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

DE RUEHML #1644/01 1380847
O 180847Z MAY 07





E.O. 12958: N/A
SUBJECT: Trade Council Reviews U.S.-Philippine Trade and Investment

REF: Manila 1370


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.


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

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

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

Chemical Standards Dialogue

16. (SBU) Weisel proposed a video conference to allow experts to
discuss USG concerns about market access for new chemicals. Favila

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

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

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.

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