By Justine Irish D. Tabile, Reporter
THE PHILIPPINE Economic Zone Authority (PEZA) will seek reduced US tariffs on key economic zone exports, which will likely be impacted by the 17% reciprocal tariff that will take effect on April 9.
“Guided by the Department of Trade and Industry (DTI) strategy, we hope to achieve reduced tariffs on our key exports to the US such as EMS-SMS (electronics manufacturing services and semiconductor manufacturing services), automotive parts, and select agricultural products under a bilateral FTA (free trade agreement) framework,” PEZA Director-General Tereso O. Panga told BusinessWorld.
“This is by focusing on negotiations on preferential tariff agreements that will allow the Philippines and the US to pursue mutually beneficial trade,” he added.
The Trump administration on Saturday began collecting the initial 10% baseline tariff on all imports from most countries. The higher reciprocal tariff rates of 11% to 50% on countries including the Philippines, Cambodia, Vietnam and Thailand, will take effect on April 9.
“As they account for our biggest exports to the US and are the major generators of quality jobs in the country, the government may lobby for a reduced sectoral tariff for our exports of EMS-SMS products,” Mr. Panga said.
He noted EMS-SMS products account for 44.5% of export sales to the US.
The PEZA chief said this is a proposal worth considering by the US, as a big number of EMS-SMS are American companies that provide critical support to major clients in the US.
“As a sign of goodwill, the government may also offer to reduce the current duties on critical goods and services that we import from the US, following the true spirit of reciprocal tariff,” Mr. Panga added.
PEZA also warned the IT-BPM (information technology and business process management) sector, which makes up for 28.5% of export sales, may see spillover effects from the tariffs.
“IT-BPM services are generally not directly covered by US tariffs, as tariffs typically apply to physical goods rather than services,” said Mr. Panga. “However, the IT-BPM industry in the Philippines, which is a major exporter of these services, is still affected by the possibility of US protectionism and the potential impact on its client base,” he added.
Last week, DTI said that as the new tariffs will make exports to the US more expensive, it is important for the US to improve access to rapidly growing economies, including the Philippines.
“In this regard, the Philippines aims to actively engage the US in a discussion to facilitate enhanced market access for its key export interests, such as automobiles, dairy products, frozen meat, and soybeans, within the framework of a bilateral FTA,” Trade Secretary Ma. Cristina A. Roque said.
Sought for comment, Ateneo School of Government Dean and Economics Professor Philip Arnold P. Tuaño said the government should continue to push for increased market access of Philippine exports in the US.
Even as the country pursues a bilateral FTA with the US, Mr. Tuaño said the Philippine government should also engage in trade talks with other countries.
“These are especially in terms of utilizing the provisions of trade provisions in our bilateral and regional trade agreements, and at the same time, intensifying the capacity of our exporters, especially small and medium enterprises, to be able to engage these foreign markets,” he said in an e-mail.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that pursuing an FTA is the next step for the Philippines.
“Since the US is biggest export market of the Philippines at 17% share, a Philippine FTA with the US is the next step, as the Philippines already has various FTAs with ASEAN (Association of Southeast Asian Nations), China, Japan, South Korea, India, Australia,” he said.
“So, the FTA with the US and with EU (European Union) would be the next possible steps,” he added.
GLOBALIZATION A THING OF THE PAST?
However, Foreign Buyers Association of the Philippines President Robert M. Young said that an FTA may not come in the near term.
“Trump’s mindset and main agenda are to bring back all possible manufacturing activities and businesses to the US and fundraise through tariff restructuring, so it seems that an FTA will not fit in,” he said in a Viber message.
“Globalization is set to be a thing of the past for now for Trump,” he added.
Mr. Young said that it is urgent for the Philippines to start working on making the country more competitive by reducing the cost of doing business.
“There is no point to be wishful now. Urgency is needed to start reworking on how to be competitive by lowering power, labor, and logistics costs and improving efficiency and productivity, among others,” he said.
“Then, we can face any other Trumps to come,” he added.
Meanwhile, government officials said that the reciprocal tariffs could serve as an impetus for businesses in countries facing higher US tariffs to look at the Philippines as an investment destination.
Special Assistant to the President for Investment and Economic Affairs Frederick D. Go said that it would be “music to (his) ears” if businesses in Asian countries that have higher tariffs would set up manufacturing facilities in the Philippines.
“That is exactly why we put in all these incentives in the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act to attract them to come to the Philippines,” he told reporters on Thursday.
“And now, they have an added reason. Apart from the fiscal incentives that we provide them, there are lower tariffs in the Philippines than in their home countries,” he added.
Among Southeast Asian countries, the US imposed the highest tariff on Cambodia at 49%, followed by Laos (48%), Vietnam (46%), Myanmar (44%), Thailand (36%), Indonesia (32%), Malaysia (24%) and Brunei (24%).
Singapore was slapped with the baseline tariff of 10%, which took effect on April 5.
“PEZA sees this as an opportunity to attract greater investment — particularly from companies based in countries imposed higher tariffs by the US — seeking to reduce export costs by relocating operations to the Philippines,” Mr. Panga said.
Amid the evolving global trade environment, he said that PEZA continues to promote the Philippines under the China +1 +1 strategy.
“This encourages businesses to maintain operations in China while diversifying their supply chains by expanding into the Philippines,” he said.
Mr. Panga also noted that even before the imposition of the 17% tariff on Philippine exports to the US, PEZA had already registered relocating companies from China, Taiwan, and Vietnam.
“These companies are mostly into electronics, electric vehicles, automotive, solar cells or panels, and agri products, with the US as their primary export market,” he said.
Apart from businesses’ diversification strategy, he also sees the country’s participation in the Regional Comprehensive Economic Partnership, intra-ASEAN trade, and the impending renewal of the European Union Generalized Scheme of Preferences to also help in attracting investments.
“It is a must that we move up the value chain with our traditional strengths in electronics, automotive, and agri products and prepare our workforce for advanced manufacturing,” Mr. Panga said.
“We can also focus on boosting production for export of high-demand goods to the US, such as consumer goods, machinery, electrical goods, and textiles — which products are manufactured mainly in Vietnam and Cambodia,” he added.
Mr. Panga said the goal is to persuade the export producers to consider the Philippines as a cost-effective alternative location as they maintain their market access to the US while taking advantage of the ASEAN FTA.
“As such, it is imperative that the government accelerate the logistics infrastructure development and digital transformation so we can position the Philippines as a global manufacturing and regional supply-chain hub and, ultimately, as the preferred investment destination in the region,” he added.
As of end-2024, PEZA hosts 310 American registered business enterprises accounting for P406.73 billion or 13.25% of PEZA’s total investments.These businesses generated $8.24 billion in exports and 338,582 jobs as of the end of last year.
These also account for $8.24 billion in exports and 338,582 jobs as of the end of last year.
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