Home » Across Borders » Risks and Threats to World Trade

IN our article last August 14, 2006 (RP’s Bilateral and Regional Trade Agreements), we provided an update on the current state of play of the country’s various trade agreements, with each agreement having its own separate set of trading rules. We also discussed in brief possible risks and threats to a free trade market.

In the succeeding paragraphs, we will elucidate more on what exactly are these threats and risks that may threaten the free flow of goods and cause disruptions in the company’s supply chain.

Uniform Rules, Varying Interpretations. One bank aptly puts it, “think global, act local”. For those doing customs and international trade work, this mantra however has become sort of a nightmare. While international agreements (e.g. World Trade Organization [WTO] and Asso-ciation of South East Asian Nations) provided for uniform rules on various global trade matters such as valuation and classification of goods, the complexity and technical nature of such rules have resulted in varying interpretations at the local level. The reasons are multifarious. For some, it can be poor understanding of the technical rules. For others, it can be pressure from top government officials to increase revenues or to protect domestic industries from the influx of foreign goods.

he increasing use or misuse of valuation and classification rules on imported goods has indeed become the bane of many importers. In the Philippines, local industry representatives are not only allowed by customs to get involved in the valuation process of imported goods but worse, domestic industry representatives are allowed access to otherwise confidential information regarding the imported articles. This is clearly disallowed under existing Philippine laws and regulations (including the WTO Agreement on Customs Valuation) and yet, due to political expediency, this practice has been allowed to continue for many years. With regard to classification rules, there had been recent instances when tariff rulings issued by the Tariff Commission were disregarded by the Bureau of Customs (BoC), again due to pressures from politically influential domestic industry groups.

There are many ways for providing legitimate barriers to trade; for example, by increasing tariff rates within bound rates, but not by misinterpreting or misapplying existing rules on valuation or classification against imported articles.

Dumping and Safeguard Measures. Another threat to those importing various articles, whether raw materials, intermediate products or finished goods, is the growing use of trade remedy measures against imported articles. Many local industries have long been affected by the influx of cheaper and better quality goods imported from more economically efficient suppliers located abroad. Some of the local industries have been able to adjust while others have not. Some others have aggressively prevented the entry of cheaper goods through the imposition of safeguard and dumping duties.

Similar to dumping and countervailing measures, safeguard measures are one of the trade protection measures available under the WTO. Until recently, safeguards were seldom used as most governments previously preferred to protect domestic industries through bilateral negotiations with other countries. The laws governing dumping and safeguard measures are provided under the WTO framework particularly to prevent countries “abusing” their right to protect domestic industries. These trade remedy measures are not meant simply as a protectionist measure to be imposed in favor of economically inefficient domestic producers.

In reality, however, and as shown by recent cases, the imposition of dumping or safeguard measures has been more of a political act rather than a decision made from an international trade perspective.

Customs Audit of FORM D / Rules of Origin. Rules of Origin (ROO) refer to the laws, rules and regulations of one country to determine the country of origin of imported goods. In principle, the origin of the article can affect tariff rate, tariff preference, safeguards or dumping duty, import quota, admissibility, marking and, in some countries, procurement by government agencies. Rules of origin may either be preferential or non-preferential and there are three basic methods for determining origin.

The growing trade among ASEAN countries has resulted in customs authorities starting to scrutinize the issuance of preferential ROO such as the AFTA Form D Certificate. To date, there have been many instances when the AFTA Form D issued by Philippine authorities was questioned at the country of exportation (e.g. Indonesia, Malaysia or Thailand). Similarly, the Philippines has on many occasions raised issues on the Form D Certificates issued by other ASEAN countries.

Considering that each free trade agreement will have its own ROO, shipments covered by preferential rules of origin must ensure that the grant of preferential rates strictly qualifies with the origin methods. Failing that, both importers and exporters run the risk of being penalized for their importations made over a certain period.

Permits, Labeling and Marking. The WTO and most of the various trade agreements in effect now also have specific rules governing the issuance of import/export permits and the proper labeling and marking of goods traded across international borders.

These rules may vary according to the trade agreement applicable and depending on the issuing country or the type of product involved (e.g. specific rules on marking and labeling for food products and varying import licenses and permits applying sanitary and phytosanitary measures). It is not uncommon for national governments now to apply more stringent rules for the issuance of import permits and licenses which effectively create technical barriers to trade in favor of the domestic industry. Again, failure to comply with such rules many not only cause delay in customs clearance but may also result in penalties and other sanctions.

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