Manila Bulletin, 22 September 2005
Philippines seeks sector-specific FTA with US
By BERNIE CAHILES-MAGKILAT
The government is pushing for a sector specific free trade agreement (FTA) with the U.S. starting off with the garments sector to immediately take advantage of a duty-free privilege for garment exports and strengthen its presence in the U.S., the country’s biggest garment market.
"We are going for sector specific FTA on garments with the U.S. under the Qualified Industrial Zone (QIZ) model," said Serafin Juliano, executive director of the Garments and Textile Export Board (GTEB).
The country’s garment exports in the January-July this year posted a slight 1.37 percent to $1.268 billion as against $1.251 billion in the same period last year.
For the month of July, garment export grew by 7.8 percent and recovered from its underperformance in the previous months following the surge of retail sales in the United States.
The US remained as the country’s biggest export market for garments and textile, accounting for more than 70 percent of the Philippine garments exports.
Juliano said the industry is still maintaining its target of 8-10 percent exports growth this year over last year.
According to Juliano, the government has not yet made formal its position with the U.S. but the private sector has already made representations about it.
"We have not formally engaged but the private sector has their own initiative," Juliano said.
This model allows products in the areas identified as a QIZ to enter the U.S. market at preferential tariff rates.
The model was seen as a bridge towards a comprehensive FTA later on with the U.S.
Confederation of Garment Exporters of the Philippines chairman George Siy said the industry is pushing for this sort of QIZs as a transition phase towards the discussion process for FTA.
Siy said that at present, Philippine garment exports to the U.S. are slapped with 7 to 30 percent tariff. Garment can be considered a QIZ-eligible product.
The only constraint, however, in the implementation of the QIZs was that this was authorized by the U.S. Congress in 1996 as part of the Middle East peace process.
Under the QIZ mechanism, Egypt and Jordan are allowed to export products to the United States duty-free, as long as these products contain inputs from Israel.
This trade initiative supports the Middle East peace process by encouraging regional economic integration. But the implementation appears complicated.
Egypt, Israel, and the United States reached an agreement to establish the Egyptian and Israeli trade partnership necessary to take advantage of this 1996 legislation.
In order for a QIZ article to gain duty-free entry, QIZ factories must add at least 35 percent to the value of the article.
This 35 percent minimum content figure can include costs incurred in Israel, Egypt, or the United States. By agreement between Egypt and Israel, Egypt and Israel must each contribute at least one-third (11.7 percent) of the 35 percent minimum content requirement.
QIZs must encompass portions of Egypt and Israel, though the areas do not have to be contiguous. The United States has approved the request of Egypt and Israel to designate three QIZs - the Greater Cairo QIZ; the Alexandria QIZ; and the Suez Canal Zone QIZ that includes an industrial area of Port Said.
The President has given the United States Trade Representative (USTR) the authority to approve QIZs, and USTR has announced its approval of the EgyptIsrael QIZ plan. Until now, QIZs have been established only in Jordan.
Since 1999, thirteen QIZs have been designated in Jordan. During that period exports from Jordan to the United States grew from $31 million in 1999 to $674 million in 2003.
QIZs are Jordan’s strongest job creator. Jordan estimates that more than 35,000 jobs have been created in the QIZs. Investment in Jordan’s QIZs is currently at between $85-100 million and is expected to grow to $180 to $200 million. Similar benefits are expected to flow from the QIZs in Egypt.