US embassy cable - 05MANILA4111

UNCLAS SECTION 01 OF 02 MANILA 004111 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/EP, EB/IFD, EB/TPP, EAP/J 
STATE PASS USTR FOR BWEISEL AND DKATZ 
STATE ALSO PASS USAID AND OPIC 
TREASURY FOR OASIA FOR AJEWELL 
USDOJ FOR MCRAWFORD 
USDOC FOR 4430/ITA/MAC/DBISBEE 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EFIN, BEXP, RP, WTRO, JP 
SUBJECT: TRADE SECRETARY FAVILA SUPPORTS MORE CONSISTENT 
ECONOMIC POLICIES 
 
REF: A) MANILA 03955  B) MANILA 03811 
 
SENSITIVE BUT UNCLASSIFIED 
 
1. (SBU) SUMMARY: During a courtesy call by Charge, 
Secretary of Trade and Industry Peter Favila expressed 
 
SIPDIS 
support for more consistent and transparent policies to 
promote trade and investment.  The Charge raised questions 
regarding inconsistent customs and tax policies as well as 
court decisions that have raised uncertainty for US firms. 
Although Favila confirmed that the GRP supports the debt-for- 
equity proposal by House Speaker Jose de Venecia, the GRP 
economic team does not appear to be actively involved. 
Favila reaffirmed the GRP's willingness to restore tax 
incentives to the Clark Special Economic Zone and help 
remove legal obstacles to the opening of the new airport for 
Manila.  END SUMMARY 
 
2. (SBU) The Charge met with Favila on August 31, 
accompanied by the Economic and Commercial Counselors. 
Favila was joined by Undersecretary Thomas Aquino.  Favila 
reported that the Supreme Court would hold a session on 
September 1 to "force a decision" on the temporary 
restraining order (TRO) that has prevented implementation of 
the expanded VAT law.  (NOTE: Septel reports the September 1 
Supreme Court announcement to lift the TRO. END NOTE) In 
anticipation of this expected decision, Favila had joined 
Finance Secretary Teves to meet with the Davao business 
community on August 29 in the first of a series of "road 
shows" to explain the E-VAT.  Favila reported a generally 
positive response from the 500 attendees. 
 
3. (SBU)  Favila stated that the GRP supports the debt-for- 
equity proposal presented on behalf of GRP in letter by 
House Speaker Jose de Venecia that proposes to divert debt 
payments into development projects.  Favila views this as a 
"diplomatic initiative" that does not directly involve his 
department. 
 
4. (SBU)  The Charge inquired about recent reports of an 
agreement to allow private investors to open Terminal 3 at 
Manila Airport later this year (ref A).  Favila said that 
DTI was not directly involved, but the GRP is willing to 
help remove any legal impediments.  (Comment: Other GRP 
officials, including Malacanang Executive Secretary Ermita, 
have asserted that the GRP will retain possession of the 
airport, suggesting that significant hurdles remain before 
the GRP will agree to reverse its expropriation of Terminal 
3.  End Comment)  Favila noted that the facility requires 
additional work to ensure FAA compliance before it can open. 
While the US has no direct involvement in the airport, the 
US business community has emphasized the importance of this 
issue to the investment climate, said the Charge. 
 
5. (SBU)  The Charge invited Favila to the Embassy's 
Intellectual Property Rights Roundtable on September 13, 
where private stakeholders and GRP officials will discuss 
IPR issues.  He noted our productive collaboration with the 
Intellectual Property Office, and underscored that more 
progress will be needed on enforcement and prosecution of 
IPR violators to remove the Philippines from the Special 301 
priority watch list. Favila said he was aware of this 
objective. 
 
-------------- 
Customs issues 
-------------- 
 
6. (SBU)  The Charge expressed concern that proposed tariff 
reductions for Japanese vehicles under the Japan-Philippine 
Economic Partnership Agreement (JPEPA) may negatively affect 
Ford's substantial investments in the Philippines.  Favila 
said he met recently with Ford reps and will take their 
position into account.  Favila stated that currently "the 
ball is in Japan's court" as GRP awaits the Japanese 
reaction to the most recent JPEPA draft. 
 
7. (SBU)  While noting that Customs decisions are not 
directly within the DTI's authority, the Charge nevertheless 
urged the GRP to reconsider a recent BOC decision to 
reclassify Tang as refined sugar subject instead of a 
powdered beverage, raising its 3% tariff rate to 48%. 
Undersecretary Aquino explained that this decision has a 
long complex history involving inconsistent interpretations 
of customs categorizations by the BOC.  The issue is 
currently under consideration and the GRP is "trying to 
correct the inconsistency", he promised. 
 
8. (SBU)  Emphasizing the strong desire in the business 
community for greater consistency and transparency in GRP 
policies, the Charge asked Favila whether DTI has a remedy 
for the removal of tax incentives from the Clark Special 
Economic Zone by the Supreme Court.  Favila said he supports 
a legislative solution proposed by Senator Gordon, as well 
as a parallel initiative by House Speaker de Venecia, to 
refine existing laws in order to resolve this issue.  He 
noted that Finance Secretary Teves has promised Clark 
investors his intention to maintain the status quo until an 
acceptable solution is found.  Favila said that he had also 
urged Executive Secretary Ermita to create strong guidelines 
on the announcement of ad hoc holidays. 
 
9. (SBU)  The Charge explained that the US Geological Survey 
is offering to conduct a comprehensive survey of mineral 
resources that can help to attract investors into this 
promising sector, contingent on GRP funding for USGS role in 
this joint effort (Ref B).  He noted that recent price 
increases for mineral products should encourage investment 
and growth of this sector. Favila expressed hope that this 
study could help attract US firms and avoid the hit-or-miss 
exploration strategy used by many small-scale mining 
entrepreneurs. 
 
10. (SBU)  Favila said he will join President Arroyo and 
other members of her economic team to attend the UNGA in mid- 
September. He will then return while Finance Secretary Teves 
and Central Bank Governor Tetangco continue to Washington 
for September 24-25 meetings with the World Bank and later 
the Millennium Challenge Corporation. 
 
11. (SBU)  COMMENT: As a former banker, Favila appears 
receptive to business concerns, notably over inconsistent 
tax and investment policies.  He will need the support of 
the Finance Department, Congress, and other GRP officials to 
address these issues.  While he might be a strong ally of 
the business community, he faces many interagency conflicts 
in efforts to establish a more consistent and investor- 
friendly environment. 
 
 
JOHNSON