The Use of Free Trade Agreements in the Philippines: Trends and Determinants

This study examined the utilization of free trade agreements (FTAs) in the Philippines. Using a transaction-level data on Philippine imports, we calculated various indicators to measure preference utilization for the period 2018–2020. We found that FTAs have been substantially utilized on imports from most FTA partners. However, imports from Japan, South Korea, and Singapore exhibited relatively lower utilization rates. We also documented cases of firms using FTA schemes for non-dutiable goods and dutiable goods with zero preference margin. To determine the factors affecting preference utilization in Philippine imports, we performed an econometric analysis using both transaction- and firm-level data. Consistent with the literature, the preference margin, import value, and firm experience in FTA use were found to positively influence the extent of preference utilization at the transaction level. The firm-level regressions also indicate that total import value was the key driver of FTA utilization among Philippine manufacturing firms, while labor productivity, age, and foreign linkages emerged as potential determinants. The findings of our study suggest the need for initiatives that would ensure the usefulness and relevance of FTAs, monitor and evaluate the pressing challenges in firm utilization, and enhance the dissemination of information on MFN and FTA schemes. Developments in trade and establishment data are also crucial for conducting long-term assessments of preference utilization.