing of products whereby the arrangement between a firm,
called licensor, allows another company to use its intellectual property such as brand
name, copy right, patent, technology, trademark and so on for a specific period of time.
The licensor gets benefits in terms royalty, technical knowhow, skills, etc. The company
may decide to sell the products under the licensing when the domestic production costs
are too high, strict government regulations, or the company wants to sell and produce
standardized products everywhere. Tiens Group in Tianjin City, China manufactures
some products of Pfizer, O’Loreal Cosmetics of France for distribution in Asian market.
3. Franchising- Franchising is closely related to licensing. Franchising is a parent
company (franchiser) gives right to another company (franchisee) to do business using
the franchiser’s name and products in a prescribed manner. Franchising is different
from the licensing in terms of the franchisees have to follow much stricter guidelines.
Moreover, licensing is more about the manufacturers while franchising is more popular
with restaurants and hotels. For example, McDonald, KFC, Pizza Hut and so on.
4. Strategic Partnerships & Joint venture - A strategic partnership or alliance is a
positive aspect of the cooperation of two or more companies in different countries are
joined together for mutual gain. A joint venture is a special type of strategic alliance,
where the partners across globe collectively found a company to product goods and
services. The cooperation between the companies allows them to share the production
cost, technologies, development, and sales networks. The resources will be pooled to
mutual advantages and put the companies in win-win situations. Business Articles
shown next page about Apple and Jollibee illustrate this issue on strategic partnership.

*From Market Business News Magazine

 Major Companies Tied to the Apple Supply Chain

By SHOBHIT SETH AND JULIE YOUNG

Apple (AAPL) is one of the most valuable companies in the U.S. with a market cap of
over $1.3 trillion as of April 2020. A big part of its success has come from its ability to be
a true innovator in personal technology. Millions of customers are willing to pay top
dollar for the quality, design, and features of Apple devices, making products like
the iPhone, iPad, Mac, iPod, and Apple Watch top sellers. To achieve this greatness
though, Apple doesn't depend on its own manufacturing alone. It has over 200 suppliers
that it relies on for procuring components for assembly.
KEY TAKEAWAYS
• Apple releases a supplier list annually.
• Apple has established high standards for managing supplier relationships.
• Apple’s 2019 suppliers list reports on 200 suppliers and shows over 800
production facilities.
Apple puts a great deal of effort into the monitoring of its suppliers. Relationships that
help to make the tech giant a manager of one of the most efficient supply-chain
management systems on the market right now. Each year it releases a progress report
outlining its supplier relationship efforts as well as a list of its top 200 suppliers, which
account for 98% of its procurement. Below discusses nine of the most prominent.

Taiwan
Taiwan is Apple’s number one supplier region, but this is somewhat of a smokescreen.
1 Hon Hai Precision Industry: Foxconn (HNHPF). Hon Hai Foxconn is one of the major
reasons that Taiwan is on the map for Apple. Foxconn is one of Apple’s oldest and
largest suppliers. The company has its headquarters in Tucheng, New Taipei City.
However, while being based in Taiwan, Foxconn is often thought of as Apple’s largest
China supplier because of its vast number of Chinese supplier locations. In
2018, Foxconn had 35 supplier locations servicing Apple from Taiwan, China, India,
Brazil, Vietnam, and the United States, and 29 of its 35 locations are in China. Foxconn
has also helped Apple to branch out to India with one location there. Wistron is another
Taiwan-based company that’s also helping Apple expand into India. Wistron has five
supplier locations with three in China and two in India. A focus for Wistron in India has
been printed circuit boards for iPhones. Pegatron is another company rounding out the
Taiwan lineup. It has its headquarters in Taiwan with only one Taiwan supplier location
in Taoyuan. Pegatron’s other 17 locations include 12 sites in China along with sites in
the Czech Republic, Singapore, Korea, Japan, and the United States. Pegatron is
similar to Foxconn in that it provides iPhone assembly.

China
In general, China is a very important global region for Apple. The 2019 suppliers list
shows Chinese and Hong Kong-based suppliers growing to account for a larger share
than America and Japan, second only to the region of Taiwan. By physical location,
China accounts for 380 of the total 809 production facilities. However, Apple has shared
some concern over its dependence on China given the 2020 Coronavirus outbreak as
well as the Trump Administration’s new tariff rules.
Goertek and Luxshare are two Chinese companies that have been in the Apple
supplier spotlight. Both companies agreed to set up productions in Vietnam to improve
the manufacturing cost efficiency of the Airpod. Goertek has three supplier locations,
two in China and one in Vietnam. The company has its headquarters in Weifang, China.
Luxshare is also in partnership with Apple for the production of the Airpods. It has eight
supplier locations with seven in China and one in Vietnam.

United States
Despite its reliance on an international supply chain, Apple is also still very dependent
on many companies in the U.S., including 3M (MMM), Broadcom (AVGO), Qualcomm
(QCOM), Intel (INTC), Jabil (JBL), On (ON), Micron (MU), and Texas Instruments
(TXN). Other U.S. companies also include Finisar (FNSR), Qorvo (QRVO), Skyworks
(SWKS), and Corning (GLW). Qualcomm and Intel have made U.S. headlines over
fierce legal actions. NASDAQ-listed Qualcomm is a world leader in semiconductor,
mobile, and telecom products and services. It is known to supply multiple electronic
components to Apple, including envelope power trackers, baseband processors, power
management modules, and GSM/CDMA receivers and transceivers. These are various
instruments used in device power management systems and in mobile signaling.
Qualcomm has also come through for Apple devices, offering necessary
modem technology.

Modem technology is however at the core of the Apple, Intel, and Qualcomm
504 disputes. Apple announced it was buying Intel’s smartphone modem business. This
led to a lawsuit by Qualcomm which resulted in maintenance of the modem
manufacturing relationship for Qualcomm even after the Intel acquisition. In July 2019,
Apple announced its agreement with Intel to acquire the majority of its smartphone
modem business. With the acquisition, Apple broadened its patent ownership and setup
a strong plan for 5G development. Moreover, after the acquisition, the Mac now
uses Intel processors. On the 2019 supplier list, Intel reports nine supplier locations,
with three locations in the U.S. and others in China, Israel, Vietnam, Ireland, and
Malaysia.

Murata Manufacturing Ltd. (MRAAY) Murata is based in Kyoto, Japan. It supplies to

Apple from 26 manufacturing facilities spread across Malaysia, Japan, Thailand,
Vietnam, China, and Singapore. It has 16 supplier sites in Japan. Apple and Samsung
are Murata’s top two clients, procuring ceramic capacitors from the company. These
electronic parts are used to control the flow of electricity in electronic devices.
Samsung
Samsung has its headquarters in South Korea. It supplies multiple components,
including flash memory used for storing data content, the mobile DRAM used for multi-
tasking various applications in devices, and the application processors responsible for
controlling and keeping devices running. Despite being a competitor to Apple in the
mobile phone market, Samsung uses its supplier status to reduce its own component
manufacturing costs via bulk production.
Supplier Relationships
Apple is known to maintain one of the best-managed supply-chains in the world. Using
its stature and global reach, the tech giant is able to demand high-quality products and
impose stricter terms on its suppliers. When one of Apple's Chinese suppliers of "tactic
engines" for the iPhone 7 proved unreliable, for example, the company quickly procured
them from Japanese firm Nidec Corp. Apple has hundreds of such suppliers willing to
abide by the terms Apple sets forth. What's more, by outsourcing its supply-chain and
assembly operations, Apple can do what it does best—concentrate on designing great
products that offer rich functionality and are easy-to-use. On the flip side, being
associated with a brand like Apple can be a remarkable boon for a supplier firm. Apart
from the small novice firms, who may derive much of their business from Apple, even
larger companies like Samsung use the relationship to their advantage. As
noted, Samsung continues to compete with Apple in the mobile phone market; however,
large orders from Apple allow Samsung to increase bulk production, which reduces
manufacturing costs for its own mobile phone components. Another advantage for
suppliers is that Apple has a reputation for innovation. Regardless of how specific
products have performed and despite missteps that have occurred, people expect Apple
to come out with something new on a regular basis and eagerly anticipate these
products. To a certain extent, this shields Apple suppliers, who will continue to see new
demands for their goods and services. It should be noted, however, that failing to please
Apple can spell doomsday for a small or medium-sized supplier that has built its
business around Apple product sales. If suppliers do not maintain high-quality goods at
the right price, Apple has the positioning to replace them with another competitor.

The Bottom Line

Apple needs suppliers, and suppliers need Apple. It's a streamlined relationship that is
often mutually beneficial, though, at times, it can create tension. Suppliers have major
exposure to Apple and its overall market performance. Financial reports of supplier
companies are frequently used by market analysts to project sales for Apple products,
and Investors also often look to Apple’s underlying suppliers for insights on Apple’s
performance as well as more granular investment opportunities independently.

Smashburger Enters into Strategic Partnership

with Jollibee Foods Corporation, Asia’s Largest Restaurant Company

DENVER & MANILA, Philippines--(BUSINESS WIRE)--Smashburger, the Denver-based

Fast Casual restaurant concept, today announced that it has entered into a definitive
agreement to sell 40% of the company to Jollibee Foods Corporation (PSE:JFC), Asia’s
largest restaurant company. The purchase price values Smashburger at a $335 million
enterprise value. Launched in 2007, Smashburger has over 335 corporate and
franchised restaurants operating in 35 states and seven countries. Approximately 60%
of Smashburger is company owned and operated. Smashburger continues to grow at a
rate of 20% annually. Jollibee Foods Corporation, a publicly-traded market leader in the
Philippines, has been actively seeking an investment in a leading U.S. growth brand.
Jollibee Foods Corporation currently operates and franchises a network of over 3,000
restaurants worldwide under the trade names Jollibee, Chowking, Greenwich, Red
Ribbon, Yonghe King, Hong Zhuang Yuan, Mang Inasal, Burger King Philippines, San
Pin Wang, Jinja Bar. Jollibee also has a 50% interest in the Super Foods Group, which
operates and franchises restaurants under the Pho 24 and Highlands Coffee brands
throughout Vietnam. “We at Smashburger are excited about our new strategic
partnership with Jollibee,” commented Rick Schaden, Chairman and Co-Founder of
Smashburger. “As founders and entrepreneurs we both have built teams that focus on
bringing the highest quality and best tasting food to our restaurant categories. Founder
and Chairman, Tony Tan Caktiong and I share a true passion for the restaurant
business having opened and operated our very first restaurants, we believe our
companies still cultivate that spirit today as we initiate this partnership.”

JFC Chairman Mr. Tony Tan Caktiong gave the following statement: "Smashburger is
one of the fastest growing restaurant brands in the US and we are very excited to work
side by side with the owners and management of Smashburger as we continue its
growth. This acquisition will make JFC's presence in the US more significant, going
beyond the Filipino market and serving mainstream consumers in the $100 billion US
burger market, a food segment which is estimated to be almost three times larger than
the pizza, sandwich or coffee segment in terms of sales. This acquisition will make the
US one of JFC's most important markets and drivers of long term growth along with the
Philippines, China and other Asian markets abroad." “This partnership will provide
additional energy and resources to Smashburger as we expand,” said Scott Crane,
President and CEO, of Smashburger. “The team at Jollibee is focused on the same
values as our company, which are to serve the highest quality food and provide a great
dining experience for our guests.”

About Smashburger
Smashburger is a leading Fast Casual “better burger” restaurant brand known for its
fresh never frozen, 100% Certified Angus Beef® burgers that are smashed on the grill
to sear in the juices, creating an upscale quality burger packed with flavor and served at
a great value. In addition to burgers, Smashburger offers grilled or crispy chicken
sandwiches, fresh salads, signature side items such as Haystack onions and Veggie
Frites, and hand spun Haagen-Dazs® shakes. On each markets menu, Smashburger
offers locally inspired items like a regional burger, a regional side or a local craft beer.
Founded 2007 in Denver, Colorado by Rick Schaden and Tom Ryan, there are currently
over 335 corporate and franchised Smashburger restaurants operating in 35 states and
seven countries.
About Jollibee Foods Corporation
Jollibee is the largest restaurant chain in the Philippines, operating a global network of
over 3,000 stores. The company has also embarked on an aggressive international
expansion plan in China, Vietnam, USA and other parts of Asia and the Middle East,
firmly establishing itself as a growing international restaurant player. Jollibee was
founded by Tony Tan Caktiong and his family with its humble beginnings as an Ice
Cream Parlor which later grew into an emerging global brand. At the heart of its success
is a family-oriented approach to human resource management, making Jollibee one of
the most admired employers in the region. The company has received the “Employer of
the Year” Award from the Personnel Management Association of the Philippines, “Best
Employer in the Philippines” Award from Hewitt Associated and a “Top 20 Employer in
Asia” citation from the Asian Wall Street Journal

5. Foreign Direct Investment (FDI)

Foreign direct investment is a company’s physical investment such as into the building
and facilities in the foreign country, and acts as a domestic business with a full scale of
activity. Companies practice FDI to get benefits from cheaper labor costs, tax
exemptions, and other privileges in that foreign country. A host country like the
Philippines will get benefits by the introduction of new products, services, technologies
and managerial skills. Some companies have been staying in the Philippines for so long
that they and/or their products have become part of Filipinos’ way of life such as Procter
and Gamble, Unilever, Colgate-Palmolive, and Nestle. It is also worthwhile to mention
that many Filipino-owned brands are manufactured and sold in other countries like San
Miguel Beer, Oishi snacks, M.Y.San Biscuits, Tabacalera Cigars, etc.
_____________________________________________________________________

Topic No. 3 - EARLY STAGES OF INTERNATIONAL TRADE IN THE PHILIPPINES

The Galleon Trade*

When the Spaniards came to the Philippines, our ancestors were already trading with
China, Japan, Siam, India, Cambodia, Borneo and the Moluccas. The Spanish
government continued trade relations with these countries, and Manila became the
center of commerce in the East. The Spaniards closed the ports of Manila to all
countries except Mexico. Thus, the Manila–Acapulco Trade, better known as the
"Galleon Trade" was born. The Galleon Trade was a government monopoly. Only two
galleons were used: One sailed from Acapulco to Manila with some 500,000 pesos
worth of goods, spending 120 days at sea; the other sailed from Manila to Acapulco with
some 250,000 pesos worth of goods spending 90 days at sea. It also allowed modern,
liberal ideas to enter the country, eventually inspiring the movement for independence
from Spain. And because the Spaniards were so engrossed in making profits from the
Galleon Trade, they hardly had any time to further exploit our natural resources.

Basco’s Reforms
Filipino farmers and traders finally had a taste of prosperity when Governor General
Jose Basco y Vargas instituted reforms intended to free the economy from its
dependence on Chinese and Mexican trade. Basco implemented a “general economic
plan” aimed at making the Philippines self-sufficient. He established the “Economic
Society of Friends of the Country”, which gave incentives to farmers for planting cotton,
spices, and sugarcane; encouraged miners to extract gold, silver, tin, and copper; and
rewarded investors for scientific discoveries they made.
Tobacco Monopoly
The tobacco industry was placed under government control during the administration of
Governor General Basco. In 1781, a tobacco monopoly was implemented in the
Cagayan Valley, Ilocos Norte, Ilocos Sur, La Union, Isabela, Abra, Nueva Ecija, and
Marinduque. Each of these provinces planted nothing but tobacco and sold their harvest
only to the government at a pre-designated price, leaving little for the farmers. No other
province was allowed to plant tobacco. The government exported the tobacco to other
countries and also part of it to the cigarette factories in Manila. The tobacco monopoly
successfully raised revenues for the colonial government and made Philippine tobacco
famous all over Asia.
_________________
*philippine-history.org

Philippine Global Economic Policy as Contrasted with Local Policy

SPANISH COLONIAL ERA

Broad Characterization
• Absence of Local Economic Policy
• RP as part of Galleon Trade (Spain, Mexico, China)
• In later years, commercial dominance of other western countries
RP Economic Structure
Mainly Agricultural Agricultural Crop exports: Sugar cane, abaca, tobacco leaves,
coconut, coffee beans

AMERICAN PERIOD
Broad Characterization
Local Policy as part of Global Policy (Classical Colonial Economy)
RP as provider of Raw Materials to US -US as source of manufactured goods for RP
RP Economic Structure
Mainly Agricultural Main Processed Agricultural exports: Processed sugar, coconut
products, cigars,
abaca products

PERIOD OF RECONSTRUCTION (1946-1950’S)

Broad Characterization
Local Policy as an Extension of Global Policy (NeoColonialism) -RP as provider of raw
materials to US and Japan
RP Economic Structure
Agriculture and services oriented (Industries were damaged by the war) Main export
product: traditional agricultural products (sugar, coconut products, etc.)

PERIOD OF IMPORT SUBSTITUTION (1950’S1960’S)

Broad Characterization
• Global Policy as an extension of Local Policy (Import Substituting
Industrialization Strategy)
 • Local goal of industrialization promoted thru Import and Foreign Exchange
Controls
RP Economic Structure
Increased Industrial production and service sector growth;
decline in agriculture
Main Export product: traditional agricultural products, mineral products (e.g. copper)

PERIOD OF EXPORT AND INVESTMENT PROMOTION (MID-1960’S1980’S)

Broad Characterization
Globally Dependent Policy (Export Promotion Strategy) -Integrating local production
with global market needs –
Exports, Foreign Investments and Foreign Debt as tripod of local Policy
RP Economic Structure
Growth of Industrial and services sectors Ain export product: Garments, Agricultural
Products, including fisheries (prawns and tuna) and fruits (mango bananas, pineapple)
mineral products (copper)

GLOBALIZATION (1990’S)
Broad Characterization
Globalization as the Local Policy -Continuation of Trade Reform and Liberalization of
Sectors -Minimal Government intervention; reliance on market
RP Economic Structure
Service oriented economy: Decline of Agri. Main Export Product: Electronics, Garments,
Export Crops

HISTORY OF PHILIPPINE TRADE POLICY*

Structural Policy by Type of Market of Objectives, 1949-1995

1949-1959 Import-driven and industrial Investment-led

Import and exchange controls

1960-1966 Debt-driven growth; later in the 1960’s, investment-led growth; Decontrol

of imports and foreign exchange restrictions/deficit financing

1967-1973 Debt-driven growth; greater export-orientation; Devaluation; floated peso

1974-1979 Debt-driven and export-led growth; IMF credit facility; massive

construction spending thru government barrowing; export diversification

1980-1985 Growth Objective postponed in favor for stability due to serious economic
crisis; IMF stabilization/structural adjustment program pushing for trade
liberalization; Market oriented exchange rate; devaluation; deregulation of
interest rates; foreign exchange rationing; moratorium on debt repayment;
debt restructuring
1986-1992 Investment-led growth; industrial revitalization; restoration of free
enterprise system; Import liberalization; tariff reform; financial
liberalization; privatization; removal of restrictions on foreign investments

1993-1995 Export and investment-led growth; Deregulation of industries; further

trade; financial and investment liberalization and privatization;
rehabilitation of energy and water resources sectors

*Source: Dejillas & Constantino, 1996, p. 37 92 Arellano Law and Policy Review

Questions to ponder:
- What are your thoughts about the Philippines’ economic directions since the
Spanish era? Did the trade directions make the Philippine poor or poorer?
- Which trade/economic policy then can be used now to address the country’s
economic problems?
- At this time when the Philippines is in dire need of investments, is it morally
right for home-grown companies to invest in other countries?
- Inasmuch as Jollibee Corporation is publicly listed/traded, should shares of
stocks be used for its foreign expansion? Or, should they use bonds instead?
Why? What is the difference?
Note: Your answers will be used to compute your Mid-Term Examination Grade

History of International Trade

By ManagementStudyGuide*
Any time you walk into a super market and pick up any stuff like a knife or a toy and
chances are that the item has been manufactured in China or assembled in Mexico.
Pick up coffee pods and you will see that they have been imported from Africa. When
you shop for clothes, it is quite likely that you will see ‘Made In China’ label. We all know
that international trade has been in vogue for centuries and all civilizations carried on
trade with other parts of the world. The need for trading exists due to the variations in
availability of resources and comparative advantage. In the present context where
technology and innovation in all fields have thrown open borders to globalization, no
country can afford to remain isolated and be self-sufficient.

International trade has a rich history starting with barter system being replaced
by Mercantilism in the 16th and 17th Centuries. The 18th Century saw the shift
towards liberalism. It was in this period that Adam Smith, the father of Economics
wrote the famous book ‘The Wealth of Nations’ in 1776 where in he defined the
importance of specialization in production and brought International trade under the said
scope. David Ricardo developed the Comparative advantage principle, which stands
true even today. All these economic thoughts and principles have influenced the
international trade policies of each country. Though in the last few centuries, countries
have entered into several pacts to move towards free trade where the countries do not
impose tariffs in terms of import duties and allow trading of goods and services to go on
freely.
The 19th century beginning saw the move towards professionalism, which
petered down by end of the century. Around 1913, the countries in the west say
extensive move towards economic liberty where in quantitative restrictions were done
away with and customs duties were reduced across countries. All currencies were freely
convertible into Gold, which was the international monetary currency of exchange.
Establishing business anywhere and finding employment was easy and one can say
that trade was really free between countries around this period. The First World War
changed the entire course of the world trade and countries built walls around
themselves with wartime controls. Post world war, as many as five years went into
dismantling of the wartime measures and getting back trade to normalcy. But then the
economic recession in 1920 changed the balance of world trade again and many
countries saw change of fortunes due to fluctuation of their currencies and depreciation
creating economic pressures on various Governments to adopt protective mechanisms
by adopting to raise customs duties and tariffs. The need to reduce the pressures of
economic conditions and ease international trade between countries gave rise to the
World Economic Conference in May 1927 organized by League of Nations where in the
most important industrial countries participated and led to drawing up of Multilateral
Trade Agreement. This was later followed with General Agreement on Tariffs and Trade
(GATT) in 1947. However once again depression struck in 1930s disrupting the
economies in all countries leading to rise in import duties to be able to maintain
favorable balance of payments and import quotas or quantity restrictions including
import prohibitions and licensing. Slowly the countries began to grow familiar to the fact
that the old school of thoughts were no longer going to be practical and that they had to
keep reviewing their international trade policies on continuous basis and this interns
lead to all countries agreeing to be guided by the international organizations and trade
agreements in terms of international trade. Today the understanding of international
trade and the factors influencing global trade is much better understood. The context of
global markets have been guided by the understanding and theories developed by
economists based on Natural resources available with various countries which give
them the comparative advantage, Economies of Scale of large scale production,
technology in terms of e commerce as well as product life cycle changes in tune with
advancement of technology as well as the financial market structures.

Backdrop to International Trade

Any student or professional wanting to understand more about Imports and Exports
would have to understand the history and economic principles that have chartered the
course of international trade to its current regime. In the backdrop of the country’s
economic policies and financial conditions such as its balance of payments situation,
the governments formulate rules and regulations that govern the countries trade with
other countries.

World Trade Organization (WTO)

WTO as it is called is the International Organization that deals with the global rules of
trade between nations. Its primary function and goal is to facilitate smooth and free flow
of trade between countries. WTO came into being on 1st January 1995 and is Head
Quartered in Geneva, Switzerland. The Organization was created at the Uruguay
Round Negotiations and consists of 153 member countries. A Director General and
functions with a Secretariat Staff of 637 heads WTO. WTO functions primarily as the
Forum for trade negotiations between countries. Its main functions include
Administering WTO Trade Agreements, Handling Disputes, Monitoring National Trade
policies of member countries, Technical assistance to Member Countries. Considered to
be one of the youngest of International Organizations, the WTO is regarded as a
Successor to the GATT agreement that came into being in the after warmth of Second
World War.

Historically, treaties have been the agreements that ruled between two countries. Post
Second World War and creation of WTO and other organizations have paved way for
more and more of international co-operations in the field of politico economic
environment, with the result there have come to existence many regional, intra-regional
and global super nations groups engaging in regional trade agreements.

Creation of The European Union is one of the most important events in the History of
our Civilization. EU, known as European Union was formed by Masstricht Treaty in
1991 and laid foundation for an economic and monetary union that included creation of
one single currency across member nations. The European Free Trade Association was
setup in 1960 with one of the main aims to establish multilateral associations between
the member countries to abolish customs barriers and creating a single free market
across European Union. Some of the other associations and agreements that have
come into being are The North American Free Trade Agreement (NAFTA) signed by
Canada, Mexico and US in 1994. The Association of Southeast Asian Nations (ASEAN)

Complexities arise in International Trade due to the nature of economies of countries all
over the world. Less-developed countries and developing countries’ economies are
agriculture based and seasonal and their reliance on export markets is very high. They
in turn import manufactured goods from developed countries wherein the cost of imports
is fairly stabilized. With the variation in export earnings and high or stabilized imports,
the countries stand to face huge fluctuations in terms of international trade which in turn
affects their domestic economy.

However amongst the developed countries the international trade has always been
beneficial. In fact most of the EU member countries have managed to increase their
incomes due to the removal of trade barriers within the EU. But the trade relations
between developed and under developed countries have always been the bone of
contention and controversies. The business orientations of the Multi-National
Companies who establish manufacturing as well as selling in countries where labor and
resources are cheaper is seen as a form of exploitation. WTO meetings and
conferences are used as a platform by various interest groups to bring to the table
various issues concerning public health and safety, environmental impact and other
evils arising out of international trade.
*ManagementStudyGuide.com is an educational portal launched in 2008 with the vision
of providing students and corporate workforces worldwide with access to rich, easy to
understand, frequently updated instruction on many management related topics.

Topic No 4 - RECENT TRADE POLICIES AND ECONOMIC DIRECTIONS OF THE

PHILIPPINES
For years now, the Philippines has been having economic, social, political problems
relative to its International Trade and Business policies. Many contend that the
Philippines simply follow what the western world, particularly the United States, is doing.
In a way, it is true because much of its policies, programs, and development strategies
are aligned with the International Monetary Fund (IMF) and the World Bank. This is
understandable because much of the Philippines’ external debts come from these two
financial institutions. Lenders dictate terms and conditions of loans; and how to use the
same. To date, the Philippines through President Rodrigo Roa Duterte has somewhat
exhibited his independent international policies on trade, foreign affairs, military and
geo-political alliances. His government’s pivotal relationship with China and the
members of the ASEAN has brought some changes in the area of business, economic
development, labor, etc. Meanwhile, the Philippines has done some substantial efforts
in the area of business. Below is a Review which was done by World Trade
Organization (WTO) on the Philippines.

WTO Trade Policy review on the Philippines

Note: This text provides brief description of the conditions foreign business will
encounter in trade with the Philippines. It is based on a WTO Trade Policy Review for
the Philippines. Trade Policy Reviews are an exercise, mandated in the WTO
agreements, in which member countries’ trade and related policies are examined and
evaluated at regular intervals.

The Philippines economy has performed well since its third TPR in 2005, based on a
relatively open trade regime. Nonetheless, the economy is operating below potential
due to the slow pace of reform while some of the key constraints on overall growth
remain (e.g. inadequate infrastructure, low investment, and governance issues).
Improved productivity is essential for the Philippines to compete with low-cost
neighboring economies, and additional steps are needed to promote more competition,
improve human capital, eliminate limitations on foreign investment, reduce incentives,
and reform state-owned institutions. It is also hoped that the Government's recently
launched public-private partnerships initiative will encourage investment in major
infrastructure projects.

During 2005-11, the Philippines had an annual real GDP growth rate of 5%, moderate
inflation (5% on average during the period), and a surplus in its external account in part
due to high remittances inflows (about 10% of GDP). Growth has been broad-based
across private consumption, investment, and exports, and was helped by fiscal stimulus
implemented in 2008 and 2011 in response to the global economic crisis. Persistent
fiscal deficits and the resulting large public debt continue to pose the greatest risk to
macro-stability.

The Philippines was the world's 37th largest exporter and the 29th importer of goods in
2010. In services trade, it ranked 27th among exporters and 36th among importers. The
Philippines' outward-orientation makes it vulnerable to external shocks but has also
contributed to the resilience of the economy in adapting to challenges. Greater trade
diversification would help the Philippines, since it relies heavily on manufactured
products (85% of exports and 67% of imports). The Philippines continues to encourage
investment in "preferred" areas, which are listed in the Investment Priority Plan (IPP).
Tax and other incentives, often contingent on export performance and Filipino
ownership, are still provided in an effort to attract investment. Additional incentives have
recently been introduced, e.g. to support biofuel production and organic agriculture. The
authorities acknowledge the need to rationalize the incentives system and a bill is being
considered in Congress. Measures have been taken over the review period to improve
the business environment but there remains considerable scope for improvement.
Moreover, the Philippines maintains its overall policy of ensuring that key sectors are
effectively controlled by Filipinos and remain restricted for foreign investors, notably
agriculture, fisheries, and a large number of services. As a result, FDI inflows are low
compared with other countries in the region. While the Government has expressed
concern, no concrete changes are foreseen to open up these sectors to foreign
investment.

Foreign investment is encouraged in some sectors, particularly manufacturing, which

mainly takes place within export processing zones (EPZs), where substantial fiscal
incentives are offered. While this policy has supported manufacturing employment and
exports, it adds pressure on the budget deficit and discourages efficiency.

The Philippines ratified the Fourth Protocol to the GATS on basic telecommunications in
2006 and the Fifth Protocol on financial services in 2011. Its record on making
notifications to the WTO has been solid, except in agriculture. Over the review period
the Philippines was involved in two WTO disputes, one as complainant and one as
defendant.

As a member of ASEAN, the Philippines is committed to deepening economic

integration among members, including removing obstacles to trade and improving trade
facilitation. The Philippines, both unilaterally and through ASEAN, has continued to
pursue a policy of negotiating regional trade agreements (RTAs) of varying scope with
the focus on Asia-Pacific. Over the review period, new RTAs have entered into force
between ASEAN and: Australia and New Zealand; China (services); India; Japan; and
Korea. In addition, a bilateral agreement between the Philippines and Japan entered
into effect, bringing the total number of the Philippines' preferential partners to 15. Only
under ASEAN has tariff liberalization been fully implemented, and this is putting
pressure on the non-competitive sectors of the Philippine economy, particularly sugar.
Most of these RTAs contain services commitments, which are much more extensive
than those taken by the Philippines under the GATS.
Trade policy has not undergone major changes since 2005; the tariff remains the main
policy instrument. With the adoption of the 2007 ASEAN Harmonized Tariff
Nomenclature, the Philippines' tariff was simplified and now comprises 8,299 lines at the
HS eight-digit level (compared with 10,688 in 2004). The simple average MFN applied
tariff (6.4%) is 19.3 percentage points lower than the simple average bound rate
(25.7%), giving the authorities ample scope to raise applied tariffs. Tariffs average
10.2% (10.3% in 2004) on agriculture (WTO definition), and 5.8% on non-agricultural
products (7% in 2004). All tariff lines, applied and bound, are ad valorem. About 40% of
tariff lines are unbound. On aggregate, the tariff displays mixed escalation, negative
from first-stage processed products (average tariff rate of 6.7%), to semi-finished goods
(average rate of 4.9%), and positive from semi-finished to fully processed products
(average 7%). At a more disaggregate level, positive tariff escalation is most
pronounced in textiles and leather, followed by wood and furniture, paper and printing,
chemicals, and non-metallic mineral products, thereby providing higher levels of
effective protection to those industries than that reflected by the nominal rates.

Customs procedures have been automated through the Electronic-to-Mobile (E2M)

system to streamline the payment and clearance processes at the Bureau of Customs.
Under ASEAN, the Philippines is in the process of finalizing a "national single window"
in order to expedite intra- and extra-ASEAN trade. The Philippines' import licensing
system remains complex, with fees varying by product. Imports of some goods are
prohibited and a few very sensitive goods, notably rice, are subject to import quotas.
The rice quota was to be phased out by 2005, but the Philippines obtained a seven-year
extension (until 30 June 2012) within the WTO. National standards and technical
regulations appear to follow international guidelines whenever possible, and the number
of national standards that correspond to international standards has increased since
2005. SPS regulations appear to be stringent. Since 2005, the Philippines has initiated
three anti-dumping investigations (13 cases during 1999 2003), with one definitive
measure applied against clear float glass from Indonesia. It has not initiated any
countervailing actions since 1999. The Philippines has seven definitive safeguard
measures in force, and a special safeguard measure is on frozen chicken. Prohibited
and regulated exports include endangered wildlife species and live animals. Only
plantation (non-native) logs are subject to an export tax (20% f.o.b.).

Participation by foreigners in the government procurement regime remains restricted,

and seems to depend upon the source of the funds for the project and the domestic
availability of the procured goods and services. The Philippines is neither a signatory
nor an observer to the Government Procurement Agreement. The Philippines does not
have a general competition law, but several laws deal with competition. The Department
of Justice has recently been designated as the Competition Authority. Legislation on
IPRs is comprehensive and steps have been taken to improve its enforcement.

The Philippines' agriculture sector is dominated by small farms with low mechanization.
This was largely the result of a major on-going land distribution programme, and poses
a significant barrier to competitiveness. In value terms, the Philippines' main crops are
rice, banana, coconut, corn, and sugarcane. While coconut oil is exported, rice, sugar,
and corn are largely produced for domestic consumption, and a variety of measures are
in place to protect and achieve self-sufficiency in these products. These include price
support for rice and corn (which has been highly costly), high tariffs, rice import quotas,
as well as import and export restrictions. Initiatives to assist agricultural producers
include: various incentives; a new requirement that all banking institutions (government
and private) must set aside at least 25% of their total loanable funds to agriculture and
fisheries credit; and to assist sugar producers, a requirement for a 10% locally sourced
bioethanol blend in gasoline, and 2% in diesel.

The Philippines fisheries sector comprises commercial fisheries, municipal fisheries,

and aquaculture. Commercial fishing is allowed in waters that are 16 km or more from
the shoreline: foreign equity in deep-sea-fishing vessels is capped at 40%, and all
fishermen must be Filipino citizens. Imports of fresh, chilled or frozen fish (except when
imported for canning and processing) are allowed only when deemed "necessary", and
a certificate of necessity is required. Fish exports require a permit.

The Philippines' banking system was resilient in the face of the global financial crisis:
the major banks remained well capitalized and liquid. Initiatives are being undertaken to
encourage weaker rural banks to merge with stronger ones. Foreign participation in the
banking sector is subject to significant restrictions: 70% of the banking system's assets
must be held by domestic banks that are majority Filipino-owned. Foreign direct
investment in the banking sector may in practice only take the form of investment of up
to 60% of the voting stock of an existing domestic bank.

The insurance sector in the Philippines is small, with deposits amounting to just over 1%
of GDP. There are no limits on foreign equity participation, and foreign insurance
companies may operate as branches, subsidiaries or joint ventures, provided they have
been ranked among the world's 200 largest foreign companies for the past ten years.
However, new minimum paid-up capital requirements serve to keep lower value
companies either fully or substantially owned by Filipinos. Reinsurance services may be
obtained from abroad upon the authorization of the Insurance Commission. However,
10% of outward reinsurance placements must be ceded to the partly Government-
owned National Reinsurance Corporation.

The legal and regulatory environment for telecommunications remains the same as at
the time of the Philippines previous Review. However, there are a number of ICT-
related Bills pending in Congress. Foreign equity in telecom companies, both basic and
value-added, is limited to 40%. A Congressional franchise is required in order to provide
basic telecom service. No entity is permitted to have a franchise in both
telecommunications and broadcasting. Foreign equity in private radio communications
networks is limited to 20%, and broadcasting and TV are reserved for Filipinos. The
fixed-line market remains dominated by the Philippine Long Distance Telephone
Company (PLDT); there are two main mobile providers. The review period has seen a
massive surge in cellular use, and tariffs have gone down. However, prices for fixed and
broadband services are relatively high.
The main change to the Philippines' maritime transport sector over the review period
was the completion of a nautical highway roll-on-roll-off transport system, which allows
for the continuous movement of cargo using land and water transport. According to the
authorities, this has reduced freight costs, which were reported as high in the previous
TPR. Ownership restrictions on maritime transport remain in place. Nationally registered
ships must be at least 60% Filipino-owned with 100% Filipino crew. In addition, while
there is some flexibility in their application, other requirements include Government
cargo reservation; a requirement that cabotage be provided by Philippine ships
registered to provide domestic shipping; and a rule that Philippine registered vessels
must be repaired, altered, and dry docked at domestic shipyards. The Philippines allows
private ownership and operation of ports, although foreign equity in port ownership is
limited to 40%. Some state owned ports, including the Philippines principal port in
Manila, are operated by private companies under concession agreements: these
companies must be at least 60% Filipino-owned. Customs brokers must also be
Filipinos.

In air transport, there has been a steady increase in passenger movements over the
review period. Fourteen new air services agreements have entered into force since
2005, most of which have mainly restrictive features. However, in 2011, flexibility was
given to negotiating entities to pursue a more liberal approach. Cargo and passenger
transport is also being liberalized within ASEAN. Foreign equity in domestically licensed
airlines is still capped at 40%, and cabotage is restricted to domestic airlines. Philippine
Airlines (PAL) remains the dominant Filipino carrier for international passenger
transport, while the market share for domestic services is more evenly distributed. A
major challenge facing the Philippines has been its downgrading or blacklisting on
security grounds by the United States, EU, and ICAO. While the recently created Civil
Aviation Authority of the Philippines is responsible for operating most airports, private
management of one secondary airport has been concessioned to the private sector, and
another is foreseen. Self, mutual and third-party handling at airports is permitted.

The Philippines tourism sector is considered to be central to its social and economic
development, and the Government's objective is to double tourist arrivals by 2016.
Infrastructural weaknesses, particularly highways, hotels, and tourist facilities, have
been identified as the main bottlenecks to tourism development. Taxes on airlines are
also considered to be a disincentive for long-haul carriers. In order to promote the hotel
industry, the Government enacted a Tourism Act in 2009. This develops the concept of
the Tourism Enterprise Zone for which special incentives are offered, including a tax
credit for locally sourced goods.The Philippines Professional Regulation Commission
(PRC) is responsible for regulating and licensing 46 professions, through sector-specific
professional regulatory boards and the respective profession-specific laws. Law, the
only profession not regulated by the PRC, is the responsibility of the Supreme Court.
The Constitution limits the practice of professional services to Filipinos, except in cases
prescribed by law, and there is flexibility under the Labor Code and under the PRC
Modernization Act to enable foreign professionals to practice in the Philippines. A
notable recent development has been the inclusion of specific commitments on
professional services in the Philippines' RTAs. Negotiations to implement these
commitments have only advanced between ASEAN countries who have concluded
framework agreements to facilitate mutual recognition agreements for seven
professional services.

Topic No. 5 - HOW INTERNATIONAL BUSINESS AND TRADE

HELPS PROPEL THE ECONOMY

Direct Foreign Investments (DFI)

Whether a country is rich or poor, it needs long-term investors from other countries to
propel or sustain the growth of its economy. Most countries have something to offer to
foreign investors: raw materials, manpower skills, low taxes, markets, etc. Because of
low cost of producing and marketing products, companies keep scouting for places to
invest. For a long while already, China has been a country of choice among multi-
national companies because of its manpower strength, availability of specialized skills,
cheap raw materials, relatively low cost of office/real property rentals, huge consumer
base, business-friendly regulatory government offices, relatively stable financial system,
availability of financial services, etc. Singapore has been a perennial recipient of huge
DFIs comparatively speaking with its ASEAN neighbor because of its adherence to
excellent business practices, availability of highly skilled workers, availability of financial
services, etc. As of June 2020, total investments for the year 2020 have already
reached P39 Billion as explained in the business news below:

Approved Foreign Investments Reached PhP 29.4 Billion*

Total foreign investments (FI) approved in the first quarter of 2020 reached PhP 29.4
billion, 36.2 percent lower compared with PhP 46.0 billion in the same period in 2019.
This investment pledges came from the six investment promotion agencies (IPAs),
namely: Board of Investments (BOI), Clark Development Corporation (CDC), Philippine
Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), Authority
of the Freeport Area of Bataan (AFAB), and Cagayan Economic Zone Authority (CEZA).
No investment approvals were reported from BOI-Bangsamoro Autonomous Region in
Muslim Mindanao (BOI-BARMM) for the reference quarter.
The FI commitments for the first quarter of 2020 were mainly driven by investments
from the United Kingdom (UK) which accounted for 20.9 percent, followed by the United
States of America (USA) and China (PROC). The UK committed PhP 6.1 billion.
Meanwhile, USA and China (PROC) pledged PhP 5.7 billion and PhP 4.9 billion or 19.6
percent and 16.7 percent of the total approved FI, respectively.
Approved investments of foreign and Filipino nationals in the first quarter of 2020 were
expected to generate 34,814 jobs, lower by 17.6 percent compared with the previous
year’s projected employment of 42,245. Out of these anticipated jobs, 89.0 percent
would be absorbed by projects with foreign interest.
*Written by: CLAIRE DENNIS S. MAPA, Ph.D. Undersecretary National Statistician
and Civil Registrar General

Technology Transfer
Singapore is known for its focus and support for quality education. Two of its
universities, Nanyang Technological University and National University of Singapore
belong to the top 12 universities in the world. In view of this, many multi-national
companies have factories in Singapore because it has highly skilled technical workers.
The presence of highly technical companies in Singapore is a testimony of the country’s
highly education. These companies are willing to transfer/share their technological
knowhow because Singaporeans more than willing to accept and use it.

Job Creation/Employment
The Philippines is one of the havens of companies that are engaged in mass production
of goods. Generally speaking, a Filipino worker is hardworking, honest, and results-
oriented, self-motivated, and values his work/job. Comparatively speaking with its
ASEAN neighbors, the Philippines has the most number of English speaking and
understanding workers. Filipino nurses, caregivers and doctors have innate compassion
and service-oriented attitude to their patients. Hence, they have special places in many
institutions the world-over. In one of his columns in Philippine Standard, Tony Lopez
wrote:”One of the reasons the Philippines is a rich country is its huge population – 102
million Filipinos, the 12th largest consumer market on earth. A country is rich not just
because of its resources – its land, forests, minerals, oil, and other assets, the so-called
natural capital; and its factories and infrastructure, its so-called physical capital. A
country is rich more because of its people; more specifically, the quality of its
people. Human capital is people – their education, skill, talent, know-how. This is why
it is so essential to educate people, equip them with knowledge and skills to have
economic value and sustain the fine traditions (called culture) of the race. The evidence
shows human capital is the No. 1 reason why countries are rich. Human capital
accounts for a huge portion of a country’s wealth, up to 60 percent, by some estimates.
Human capital is a large part of a country’s intangible assets.”

Inflow of Foreign Exchange

FDI funds help a lot to a country’s money supply-demand system. Countries with no
internally-generated foreign exchange will find itself burdened with its imported
requirements such as medicines, food, machineries, raw materials, etc. A country
deprived of foreign exchange reserves will constantly experience high foreign exchange
rates; hence their import requirements are very expensive. The Philippines relatively
lucky because it has three sources of foreign exchange: exports, OFWs’ remittances
and FDIs. In view of this, the Philippine peso is relatively stable for a long while already.

Use of Raw Materials and Idle Lands

The Philippines is relatively rich in fertile soil, long shorelines, many inland rivers and
lakes, mineral-laden mountains, untapped forests, etc. Del Monte and Dole have its
pineapple plantations in Bukidnon and South Cotabato respectively because the said
places have good weather and fertile soil. Shell has been drilling oil in Malampaya,
Palawan and has provided sizable amounts for the government’s coffers. Nestle has
provided thousands of Filipino coffee growers with a sure market and steady income.
because of the Philippines’ fertile soil and generally good weather.

Increase revenues from taxes and duties

There is no doubt that foreign investors in the Philippines have contributed huge
revenues for local and national governments. That is the reason why Makati and Taguig
are the richest cities in the country because of the direct and indirect taxes, fees, etc.
that are being paid by big business conglomerates annually. In municipalities where the
Philippine Economic Zone Authority operates, they experience a sudden boom in its
socio-economic lives because of the businesses/locators operating in PEZA zones.
Banks, convenience stores, food chains, supermarkets, transport vehicles mushroom
who operate around the zones also pay taxes, fees, etc.

Topic No. 6 - ROLE OF PHILIPPINE GOVERNMENT AGENCIES IN PROMOTING

INTERNATIONAL BUSINESS AND TRADE

Because international trade could be one panacea to the Philippines’ perennial socio-
economic problems such as high unemployment rate, high prices of commodities, low
budgets for education, healthcare, housing, etc., it is incumbent upon the government to
accelerate its development program on international trade and business particularly in
export business. The following government agencies have defined roles and
responsibilities in promoting and sustaining international businesses:

Department of Trade and Industry

Trade policies are one of the tools used to pursue industry competitiveness. In January
2012, the DTI formally launched the program for the conduct of industry development
roadmaps, culminating in a Comprehensive National Industry Strategy. The on-going
process of developing industry roadmaps is private sector-driven (i.e. private sector
takes the lead in both crafting and driving the action), with the DTI serving as a catalyst,
facilitator and an “enabler.” However, government will take the lead in consolidating and
integrating the roadmaps into a national strategy—identifying gaps and attracting
investments into key projects. A total of 27 industry competitiveness roadmaps are
foreseen, along with a Manufacturing industry plan. Overall, the objectives of the
Industry Roadmap Project are to:
• Craft and implement industry development roadmaps
• Craft and implement a comprehensive national industrial strategy
• Institutionalize public-private sector partnership in crafting and executing the
roadmaps
• Build up capacity of government and industry associations to execute the
roadmaps
• Develop a more strategic and focused investment promotions plan
The industry strategy will intersect with trade policy and provide a platform for sectoral
negotiating positions in pursuit of medium- and long-term competitiveness-based
generation of jobs and incomes.

Comprehensive National Industrial Strategy (CNIS)

The Comprehensive National Industrial Strategy (CNIS) will link and integrate
manufacturing, agriculture and services; address supply chain gaps; and deepen
industry participation in global value chains. Strategic actions include human resource
development; SME development; innovation and R&D activities; green industries;
aggressive promotion and marketing programs; infrastructure investments to address
the high cost of power, logistics and shipping; and streamlining and automation of
government procedures and regulations affecting business operations

Ease of Doing Business (EOBD)

To complement the policy initiatives of the IDG, efforts to improve the business
environment were pursued by simplifying regulatory procedures. In particular, the DTI
reduced the business registration processes through the Nationwide Streamlining of
Business Permits and Licensing Systems (BPLS). In 2015, the process took 16 steps
and 29 days. In 2016, the process involves 6 steps and 8 days. The BPLS was
implemented in 2011 to improve business licensing procedures. On the regional level,
the DTI has initiated the Inter-Agency Business Process Interoperability (IABPI) to
streamline and fully automate export and import procedures.

Industrial Policy
Since 2012, the DTI-IDG has focused on a new industrial policy to create more and
higher quality jobs and attain sustainable and inclusive growth. Its new industrial policy
would enable the country to maximize the trade and investment opportunities from the
ASEAN Economic Community (AEC) and address the challenges arising from it.
Through the new industrial policy, the IDG aims to create the proper environment and
strengthen Philippine industries in order for them to become globally competitive. With
the private sector as the major driver of growth, the government acts as coordinator and
facilitator to implement policies and necessary support measures to address the
obstacles to the entry and growth of domestic firms.

Manufacturing Resurgence Program (MRP)

In pursuit of the Philippine government’s goal of achieving inclusive growth, the
Department of Trade and Industry is implementing the Manufacturing Resurgence
Program (MRP). The MRP aims to rebuild the existing capacity of industries, strengthen
new ones, and maintain the competitiveness of industries with comparative advantage.
It also seeks to build-up agriculture-based manufacturing industries that generate
employment, and support small-holder farmers and agri-cooperatives through product
development, value-adding, and integration to big enterprises for marketing and
financing purposes.
 Board of Investments (BOI)
The BOI is an investment promotion agency that grants tax incentive packages to local
and foreign businesses operating in the Philippines. It aims to help the Philippine
government promote inbound investments and economic growth by attracting investors
and entrepreneurs to venture capital and set up businesses in the country. The BOI
operates under the authority of the Department of Trade and Industry (DTI) and is
mandated through the Omnibus Investments Code (Executive Order No. 226) to provide
tax exemption and other incentives to registered enterprises that engage in activities
enumerated in the Investment Priorities Plan (IPP) – which is a list of areas of
investments eligible for government incentives.
Incentives and Benefits of BOI Registration in the Philippines
BOI-registered companies in the Philippines are entitled to numerous fiscal and non-
fiscal incentives (under E.O. No. 226), including but not limited to the following:

Fiscal Incentives

• income tax holidays

o six (6) years for projects with pioneer status and for projects located in a
Less Developed Area (LDA)
o four (4) years for new projects with non-pioneer status
o three (3) years for expansion/modernization projects
• duty exemption on imported capital equipment, spare parts, and accessories
• exemption from wharfage dues and export tax, duty, impost, and fees
• tax exemption on breeding stocks and genetic materials
• tax credits on imported raw materials
• tax and duty-free importation of consigned equipment
• additional deduction for labor expense

Non-Fiscal Incentives

• employment of Foreign Nationals

• simplification of customs procedures for imported products
• importation of consigned equipment
• privilege to operate a bonded manufacturing/trading warehouse (subject to
custom rules and regulations)

BOI Eligibility Requirements

Wholly Filipino-owned enterprises are eligible to register for BOI incentives if they
engage or propose to engage in an activity listed in the current IPP. They are allowed to
engage in any domestic-oriented activity included in the IPP regardless if it is classified
as a pioneer project or not.
Domestic foreign corporations (those that are 100% foreign-owned) can avail of
incentives if they engage in pioneer projects and satisfy any of these qualifying
requirements:
 • at least 70% of services or products are for export, or
• proposed projects are to be undertaken in areas that are listed as less-developed
areas (LDAs) by the BOI
These enterprises are obliged to attain 60% Filipino ownership within thirty (30) years
from registration unless they export or are planning to export 100% of their production.
Notable samples of enterprises that export 100% of their goods or services are
Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO), Legal
Process Outsourcing (LPO), Call Center Agencies, and Outsourcing companies.
For enterprises that intend to engage in non-pioneer projects, foreign ownership is
limited to 40%, unless the enterprise will export more than 70% of its annual production.

Requirements for Registering with BOI

1. SEC Certificate of Registration – including Articles of Incorporation and By-

Laws for Domestic Corporations, Partnerships, Branch Offices, Representative
Offices, and Regional Headquarters; or DTI Certificate of Registration for Sole
Proprietorships
2. Audited Financial Statement (feasibility report that contains projected financial
reports for the next five (5) years) and Income Tax Return (for the past three (3)
years if applicable)
3. Board Resolution of a duly authorized company representative/signatory
4. Accomplished BOI Application Form 501 (has various versions per industry
sector) and Project Report (a report that contains activities listed or are related to
those listed in the IPP)

BOI Registration Process

1. File BOI Application Form 501 along with supporting documents and filing fee
2. Prepare Evaluation Report (including Publication of Notice of Filing of Application
and plant visit)
3. Present to the BOI Management Committee
4. Receive confirmation and letter advice from the BOI Governing Board regarding
Board Action
5. Letter advice to Applicant of Board Action
6. If approved, send letter of approval and comply with pre-registration
requirements
7. Pay Registration Fee
8. Secure Certificate of Registration from BOI
The usual processing time is ten (10) to twenty (20) working days – depending on the
type of business entity you plan to register, the nature of your proposed activities, and
the time it takes for BOI’s Management Committee to review your application.
BOI Inclusive Innovation Industrial Strategy
• Inclusive Innovation Industrial Strategy (i3S) aims at growing innovative and
globally competitive manufacturing, agriculture, and services while strengthening
 their linkages into domestic and global value chains with innovation at the core of
the country’s strategic policies and programs.

• Underpinning the i3S strategy is the competition-innovation-productivity

relationship where a highly liberalized market environment leads to more
competition which spurs innovation and productivity growth.

• Innovation is crucial in addressing the challenges not only from globalization and
rising regional economic integration but also from automation, robotics, artificial
intelligence and other new technologies.

• While the private sector is seen as the major driver of growth for i3S strategy, the
government plays an important role in terms of coordinating policies and
necessary support measures that will address the obstacles to the entry and
growth of domestic firms.

• The i3S prioritizes the growth and development of 12 major industries covering
automotive, electronics and electrical, aerospace parts, chemicals, iron and steel
and tool and die, garments, textiles, and furniture, shipbuilding, tourism, IT-
business process management particularly knowledge process outsourcing and
E-commerce, agribusiness, construction, and infrastructure and logistics.

• To complement innovation and entrepreneurship, the other major pillars of the

i3S consist of building new industries, clusters, and agglomeration; capacity
building and human resource development; MSME growth and development; and
ease of doing business and investment environment.

• With the creation of the proper environment and implementation of innovation-

centered programs through the Philippine i3S, domestic firms and industries can
unleash their full potentials to take advantage of market opportunities, overcome
challenges, and act as an engine for sustained, inclusive growth, job creation,
and poverty reduction.

PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA)

PEZA - attached to the Department of Trade and Industry - is the Philippine
government agency tasked to promote investments, extend assistance, register, grant
incentives to and facilitate the business operations of investors in export-oriented
manufacturing and service facilities inside selected areas throughout the country
proclaimed by the President of the Philippines as PEZA Special Economic Zones.

It oversees and administers incentives to developers/operators of and locators in world-

class, ready-to-occupy, environment-friendly, secured and competitively priced Special
Economic Zones.

PEZA’s dynamic, responsive and client-oriented ethics have earned the trust and
confidence of investors in its Special Economic Zones, the local business sector, and
the foreign chambers of commerce in the Philippines. All Industrial Economic Zones are
manned by a PEZA officer and staff to immediately attend to stakeholders' needs and
concerns. Information Technology companies are attended to by Head Office.

PEZA is ISO 9001:2015 certified.

The creation of PEZA, the development of Special Economic Zones throughout the
country, and the very competitive incentives available to investments inside PEZA
Special Economic Zones are embodied in the Special Economic Zone Act of 1995, a
law passed by the Philippine Congress.

Operating Economic Zones

74 Manufacturing Economic Zone
262 Information Technology Parks/Centers
22 Agro-Industrial Economic Zone
19 Tourism Economic Zones
2 Medical Tourism Parks/Centers

Activities Eligible for PEZA Registration and Incentives

1. Export Manufacturing - manufacturing, assembly or processing activity resulting in
the exportation of at least 70% of production. (“Manufacturing / Processing” shall mean
the process by which raw materials or semi-finished materials are converted into a new
product through a change in their physical, mechanical or electro-magnetic
characteristics and/or chemical properties. “Assembly” shall mean the process by
which semi-finished parts or materials are put together or combined to form a distinct
product without substantially changing its physical or mechanical characteristics or
electro-magnetic and/or chemical properties.) Eligible firms shall qualify for registration
as “Economic Zone Export Manufacturing Enterprise.”

2. IT (Information Technology) Service Export - IT service activities, of which 70% of

total revenues is derived from clients abroad. (“IT Service Activities” are activities which
involve the use of any IT software and/or system for value addition). Among the IT
Service activities eligible for incentives are: IT-enabled services such as business
process outsourcing, call centers, data encoding, transcribing and processing, etc.;
software development and application, including programming and adaptation of system
softwares and middlewares; for business, media, e-commerce, education,
entertainment, etc.; content development for multi-media or internet purposes; and
others. Eligible firms shall qualify for registration as “IT Enterprise.”

3. Tourism – establishment and operation within PEZA Tourism Special Economic

Zones of sports and recreation centers, accommodation, convention, and cultural
facilities and their special interest attraction activities / establishments, with foreign
tourists as primary clientele. Eligible firms shall qualify for registration as “Tourism
Economic Zone Locator Enterprise.”

4. Medical Tourism – medical health services, endorsed by the Department of Health,

with foreign patients as primary clientele. Eligible firms shall qualify for registration as
“Medical Tourism Enterprise” in a Medical Tourism Special Economic Zone Park or
Center.

5. Agro-industrial Export Manufacturing – processing and or manufacturing of

agricultural products resulting in the exportation of its production. (“Processing” shall
mean the conversion of any agricultural and marine products from its raw state into
intermediate or final product which undergo physical and/or chemical change through
mechanical and/or chemical process.) Eligible firms shall qualify for registration as
“Agro-Industrial Economic Zone Export Enterprise.”

6. Agro-industrial Bio-Fuel Manufacturing – specialized manufacturing of agricultural

crops and eventual commercial processing which shall result in the production of clean
energy such as bio-fuels and the like. Eligible firms shall qualify for registration as
“Agro-Industrial Economic Zone Enterprise.”

7. Logistics and Warehousing Services - (a) operation of a warehouse facility for the
storage, deposit, safekeeping of goods for PEZA-registered Economic Zone Export
Manufacturing Enterprises, and or (b) importation or local sourcing of raw materials,
semi-finished goods for resale to - or for packing / covering (including marking /
labeling) cutting or altering to customers’ specification, mounting and/ or packaging into
kits or marketable lots for subsequent sale to - PEZA-registered Export Manufacturing
Enterprises for use in their export manufacturing activities, or for direct export, or for
consignment to PEZA-registered Export Manufacturing Enterprises and eventual
export. Eligible firms shall qualify for registration as “Economic Zone Logistics Services
Enterprise.”

8. Economic Zone Development and Operation :

• Manufacturing Economic Zone Development / Operation - development,

operation and maintenance of an economic zone for export manufacturing
enterprises, inclusive of the required infrastructure, facilities and utilities such as
light and power system, water supply and distribution system, sewerage and
drainage system, pollution control devices, communication facilities, paved road
network, administration building. Eligible firms shall qualify for registration as
 “Manufacturing Economic Zone Developer / Operator.”

• IT Park Development / Operation – development, operation and maintenance

of an area as a complex capable of providing infrastructures and other support
facilities required by IT Enterprises, as well as amenities required by
professionals and workers involved in IT Enterprise, or easy access to such
amenities. Eligible firms shall qualify for registration as “IT Park Developer /
Operator.”

• Tourism Economic Zone Development / Operation – development, operation

and maintenance of an integrated resort complex, with prescribed carrying
capacities of tourist facilities and activities, such as but not limited to, sports and
recreation centers, accommodations, convention and cultural facilities, food and
beverage outlets, commercial establishments and other special interest and
attraction activities / establishments, and provided with roads, water supply
facilities, power distribution facilities, drainage and sewage systems and other
necessary infrastructure and public utilities. Eligible firms shall qualify for
registration as “Tourism Economic Zone Developer / Operator.”

• Medical Tourism Economic Zone Development / Operation – development,

operation and maintenance of a Medical Tourism Park or Medical Tourism
Center which are planned and designed in accordance with the standards of the
Department of Health and the Department of Tourism to have support facilities
and services required for health and wellness, and provided with required
infrastructure facilities and utilities. Eligible firms shall qualify for registration as
“Medical Tourism Economic Zone Developer / Operator.”

• Agro-Industrial Economic Zone Development / Operation – development

operation and maintenance of an agro-industrial economic zone planned and
designed to have support facilities and services required for processing and
agro-based manufacturing facilities, and provided with the required infrastructure
facilities and utilities. Eligible firms shall qualify for registration as “Agro-Industrial
Economic Zone Developer / Operator.”

• Retirement Economic Zone Development /Operation – development.

operation and maintenance of a Retirement Economic Zone Park or Center,
planned and designed in accordance with the accreditation standards of the
Philippine Retirement Authority, and provided with the required infrastructure
facilities and utilities. Eligible firms shall qualify for registration as “Retirement
Economic Zone Developer / Operator.”
9. Facilities Providers :

• Facilities for Manufacturing Enterprises - construction as owner /operator of

factory buildings inside a PEZA Special Economic Zone for lease to PEZA-
registered Export Manufacturing Enterprises. Eligible firms shall qualify for
registration as “Economic Zone Facilities Enterprise.”

• Facilities for IT Enterprises – construction as owner/operator of buildings and

other facilities inside IT Parks which are leased to PEZA-registered IT
Enterprises. Eligible firms shall qualify for registration as “IT Park Facilities
Enterprise.”

• Retirement Facilities – establishment, operation and management of retirement

facilities and other related activities, with foreign retirees as primary
clientele, duly endorsed by the Philippine Retirement Authority, and located in a
Retirement Economic Zone. Eligible firms shall qualify for registration as
“Retirement Economic Zone Facilities Enterprise.”

10. Utilities – establishment, operation and maintenance of light and power systems,
water supply and distribution systems inside Special Economic Zones. Eligible firms
shall qualify for registration as “Economic Zone Utilities Enterprise.”

Philippine International Trading Corporation (PITC)

PITC is a chartered, government − owned International Trading Organization with over

thirty−six (36) years proven competency in the Outsourcing, Export Consolidation,
Logistics Solutions, Supply Chain Management, Import as well as Marketing of a wide
range of commodities, products and services Through PITC’s myriad trading platform,
PITC is confident and ready to facilitate and implement trade opportunities, establish
joint ventures, exclusive representation and distribution including business development
for emerging markets.

Government Outsourcing Services: PITC offers itself as an alternative outsourcing arm

for government procurement projects, ensuring greater transparency, cost-efficiency,
and speed of implementation.

Exports PITC has over thirty (30) years’ professional experience and expertise in the
export of a wide range of commodities, industrial products and consumer products. It
undertakes export trading, working with a network of Philippine manufacturers, offering
them a range of trade-related services to successfully bring the Philippine products to
the global arena. PITC helps Philippine entrepreneurs find their way onto the global
market through business product-matching, global supply chain management and
stakeholder relationship management. PITC works with International buyers or
importers by sourcing Philippine commodities, uniquely crafted products and
traditionally or organically grown produce. PITC services include:
• Sourcing products and service requirements
• Assurance of product and service quality
• Price and terms matching
• Assistance or facilitation of logistics, warehousing, transport and shipping
requirements up to the point of delivery.

PITC equips Filipino manufacturers, producers and suppliers—especially SMEs— with

basic exporting tips to compete in the world stage. First, we ensure their products are
world-class by having them pass our strict quality standards. Then we partner with
these companies by providing them with relevant information, advice, and assistance in
the aspects of product development, raw materials sourcing, packaging, marketing and
business development, logistics, and even financing.

PITC links these Philippine suppliers with our international clients, which include
supermarkets, department stores, retail and wholesale outlets, manufacturing
companies, construction firms, and foreign governments. We also enable our local
exporters to enter non-traditional markets to offset our country's procurement from
foreign suppliers, through Countertrade. Other services of PITC

• Buyer Supplier Matching

• Product Sourcing
• Coordinator of Orders
• Production Monitoring
• Quality Inspection and Assurance
• Order Consolidation
• Export Documentation
• Shipping Arrangements
• Coordination of Buyer's Visits
• Coordination with Government Agencies

Imports: PITC plays a key role in the government’s price and supply stabilization
programs through the strategic bulk importation of essential raw materials and critical
commodities. We explore opportunities to make the Philippines a possible market for
new products, innovations, technologies and components. We partner with International
suppliers looking to introduce new products and technologies to the Philippines. With
more than 90 million consumers, the Philippines is a broad potential market for new
products and services, with various industries that can be viable partners. We actively
seek partners to introduce new technologies, products and components to the
Philippine market as well as Philippine industries. PITC help drive the Philippines’
growth by helping the government bring in critical supplies, components, technologies,
and other commodities needed to boost the implementation of national priority programs
related to agriculture, energy and transportation, among others. Some of PITC’s
successes include supporting the transportation sector through importing affordable,
good-quality automotive parts and components. We also helped bring in medical supply
innovations (such as drug testing kits), which we are marketing locally in partnership
with local marketers and for the government. Other PITC services include:
• Direct trading (back to back or third-country trading)
• Indirect trading / indent sales
• Exclusive dealership / distributorship / local sales
• Import consolidation
• Bulk importation of essential and critical commodities for the government

PITC is actively searching for new products, technologies, and components from all
over the world that will meet current or emerging needs of the Philippine market and
industries. We invite you to be part of our global trade network by submitting your
company profile and product portfolio to us for registration.

How to avail PITC services

Step 1: Buyer sends a Letter of Intent (LOI) to PITC. Buyer also submits procedure
documents.
Step 2: LOI and procedure documents will be logged and reviewed by PITC and
simultaneously conducts due diligence.
Step 3: PITC produces a soft offer to the Buyer with details for the commodity
transaction
Step 4: Buyer confirms soft offer issues an Irrevocable Corporate Purchase Order
(ICPO), proof of funds (POF) or Bank Guarantee, for amount specified in LOI
Step 5: Upon receipt of the POF, PITC will issue a draft contract / Full Corporate Offer
(FCO) to Buyer. The FCO will constitute the authorization and other documents i.e.
NCND, IPFA, as applicable
Step 6: Buyer and PITC signs the Sales/Purchase Agreement
Step7: The Buyer's bank issues a Bank Guarantee (BG) to PITC's BankStep 8: PITC
submits Supplier's proof-of-product (POP) / Supply Allocation to Buyer
Step 9: Supplier's/PITC's Bank posts Non-Operative Performance Bond equal to 2% of
the value of the shipment.
Step 10: The Buyer's Bank opens a Documentary Letter of Credit (DLC) by Swift to
PITC's / Supplier's Bank
Step 11: Shipment/Delivery as per Sales/Purchase Contract.
Step 12: If long term contract, repeat process for each subsequent lift in Purchase
Order and or Contract.

Procedure documents for local buyers and importers

1. Submission of documentary requirements
a. Business Registration
b. Articles of Incorporation/By Laws
c. BIR Certificate of Registration
d. Company Profile/Business Profile
e. Pertinent Permits & Licenses, as required f. Letter of Intent
g. Irrevocable Confirmed Purchase Order (ICPO)
h. Bank Guarantee / Proof of Funds

2. Validation
a. Verification of Procedure Documents
b. Meeting and negotiation with buyers
c. Warehouse /Factory Site visit (whenever possible)

Countertrade: PITC implements the Countertrade Program of the Philippine

Government, utilizing government foreign procurement projects as a leverage to
encourage foreign suppliers to purchase Philippine products or channel investments
and technology into priority government sectors and strategic local industries.
What is countertrade? It is a general term for an international transaction that is
premised on some form of reciprocity. In the Philippine government setting,
countertrade is a supplemental trade tool in connection with transactions involving the
importation or procurement of foreign capital equipment, machinery, products, goods
and services of at least US$1 million and above (or its foreign currency equivalent). The
Countertrade policy was created by virtue of Executive Order (EO) No. 120 by former
President Fidel V. Ramos and applies to the national government, its departments,
bureaus, agencies and offices, including government-owned and controlled corporations
(GOCCs). PITC the sole implementing agency of the Countertrade Program on behalf of
the Department of Trade and Industry (DTI). PITC is engaged in the following forms of
Countertrade:
• Offsets - Whereby the primary supplier commits, as a condition of sale, to
undertake or to introduce a wide range of industrial and commercial activities for
the benefit of the buyer or the buyer's country such as:
• Industrial cooperation/participation
• Investments
• Technology transfer
• Grants
• Training and skills upgrade
• Research and development
• Donations
• Others (such as projects that contribute to the priority development programs of
the buyer and/or support to the national development programs of the buying
country)
• Counter-purchase (Counter Exports) - Whereby the primary supplier accepts
parallel obligations to purchase products and/or services from the buyer's
country.

Philippine Trade Training Center (PTTC)

PTTC is an agency of the Department of Trade and Industry. It was founded in 1987
through Executive Order No. 133. It is supported by the Japan International Cooperation
Agency (JICA) through a development assistance grant from the Government of Japan.
It assists exporters, potential exporters, manufacturers, and entrepreneurs through
provision of training on how to become competitive in the business field. Training
programs include advisory services on entrepreneurship development, export
management, quality and productivity improvement, e-business, and e-commerce. The
Center also has exhibition facilities for trade fairs and other events. PTTC offers
Training Programs for MSMEs according to their Level of Development – from Startup,
Growing, Expanding, to Sustaining Enterprise Level. These are also classified by Track
of Business Modeling, Human Capital Building, and Production Capacity Building. Some
of its future training programs are:

• With OVER 50 training courses, the FOOD Better Best program aims to bring
processed food to the best level by assisting MSMEs in their food safety & quality
management system and food safety certification requirements in the international
market, giving them an edge and strengthening their global market presence.
• PTTC Lifestyle Philippines offers 20 training courses on wearables like fashion &
accessories and home styles like furniture & furnishings, helping the MSMEs adapt
to the evolving trends and innovations of the Lifestyle sector. Register and learn how
you can balance cultural heritage preservation and economic gains while becoming
globally competitive at the same time!
• PTTC-GMEA offers 30 Services Plus+ training courses on digital productivity tools,
database management, inventory management, data mining, and e-marketing tools,
addressing the increasing importance and share of the Service sector in the global
trade.
• Training courses on Promotions, Certifications, Entrepreneurship, Export-Import, and
Digitalization of the three priority sectors are offered under ProCEED MSMEs
program, engaging aspiring entrepreneurs in honing their creative and technical
competencies in establishing their businesses.

Topic No. 7 – INTERNATIONAL TRADE AGREEMENTS

Trade agreements are treaties signed by two or more nations to encourage the free
flow of goods and services between or among the members. These agreements, which
can be bilateral or multi-lateral are presumably beneficial to the signing parties. But are
they? Hereunder is an article about it.

Free Trade Agreements with Their Pros and Cons

Advantages and Disadvantages and Their Possible Solutions
© The Balance, Updated April 27, 2020
BY KIMBERLY AMADEO REVIEWED BY MICHAEL J BOYLE
Free trade agreements are treaties that regulate the tariffs, taxes, and duties that
countries impose on their imports and exports. The most well-known U.S. regional trade
agreement is the North American Free Trade Agreement. The advantages and
disadvantages of free trade agreements affect jobs, business growth, and living
standards:

Key Takeaways

• Free trade agreements are contracts between countries to allow access to their
markets.
• FTAs can force local industries to become more competitive and rely less on
government subsidies.
• They can open new markets, increase GDP, and invite new investments.
• FTAs can open up a country to degradation of natural resources, loss of
traditional livelihoods, and local employment issues.
• Countries must balance the domestic benefits of free trade agreements with their
consequences.

Six Advantages

Free trade agreements are designed to increase trade between two or more countries.
Increased international trade has the following six main advantages:

• Increased Economic Growth: The U.S. International Trade Commission

estimated that NAFTA could increase U.S. economic growth by 0.1%-0.5% a
year.

• More Dynamic Business Climate: Without free trade agreements, countries often
protected their domestic industries and businesses. This protection often made
them stagnant and non-competitive on the global market. With the protection
removed, they became motivated to become true global competitors.

• Lower Government Spending: Many governments subsidize local industries.

After the trade agreement removes subsidies, those funds can be put to better
use.

• Foreign Direct Investment: Investors will flock to the country. This adds capital to
expand local industries and boost domestic businesses. It also brings in U.S.
dollars to many formerly isolated countries.

• Expertise: Global companies have more expertise than domestic companies to

develop local resources. That's especially true in mining, oil drilling, and
manufacturing. Free trade agreements allow global firms access to these
business opportunities. When the multinationals partner with local firms to
develop the resources, they train them on the best practices. That gives local
firms access to these new methods.
 • Technology Transfer: Local companies also receive access to the latest
technologies from their multinational partners. As local economies grow, so do
job opportunities. Multi-national companies provide job training to local
employees.

Seven Disadvantages

The biggest criticism of free trade agreements is that they are responsible for job
outsourcing. There are seven total disadvantages:

• Increased Job Outsourcing: Why does that happen? Reducing tariffs on imports
allows companies to expand to other countries. Without tariffs, imports from
countries with a low cost of living cost less. It makes it difficult for U.S. companies
in those same industries to compete, so they may reduce their workforce. Many
U.S. manufacturing industries did, in fact, lay off workers as a result of NAFTA.
One of the biggest criticisms of NAFTA is that it sent jobs to Mexico.
• Theft of Intellectual Property: Many developing countries don't have laws to
protect patents, inventions, and new processes. The laws they do have aren't
always strictly enforced. As a result, corporations often have their ideas stolen.
• Crowd out Domestic Industries: Many emerging markets are traditional
economies that rely on farming for most employment. These small family farms
can't compete with subsidized agri-businesses in the developed countries. As a
result, they lose their farms and must look for work in the cities. This aggravates
unemployment, crime, and poverty.
• Poor Working Conditions: Multi-national companies may outsource jobs to
emerging market countries without adequate labor protections. As a result,
women and children are often subjected to grueling factory jobs in sub-standard
conditions.
• Degradation of Natural Resources: Emerging market countries often don’t have
many environmental protections. Free trade leads to depletion of timber,
minerals, and other natural resources. Deforestation and strip-mining reduce
their jungles and fields to wastelands.
• Destruction of Native Cultures: As development moves into isolated areas,
indigenous cultures can be destroyed. Local peoples are uprooted. Many suffer
disease and death when their resources are polluted.
• Reduced Tax Revenue: Many smaller countries struggle to replace revenue lost
from import tariffs and fees.

Solutions
Trade protectionism is rarely the answer. High tariffs only protect domestic industries in
the short term. In the long term, global corporations will hire the cheapest workers
wherever they are in the world to make higher profits. A better solution than
protectionism is the inclusion of regulations within trade agreements that protect against
the disadvantages. Environmental safeguards can prevent the destruction of natural
resources and cultures. Labor laws prevent poor working conditions. The World Trade
Organization enforces free trade agreement regulations. Developed economies can
reduce their agribusiness subsidies, keeping emerging market farmers in business.
They can help local farmers develop sustainable practices. They can then market them
as such to consumers who value that. Countries can insist that foreign companies build
local factories as part of the agreement. They can require these companies to share
technology and train local workers.

To date, the Philippines has several existing Trade Agreements with other countries
particularly China and Japan. Being a part of the ASEAN, the Philippines is signatory to
several agreements signed by ASEAN Leaders with several countries. Some of the
agreements are:

• ASEAN Free Trade Agreement (AFTA)

General Overview

• ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA)

Tariffs

• ASEAN-China Free Trade Agreement (ACFTA)

Tariffs, Rules of Origin

• ASEAN-India Free Trade Agreement (AIFTA)

Tariffs

• ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEPA)

Tariffs

• ASEAN-Korea Free Trade Agreement (AKFTA)

Tariffs

• Philippines-Japan Economic Partnership Agreement (PJEPA)

Tariffs

• European Union Generalized Scheme of Preferences (EU GSP)

• United States Generalized Scheme of Preferences Plus (US GSP+) -Tariffs

US GSP Eligible Products

• Canada Free Trade Agreement (CFTA)

Tariffs

Aside from these Agreements, PEZA also just signed the entry of companies to operate
within its Zones, as reported by ASEAN Briefing.

New Economic Zones in the Philippines to Attract Foreign Investment

 July 23, 2020 Posted by ASEAN Briefing Written by Ayman Falak Medina

The Philippine government has approved 12 new economic zones in June 2020, which
will comprise of IT centers, IT parks, and manufacturing zones. The country’s largest
government investment agency, the Philippine Economic Zones Authority (PEZA), will
manage the economic zones. There are currently more than 400 economic zones in the
Philippines, each providing their own different fiscal and non-fiscal incentives to foreign
investors. This is set to change if the CREAT Act is passed in parliament, which will give
the President the power to offer such incentives.

In June 2020, Philippines announced the approval of 12 new economic zones, which
will be managed by the Philippine Economic Zones Authority (PEZA). These new
economic zones comprise of nine IT centers, two manufacturing ecozones, and one IT
park. The government is hoping these economic zones will yield more than P6.4 billion
(US$129,614,000) in 2020. PEZA is the country’s largest investment agency (IPA)
backed by the government tasked with assisting foreign investors in facilitating their
business operations in the country. Previously, each IPA used to have the power to
grant their own fiscal and non-fiscal incentives. However, under the government’s
proposed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), IPAs
will no longer have this privilege and incentives will be decided by the President on the
advice of Fiscal Incentives Review Board (FIRB). What are the new economic zones?
The new economic zones are of the following types:
• Abiathar Commercial Complex – IT center;
• TDG Innovation and Global Business Solutions Center – IT center;
• Millennium Industrial Economic Zone – Manufacturing;
• Ayala Bacolod Capitol Corporate Center – IT center;
• Silver City 4 – IT Center;
• Davao del Sur Industrial Economic Zone – Manufacturing;
• BatStateU Knowledge, Innovation and Science Technology Park – IT park;
• GLAS Office Development – IT center;
• Bench City Center – IT center;
• Ortigas Technopoint Tower 1 & 2 – IT center;
• NEX Tower – IT Center; and
• Robinsons Luisita 2 – IT center.
• The Batangas State University (BatStateU) Knowledge, Innovation and Science
Technology (KIST) Park is the first of its kind in the Philippines.
This knowledge-based economic zone will provide state-of-the-art facilities to catalyze
the collaboration between industry and academia, and foster innovation, techno-
preneurship, and business incubation. The university itself is the only higher education
institution in the country to be accredited by the United States Accrediting Board for
Engineering and Technology for its Engineering and Information Technology programs.
Investors operating in the Park are eligible to receive simplified import-export
procedures, income tax holidays, and other non-fiscal incentives. Investors should wait
for further implementing regulations to be issued by the government in relation to the
incentives provided in these new economic zones.
CREAT Act to rationalize tax incentives
The CREAT Act is proposed to be the largest stimulus program in the country’s history.
Through the Act, the government will immediately reduce the corporate income tax rate
from 30 to 25 percent, and the government will also be more flexible in granting fiscal
and non-fiscal incentives to attract high-value

Since time immemorial, the Philippines has always experienced an imbalance of

payment and imbalance of trade. In simple terms, the Philippines has always imported
more products than the volume of its exports. In monetary terms, more foreign
exchange outflows than inflows. In a way, this explains why the Philippine Peso has
depreciated through the years. In 1965, exchange rate was US$1.00-P2.00. Today, it is
hovering around P50.00-P51.00. The surplus shown below does not show the complete
picture of the Monetary System of the country. This is the reason why the National
Government with the support of the private sector should improve its international trade
and business strategies. This can be done by having more mutually-beneficial Trade
Agreements with other countries particularly those in the ASEAN Region. The
succeeding article illustrates the urgent need for more international trade and business
with other countries.

Overall BOP Position Posts US$839 Million Surplus in February 2020

04.15.2020

The country’s overall balance of payments (BOP) position posted a surplus of US$839 million in
February 2020, higher than the US$467 million BOP surplus recorded in the same month last
year. The BOP surplus in February 2020 reflected mainly the inflows arising from the National
Government’s foreign currency deposits with the BSP, and BSP’s foreign exchange operations
as well as income from its investments abroad. These inflows were partially offset, however, by
the payments made by the National Government for servicing its foreign currency debt
obligations during the month in review. However, for the period January – February 2020, the
cumulative BOP position registered a deficit of US$516 million, a turnaround from the US$3.17
billion BOP surplus recorded in the first two months of 2019. The deficit may be attributed partly
to merchandise trade deficit and net outflows of foreign portfolio investments based on the latest
available data. The BOP position reflects the final gross international reserves (GIR) level of
US$88.19 billion as of end-February 2020. This GIR level represents ample liquidity buffer
equivalent to 7.8 months’ worth of imports of goods and payments of services and primary
income. It is also equivalent to 5.1 times the country’s short-term external debt based on original
maturity and 3.7 times based on residual maturity. 1,2
1
Short-term debt based on residual maturity refers to outstanding external debt with original
maturity of one year or less, plus principal payments on medium- and long-term loans of the
public and private sectors falling due within the next 12 months.
2
The preliminary data on GIR as of end-February 2020 was released to the public on 6 March
2020. Preliminary data are released every 7th of the month in the Statistics section of the BSP’s
website in compliance with the International Monetary Fund’s (IMF) Special Data Dissemination
Standard (SDDS). If the 7th day of the month falls on a weekend or is a non-working holiday,
the release date shall be the working day before the 7th. Meanwhile, the BOP position and final
GIR data are published in the BSP’s website every 19th day of the month. If the 19th day of the
month falls on a weekend or is a non-working holiday, the release date shall be the working day
nearest to the 19th. The latest press release of the overall BOP position and final GIR data,
however, had been postponed due to the enhanced community quarantine in Luzon as a
precautionary measure against the spread of COVID-19.

Imbalance of Payments and Trade Deficit

By Study.com
Ideally, a country would produce everything it needs locally and would be able to export
without needing to import any raw material, good, or service. That country wouldn't have
a trade deficit. However, that's not realistic. Most countries lack the resources to
produce everything on their own, so they rely on foreign trade to buy what they lack and
sell what they produce. Many economies import more goods and services than what
they export, causing a trade deficit. If the exports are bigger, the country has a trade
surplus. Sometimes, trade deficits can be big. In 2017, the United States had a deficit of
about 450 billion dollars, the United Kingdom of some 100 billion, and Canada's deficit
was around 50 billion. Other countries export much more than they import. China is a
huge manufacturer and had a trade surplus of over 160 billion. Japan, South Korea, and
Germany also have trade surpluses.

Currency Fluctuations
Most countries have their own currency, and they exchange it for foreign currency in
order to buy foreign products. When they sell exports, they also exchange payments
made in foreign currency back into the domestic money. The exchange rate compares
the value of one currency to another, usually the US dollar. For example, One US dollar
buys about 6 Chinese yuan or over 60 Indian rupees, but it only buys around 0.74
British pounds. The continuous international transactions cause the exchange rate to
rise or fall, depending on supply, demand, and geopolitical events. Appreciation is the
increase in the value of a currency compared to others, and that currency can now buy
more foreign money. Depreciation, or devaluation, is the decrease in value of that
currency, so it can buy less. Small daily variations usually have no effect on trade
deficit. They might upset a business or two that will make less profit that day, but there
are no major consequences. However, bigger long-term variations can have an impact
on trade deficit because they affect the costs of imports, the relative price of exports,
and the demand for domestic products.

Effects of Currency Appreciation

Currency appreciation tends to make imports cheaper because the same amount of
local currency can buy more foreign products. Local consumers might find better prices
on imported goods, so imports tend to increase. Appreciation might also cause
domestic production to lose competitiveness in the international market because local
products are now worth more in foreign currency. Therefore, exports tend to decrease.
More imports and fewer exports expand the trade deficit.

Measures to Counteract the Effects

The actions to counteract the effects of currency appreciation usually focus on
stabilizing the exchange rate and protecting local producers. To prevent further
appreciation, governments might increase national reserves in foreign currency. By
buying foreign currency, they increase its demand and prevent further appreciation. To
prevent imports from replacing local production, governments sometimes increase taxes
on certain imported goods, so local consumers remain likely to buy local products.
Some countries also offer subsidies to local producers, helping them to remain
competitive and cope with lower local prices and less profitable exports.

Topic No. 8 - FACTORS THAT AFFECT INTERNATIONAL TRADE

Notwithstanding the benefits of FREE TRADE, many governments of highly developed
countries do certain acts that are inimical to other countries particularly their rivals in key
areas in the world market. An example of this is the continuing trade war between the
United States and China. This eco-political warfare unduly affects innocent countries
that are usually economically impoverished and politically insignificant. Powerful and
economically developed countries deftly and unreasonably protect their turf and interest
to the point meeting annually or as the need arises to address their mutual interests.
Hence, countries form themselves into powerful groups that they dictate and control
economic resources. Examples of these groups are: the G-Seven, BRICS, and the EU.
The ASEAN could be a powerful economic bloc but there are still issues that remain
unsettled. The article below explains some barriers to International Trade and Business.
 The Basics of Tariffs and Trade Barriers

by BRENT RADCLIFFE

International trade increases the number of goods that domestic consumers can choose
from, decreases the cost of those goods through increased competition, and allows
domestic industries to ship their products abroad. While all of these effects seem
beneficial, free trade isn't widely accepted as completely beneficial to all parties. In fact,
President Trump's 2016 presidential campaign was vehemently anti-trade. In June
2018, the Trump administration introduced billions of dollars in new tariffs on Chinese
imports and threatened tariffs on other countries. China retaliated by announcing tariffs
on U.S. imported goods, including steel and pork. In the same month, Trump introduced
tariffs on steel and aluminum imports from the European Union, Mexico and Canada as
well. In August, China announced a 25% tariff on $16 billion worth of U.S. goods
including vehicles and crude oil in retaliation to the U.S. tariffs on $16 billion worth of
Chinese goods. "This is tit-for-tat exactly," Art Hogan, chief market strategist at B. Riley
FBR told CNBC. "Our $16 billion comes at a scheduled time, which comes up on the
23rd. China said we see your $16 billion and we'll match your $16 billion."1 This article
will examine how some countries react to a variety of factors that attempt to influence
trade.

Key Takeaways
Tariffs, or taxes imposed on imports, have been making news lately as the Trump
administration initiated multiple tariff rounds on China and elsewhere. Tariffs are a type
of protectionist trade barrier that can come in several forms. While tariffs may benefit a
few domestic sectors, economists agree that free trade policies in a global market are
ideal. Tariffs are paid by domestic consumers and not the exporting country, but they
have the effect of raising the relative prices of imported products.

Who Collects a Tariff?

In simplest terms, a tariff is a tax. It adds to the cost borne by consumers of imported
goods and is one of several trade policies that a country can enact. Tariffs are paid to
the customs authority of the country imposing the tariff. Tariffs on imports coming into
the United States, for example, are collected by Customs and Border Protection, acting
on behalf of the Commerce Department. In the U.K., its HM Revenue & Customs
(HMRC) that collects the money. It is important to recognize that the taxes owed on
imports are paid by domestic consumers, and not imposed directly on the foreign
country's exports. The effect is nonetheless to make foreign products relatively more
expensive for consumers - but if manufacturers rely on imported components or other
inputs in their production process, they will also pass the increased cost on to
consumers. Often, goods from abroad are cheaper because they offer cheaper capital
or labor costs, if those goods become more expensive, then consumers will choose the
relatively costlier domestic product. Overall, consumers tend to lose out with tariffs,
where the taxes are collected domestically

General Agreement on Tariffs and Trade (GATT)

Why Are Tariffs and Trade Barriers Used?
Tariffs are often created to protect infant industries and developing economies but are
also used by more advanced economies with developed industries. Here are five of the
top reasons tariffs are used:
• Protecting Domestic Employment - The levying of tariffs is often highly
politicized. The possibility of increased competition from imported goods can
threaten domestic industries. These domestic companies may fire workers or
shift production abroad to cut costs, which means higher unemployment and a
less happy electorate. The unemployment argument often shifts to domestic
industries complaining about cheap foreign labor, and how poor working
conditions and lack of regulation allow foreign companies to produce goods more
cheaply. In economics, however, countries will continue to produce goods until
they no longer have a comparative advantage (not to be confused with
an absolute advantage).
• Protecting Consumers - A government may levy a tariff on products that it feels
could endanger its population. For example, South Korea may place a tariff on
imported beef from the United States if it thinks that the goods could be tainted
with a disease.
• Infant Industries - The use of tariffs to protect infant industries can be seen by
the Import Substitution Industrialization (ISI) strategy employed by many
developing nations. The government of a developing economy will levy tariffs on
imported goods in industries in which it wants to foster growth. This increases the
prices of imported goods and creates a domestic market for domestically
produced goods while protecting those industries from being forced out by
more competitive pricing. It decreases unemployment and allows developing
countries to shift from agricultural products to finished goods. Criticisms of this
sort of protectionist strategy revolve around the cost of subsidizing the
development of infant industries. If an industry develops without competition, it
could wind up producing lower quality goods, and the subsidies required to keep
the state-backed industry afloat could sap economic growth.
• National Security - Barriers are also employed by developed countries to
protect certain industries that are deemed strategically important, such as those
supporting national security. Defense industries are often viewed as vital to state
interests, and often enjoy significant levels of protection. For example, while both
Western Europe and the United States are industrialized, both are very protective
of defense-oriented companies.
• Retaliation - Countries may also set tariffs as a retaliation technique if they think
that a trading partner has not played by the rules. For example, if France
believes that the United States has allowed its wine producers to call its
domestically produced sparkling wines "Champagne" (a name specific to the
Champagne region of France) for too long, it may levy a tariff on imported meat
from the United States. If the U.S. agrees to crack down on the improper
labeling, France is likely to stop its retaliation. Retaliation can also be employed if
a trading partner goes against the government's foreign policy objectives.

Common Types of Tariffs

There are several types of tariffs and barriers that a government can employ:
• Specific tariffs
• Ad valorem tariffs
• Licenses
• Import quotas
• Voluntary export restraints
• Local content requirements

Specific Tariffs
A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This
tariff can vary according to the type of good imported. For example, a country could levy
a $15 tariff on each pair of shoes imported, but levy a $300 tariff on each computer
imported.

Ad Valorem Tariffs
The phrase "ad valorem" is Latin for "according to value," and this type of tariff is levied
on a good based on a percentage of that good's value. An example of an ad valorem
tariff would be a 15% tariff levied by Japan on U.S. automobiles. The 15% is a price
increase on the value of the automobile, so a $10,000 vehicle now costs $11,500 to
Japanese consumers. This price increase protects domestic producers from being
undercut but also keeps prices artificially high for Japanese car shoppers. Non-Tariff
Barriers to Trade

Licenses
A license is granted to a business by the government and allows the business to import
a certain type of good into the country. For example, there could be a restriction on
imported cheese, and licenses would be granted to certain companies allowing them to
act as importers. This creates a restriction on competition and increases prices faced by
consumers.

Import Quotas
An import quota is a restriction placed on the amount of a particular good that can be
imported. This sort of barrier is often associated with the issuance of licenses. For
example, a country may place a quota on the volume of imported citrus fruit that is
allowed.

Voluntary Export Restraints (VER)

This type of trade barrier is "voluntary" in that it is created by the exporting country
rather than the importing one. A voluntary export restraint is usually levied at the behest
of the importing country and could be accompanied by a reciprocal VER. For example,
Brazil could place a VER on the exportation of sugar to Canada, based on a request by
Canada. Canada could then place a VER on the exportation of coal to Brazil. This
increases the price of both coal and sugar but protects the domestic industries.

Local Content Requirement

Instead of placing a quota on the number of goods that can be imported, the
government can require that a certain percentage of a good be made domestically. The
restriction can be a percentage of the good itself or a percentage of the value of the
good. For example, a restriction on the import of computers might say that 25% of the
pieces used to make the computer are made domestically, or can say that 15% of the
value of the good must come from domestically produced components.

Who Benefits from Tariffs?

The benefits of tariffs are uneven. Because a tariff is a tax, the government will see
increased revenue as imports enter the domestic market. Domestic industries also
benefit from a reduction in competition, since import prices are artificially inflated.
Unfortunately for consumers - both individual consumers and businesses - higher import
prices mean higher prices for goods. If the price of steel is inflated due to tariffs,
individual consumers pay more for products using steel, and businesses pay more for
steel that they use to make goods. In short, tariffs and trade barriers tend to be pro-
producer and anti-consumer. The effect of tariffs and trade barriers on businesses,
consumers and the government shifts over time. In the short run, higher prices for
goods can reduce consumption by individual consumers and by businesses. During this
period, some businesses will profit, and the government will see an increase in revenue
from duties. In the long term, these businesses may see a decline in efficiency due to a
lack of competition, and may also see a reduction in profits due to the emergence
of substitutes for their products. For the government, the long-term effect of subsidies is
an increase in the demand for public services, since increased prices, especially in
foodstuffs, creates less disposable income.

How Do Tariffs Affect Prices?

Tariffs increase the prices of imported goods. Because of this, domestic producers are
not forced to reduce their prices from increased competition, and domestic consumers
are left paying higher prices as a result. Tariffs also reduce efficiencies by allowing
companies that would not exist in a more competitive market to remain open. When a
tariff or other price-increasing policy is put in place, the effect is to increase prices and
limit the volume of imports. In the figure below, price increases from the non-tariff P* to
P'. Because the price has increased, more domestic companies are willing to produce
the good, so Qd moves right. This also shifts Qw left. The overall effect is a reduction in
imports, increased domestic production, and higher consumer prices.

Tariffs and ModernTrade

The role tariffs play in international trade has declined in modern times. One of the
primary reasons for the decline is the introduction of international organizations
designed to improve free trade, such as the World Trade Organization (WTO). Such
organizations make it more difficult for a country to levy tariffs and taxes on imported
goods, and can reduce the likelihood of retaliatory taxes. Because of this, countries
have shifted to non-tariff barriers, such as quotas and export restraints. Organizations
like the WTO attempt to reduce production and consumption distortions created by
tariffs. These distortions are the result of domestic producers making goods due to
inflated prices, and consumers purchasing fewer goods because prices have increased.
Since the 1930s, many developed countries have reduced tariffs and trade barriers,
which has improved global integration and brought about globalization. Multilateral
agreements between governments increase the likelihood of tariff reduction, while
enforcement of binding agreements reduces uncertainty.

The Bottom Line

Free trade benefits consumers through increased choice and reduced prices, but
because the global economy brings with it uncertainty, many governments impose
tariffs and other trade barriers to protect the industry. There is a delicate balance
between the pursuit of efficiencies and the government's need to ensure low
unemployment.

Topic No. 9 - STEPS TO TAKE ON HOW TO IMPORT

1. Determine just exactly what you need: finished or semi-finished?
2. Determine specifications: size, weight, materials used, applications, etc.
3. Check possible suppliers (the more the better)
- Start with local representative (Exclusive Distributor) if your requirement is
imported.
- Contact with Commercial Attaches (Foreigners who are here, Filipinos in
other countries)
- Current users in the country
- Banks, Trade Associations, Chambers of Commerce and industry, Trade
Attaches
- Trading companies particularly from Japan’s Sogo Shosha. Please read
article herein under this topic*.
4. Communicate with possible suppliers. Request for corporate brochures, list of
clients and Pro-forma Invoice. This Pro-forma invoice should include clearly the
following:
- Official Name of the company
- Office and factory addresses
- Contact numbers
- Unit price/total prices (FOB, C&F, CIF, FOB destination), US Dollar or
Singapore Dollar, Japanese Yen, etc.
- Complete specifications in standard sizes (inches or centimeters, pounds
or kilos, yards or meters, etc.
- Minimum Order and Maximum Order
- Manufacturing Capacity per day, per week (seven days), per month (30
days) inclusive of holidays at point of manufacturing
- Delivery period/schedule (from receipt of L/C or Letter of Credit) and be
clear whether it is working or calendar days at point of manufacturing
- Name and address of his Authorized Agent Bank (e.g. HSBC, Citibank,
DBS, etc.)
- Name of authorized contact person and/or his deputy or assistant
- Required documents for importation (source of products) that will be
included in the Letter of Credit such as, but not limited to, Bill of Lading,
Airway Bill, Insurance Policy, Good Manufacturing Practice Certificate,
 Consular Invoice, Product Registration Certificate from the government of
the exporting country, Laboratory Test Results, Technical Results,
Approved for Export Certificate by Exporting Country, Underwriters
Laboratory (UL) Listed Certificate, etc.
5. Request for product samples if possible
6. Select/evaluate submitted Pro-Forma Invoices
7. Make a background check of the company(ies) that you are considering
8. Don’t request for discounts regardless of the volume of your orders. You may
request some other matters such as earlier delivery, change of specifications,
change of currency denomination, insurance may be local or foreign, etc.
9. Get an experienced, recognized and all-service Customs Broker. Check with him
the landed cost of the product that you intend to import. If you are not satisfied
with the landed cost that would lessen your desired profit, you may need to scout
for more possible suppliers.
10. Do not keep your interested suppliers in suspense. Make your decision to buy or
not to buy as soon as possible. Some suppliers indicate the date of validity of
their offers. This happens usually when the prices of the raw materials that they
use keep fluctuating. An example of is an oil-based paint.
11. Upon choosing your prospective supplier, sign/approve immediately his Pro-
Forma Invoice; and let the supplier know about it immediately.
12. With a copy of your approved Pro-Forma Invoice, go to your
commercial/universal bank or Authorized Agent Bank (AAB) apply for a Letter of
Credit. Upon receipt of your L/C Application, your bank will forward it to Bangko
Sentral ng Pilipinos (BSP) for the approval. BSP has to know whether the item(s)
to be imported is not banned; and BSP has to know the amount of foreign
exchange that goes in and out of the country. This will help BSP determine the
Philippines’ Foreign Exchange Reserves anytime. Also, BSP makes sure that
exchange rates will not go wild. If the exchange rate is US$1.00-P60.00, prices of
imported items like medicines, oil, machines, etc. will be really up and this would
adversely affect the consumers.
13. Upon approval, your AAB will require you to deposit one hundred percent (100%)
of the amount of your importation in foreign currency. If your importation is worth
US$100,000.00, you have to deposit the PESO equivalent of US$100,000.00.
Please take note that the PESO equivalent of your importation may change daily
depending on the official exchange rate on the day you make the said
transaction. Example: if today, the exchange rate is US$1.00-P50.00, you need
to deposit P5,000,000.00 plus bank service charges. If the next day, you
finalized your transaction with your AAB, and the official Inter-Bank rate is
US$1.00-P50.00, you have to deposit P5,100,000.00 plus bank service
charges. The official inter-bank rate is just a guide; hence, an ABB may use a
different rate. When you buy a foreign exchange from a bank, the rate is higher
but when you sell, the rate is lower. Banks make money out of these
transactions. If the importer’s bank knows him that well and that he has a good
business reputation, the importer might not be required to deposit 100% of the
amount of the goods to be imported. He may just be required to make a
 marginal deposit. It could be as low as ten percent (10%) or as high as seventy
percent (10%).
14. In his approved L/C, he should see to it that it conforms with the instructions of
the exporter; and it must include documents that are needed by his AAB, Bureau
of Customs and other government regulatory agencies such as: Packing List,
Certificate of Product Origin, Commercial Invoice, Import Permit, Bill of Lading or
Airway Bill, Insurance Policy, etc.
15. Upon loading of goods in a cargo vessel, the exporter has to get a copy of the Bill
of Lading of the shipping line. This will prove that the goods ordered were really
loaded in the cargo vessel. The exporter should have prepared a Packing List,
and got the required documents mentioned in the L/C that he got from
importer/buyer.
16. Upon complying with the required documents and the terms and conditions
mentioned in the L/C, the exporter may now go to his bank to collect his money.
Meantime, the exporter’s bank will collect from the importers bank for the money
that he gave to the exporter upon submission of the documents mentioned in the
L/C to the importer’s bank.
17. Upon receipt of the documents, the importer’s bank will advise him of the
documents that it received which will be needed to bring out the goods from the
Customs. The AAB will immediately give to the importer the documents if the
latter deposited one hundred percent (100%) of the cost of importation.
18. If the importer deposited only fifty percent (50%) of the cost of imported goods,
he will have to pay his bank the balance of fifty percent (50%) plus interest of
the balance before the documents are given to him. However, if the importer
does not have money to pay the balance, the AAB may still give him the
documents provide he signs a TRUST RECEIPT. It simply means that AAB gives
the documents to the importer in TRUST with the expectation that the AAB will
be paid in full and with interest immediately upon the selling of the goods at the
Customs. Effectively, AAB owns the goods brought out from the Customs.
19. An Accredited Customs Broker brings out the goods for a fee. At the Bureau of
Customs and Philippines, he will pay the following on behalf of his client/importer:

Import Tax and Duty

How to Calculate Import and Sales Tax in the Philippines?

Both the import duty and taxes as well as customs duties will be pending. Note that
while importing goods to the Philippines, you can clear them either as a private
individual or a commercial entity. How to calculate import tax in the Philippines? The
import taxes and duty will be calculated based on the complete shipping value. This
also includes the cost of your imported goods, the freight, and the insurance. As well,
the imports are subject to Sales Tax.
Duty and Sales tax for the Philippines:

Example:
If the CIF value of the imported goods is USD 1,000, Import Duty is 5%, and the Sales
Tax is 12%. Then the duty/taxes calculation is:
Import Duty = 5% * USD 1,000 = USD 50
VAT = 12% * (USD 1,000 + USD 50) = USD 126
Total Import Duty and Tax = USD 50 + USD 126 = USD 176

Changes in the Import Tax in the Philippines

Importing to the Philippines is now easier as the tariffs have been removed on
approximately 99% of all goods from ASEAN trading partners due to the ASEAN Trade
and Goods Agreement (ATIGA). The highest customs tariff rates apply to products
derived from sugar and cereal products. However, a rule of thumb is that higher tariffs
are overall implemented on imported manufactured goods if they are in competition with
locally produced items. Especially when in comparison to those without any or low local
competition. The Government’s main idea behind the applied duty rates is to follow
domestic and global economic developments. This provides protection to local
producers, especially in the sectors concerning manufacturing and agriculture.
Extra Taxes and Customs While Importing
The Philippines Custom system is based on the Standard International Trade
Classification (SITC) of the United Nations (Revision 2).

Payment of Ad Valorem Tax

It is often that duties are calculated Ad Valorem and will be specified in the Philippines
Customs Code. When importing certain goods to the Philippines, you must consider the
payment of Ad Valorem Tax.
Ad Valorem Tax applies to: Alcohol, Tobacco, automobiles, and jewelry. Ad Valorem
Tax depends on the quality or content of the products. Also, it is payable irrespective of
the import value. Note that you are still able to import some goods to the Philippines
free of duty – for example, magazines, books and some electronic products like laptops.

Value-added Tax

Value-added Tax (VAT) is applied as well as collected from every importable good in
the Philippines. VAT is currently equivalent to 12% on the total landed cost.

Warehouse Processing Charges

In addition to VAT, there are two types of Warehouse Processing Charges (WPC) you
will be facing in the Philippines in case of handling shipments: Storage charge and
Warehouse handling charges.

Excise Tax in the Philippines

The Philippines also require an excise tax, which is payable at varying rates on different
products, including also: Alcohol, Tobacco, Petroleum products, Mineral products,
 Automobiles, Jewelry, Perfume, Toilet waters, Yachts and vessels intended for pleasure
or sport (either 20% of the wholesale price or value of the importation as per the Bureau
of Customs)

Bulk and Break Bulk Cargo Fee

The Philippines has embraced a cargo clearance enhancement program for the bulk
and breakbulk cargo fee.
These commodities include:

• Liquids
• Chemicals
• Petroleum products
• Dry cargoes (grain)
• All other cargoes shipped in bulk or break-bulk (such as wood, steel, etc.)

Payments to Philippine Ports Authority on Cargoes

1. All non-containerized foreign cargoes coming in (imported), going out (exported) or transshipped
through a government-owned wharf shall be charged WHARFAGE for the use of port facilities on the
basis of the total metric or revenue tonnage whichever is applicable, rounded off to the nearest
ton, as follows:

If Imported
Cargoes in Sack/Bags/Bulk/Uncrated Live Animals/Steel Products Logs
a. and P36.65
Lumber/Heavy Lift Per Metric Ton
b. Others Per Revenue Ton P30.55
If Exported
Cargoes in Sack/Bags/Bulk/Uncrated Live Animals/Steel Products Logs
a. and P18.35
Lumber/Heavy Lift Per Metric Ton
b. Others Per Revenue Ton P15.25
Foreign Transshipment
A single charge per metric or revenue ton payable by shipping agent
Cargoes in Sacks/Bags/Bulk/Steel Products, Logs and Lumber/Heavy
a. US$0.833
Lift Per Metric ton
b. Others Per Revenue Ton US$0.694
PROVIDED that the minimum charge shall be P10.00

2. All containerized foreign cargoes (FCL or LCL singles) shall be

charged WHARFAGE per box as follows:
PROVIDED, that if cargoes in a box are owned by more than one (1)
shipper/consignee, that is, LCL containers, the WHARFAGE for non-containerized
cargoes shall apply; and PROVIDED FURTHER that NO WHARFAGE shall be
charged on empty containers, i.e. without contents of any sort.
3. All non-containerized domestic cargoes shall be charged WHARFAGE as they enter
or leave a government-owned wharf on the basis of their total revenue or metric
tonnage rounded off to the nearest ton, as follows:

If Imported
20 – ft P519.35
35 – ft P656.85
40 – ft P779.05
45 – ft P916.50
If Exported
20 – ft P259.70
35 – ft P329.95
40 – ft P391.05
45 – ft P458.25
Foreign Transhipment
Per TEU US$ 1.00

Domestic Wharfage Fee Jan. 01 2007 Jan. 01 2008 Jan. 01 2009

Non-containerized Cargoes

Cargoes in Sacks/Bags/Bulk/ Uncrated Live

Animals / P6.00 P7.00 P9.00
Steel Products/Logs and Lumber/ Heavy Lift

Per Metric Ton

Others
P5.00 P6.00 P7.00
Per Revenue Ton
P10.00 P12.00 P15.00
Minimum Charge
10' Box or shorter P43.00 P52.00 P63.00
20' Box P86.00 P105.00 P126.00
35' Box P107.00 P131.00 P157.00
40' Box P129.00 P157.00 P189.00
45' Box P151.00 P184.00 P221.00

3.1 Domestic cargoes, whether containerized or not, that are loaded/discharged at

anchor without using any government wharf or at officially registered private ports shall
be charged one-half (1/2) of the usual Domestic Wharfage Fee.
Provided that if cargoes in a box are owned by more than one shipper/consignee (LCL),
the WHARFAGE for non-containerized cargo shall apply.
PROVIDED FURTHER, that NO WHARFAGE shall be charged on an empty box, i.e.
without contents of any sort.
The WHARFAGE for all foreign and domestic cargoes whether containerized or not that
are loaded or discharged from a vessel at anchor without using any government wharf
or at an officially registered private port whether operated exclusively or commercially,
shall be one-half (1/2) of the corresponding charge a government-owned port.

Sogo shosha*
Seven major sōgō shōsha[
Earnings Total assets Net assets
Name
(FY 2015) (Mar. 2015) (Mar. 2015)
Mitsubishi 400,574 16,774,366 5,570,477
Mitsui 306,490 12,202,921 4,099,795
Sumitomo -84,374 9,021,370 2,481,432
Itochu 300,569 8,560,701 2,433,202
Marubeni 105,604 7,673,064 1,518,515
Toyota Tsusho 67,571 4,533,693 1,125,512
Sojitz 33,075 2,297,358 550,984
Sogo shosha (総合商社, sōgō shōsha, or general trading
companies) are Japanese companies that trade in a wide range of products and
materials. In addition to acting as intermediaries, sōgō shōsha also engage in logistics,
plant development and other services, as well as international resource exploration.
Unlike trading companies in other countries, which are generally specialized in certain
types of products, sōgō shōsha have extremely diversified business lines, in which
respect the business model is unique to Japan.[3]The structure of sōgō shōsha can give
them advantages in international trade. First, they have extensive risk management
capabilities in that they trade in many markets, keep balances in many foreign
currencies and can generate captive supply and demand for their own operations. They
also have large-scale in-house market information systems which give them economies
of scale in pursuing new business opportunities. Their vast scale also allows them to
provide capital in the form of credit, financing and export services at low cost.[4] Mitsui
CEO Masami Iijima described general trading companies as similar to investment funds
such as private equity funds, but distinguished by their ability to identify and implement
business opportunities in various industries using the information and human resources
gleaned from their trading business.
Sōgō shōsha are among the highest-paying employers in Japan; in 2011, six of the
seven majors had average salaries of over 10 million yen. Along with financial
institutions, they have consistently been among the most popular employers for
graduates of top Japanese universities (Tokyo, Waseda and Keio) for over thirty years
due to their high pay levels, stability and the diversity of opportunities available to
employees.
Historical background
After the opening of Japan in the mid-1800s, trade between Japan and the outside
world was initially dominated by foreign merchants and traders from Western countries.
As Japan modernized, a number of existing family-run conglomerates known
as zaibatsu (most notably Mitsubishi and Mitsui) developed captive trading companies
to coordinate production, transportation and financing between the various enterprises
within the group. A number of smaller and more specialized Japanese firms, particularly
in the cotton supply industry, also took on a larger role in acting as intermediaries for
foreign trade, initially in importing raw cotton and later in exporting finished
products. These companies were characterized by handling a variety of products,
targeting various regions for their trading, establishing modern institutionalized risk
management methods for their trading, and making substantial investments in domestic
industrial operations. After World War II, foreign trade was briefly suspended and
the zaibatsu were dismantled. The powerful trading arms of Mitsui and Mitsubishi were
each dissolved into over a hundred smaller businesses. When trade resumed in 1950,
the first diversified trading companies emerged as Kansai region-based textile traders
(most notably Itochu, Marubeni, Toyo Cotton and Nichimen) and steel traders (most
notably Iwai and Nissho, which later merged to form Nissho Iwai) diversified into new
business lines. The remnants of the Mitsubishi and Mitsui zaibatsu also coalesced in the
1950s to form new large-scale trading concerns. The term sōgō shōsha came into use
around 1955 to refer to this broad set of firms, which by 1960 had coalesced into ten
large and highly diversified companies:
- Ataka & Co. (collapsed in 1977; iron and steel arm merged with C. Itoh)
- C. Itoh & Co. (now Itochu)
- Kanematsu (recharacterized as a specialized trading company in 1999)[9]
- Marubeni
- Mitsubishi Corporation
- Mitsui & Co.
- Nichimen (now Sojitz)
- Nissho Iwai (now Sojitz)
- Sumitomo Corporation
- Tomen Corporation (now Toyota Tsusho)
Sōgō shōsha became a core component of the postwar "keiretsu" business model, in
which large commercial banks played a central role in each major keiretsu with a sōgō
shōsha playing a secondary central role that diminished over time. Until the 1980s, sōgō
shōsha operations were largely concentrated on supporting Japanese manufacturers'
international transactions, particularly in the textile and chemical industries. Since then,
Japanese manufacturers have taken a more direct role in international procurement,
sales and marketing, and the sōgō shōsha have shifted their business focus to services
such as finance, insurance, transportation, project management and real estate
development, with much of this business conducted outside Japan through local
subsidiaries and affiliates. The collapse of the Japanese asset price bubble in the early
1990s led to a wave of mergers and reorganizations among sōgō shōsha, reducing their
total number to seven.
Parallels in other countries
Sōgō shōsha developed in Japan as a result of several factors unique to Japan. Japan's
geographical remoteness and unique language and culture all served to increase the
costs of information and negotiation. Its closure from the outside world for over 200
years meant that trade had to be developed in a very short period of time relative to
Europe, where networks could naturally develop over a longer period of time. Japan
also lacked effective capital markets to fund companies, and its industrial base was
largely composed of cottage industry enterprises that could not market on their own, in
contrast to the larger firms prevalent in the West. The chaebol of South Korea followed
a similar path of developing trading companies in the mid-1970s. The United States also
attempted to emulate the business model to promote exports in the early 1980s by
enacting the Export Trading Company Act of 1982. At the time the law was debated,
Mitsui & Co. was the sixth-largest exporter from the United States, and sogo shosha
accounted for about half of Japan's inbound and outbound trade.

*Sogo shosha From Wikipedia, the free encyclopedia

Topic No. 10 - How to Start and Operate an Export Business*

What is a good way to start a successful business from nothing and have fun doing it?
The export business may be your answer. Not only does it require little financial
investment to start, but it offers the prestige of working with customers from all over the
world. Exporting is both challenging and rewarding. Export procedures are simple and
the export documentation required has been lessened. Build your knowledge and
develop skills on the dynamics of exporting by attending seminars/training courses on
the basics of exporting, letters of credit, negotiating with the foreign buyers, etc. The
Philippine Trade Training Center offers courses on these topics.

How to set up an Export Business

To set up an exporting business, you have to register with the Department of Trade and
Industry (DTI) if it is a sole proprietorship. Partnership and Corporations have to be
registered with the Securities and Exchange Commission (SEC). You also need to
register with the city or the municipality where you intend to operate the business as
well as with the Bureau of Internal Revenue. However, even before operating your
business, make sure first that the basic elements of a viable export enterprise are
present. These are:
* Organization Readiness – Management is willing to commit resources of the
enterprise.
* Product Readiness – Product meets foreign buyers’ requirements in both quality and
price.

General Export Procedure

1. Upon receipt of a purchase order from a foreign buyer, immediately send him a
proforma invoice for confirmation. An order is confirmed when the proforma invoice is
signed and returned to you by the buyer.
2. Payment for exports is normally made through the banks. The foreign buyer’s interest
in the Philippines is represented by a local authorized agent bank, which is designated
by the foreign buyer’s bank. The local Authorized Agent Bank (AAB) will assist you in
negotiating the collection of the payment for your exports.
3. The AAB will explain to you all the instructions concerning your shipment to ensure its
acceptability for payment. Make sure that you understand all the instructions provided
by the bank. If the instructions are written in a foreign language, ask the bank to give
you an official translation in English or ask the bank to officially recognize a translation
of the instructions, if the translation was made by someone other than the bank.
4. Exporters may be paid through banks by means of letters of credit (L/C), documents
against payment (D/P), documents against acceptance (D/A), open account (O/A), cash
against documents (CAD), prepayment/export advance, inter-company open account,
offset arrangement, consignment, or telegraphic transfer.
5. You may or may not need outside financing to produce export products ordered by
the buyer. Should you, however, find the need for outside financing, you can either tap
the assistance of government or non-government financial institutions.

Export Documentation
1. When you are ready to ship, fill up an Export Declaration (ED) form. Sample ED
forms are available at BETP, DTI Provincial offices, BOC Processing Units, OSEDCs
and PHILEXPORT offices.
2. Secure an export commodity clearance/export permit from the proper government
commodity office, if your product is included in the list of regulated products for
exportation or if the buyer requires.
3. With the required supporting documents, submit the accomplished ED form to the
BOC Processing Unit for the approval of the Authority to Load (AL).

Sending Sample Shipments

Follow steps 1, 2, and 3, of Export Documentation.

Loading in Manila
Cargoes to be transported by air are inspected by the BOC at the NAIA. Conventional
cargoes, whether containerized or non-containerized, to be transported by ship are
inspected by the Customs Container Control Division and the Piers and Inspection
division, respectively, after payment of the wharfage fee and arrastre charges.
Wharfage fee and arrastre services may be paid at South Harbor or MICP. However, for
BOI and PEZA registered companies, stamping or exemption from payment of wharfage
fee may be done at the PPA Unit of OSEDC-Manila at Roxas Boulevard. Loading can
either be at the North or South Harbor.

Loading at Provincial Ports

Documentation (steps 1-3) may be done in Manila. After approval of the Authority to
Load, BOC sends message to BOC at the Port of Loading. You can also process
documents and secure Authority to Load from the local OSEDC (now in Clark, Davao,
Baguio, General Santos, Iloilo, Cebu, Cagayan de Oro, and Subic Bay Special
Economic Freeport Zone). After loading, the BOC issues the following documents upon
request:
1. Certificate of Origin, Form A (for export products covered by the Generalized System
of Preferences (GSP). You can inquire about the GSP from DTI Bureau of International
Trade Relations or Bureau of customs.
2. General Certificate of Origin (for export products not availing of preferences under
GSP).
3. Certificate of Origin, Form D (for export products covered by the ASEAN Common
Effective Preferential Tariff Scheme).
4. Certificate of Shipment.

Furnish the AAB, for record purposes, a copy of the duly accomplished ED form
together with other shipping documents, if export negotiation or payment is coursed
through them. For shipments that are prepaid, send the original commercial and
shipping documents to the buyer.

Source: dti.gov.ph

How to Export Products from the Philippines by Airspeed

When it comes to transporting different kinds of products and goods across varying
distances, logistics industries have the knowledge, equipment, and capacity to provide
fast and safe deliveries. Whether it be transporting imported products within the country,
or exporting products abroad, it is best to get the best freight companies to do the job.
While importing products to the country is a common practice in international trade and
commerce, export products from the Philippines are also widespread. As one of the
biggest exporters of products like rice and fruits, exporting products and goods out of
the country is a process that freight logistics services would be able to provide.

How do you export products and goods from the Philippines? Exporting products is a
process that not only requires you to adhere to standard logistics procedures. You also
have to make sure you have the right service to do the job, along with the necessary
documents and clearances to allow you to distribute them internationally. Once you
have secured the proper clearances, here are other steps you need to take in order to
export products from the Philippines.

Gather and analyze Philippine import data

Before you proceed to the initial export process, it is important to take a look at
the country’s import data. This is an important information resource since you need to
analyze the current market trends and see which products are being widely distributed
in and out of the country. This is used by different companies and industries to see
which products are popular, so they can determine if exporting their product of choice is
a viable decision. Market analysis is crucial in the logistics industry. Exporters have to
know the current product trends in international and local trade. Once you have
analyzed the import data, the next step is to fill up all of the necessary documents to
become a licensed and verified exporter. Similar to acquiring your importer license, you
would need official product receipts from the buyer, along with government clearances
to export the product of your choice. Like importing products, exporting has now
become a more streamlined process. It is now easier to get the necessary clearances
that allow you to transport products overseas. Make sure you have all of the necessary
copies of your documents, as customs offices abroad would need them for further
verification.

Be aware of the restrictions

It is important to take note of items and products that are restricted by both local and
international customs offices. Certain products may be restricted for a number of
different reasons, such as international trade embargoes, national emergencies, or to
comply against the distribution of dangerous materials and substances.
Restrictions can hamper the entire transportation process, which can be very costly.
The best step is to prevent the products from being distributed in the first place.
Customs offices regularly have an updated list of restricted products and items, and it is
important to check them before making international product deliveries.

Find the right logistics partner

After processing all of the necessary documents for exportation, you can now begin the
delivery process. It is important your exported products arrive at their destination safely
and quickly, which is why you need to find the right logistics company to do the job. One
of the most efficient logistics services that provides you with the fastest and safest
delivery experience is freight forwarding services.

Conduct the delivery

After finding a logistics partner to export your products, you can now have it delivered to
its destination. During this process, proper scheduling is crucial, as you would want your
products and goods to arrive on time. Securing cargo is another important process,
which is something that your logistics partner can easily provide. While it is being
transported, constantly monitor its status to see if it is traveling on schedule to keep you
updated. This is also important for your clientele, as they would also like to know if your
delivery is arriving at the right time.

Exporting products and goods abroad has become a standard trade procedure in the
Philippines. As companies and industries across the country look to expand their market
reach, knowing the right steps to export your products will enable you to find the most
effective way to send them across different countries.

Topic 11- CHALLENGES IN INTERNATIONAL TRADE

There is no other way to economic growth except success in International Business and
Trade. Countries that always achieve trade successes have low inflation rate, low
unemployment rate, high per capita income, and better social perks for its citizens, less
taxes, high standard of living, less crimes, etc. According to Wikipedia, highly developed
countries have these characteristics: Has a high income per capita, social security is
guaranteed, low unemployment rate, excel in science and technology and they have
higher level of exports than imports. Countries that fall within this category are: United
States, France, Germany, Italy, Japan, Singapore, Taiwan, China, South Africa,
Canada, Australia, etc.

Aside from the apparent self-interest attitude and behavior of developed countries,
many countries cannot move forward because of smuggling, counterfeiting, currency
devaluation, import/export quotas, scarce financial resources, breaches in copyright
laws, climate change, migration issues and geo-political disagreements, subsidies of
governments to their struggling industries, embargoes, currency manipulations, etc.
Despite international trading laws and declarations, countries continue to encounter
ethical and business practices.

Questions to Ponder:
- Should western trade organizations like the WTO be made/allowed to review
the Philippine government socio-economic development programs?
- Should foreign lenders use such “reviews” for evaluating loan applications of
the Philippines?
- What should be done to balance import and export receipts in the
International Trade and Business of the Philippines?
- Should all Filipinos be allowed/encouraged to import just anything?
- If you (Filipino or foreigner) were a prospective investor in the Philippines,
which government agency would you approach to seek for help in starting
your international business? Why?
- With so many government agencies involved in promoting international trade
and business, how come the Philippines has one of the smallest shares in
Direct Foreign Investment in the Asean region? Singapore, whose land area
is smaller than Laguna Bay annually get five times bigger than the
Philippines. Why?
- Available data shows that much of our so-called exports come from locators
of Philippine Economic Zone Authority. What is probably wrong with the
policies, incentives and other perks of agencies like BOI and PITC?
- Do you think our government officials are not aggressive enough to promote
inward investors?
- Should the government ban the importation of non-essential products like
jewelry, perfumes, and toys?
- What career opportunities have you noted in International Trade and
Business?

NOTE: Your answers, among others, will be used as our basis in computing your
FINAL GRADE.

REFERENCES
• Business pages of Broadsheets
• Brochures/Primers of Government Agencies
• asean-smeacadeny.org
• World Trade Organization Primer
• www.investopedia.com
• Marketing-schools.org
• ASEANBriefing