Trade Council Reviews U.S.-Philippine Trade and Investment

UNCLAS SECTION 01 OF 03 MANILA 001644 SIPDIS SIPDIS SENSITIVE STATE FOR EAP/MTS, EB/TPP/BTA, AND EB/IFD STATE PASS USTR BWEISEL AND DKATZ TREASURY FOR OASIA JEWELL USDOC FOR 4430/ITA/MAC/ASIA, PAC/KOREA AND SE ASIA/ASEAN E.O. 12958: N/A TAGS: ECON ETRD WTRO KIPR SUBJECT: Trade Council Reviews U.S.-Philippine Trade and Investment Issues REF: Manila 1370 Summary -------------- ¶1. (SBU) On May 9, the U.S. Philippine Trade and Investment Council met to review outstanding bilateral trade and investment issues. In a very productive session, participants noted that a number of bilateral trade and investment irritants have been resolved. Other potential irritants were identified by both sides and will be the subject of further discussion. The head of the Philippine delegation expressed interest in moving toward negotiations on a U.S.-Philippine free trade agreement. U.S. participants noted an apparent improvement in the quality of GRP interagency coordination. End summary. Reviewing Trade and Investment Issues -------------- ¶2. (U) Established under the 1989 U.S.-Philippine Trade and Investment Framework Agreement, the TIC meets regularly to review outstanding bilateral trade and investment issues. Assistant U.S. Trade Representative (USTR) Barbara Weisel and USTR Director for Southeast Asia and the Pacific David Katz led the U.S. delegation, with participation from the State Department, U.S. Agency for International Development (USAID),U.S. Department of Commerce, and U.S. Department of Agriculture. Philippine Department of Trade and Industry (DTI) Undersecretary Thomas Aquino led the Philippine delegation, joined by representatives of 10 different agencies, including the Department of Finance, Bureau of Customs, and Department of Foreign Affairs. Meetings of the TIC, which have taken place regularly since 2002, identify trade and investment issues pending between the United States and the Philippines and, as this meeting showed, often lead to their resolution. Taxes and Tariffs -------------- ¶3. (SBU) Barbara Weisel raised the December 2006 Philippine decision to freeze all tariff rates for four years. Weisel asked Aquino if this meant that the Philippines was no longer open to tariff reduction under the Doha Round. Aquino replied that the freeze was intended to permit Philippine business to undertake medium-range planning uninterrupted by the uncertainty of shifting tariff rates, though he acknowledged that the move was "misinterpreted" by other governments. He said it has no impact on Philippine positions in the Doha Round. Weisel also raised the issue of Philippine excise taxes on wines and spirits, noting that higher rates are levied on alcoholic beverages of foreign origin. Representatives of the Bureau of Internal Revenue replied that uniform rates were applied to beverages based upon their ingredients, not their origin. Weisel replied that domestically produced ingredients were subjected to lighter taxation, which could lead the USG to take WTO action against the Philippines. ¶4. (U) Aquino reported to the U.S. side that the five-point increase (from 30% to 35%) in the most favored nation tariff on imported automobiles enacted in 2005 was a temporary measure that expired in November, 2006. It was not renewed. Agriculture -------------- ¶5. (SBU) The U.S. side noted the increased access the U.S. has provided for Philippine mangoes. The U.S. Department of Agriculture continues to work with its GRP counterpart to resolved phytosanitary issues on mangoes. ¶6. (SBU) The GRP's request for the extension of special treatment of rice until 2012 was granted by WTO on December 27, 2006. USTR noted that although the USG has no objections on the Philippines extension of special treatment on rice, an exchange of letters was needed to formalize the bilateral agreement which contains GRP's specific concessions. Aquino said the GRP has done the necessary domestic "leg work" to comply with its commitments. An Executive Order is currently for the signature of the President, which would formally implement the Philippine concessions. ¶7. (SBU) USTR inquired about the recent trip of Philippine officials to the US to observe US BSE mitigation measures and about the possibility of opening trade for bone-in beef and beef from animals above 30 months. The Philippine Department of Agriculture(DA)said MANILA 00001644 002 OF 003 although the Philippine team has generally given a favorable recommendation, it would wait for the final OIE determination of the U.S.BSE risk status during the General Assembly Meeting in May 2007 before formally allowing US bone-in beef, but that it will still maintain the 30-month and below age requirement. When pressed for a timeframe, the DA said that an Administrative Order would be immediately issued after the final recommendation of the OIE on May ¶20. ¶8. (SBU) The Philippine Bureau of Food and Drug (BFAD) reported that in September 2006, a draft Administrative Order (AO) on food labeling guidelines for foods derived from biotechnology had been prepared. The draft AO, however, needed refinement and the Department of Health is currently making minor revisions. The draft espouses a voluntary labeling regime, according to the BFAD. ¶9. (SBU) Weisel stated that USTR continued to have concerns about the implementation of Milk Code regulations that would effectively ban the advertisement of breast-milk substitutes. Aquino replied that a court-ordered suspension of the regulations remained in effect, and would be the subject of a June 19 hearing at the Supreme Court. Weisel asked the GRP to consult the industry before moving to implement the regulations, and to ensure that regulations have a scientific basis. Intellectual Property Rights (IPR) -------------- ¶10. (SBU) Adrian Cristobal, Director General of the Intellectual Property Office (IPO),led the Philippine side during the discussions of IPR. Cristobal noted the Philippines remained on the Watch List on the 2007 Special 301 Report, and expressed his hope the RP could exit the list altogether in the next few years. He discussed the memorandum of agreement his office signed late last year with the U.S. Patent and Trademark Office as an important achievement. Under its terms, two officials from his office will attend an eight-month training program at the USPTO headquarters this year. He said first quarter 2007 seizures of pirated goods showed a dramatic rise over 2006, with Customs and the Philippine National Police nearly matching their previous yearly totals in only three months. He referred to President Arroyo's November 2006 memorandum on intellectual property, and said the IPO would build on it to enforce mall owner liability for IP infractions and to carry out a more intensive public awareness campaign highlighting the benefits of IPR enforcement. ¶11. (SBU) Weisel and Katz introduced several issues in reply, including illegal book copying at Philippine universities and the theft of cable television and satellite signals. Cristobal replied that 93 indictments have been filed with the Department of Justice against cable companies who were pirating signals, and that several raids have been conducted against copy shops around the campus of the University of the Philippines in Quezon City. Customs Commissioner Napoleon Morales praised the work of his bureau's Intellectual Property Unit, remarking that it seized four inbound optical disk replicating machines in January, 2007. Reynaldo Umali, Legal Director at Customs, added that the Bureau intended to make the IP unit permanent, and expand its staffing from the present seven officers to 30. Weisel closed the discussion by calling for the newly-elected Philippine Congress to pass legislation incorporating the WIPO Internet Treaties into the Intellectual Property Code. ¶12. (SBU) On the legislation pending in Congress on pharmaceutical patents (reftel),Cristobal indicated that the executive branch did not foresee or endorse the House of Representatives' amendments imposing price controls on prescription drugs. He does not expect it to pass during the lame duck session in June. Weisel said that the USG continues to expect that any legislation be consistent with the RP's commitments under TRIPS, especially regarding new use patents and commercial use of patent holders' research data. ¶13. (SBU) Weisel mentioned the lawsuit filed by the Federation of State Boards of Physical Therapy against private Philippine exam preparation schools that offer courses to students taking the U.S. physical therapy licensing exam. The Board accuses the schools of hiring individuals to take the exam at its now-closed Guam testing center in order to memorize the questions for use in preparation classes, leading to a passing rate in Guam significantly above the statistical norm. The Federation has sued for copyright infringement. GRP representatives were generally skeptical of the lawsuit, with Aquino doubting that one could usefully memorize MANILA 00001644 003 OF 003 questions with the detail needed for exam preparation. Cristobal added that the Federation bore primary responsibility for exam security. Customs and Textiles -------------- ¶14. (SBU) Aquino reported that the process to set up the ASEAN Single Window of customs procedures is moving ahead on schedule, and the regime is to be implemented fully by 2012. The Bureau of Customs, led by Deputy Commissioner Alex Arevalo, is working on National Single Window agreements with six separate government agencies, assisted by USAID. USAID noted that its Bangkok office is presently undertaking a gap analysis that will measure the efficiency gains that could come from successful implementation of the Single Window. ¶15. (SBU) According to Weisel, four cases of alleged illegal transshipment are being pursued under the framework under the memorandum of understanding (MOU) on textile transshipment that USTR and DTI signed in 2006. She noted that the initial draft of implementing regulations issued by the Bureau of Customs appeared to contradict the MOU by mandating that textile plants selected for inspection be given advance notice. Aquino responded that the draft regulations still must pass through an interagency process and promised provide the USG with a copy and take into account our comments. Chemical Standards Dialogue -------------- ¶16. (SBU) Weisel proposed a video conference to allow experts to discuss USG concerns about market access for new chemicals. Favila agreed. Free Trade Agreements -------------- ¶17. (SBU) Weisel reported that there are four bilateral free trade agreements pending ratification by the U.S. Congress (South Korea, Panama, Peru, Colombia). She also said that within the region, negotiations with Malaysia continue while those with Thailand are suspended pending the restoration of a democratic government. Weisel described the status of negotiations between the Administration and Congress to secure an extension of Trade Promotion Authority (TPA). ¶18. (SBU) Aquino said the GRP remains interested in negotiating a bilateral trade agreement with the United States. Weisel responded that without TPA, the United States could not undertake any new negotiations. When Aquino asked if a staged sectoral agreement was an option, Weisel responded that USTR followed a policy of negotiating comprehensive agreements that resolved all issues at once. ¶19. (SBU) Weisel broadened the discussion to the WTO Doha Round. She lamented what the USG sees as a tendency among smaller nations to stand aside from negotiations, expecting the United States and the European Union to reach agreement on agriculture. She urged the Philippines to play a leadership role to encourage a successful conclusion. ¶20. (U) Assistant Secretary Ramon Kabigting of DTI concluded the discussion by reporting on the results of the ASEAN Summit of January 2007. He focused on the agreement to expand the ASEAN-China free trade agreement to include services. He also noted that there were talks on liberalizing trade in merchandise with Australia and New Zealand, and that APEC would begin multilateral negotiations with Japan and the European Union shortly. Conclusion and Comment -------------- ¶21. (SBU) TIC meetings provide a valuable opportunity for the two governments to talk through issues and appreciate each other's views about the trade and investment relationship. In this meeting, participants were able to establish two irritants, the auto tariff increase and biotech labeling, had been resolved. Kenney