John Peterson, FedEx Managing Director for the Philippines, relates how existing agreements and structures empower Filipino entrepreneurs to think beyond our shores
The development of Small- and Medium-size Enterprises (SMEs) is one of the major factors in sustaining long-term economic growth. As these businesses flourish and the confidence of their respective entrepreneurs are bolstered, possibilities for more growth open up, such as opportunities that extend beyond the country’s borders.
International trade creates jobs and provides SMEs with new ideas, wider markets, and, naturally, additional profits. However, there are many considerations when engaging in cross-national export and business; apart from dealing with different cultural norms and processes, the SME has to deal with complicated tax schemes and laws that can slow down or completely hinder growth.
Fortunately, there are Free Trade Agreements (FTAs) available that can ease international dealings for the expansion-driven SME. Apart from these, the Philippine Economic Authority (PEZA) also implements complete (100%) exemption from duties and taxes when exporting goods.
The ASEAN Free Trade Area (AFTA) is a trading bloc established in 1992 to support manufacturing in Southeast Asian countries including, of course, the Philippines. Through its reduced tariff scheme, it promotes mutual, cooperative growth between ASEAN nations, pushing them to achieve their aim of maintaining their competitive edge as a production base in the world. Under the AFTA, SMEs can apply a tariff rate of zero to 5% on nearly 8,000 products, including those previously deferred on countries’ highly sensitive lists.
Aside from the AFTA, there is also the ASEAN-India Free Trade Area, which is an economic understanding between the South Asian powerhouse and Southeast Asia. It is the world’s largest FTA, reaching a market of about 2 billion people and a combined Gross Domestic Product (GDP) count of almost $3 trillion. This agreement covers a tariff liberalization of more than 90% of products, including a continuously growing list (around 4,000 named) of commodities such as palm oil, coffee, tea and pepper.
Another FTA SMEs should explore is the ASEAN-Japan Comprehensive Partnership, which was established in 2008. The agreement covers the trade of goods, services, investment, and economic cooperation as well as the Rules of Origin, which dictate that goods from Japan used in products made in ASEAN countries be considered as local content. SMEs with products containing 40% of raw materials originating from ASEAN-Japan region can jointly share materials or production with the members of the agreement without losing its originating status. The Philippines has had duty free privileges with 28 countries in the European Union since 2014 through the Generalized Scheme of Preferences, and recently joined the European Free Trade Association in 2016, allowing Philippine businesses to export over 6,000 types of products with zero tariffs to Iceland, Liechtenstein, Norway and Switzerland.
A prime example of the push that these FTAs can provide can be seen in the Philippine automotive landscape. These agreements have allowed international car companies to offer even their premium designs at lower prices, bringing more variety to the local motoring industry. If these foreign entities can do it here, it’s also possible for Philippine companies to do it elsewhere.
Register for PEZA Accreditation
PEZA accreditation gives qualified SMEs 100% exemption in export duties and taxes. Businesses in the Export Manufacturing, IT Service Export, Tourism, Medical Tourism, Agro-industrial Export manufacturing, Agro-industrial Bio-Fuel Manufacturing, Logistics and Warehousing Services, Economic Zone Development and Operation, Facilities Provider, and Utilities industries are provided this exemption. Qualified SMEs need to submit a project brief (containing the proposed activities of the business), project feasibility study, anti-graft certificate, Securities and Exchange Commission certificate of registration, articles of incorporation and its by-laws to apply for accreditation.
Once PEZA-accredited, a business is entitled to income tax holidays that completely waive corporate income tax for the first four to six years of operations. The SME will also enjoy tax and duty-free importation, and VAT exemption when purchasing local goods or services for use in their operations.
Find a logistics partner
As the company grows through international trade, it becomes even more imperative to find the right logistics partner that can keep their products moving on demand.
FedEx connects its SME customers to over 220 countries and territories worldwide, giving them boundless opportunities for their products to enter and gain new markets. FedEx has a team of skilled experts dedicated to providing SMEs with logistics advice and tailor-fit services. In the Philippines, FedEx has operations in Manila and Clark and a network of World Service Centers nationwide.
SMEs should explore how they can maximize Free Trade Agreements and PEZA Accreditation to grow their business and ride the tailwind of the Philippines’ fast-growing economy, which is currently outpacing even China and Vietnam.
For more information, click here: FedEx Infographic – Your Business Can Go Global
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 SMES seen to sustain PH economic growth http://investphilippines.gov.ph/smes-seen-to-sustain-ph-economic-growth/
 Opportunities in Importing and Exporting http://corporate.findlaw.com/law-library/opportunities-in-importing-and-exporting.html
 Benefits from ASEAN Free Trade Area (AFTA) Tariff Cuts http://www.business-in-asia.com/asia_freetrade.html
 Rules of origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports. – World Trade Organization
 Statement of the Q3 performance of the Philippine Economy http://www.neda.gov.ph/2016/11/17/statement-on-the-q3-performance-of-the-philippine-economy/