Manila Bulletin | January 20, 2013
Full-blown RP-Taiwan FTA mulled
By Bernie Cahiles-Magkilat
A full-blown free trade agreement (FTA) between the Philippines and Taiwan is being explored abandoning an earlier proposal to create a special economic corridor that would include only Subic and Clark freeport zones and Kaohsiung.
MECO president and CEO Amadeo Perez Jr. told reporters a feasibility study for the crafting of the Philippines-Taiwan Economic Cooperation Agreement (ECA), which is being conducted by government think-tank Philippine Institute of Development Studies (PIDS), will be finished in March this year.
The study will determine the parameters of the planned RP-Taiwan ECA that could lead to the establishment of a comprehensive bilateral FTA between the two economies. Taiwan is also conducting a parallel feasibility study, Perez said.
MECO and its counterpart the Taipei Economic Cultural Office (TECO) would be the vehicles of the two economies and would sign the agreement, if ever there will be an agreement.
According to Perez, both parties have decided to abandon the earlier Subic-Kaoshiung economic corridor plan because its scope was very limited.
Perez said that Taiwanese businessmen want flexibility on where they want to invest and most of them prefer to invest in areas that are close to ports like Batangas and Manila. Taiwanese firms also noted that there are only few ships that call on the Subic port compared to Batangas and Manila.
Talks for the establishment of the proposed Subic-Clark-Kaohsiung Economic Corridor started almost a decade ago with both parties already being close to signing the agreement during the 13th Philippines-Taiwan Joint Economic Conference (JEC) in December 2005. The proposal, however, did not materialize.
Government agencies involved in the crafting of the MOA were Subic Bay Metropolitan Authority, Clark Development Corp., Philippine Economic Zone Authority, Manila Economic and Cultural Office, Department of Finance, Bureau of Customs, the Board of Investments and Bureau of International Trade and Regulations.
Based on the provisional JEC Agenda, the MOA shall spell out the automatic registration of companies located in the three areas involved in the economic corridor meaning that a Taiwanese project located in either Subic or Clark shall also be automatically registered in the Kaoshiung economic zone and vice-versa. The MoA shall also outline the establishment of a database on land cost.
The MOA also calls for the automatic registration of projects in the three involved economic zones is meant to facilitate exports between the neighboring freeports – Subic/Clark and Kaoshiung.
At that time, both camps were looking at a minimum local content of 25 percent to enable goods to be granted the preferential tariff. ASEAN’s Common Effective Preferential Tariff scheme has a 40 percent minimum local content requirement.
On the non-tariff barriers, both parties were already amenable to simplifying their procedure to facilitate the flow of goods.
To simplify registration, companies registered in Kaohsiung must be automatically be allowed to register in Subic.
There are more than 40 Taiwanese investors in the 153-hectare Taiwanese Industrial Park in Subic. The Taiwanese investors account for as much as 85 percent of Subic’s annual output or approximately $1.4 billion in export receipts annually with Wistron Corp. (formerly Acer Computers) as the largest exporter.
The issue on the movement of people without visa restriction between Subic and Kaohsiung was not clarified. Entry of migrant workers into Taiwan is governed by a quota system.
The creation of the economic corridor will also be good for the Filipino migrant workers. At present, the Philippines deploys an average of 3,000 workers a week to Taiwan, 60 percent of whom are factory workers.
The proposed economic corridor was meant to strengthen ties with Taiwan as the Philippines lagged behind in capturing Taiwan’s foreign direct investments in the region.
For the cumulative period 1997-2004, the Philippines accounts for only 11.1 percent of foreign direct investments of Taiwan in the ASEAN region with Singapore getting the highest FDI with 44.5 percent, Vietnam with 17.2 percent, Thailand with 13.8 percent, Malaysia 8.7 percent and Indonesia 4.7 percent.
Total registered Taiwanese investments in the country for the 1997-2004 period amounted to $1.5 billion. This does not include the small ventures in aqua farming that Taiwanese have poured into the regions.
Another factor that could attract Taiwanese investors into the Philippines is the huge ASEAN market plus the three other countries, China, Korea and Japan, that the region is negotiating with for similar free trade agreements.
This means that a non-ASEAN investor would have hurdled the 40 percent local content requirement under the AFTA to be enable its product to avail of the preferential tariff arrangement in the ASEAN.