SCAD Council July 22, 2009 Draft Executive Order: Uniform Tariff Treatment of Shipments from PEZA Zones and Freeports

Background Draft EO seeks to amend EO 293, s.2003 To cover other Free Trade Agreements (e.g. ASEAN- China, ASEAN Japan, ASEAN-Korea, ASEAN-India) To provide for uniform tariff treatment for goods imported from PEZA zones and Freeports EO 293 covered only the ASEAN Free Trade Agreement (AFTA) 2

Tariff Environment Present average tariff rate is roughly 7% Free Trade Agreements provide for even lower rates Tariff rates for Raw Materials and Semi-finished Goods are LOWER than rates for Finished Goods Different Tariff Environment for PEZA zones as against Freeports 3

PEZA Tariff Treatment For goods manufactured in PEZA zones and sold in the domestic market Duty rate of RAW MATERIALS is applied on the Value of the Raw Materials The effective tariff rate used is LOWER than the rate for Finished Goods Value of local processing is not taxed 4

Clark-Subic Tariff Treatment For goods manufactured in Clark and Subic Freeports and sold in the domestic market Duty rate of FINISHED GOODS is applied on the Value of the Raw Materials The effective tariff rate used is HIGHER than the rate for Raw Materials Value of local processing is not taxed NOTE: PEZA tariff treatment is however applied in the case of YOKOHAMA (a Clark locator) and Texas Instrument (a PEZA locator) 5

Conclusion Goods manufactured in Clark and Subic Freeports and sold in the domestic market are taxed higher than goods coming from PEZA zones Subic and Clark locators are at a disadvantage (except for Yokohama) compared to PEZA locators Subic and Clark goods are more expensive (because of higher duty rates) than PEZA goods Draft EO will provide for harmonized tariff treatment for locators of both PEZA zones and Freeports 6

Thank You 7