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O 170934Z AUG 09 ZDS
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4903
RUEHRC/DEPT OF AGRICULTURE WASHDC IMMEDIATE
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
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RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE

UNCLAS SECTION 01 OF 03 MANILA 001737 
 
C O R R E C T E D  C O P Y/ ADD SENSITIVE CAPTION 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EAP/MTS, EAP/EP, AND EEB/TPP 
STATE PASS USTR FOR BWEISEL AND KEHLERS 
STATE ALSO PASS USAID, OPIC 
USDA FOR ONA, OTP 
TREASURY FOR OASIA 
USDOC FOR 4430/ITA/MAC 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD EINV ECON PGOV PREL RP
SUBJECT: Regional Free Trade and U.S. Agriculture Exports 
 
MANILA 00001737  001.2 OF 003 
 
 
¶1.  (U) Summary:  Scheduled January 2010 tariff reductions under 
ASEAN-centered free trade agreements may reduce the $1.7 billion of 
U.S. food and agricultural exports to the Philippines.  Secretary 
Clinton's July 22 speech on the U.S. intent to participate fully in 
the region was welcomed by AmCham members, who noted that the free 
trade area centered on ASEAN will soon encompass much of the world's 
people and production capacity.  End Summary. 
 
ASEAN Free Trade Agreement Impact on U.S. Ag Exports 
--------------------------------------------- ------- 
 
¶2.  (U) Under the Association of Southeast Asia Nations (ASEAN, 
composed of Brunei Darussalam, Burma, Cambodia, Indonesia, Laos, 
Malaysia, the Philippines, Singapore, Thailand and Vietnam) Free 
Trade Agreement (AFTA), all tariff rates on all products (with 
special protocol exemptions for a very few hyper-sensitive products 
such as rice) in the ASEAN region will fall to between zero and five 
percent by 2010.  Several types of U.S. agricultural exports to the 
Philippines will face higher tariffs than competing products 
imported under the lower Common Effective Preferential Tariffs 
(CEPT) of AFTA: 
 
(a) Poultry/Pork products:  Beginning January 2010, ASEAN-origin 
processed and fresh or frozen pork and poultry products may enter 
the Philippines at a 5 percent tariff while U.S. products will still 
face most favored nation (MFN) tariff rates of between 30 and 40 
percent in addition to tariff-rate-quota restrictions.  U.S. exports 
to the Philippines of poultry meat were about $20 million and of 
pork about $54 million in 2008. 
 
(b) Corn:  Under AFTA, corn tariffs will go down to 5 percent by 
2010 versus an MFN rate of 35-50 percent applied to U.S. corn. 
 
(c) Packaged Food Items (soups, peanut butter, biscuits, fruit 
juices):  The majority of U.S. packaged food items have duties 
between 3-15 percent compared with products entering under the AFTA 
at 0-5 percent duty. 
 
(d) Frozen french fried potatoes:  Starting in 2012, French fries 
will be levied a 5 percent duty under AFTA, while U.S. french fries 
will face an MFN rate of 10 percent. 
 
ASEAN-Australia-New Zealand Free Trade Agreement 
--------------------------------------------- --- 
 
¶3.  (U) The ASEAN-Australia-New Zealand Free Trade Agreement 
(AANZFTA) signed in February this year provides products from 
Australia and New Zealand with the same lower tariffs as 
ASEAN-origin products.  U.S. wheat, beef, and dairy exports to the 
Philippines face direct competition from Australian and New Zealand 
products and will be disadvantaged as a result of the new tariff 
regime: 
 
(a) Wheat and Wheat Flour:  Beginning January 2010 under the 
AANZFTA, foodgrade wheat may enter the Philippines duty free, 
compared with a 3 percent MFN tariff rate for U.S. wheat.  Wheat 
flour duties will drop to zero in 2011 under AANZFTA. 
 
(b) Dairy Products:  Starting in 2010, milk powder, cheese and 
buttermilk from Australia and New Zealand can enter the Philippines 
duty free.  On the other hand, U.S. milk powder will have a MFN duty 
of 1 percent; cheese and buttermilk face a 7 percent MFN duty. 
 
(c) Fresh Fruits:  Under AANZFTA, fresh fruits such as apples, 
grapes, kiwifruit, and cherries will be duty-free starting 2011 
while U.S. apples, grapes, and cherries will continue to face an MFN 
duty of 7 percent. 
 
(d) Beef:  By 2012, beef and live cattle under AANZFTA will be able 
to enter duty-free while those coming from the U.S. are subject to 
10 percent and 3 percent MFN tariff rates, respectively. 
 
(e) Packaged Food Items (soups, peanut butter, biscuits, fruit 
juices):  The majority of U.S. packaged food items face a Philippine 
duty of between 3-15 percent compared with products entering under 
the AANZFTA which will face only 0-5 percent duty. 
 
(f) Frozen french fried potatoes:  As was noted for ASEAN-origin 
products, Australian and New Zealand-origin french fries can also 
enter the Philippines duty-free starting in 2012 while U.S. french 
fries will continue to face an MFN rate of 10 percent. 
 
 
MANILA 00001737  002.3 OF 003 
 
 
)g) Wine:  By 2015, wine from AANZFTA-member countries will be able 
to enter the Philippines duty-free, compared to the 7 percent MFN 
tariff for wines from the U.S. 
 
(h) Liquid milk, butter and beef offal:  Under the AANZFTA, liquid 
milk, butter & beef offal will be duty-free by 2019, while 
U.S.-origin products will still have 3 percent, 7 percent and 7 
percent MFN tariffs, respectively. 
 
ASEAN-China Free Trade Agreement 
-------------------------------- 
 
¶4.  (U) Meanwhile, the Philippines and China eliminated tariffs on 
more than 210 agricultural commodities in January 2006 under the 
memorandum of understanding covering the Early Harvest Program 
(EHP).  The EHP is a free trade agreement under the framework of the 
ASEAN-China Free Trade Agreement (ACFTA) and covers unprocessed 
agricultural products, in particular, livestock, meat, fish, dairy 
products, live plants, vegetables, fruits and nuts: 
 
(a) Vegetables:  Under EHP, duties have been reduced to zero since 
2006 for dried vegetables, leguminous vegetables, as well as 
artichokes and brussels sprouts.  On the other hand, dried peas from 
the U.S. face a MFN rate of 3 percent. 
 
(b) Fresh Fruits:  Apples have been singled-out for duty-free 
treatment under the Philippine-China EHP since 2006.  On the other 
hand, a 7 percent MFN tariff applies to U.S. apple imports into the 
Philippines. 
 
¶5.  (U) Duties for some vegetables have already been reduced under 
the ASEAN-China Free Trade Agreement.  The Benguet Farmers' 
Federation Inc. (BFFI), which produces and supplies the majority of 
Philippine highland vegetables, has admitted difficulty in competing 
with imported vegetables from China.  Increasing farm input and 
marketing costs have been compounded by the entry of smuggled 
Chinese vegetables.  The BFFI has concerns over how to compete with 
more entry of additional (i.e., beyond the EHP) duty-free vegetables 
from China next year. 
 
¶6.  (U) In spite of domestic opposition from some local agricultural 
interests, in June 2009 Philippine President Gloria Macapagal-Arroyo 
announced that the Philippines would implement its AFTA tariff 
commitments as scheduled in January 2010. 
 
Wheat is the Single Most Important U.S. Ag Export 
--------------------------------------------- ---- 
 
¶7.  (U) Wheat accounts for much of the $1.7 billion of U.S. 
agricultural exports to the Philippines, with over $700 million in 
U.S. bulk wheat shipped to the Philippines in 2008.  The Philippine 
government temporarily scrapped the duty on all wheat imports from 
December 2008 through June 2009 to temper the impact of rising 
prices of imported wheat on local bread/bakery products.   The 
tariff on imported feedgrade wheat has since reverted to 7 percent 
while duty free importation of foodgrade wheat has been extended for 
another six months or through December 2009.  However, Australian 
wheat and wheat flour exports to the Philippines will have an 
advantage when tariffs on these products are eliminated in 2010 and 
2011, respectively.  Philippine flour milling and bakery industries 
have been lobbying with the Philippine government for an extension 
of the duty-free privilege for all wheat imports. 
 
U.S. Companies Applaud Greater U.S. Interest in Region 
--------------------------------------------- -------- 
 
¶8.  (SBU) Some members of the American Chamber of Commerce in Manila 
have expressed appreciation for Secretary Clinton's July 22 remarks 
on the U.S. intent to be more fully involved in ASEAN affairs. 
However, one AmCham member then asked how this intent would be 
translated into concrete actions comparable to the $10 billion 
"China-ASEAN Fund on Investment Cooperation" announced by China 
earlier this year. 
 
Comment 
------- 
 
¶9.  (U) Several U.S. agricultural and food exports will be 
disadvantaged as regional free trade agreements take effect in 
January 2010, and our markets share here for those products may 
decline as a direct result.  Post will continue to monitor this 
issue. 
 
MANILA 00001737  003.2 OF 003 
 
 
 
Kenney