After Washington placed a 17 percent tariff on Philippine products, the Philippines has prioritized a Free Trade Agreement (FTA).
This tariff is part of the new framework for reciprocal duties announced by Donald Trump on 2 April. It directly affects Philippine exports valued at over 12 billion dollars in 2024.
Manila hopes that the new tariff system will provide an opportunity to improve market access, and protect its biggest trading relationship.
The US Trade Secretary Howard Lutnick and the US Trade Secretary Cristina Aldeguerroque have confirmed their plans to discuss the FTA.
Officials from the Philippines said that this agreement will cover important exports such as electronics, frozen meats, automobiles, soya beans, and dairy products.
In a deal that would be mutually beneficial, the government also indicated its willingness to provide better conditions for American imports.
US Tariffs Take Effect April 9,
The US’s policy of applying reciprocal tariffs to each country based on their own tariff rates is what led to the 17% duty on Philippine products.
Based on US data, the Philippines charges a duty of an average 34% on US imports.
The White House responded by imposing a 17% tax on Filipino goods, which became effective April 9, 2019.
This rate is competitive with Vietnam’s 46% and Indonesia’s 32% tariff.
Tariffs on other Southeast Asian countries such as Cambodia, Thailand and Vietnam are 49% and 37% respectively.
Officials in the Philippines have said that 17% is less than they expected. They also highlighted certain products as exempt.
Copper ores, gold, integrated circuits and pharmaceuticals are some of the products.
Expect higher export costs
The new tariffs are still threatening a large range of Philippine exports.
The US imports 53% electronic products. Some components, like integrated circuits, are duty free, but others have to pay additional costs.
In 2024, the United States will account for 17 percent of Philippine exports. The top products include semiconductors, wire sets, coconut oils, machines, and clothing.
Exports of agricultural products are especially vulnerable. The full tariff of 17% will be applied to products like coconut oil, canned pineapple and seafood. This could reduce demand.
Industry groups warned that if the price of agricultural products increases, US consumers may switch to other suppliers. This could affect rural livelihoods in their home country.
Ralph Recto, the Finance Secretary of the Philippines, said that lower tariffs in comparison to other Southeast Asian nations could encourage investors to invest in the Philippines.
The lower tariffs in the Philippines could be a factor that encourages companies to relocate to the Philippines to gain access to the US market.
Realignment of trade and investment
The Philippines is being promoted as a base of manufacturing for other countries by officials.
The government is looking to attract new investments as countries such as Vietnam and China face higher US tariffs.
Already, manufacturers of solar panels, automobile parts and electronics have expressed interest.
Department of Trade and Industry (DTI) believes that the current tariff situation supports the US-Philippines FTA.
The argument is that exporters would be protected from sudden policy changes if trade agreements were formalised, particularly in sensitive industries like agricultural and clothing.
While negotiations are ongoing, the government encourages exporters to continue increasing shipments of products exempt from tariffs.
The Philippines is hoping to position itself in the US as the preferred supplier by leveraging the lower rates it offers compared with its neighbours.
Philippine officials have said that while the US Administration has not yet responded to the FTA proposals, they remain committed to dialogue and to presenting their strong case.
The aim is to improve bilateral relations and protect the export performance of the country in a rapidly changing world trade environment.
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