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Trade row with China stalls US's FTA talks with Manila.

THE United States has suspended all efforts to negotiate a free- trade agreement (FTA) with the Philippines until Washington resolves its trade conflict with Beijing, a war that has been hurting the global economy since last year, a former US diplomat has revealed.

US-Asean Business Council Senior Vice President and Regional Managing Director Michael W. Michalak said Washington is prioritizing the resolution of its tariff war with Beijing over anything else. As such, its planned trade deal with Manila, which gained headway last year after a series of talks between state officials, has to wait until the trade conflict is neutralized.

In his latest dialogue with Office of the US Trade Representative (USTR) executives, Michalak said he was informed of the US government's decision to settle the China situation first before negotiating new FTAs with trading partners, including the Philippines.

'The situation with China is taking up a lot of attention in USTR. We actually met with some of the officials in USTR last week. I asked specifically about the FTA with the Philippines, and they said it's on the list. They are a little bit busy right now with a bunch of other stuff, but they have not forgotten about it,' Michalak said in an interview with the BusinessMirror.

Hard look at proposed FTA

'The clearest statement I was able to get is they are going to take a hard look at this [proposed FTA with the Philippines] after China,' he added.

The US and China have been engaged in a protracted trade conflict since last year, starting from when US President Donald J. Trump applied duties on washing machines and solar panels, and subsequently increased tariffs on steel and aluminum. The past year saw the US imposing 25-percent tariffs on $250 billion worth of Chinese imports.

The tariff race between the world's largest economies is slowing down global economy. In August, the World Trade Organization (WTO) projected growth of world merchandise trade will likely remain weak in the third quarter and in the months after.

'I think the major thing right now is we are dealing with China. We have to really get that thing done before anything else,' argued Michalak, who was former US ambassador to Vietnam.

As for the Philippines, trade officials are hoping they can secure an FTA with the US to provide preferential treatment and better market access for the country's export items.

Part of Manila's interest is the elimination of tariffs on garments and textiles, on which Washington applies average MFN duties of 11.7 percent and 8 percent, respectively, based on WTO data. On the other hand, the US is asking the Philippines to reduce duties on vehicles that can go as high as 30 percent, especially for passenger cars, at present.

Maximize GSP

With the proposed FTA hanging in the balance, Trade Secretary Ramon M. Lopez admitted the situation is now 'beyond our control,' and the Philippines will just maximize its trade privilege with the US under the Generalized System of Preferences (GSP).

'We will maintain a healthy trading relationship with the United States under the current GSP trading arrangement. Philippines will maximize usage of the program,' Lopez said in a text message.

The GSP allows the Philippines to export a total of 5,057 products, or nearly half of the 10,600 US tariff lines, to the US at zero or reduced tariffs.

However, the Philippines could lose this preferential treatment once it has been classified as an upper middle-income economy by the World Bank. The government is targeting to develop the Philippines into an upper middle-income economy by 2022 under the Philippine Development Plan 2017-2022; therefore, the country could lose its GSP status that year.

All hope for an FTA is not lost, Michalak said, as Manila and Washington can resolve their trade issues for the meantime while the Beijing situation is being handled.

Based on records from the Philippine Statistics Authority (PSA), trade in goods between the Philippines and the US last year improved 7.16 percent to $18.69 billion, from $17.44 billion in 2017. This made the US the country's third-largest trading partner next to China and Japan.

Further, exports to the US grew 10.04 percent to $10.63 billion, from $9.66 billion, making it the country's top export destination to lead Japan, Hong Kong, China and Singapore.

Electronic products accounted for bulk of the shipments at $5.13 billion. Aside from this, top exports to the United States include manufactured items; apparel and clothing; ignition wiring sets; machinery and transport equipment; and coconut oil.
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Publication:Business Mirror (Makati City, Philippines)
Geographic Code:9CHIN
Date:Sep 23, 2019
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