1953 2

1954 (1st half) 2.

Year

[In millions of pesos]

Exports

Imports

Trade (f. o. b.) (f. o. b.) balance 1

1 Excess of exports (+); excess of imports (-). Preliminary.

+61.8

315,6

253,8

531.1

1,022.7

-491.6

638.4

1, 136. 4

-498.0

511.8

1, 137. 4

-625.6

Sources: Based on data of the Philippine Bureau of the Census and statistics, primarily Foreign Trade and Navigation of the Philippines (annual) and Résumé of Philippine Foreign Trade Statistics, 1953 and 1952.

Note: These data and other data on trade are based on official annual returns of the Philippine Bureau of the Census and Statistics. The data differ considerably for some periods from those given in the balance-of-payments data, which are based on material submitted by the Central Bank of the Philippines to the International Monetary Fund, and have in some cases been further adjusted.

A second basic characteristic of postwar Philippine trade is that the country buys more from abroad than it sells to foreign markets. Philippine imports in the years 1947 through 1953 averaged 959 million pesos while exports averaged 669 million pesos, resulting in an average annual surplus of imports of 290 million pesos. This surplus of imports is in contrast with the situation in the

344752-556

prewar years; in the 5 years immediately preceding the war the Philippines had an overall export surplus which averaged about 62 million pesos annually (see table 17). In this prewar period the export surplus in the trade with the United States was sufficiently large to offset deficits in the trade with other countries.

Composition of Trade

Exports. A heavy reliance both on a limited number of export items and a great variety of imports has characterized Philippine postwar international trade. The export trade is based essentially on about 10 products with 3-copra, sugar, and abaca-predominating. These 3 alone accounted for 62 percent of 1953 exports and with their related products-coconut oil, desiccated coconut, copra meal or cake, molasses, and rope-accounted for 73 percent. Shipments of the 10 principal exports by quantity and value in 1953, with comparative figures for 1952, appear in table 18. These exports, which included metals and ores, logs, lumber and timber, canned pineapples, tobacco, and embroideries, together with those indicated above, accounted for 94 percent of 1953 exports and 88 percent of 1952 exports.

Two major factors affecting the postwar export trade have been small supplies of the principal ex

ports in the early postwar years and the instability of export prices. Facilities for sugar production and mining were severely damaged during World War II and the abaca crop has been affected by disease. In the first year or two of the postwar period there were no exports of canned pineapple or base metals.

The value of exports has risen in postwar years from the abnormally low level of about 128 million pesos in 1946 but has followed no constant trend because of unstable prices for the major export commodities. The peak in value was reached in 1951, when exports totaled 831.5 million pesos. The volume of exports has steadily increased throughout the postwar period except for a slight setback between 1951 and 1952.

In the postwar years as compared with the prewar period there has been a change in the relative importance of sugar and copra. Before the war sugar accounted for more than one-third of the value of total exports and copra about one-tenth. Since the war copra has headed the export list for the period as a whole. Because of the relatively undamaged condition of coconut groves copra was the first export to be revived; in 1946 it was virtually the only major item of export.

As other products reentered the export market, the relative position of copra exports steadily declined although copra exports in 1953 were about double those of 1946. Sugar exports have steadily increased and in 1953 represented about one-fifth of the value of total exports. Abaca has generally comprised about a tenth or more of exports in postwar years; in 1953 it accounted for 9 percent of the total.

Imports. The general character of Philippine imports in the postwar years has been similar to that of the prewar period, in that they have consisted primarily of finished manufactured goods (see table 19). Consumer items have constituted the bulk of the import trade, with textiles and food. products, particularly cereals and dairy products,

In 1949 more than 70 percent of total imports were consumer goods whereas in 1951 only about 55 percent were of this type, and capital equipment and raw materials increased from about 30 percent to about 45 percent. In the first half of 1952 nonessential imports, i. e., luxury items and consumer goods which are or may be produced domestically in adequate quantities, represented about one-third of total imports, but in 1953 such imports were down to about one-fourth of total imports.

The drop in the importation of such products as light bulbs, cardboard boxes, nails, and trucks exemplifies the declining trend in imports of finished products which are or can be produced or assembled in the Philippines.

United States. In 5 years immediately preceding the war these figures were reversed; the Philippines shipped about four-fifths of its exports to the United States and the United States furnished about two-thirds of Philippine imports.

As the largest foreign purchaser of Philippine products the United States in 1953 took 54 percent of Philippine exports of corpa by value; almost all of the sugar; 39 percent of the abaca; 66 percent of the base metals; 25 percent of the logs, lumber, and timber; 98 percent of the coconut oil; and nearly all of the desiccated coconut, canned pineapple, and embroideries.

Japan is second but far below the United States as a market for Philippine products. Japan's share in recent years is, however, higher than in prewar years. Whereas in 1937 Japan took 7 percent of Philippine exports, in 1952 it took 11 percent and in 1953, 12 percent. Japan is the leading customer for Philippine logs, lumber, and timber and iron ore.

Other important markets in 1953 were in Europe and Latin America-the Netherlands, Denmark, Belgium, the United Kingdom, Switzerland, Germany, Venezuela, and Colombia. Copra, coconut oil, and abaca are the major commodities sent to these areas.

The United States, which supplies about threefourths of total Philippine imports, in 1953 accounted for almost all of the Philippine foreign supplies of tobacco, automobiles, and parts as well as 88 percent of cotton textiles, 96 percent of rayon and other synthetic textiles, 85 percent of machinery, 48 percent of iron and steel manufactures, 53 percent of petroleum products, about 50 percent of grains, 82 percent of dairy products, almost 90 percent of paper and manufactures, 88 percent of chemicals and drugs, and 95 percent of electrical machinery and apparatus.

Seven items exported to the United States are subject to two types of quotas (as explained later) established by the trade agreement of 1946. These quotas have been filled for only one item in one year, i. e., for cordage in 1951. Failure to fill the quotas in the cases of some products has been due to the supply situation, while in the cases of others, such as cordage and cigars, general market conditions were the governing factor. As indicated in table 21, in 1953 the sugar and button quotas were almost reached, while the cordage quota fell short of being met by 32 percent, the coconut oil quota by 73 percent, and the tobacco quota by 56 percent. Relatively small amounts of rice and cigars were shipped against the quotas for those two items.

Japan gradually has regained its prewar position as the second most important source of supply for the Philippines. In recent years Japan's

1 No more than 112,000 pounds may be refined sugar under the terms of the agreement.

Note: Imports of sugar, cordage, rice, cigars, cigar filler and scrap tobacco, coconut oil, and pearl or shell buttons from the Philippines are subject to absolute quotas. These quotas have, however, exceeded actual imports of the articles to which they apply, except for cordage in 1951 and sugar in 1954. Under the trade agreement of 1946 imports of sugar, cordage, and rice become subject to the tariff provisions (progressive rates commencing with 5 percent) whereas the remaining commodities become subject to declining duty-free quotas. The progressive tariff rates, originally set to begin on July 4, 1954, have been delayed until January 1, 1956, but the declining duty. free quotas went into effect as scheduled on January 1, 1955.

share has been about 5 percent of total imports as compared with about 15 percent in prewar years. Iron and steel products, machinery, textiles, and a wide variety of other manufactures constitute most of this trade.

Other supplying countries of importance in 1953 were Indonesia, Arabia, Bahrein Island, Canada, the Netherlands, Germany, the United Kingdom, and Hong Kong. The Asian areas are primarily sources of petroleum products; Canada supplies wheat flour; the Netherlands, mainly dairy products; Germany and the United Kingdom, chiefly iron and steel products and machinery; and Hong Kong, textile manufactures and miscellaneous manufactures.

Terms of Trade

The postwar terms of trade of the Philippines have generally been favorable as compared with the period immediately preceding the war. It appears that the purchasing power of Philippine exports in the postwar period was greatest in

1948-49.

If 1948-49 is taken as a base period, the terms of trade show a dip in late 1951 and 1952 and then an improvement in 1953 (see table 22). The upsurge in prices of many of the country's primary products in the first half of 1953, coupled with the moderate drops in import prices that occurred at about the same time, account for the favorable turn in 1953. During the first 9 months of 1954, however, the terms of trade worsened, with export prices declining while import prices remained stable or rose slightly.

Table 22.-Philippine Terms of Trade, 1950-53

Imports will be predominantly manufactured items which it is not found feasible to produce domestically. As items are produced in the Philippines in sufficient quantity, however, they will generally be eliminated from the import trade.

The Philippines will find it increasingly necessary to meet competition for its exports. With many years of free entry into the United States there has been no strong incentive to reduce production costs or to raise the quality of products. As gradual reduction of trade preferences occurs, however, the Philippine Government and Philippine traders will be forced to think more in terms of price competition, uniform products of high quality, and regularity in supplies. Sales promotion activities may also be increased. Diversification commoditywise can be expected as another trade development.

The gradual imposition of duties in the United States market in accordance with the trade agreement will also tend to make the Philippines expand marketwise in its export trade. Trade agreements with other countries may be used as a step in this diversification. The postwar necessity for trade and exchange controls has been generally recognized. Import trade will probably remain restricted although controls may be tightened or eased, depending largely on the country's balanceof-payments position. A necessarily cautious import licensing policy with continued emphasis on essentials may be expected at least for the immediate future.

COMMERCIAL POLICY

Philippine commercial policy has its roots in the history of the country prior to independence. The United States-Philippine Trade Agreement of 1946, made at the time the Philippines gained independence, provides for special trade relations between the two countries until 1974. Moreover, the present Philippine tariff is that of the United States in 1909 with only minor revisions.

The general policy provided in the trade agreement has been free trade with the United States for a period, followed by gradually diminishing preferences in the trade between the two countries."

A basic premise of policy, frequently stated by Philippine officials, is to broaden trade with countries other than the United States, thus lessening dependence on the United States. Despite this position, however, at the time the trade agreement of 1946 was being developed the Philippine Government desired, on the export side, a much longer free-trade period than the 8 years provided by the agreement and recently, in requesting a revi

See the section below for basic trade provisions of the present agreement and see appendix E for the full text.

sion of the trade agreement, requested an indefinite extension of the duty-free period for almost all of its export trade.

In addition to the agreement with the United States the Philippines currently has a trade agreement with Japan, and possible bilateral agreements with Germany and Korea are under consideration. In the 1954 session of Congress the Philippine President was granted authority to enter into trade agreements with foreign countries for a period of 3 years. This new legislation (Republic Act 1189) may expedite additional trade agreements considered desirable in the broadening of Philippine trade, since formerly such agreements had to be submitted to Congress for approval.

Although the Philippine Government signed the Charter of the International Trade Organization at Havana, it did not become a member of the General Agreement on Tariffs and Trade (GATT). With the predominance of trade with the United States, and a special agreement covering this trade, the Philippines has not felt the need for multilateral trade relations to the same degree as have other nations.

Trade Agreement With the United States

The basis for the conduct of trade between the United States and the Republic of the Philippines was laid by enactment of the Philippine Trade Act (Public Law 371, 79th Congress), approved April 30, 1946. Under terms of the act its provisions were incorporated in and implemented by an executive agreement signed in Manila July 4, 1946, the date on which the Philippines became independent. Principal provisions of the agreement in the trade sphere were:

1. Reciprocal free trade for 8 years from July 4, 1946, to July 3, 1954. During this period products of either country entered the other free of ordinary customs duties, provided articles did not contain foreign materials (other than United States or Philippine materials) in excess of 20 percent of the value of the articles at time of importation into the Philippines or United States.

2. Gradually diminishing preferences for 20 years (July 4, 1954, to December 31, 1974) beginning at 5 percent of lowest duty accorded any country and increasing by 5 percent each calendar year until January 1, 1973, when full duties are to be imposed on products of both countries until July 4, 1974. Thereafter, duties to be determined without regard to terms of the trade act.

3. Absolute quotas for import into the United States of Philippine sugar, cordage, rice, cigars, scrap tobacco and filler tobacco, coconut oil, and pearl buttons. Quotas for the first three commodities were to be subject to graduated duties begin

The full text of this agreement is provided in appendix E, together with proposed revisions.

ning July 4, 1954, and the remaining commodities to be subject to reduced duty-free quotas beginning January 1, 1955.

4. Allocation of quotas among producers in the Philippines on historical basis without discrimination as to nationality of producer.

5. Nondiscriminatory internal tax treatment by each country for products imported from the other; prohibition on export taxes on exports of either country to the other.

6. Retention of the preference of 2 cents a pound in the United States processing tax on coconut oil produced in the United States from Philippine copra, or on Philippine coconut oil further processed in the United States, unless adequate supplies of either copra or oil from the Philippines are available for processing in the United States.

7. Negotiation of agreements between United States and Philippines under the Reciprocal Trade Agreements Act prohibited.

Quotas provided under the trade act (see 3 above) are given in table 21.

In the past few years the Philippine Government has indicated that it considers the trade agreement of 1946 to be unsatisfactory in several respects. In the trade sphere the main objections are to the imposition of quotas on Philippine exports to the United States and to the provision that duties on United States goods imported into the Philippines can only be gradually imposed. The latter provision is said to be a hardship in view of the Philippine needs for increased revenue and protection of new industries.

Studies were undertaken by official groups designated by the President of the Philippines and by Congressional Committees in 1952 to develop recommendations for a revision of the trade agreement. The following year the Philippine Government submitted proposals to the United States for a revision of the agreement, including a plan to place the trade between the two countries on a "selective free trade" basis.

In March 1954 the United States, in agreeing to consult with the Philippine Government regarding modification of the agreement, indicated its willingness to consider possible alternative trade provisions but rejected the Philippine selective free-trade proposal as an unsatisfactory basis for future trade relations. A few months later the reciprocal free-trade period provided for in the 1946 agreement was extended from July 3, 1954, until the end of 1955. Negotiations carried on in Washington in September-December 1954 resulted in an agreement by delegations of the two countries to recommend to their respective Congresses a revision of the trade agreement (see appendix E).

A Treaty of Friendship, Commerce and Navigation has not been concluded between the United States and the Philippines. Although the United States indicated a desire for such a treaty several