Blog: International Trade Examiner

Trump to Visit the Philippines Next Week: Trade Insights for Importers of Goods from the Philippines

 

On November 13-14th, President Trump will conclude his trip throughout the Asian region with a visit to the Philippines. He will meet with Philippine President Rodrigo Duterte and attend the U.S.-Association of Southeast Asian Nations summit. According to a November 8th Inside US Trade report, Trump will “continue his call for ‘fair and reciprocal treatment,’ [a senior administration] official said. That includes, the official added, ‘fully embracing an international trading system, which is rules-based and respects high standards; achieving fair and equitable trade relationships through the removal of unfair trade barriers; and the reduction of chronic trade deficits and adherence to market-based growth.'” Against this backdrop, what opportunities exist for U.S.-based importers purchasing goods from the Philippines? What should exporters from the Philippines know about finding buyers and competing in the U.S. market? 

They should understand tariffs/customs duties, or taxes placed on goods imported from another country. (Tariff and duty are used interchangeably in this piece.) Since the United States and the Philippines do not have a bilateral trade deal that eliminates duties on the majority of goods traded between the two countries, this piece focuses on those programs that create opportunities for goods from the Philippines to enter the United States duty-free.

Beyond looking at such programs, it is also important to understand the kind of research data that will help both an exporter and importer, regardless of industry, to take advantage of such programs. 

For this reason, the blog post is organized into the following sections: 1) the types of programs that offer goods from the Philippines special access to the U.S. market; 2) names of key importers from the Philippines; 3) top goods and services that the United States imports from the Philippines; and recommendations for developing a competitive import/export strategy. 

U.S.-Philippines Trade Policy (Tariffs and Special Access Programs) 

The United States and the Philippines have not signed a bilateral free trade agreement, which would allow for the easier flow of goods and services between the two countries. Goods, for example, could be traded between the two countries duty-free. Without such a deal, any good entering the U.S. market from the Philippines will face duties, which, in turn, adds to the cost of that same good. 

For instance, as discussed below, electrical machinery and equipment (HS 85) is the number one U.S. import category from the Philippines. Specific commodities, such as wires and cables, face duty rates that can range from 3.5% to 5.3%, with a few duty-free exceptions.

However, special access programs provide substantial benefits to goods imported from the Philippines. Unfortunately, these long-standing programs receive little attention and many importers are unaware of their existence. Consequently, these importers miss out on opportunities to save on the cost of importing.

One such program is the Generalized System of Preferences (GSP). The GSP provides duty-free treatment to specific products from eligible countries. Since the Philippines is a beneficiary of the GSP, items, such as wires and cables, enter the United States duty-free, thus giving exporters from the Philippines somewhat of a competitive edge. Furthermore, importers from the Philippines can reduce their transaction costs. 

In July 2017, the United States expanded the program to include travel goods from the Philippines, which originally faced duties ranging from 6 to 20%.

The next focus is for exporters from the Philippines to gain insight into who is actually buying certain goods from the country and for importers to be able to identify other firms selling similar products in the U.S. market. The following section offers insight into U.S. importers of a specific commodity from the Philippines. 

U.S. Importers of Goods from the Philippines (Firm-level)

In December 2016 alone, more than 1,000 shipments ordered by various companies located all throughout the United States came from the Philippines. Three companies–Sumitomo Electric Wiring Systems, Lear, and Roper Corporation–account for the top 10 dollar values of the import of electrical machinery and equipment. Sumitomo represents a 51% share of the top 10 dollar values. (Figure 1).

Figure 1: Companies Representing Top 10 Import Values of Electrical Machinery and Equipment from the Philippines (December 2016) (US$)

Each company reported a shipment on different days in December 2016. These shipments accounted for the top 10 dollar values of imports, as noted above. Some of the values were represented by the same companies, as in the cases of Sumitomo Electric Wiring Systems and Lear (Table 1).

Table 1: Top 10 Importers of Electrical Machinery and Equipment from the Philippines (US$) 

U.S. Imports from the Philippines (Country-level)

This section highlights the demand for goods and services from the Philippines. Businesses gain from knowing which goods and services from the Philippines are growing in the U.S. market.  

This year, the United States mainly imported manufactured goods from the Philippines. The top three imports include electrical machinery and equipment, machinery and mechanical appliances, and knit apparel and clothing accessories (Fig. 2). The imports have increased in each of these three categories between March and August 2017, which demonstrates the increased demand for these items from the Philippines within a six month period. More importantly, these figures show growth, although the United States is now under a new administration with a different approach to international trade than the previous one.

Figure 2: U.S. Top Three Imports from the Philippines (Goods) (March-August 2017) (US$thousand)

From 2014 to 2016, electrical machinery and equipment showed import growth. Machinery, mechanical appliances, etc. and apparel and clothing accessories demonstrated a decline in imports (Fig. 3). 

Figure 3: U.S. Top Three Imports from the Philippines (Goods) (2014-16) (US$thousand) 

Other commodities have demonstrated quicker growth rates reaching a little over 90% growth from 2014 to 2016. Two examples of the high import growth rate include mineral fuels and footwear (Fig. 4). 

Figure 4: Goods Among U.S. Fastest Growing Imports from the Philippines (2014-2016) (US$thousand) 

Services are also a key component of international trade. The United States has seen significant growth in terms of the import of various types of services, especially commercial services, from the Philippines in recent years (Table 1).

Table 1: U.S. Imports of Services from the Philippines (2012-2016) (US$thousand) 

Although this piece focuses more on goods, it is still useful to speak to the opportunities presented for service providers.

Recommendations 

So what then of this information? The early stages of building a competitive strategy requires understanding how to translate this information into a formula that is strictly applicable to one’s company, product, or service.

Well, here are a few easy next steps for firms looking to import from the Philippines into the United States or export from the Philippines to the United States:

  • Gather international trade data highlighting the shifts in U.S. imports of your specific product (agricultural or manufactured);
  • Conduct an analysis into how to take advantage of special access programs that offer duty-free treatment on particular goods from the Philippines entering the U.S. market;
  • Identify the key importers and exporters of goods (agricultural or manufactured) and analyze their performance over a period of time; 
  • Collaborate to turn research data into a customized competitive strategy
  • Join personalized strategy sessions

GRIIT provides detailed market information, tips, resources, and training information in its free monthly newsletter. Subscribe quickly and easily at www.griit.org

 

Sources: All data are based on statistics collected from the World Trade Organization (WTO), United Nations (UN), and U.S. Customs. 

 

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