Tariff Reform Program
_________
1. What is the Tariff Reform Program?
The Tariff Reform Program (TRP) is the review/restructuring of the Philippine tariff system
that government undertakes on a continuing basis to make the tariff structure responsive to
the needs of the economy taking into account changing patterns in trade and advancements in
technology. So far, four (4) tariff reform programs have been undertaken since the 1980’s.
2. What was the rationale behind the first TRP?
In the 1970’s, industrial and trade policies were biased towards import-substituting activities
which resulted, among others, in the overprotection of certain local, domestic market-oriented
industries. Said excessive protection, in turn, led to market distortions that discriminated
against investments in agriculture and exports and encouraged the production of finished
consumer goods over intermediate and capital goods.
The initiative to reform the tariff system came from the recognition that over two decades of
protection through high tariffs have proved counter-productive rather than supportive of the
country’s development objectives. Realizing the need for a change in policy to remedy the
situation, government official policy shifted from emphasis on import substitution to
promotion of exports.
The government embarked on a medium-term structural adjustment program starting 1981
with the objective of altering the basic structure of industry to make it more efficient and
competitive internationally. The two main instruments of structural adjustment pursued by
government were the Tariff Reform Program and the Import Liberalization Program.
3. When was TRP-I undertaken? What was its coverage?
The Tariff Reform Program proceeded as scheduled from 1981 to 1985 while the Import
Liberalization Program was briefly derailed by the balance of payments crisis in 1983.
The tariff review accompanying TRP-I covered all headings from Chapters 1 to 99 of the
tariff schedule. The tariff modifications were staged over a five-year period to cushion the
impact of the changes on the various sectors of the economy.
In the institution of tariff reforms, a review of existing protective rates was conducted to
remove or phase out (a) those which were excessive; (b) those which had outlived their
usefulness; and (c) where the burden of protection outweighed the return. The modifications
were expected to induce a shift in the composition of imports of raw materials from those
with advanced processing to those which are more basic or in crudeform. TRP-I also
emphasized inter-industry and inter-sectoral linkages in the economy.
4. What was the impact of TRP-I on the protection structure?
A. In Nominal Tariffs
The tariff band was narrowed from 10%-100% to 10%-50%. As a consequence, the average
nominal tariff fell from 42% in 1981 to 28% at the end of TRP-I.
B. On Effective Protection Rates
The Effective Protection Rate (EPR) is defined as the percentage excess of domestic value
added, made possible by the imposition of tariffs and other protective measures on the
product and its inputs, over world market value added. Generally, EPR estimates are used to
provide information on the amount of government-provided protection that an industry
receives.
TRP-I restructured the system of protection to industries into one less biased towards any
particular industry or industry groups. Specifically, the objective was to keep industry 6PR&s
within a range of 10%-80% from the then prevailing schedule of EPR’s which ranged from
excessively high to excessively low levels.
TRP-I resulted in the overall reduction and evening out of EPR’s across industries. In the
average, the EPR for primary and agricultural industries continued to receive a low EPR of
3%. The EPR for manufacturing industries declined from 66% (pre-TRP) to 36%.
5. What was the rationale behind the second TRP?
The rationale of TRP-II was to reduce the overall level of protection and disperse tariff
protection within and across industries. Government was also following through on its policy
of de-emphasizing the role of tariffs in industrial and trade promotion. The reforms were
aimed at achieving the following: more efficient resource allocation; improved access of
industry to essential inputs at lower prices; availability of more affordable and better quality
goods for consumers; and enhanced competitiveness of local industries in the domestic and
export markets.
6. What was the coverage of TRP II? When was it undertaken?
The new package of tariff adjustments under TRP-II was promulgated and signed by the
President under Executive Order (E.O.) No. 470 on July 20, 1991 and became effective on
August 24, 1991.
E.O. 470 incorporated a five-year phase-in period from 1991 to 1995 and transition rates to
provide local industries reasonable time to make the necessary adjustments. The E.O. covered
some 80% of the Tariff and Customs Code (TCC).
The number of Harmonized Commodity Classification and Coding System (HS) lines was
reduced by 10%, from 6,193 tariff lines to 5,561 lines. This reduction, which made for easier
customs administration, was due to the simplification of tariff nomenclature (e.g., tariff lines
that would eventually have the same rates of duty were combined into a single line) but such
nomenclature modification adhered faithfully to the basic text of the international
Harmonized System.
7. What was the impact of TRP-II on the Protection structure
A. On Nominal Tariffs
The final rates under E.O. 470 clustered around four levels: 3%, 10%, 20% and 30%. Fully
95% of total tariff lines were dutiable at these rates in July 1995. However, E.O. 470 imposed
duties of zero, 5%, 15%, 25% and 50% on a limited number of items.
Under E.O. 470, the average nominal tariff was reduced from the pre- E.O. 470 level of 28%
to only 20% at the end of the period. Among the three major industrial sectors, manufacturing
registered the biggest reduction in tariffs, from 27% before E.O. 470 to only 19% by 1995.
For agriculture, the average tariff declined by 20% from the pre-E.O. 470 level of 35% to
28% in 1995. The more moderate reduction in agricultural tariffs was a consequence of the
decision to protect sensitive agricultural products by retaining their tariffs at 50%.
E.O. 470 was eventually overtaken by the third tariff reform program.
B. On Effective Protection Rate
Under E.O. 470, a substantial decline in the overall average EPR level was noted, from 25%
under the pre- E.O. 470 structure to 19% years after when the final duties were implemented.
Along with the decline in EPR levels, the structure of protection also changed.
The tariff restructuring reduced the bias against agriculture relative to manufacturing.
Specifically, effective rates of protection for selected manufacturing industries which thrived
under a highly protected regime were reduced to more reasonable levels.
