Friday, February 11, 2011

General Trade Practices in Philippines and Korea

General Trade Practices
Tariffs: Items which are not locally produced generally have low tariffs meaning it is zero to five percent, while locally produced intermediate products and raw materials are given the assessed duties of three to ten percent. Locally produced goods that competes with finished products face higher tariffs of fifteen to thirty percent.  Finished products that compete with locally produced goods face higher tariffs of fifteen to thirty percent. On January 03, 2001, a  tariff schedule was issued particularly the Executive Order 334 which states that in 2002 and 2003 the tariffs will gradually reduced to meet a uniform of five percent tariff rate for all products by January 2004.    Though there are exemptions to this plan and it contains some raw materials that would face a three percent rate for 2004, as well as finished motor vehicles and some agricultural goods.
Import licenses:  A government entity which is the national Food Authority (NFA) is the only authorized importer of rice and continues to be involved in imports of corn. An administrative order entitled Fisheries Administrative Order (FAO) 195, series of 1999 issued by the Department of Agriculture, requires a license to import fresh, chilled, and frozen fish when it is intended for sale in local retail markets.
 Other certain items such as firearms, and ammunition, used clothing, sodium cyanide, chlorofluorocarbon (CFC) and other ozone-depleting substances, penicillin and derivatives, coal pesticides, used motor vehicles, and used tires are subject to other import regulations. Certain agricultural commodities are subject to minimum access volume of tariff-rate quotas.
Excise tax:  The discriminatory aspects of the Philippines’ excise tax system have raised the concerns of U.S. producers of automobiles and distilled spirits. Products made from materials that are very much available excise taxes on distilled spirits impose a lower tax on products made from materials that are very much available (e.g., coconut, palm, sugar cane).  Automobile vehicles’ excise tax treatments are based on engine displacement, rather than vehicle value.
Standards, Testing, Labeling and Certification:  The importation of products covered by mandatory Philippine national standards must be cleared by the Bureau of Product Standards (BPS). Requirements for labeling in the Philippines apply to different types of products; this includes pharmaceuticals, food, textiles and certain industrial goods. The generic name of a pharmaceutical product should appear above its brand name on all packaging as mandated by the Generics Act of 1998.
Incentives and Export Requirements:  To engage in a pioneer activity to qualify for incentives administered by the government’s Board of Investment (BOI), foreign owned firms should produce for the domestic market. The BOI imposes a higher export performance requirement for foreign-owned enterprises for exporters, which are 70 percent of production, should be exported, while Philippine-controlled companies only 50 percent.  Although, there is an exception of foreign-controlled firms that export 100 percent of production, who seek incentives from the BOI must commit to divest 40 percent ownership within 30 years or such longer period that the BOI may allow. 
Government Procurement Practices:  Philippine controlled firms should service locally-funded government consulting requirements as a general rule.  The Philippines is not a signatory of the WTO Government Procurement Agreement.
Customs Procedures: In Bureau of Customs (BOC), all importers of their agents must file import entries that will then process these entries with the use of the Automated Customs Operating System (ACOS). A computer system is used by the ACOS to classify shipments at low-risk or the (green lane), moderate risk is (yellow lane) or of high risk (red lane).  Shipments that are channeled through the yellow lane require a documentary review, while red lane shipments will require a physical inspection at the port.  According to the BOC it is not subject to any documentary or inspection requirements as for the green lane.
Export Subsidies Policies:  Firms engaging in activities under the government’s “Investment Priorities Plan” may register with the Board of Investments for fiscal incentives. This is composed of three to six year income tax holidays and a tax deduction equivalent to 50 percent of the wages of direct-hire workers for the first five years from the time of registration. Firms in less developed areas may be eligible to claim a tax deduction of up to 100 percent of outlays for infrastructure works and 100 percent of incremental labor expenses also for the first five years of registration. For export-oriented firms that are developed in government-designated export zones and industrial estates which are registered with the Philippine Economic Zone Authority have the same incentives as BOI-registered firms. This includes a longer income tax holiday of four years up to an extendable maximum of eight years.
A five percent tax on gross income in lieu of all national and local taxes will be applied after the Income Tax Holiday period. Firms that earn at least 50 percent of their revenues from their exports may register for certain tax credits under the “Export Development Act”, including a tax credit based on incremental export revenues.
Worker Rights:  Private and public employees have the right to form and join labor unions.  The aspects of the public sector organization law restrict and discourage organizing, even if this right is exercised and practiced.

South Korea
                        Korea's rebound from the 1997 crisis bolsters a surge of foreign investment and results global confidence. Lesser items are subject to tariffs in a continued loosening of import restrictions. Except on national security or cultural industries Korea liberalizes foreign investment regulations for all sectors. The global slowdown of 2001-02 causes fears, as does increased tension with North Korea.

Trade Requirements in Philippines and South Korea

Trade Requirements
  1. Documentation Requirements
The following are the documentary requirements needed when exporting:
1.    Export Declaration Form (ED) – should be filed up before shipment of goods. It is available in Bureau of Export Trade Promotion. (BETP), Department of Trade and Industry (DTI), Bureau of Customs Processing Unit, and PhilExport offices.
2.    Commercial/Proforma Invoice – Document attached to the Export Declarations, prepared by exporter including the full details of a shipment.
3.    Packing List
4.    Export Commodity Clearance/Export Permit – If the product or buyer requires this permit, can secure from the proper government commodity office, in our case from Bureau of Food and Drugs and Department of Agriculture.
5.    Certificate of Origin – shall refer to the exporter, certified by the Bureau of Customs that his exports complies with the origin requirements specified.
6.    Bureau of Fisheries and Aquatic Resources (BFAR) – must have Hazard Analysis Critical Control Point (HACCP) compliance. Export permit issued by BFAR’s central office.


            The following are the documentary requirements needing when shipping to Korea:
1.    Invoice
2.    Bill of Lading or Airway Bill – issued by an ocean carrier; it is a receipt for goods and contract for carriage.
3.    Packing List
4.    Certificate of Origin – not required if there is “Made in the Philippines” on the label.
5.    Ingredient List
6.    Processing Method
7.    Certificate of Production Date
8.    Packing Material
  1. Regulatory Environment
            Regulation of business. For sole proprietorship they are required to register at the Bureau of Trade Regulation and Consumer Protection (BTRCP) and for the partnership and corporations they are required to register at the Securities and Exchange Commission (SEC).
            Competition Policy.  To encourage free market enterprise is the general theme of the Philippine law on competition policy.
            Price Controls. Through the supply and demand and the interplay of market forces the prices in the Philippines are determined. The government can enforce controls on the price for the consumers on the prime commodities to remain the prices reasonable to the consumers Under Price Act of 1992. This does not deny valid business a fair return on its investment. Through the Department of Commission government also monitors domestic petroleum prices.
            Monopolies and antitrust. The Philippine Constitution entails the government to regulate or prohibit monopolies if that is in the public interest. Based on the Revised Penal Code of 1930, the central issue here is not whether a monopoly exists, but whether the monopolist uses its power to alter the price of a product or to restrain free competition in the market. These also prohibit any combination or restrain trade to artificially prevent free competition in the market.
Acquisition and mergers. There are no restrictions on acquisition, mergers or consolidations, unless they will result in unfair competition, will restrain trade to artificially prevent free competition in the market, or will result in foreign ownership that violates Foreign Investment Negative List. Mergers involving two corporations must be approved by a majority vote of the board of directors and trustees, by the stockholders owning ore representing at least two-thirds of the outstanding capital of the constituent corporations, and by the SEC.
            Imports and exports. Philippines permit the importation of all merchandise. The importation of certain commodities is, however, regulated or prohibited for reasons of public health and safety, national security, international commitments, or to facilitate the development or rationalization of local industry. On the export side, the Trade and Industry Development Council has a mandate to define the overall trade development strategy for the country based on the development of a strong domestic industrial base and directed towards global competitiveness.
            Consumer protection. Consumer Act of the Philippines of 1992 establishes standards of conduct for business and industry and provides protection of the interests and general welfare of consumers. It protects consumers against hazards to health and safety, and against deceptive, unfair and unconscionable sales acts and practices.
Pollution Control. Philippine Clean Air Act of 1999, primarily administered by the Department of Environment and Natural Resources (DENR), establishes the maximum permitted emission levels for hazardous air pollutants. The penalties for violating the pollution standard include fines, and the suspension of operations until proper environmental safeguards are put in place.
To protect the country’s water bodies from pollution from land-based sources (industries and commercial establishments, agriculture and community/household activities is the aim of the Philippine Clean Water Act of 2004 (Republic Act No. 9275).  To prevent and minimize pollution through a multi-sectoral and participatory advance in relating to all the stakeholders they provided a broad and integrated strategy.
            Patents, Trademark and Copyrights. Intellectual Property Code of the Philippines sets out the role of the intellectual property office. The code is consistent with the intellectual property law used internationally, and affords traditional right and protections to the owners of intellectual property. (Source: Doing Business and Investing in the Philippines, 2002)
South Korea
Regulation of Business. Korea Investment Service Center is offering a complete and supportive service such as representation in civil petition related affairs and investment consultation for foreign capital invested companies and for foreign investors. It is established at the Korea Trade and Investment Promotion Agency.
Competition Policy. Fair trade laws and policies aimed to establish fair and free competition among enterprises by creating a pro-competitive market structures and securing equality in trading practices. Thus, it is the basic principle of market economy. These are practiced in persuading modern business activities, protecting consumer rights and interests, and supporting a balanced development of the national economy.
Price Control. In South Korea, there is no price control.
Monopolies and Antitrust. Anti-monopoly and Fair Trade Act (AFTA) passed in 1980 is the basic antitrust statute of Korea.  Prohibiting abuse of market-dominant positions, avoiding too much concentration on economic power and controlling improper concerted and unfair business is a manner of encouraging fair and free in the market by the AFTA. Thus, it will motivate creative business activities in protecting consumers and promoting balanced development of the national economy. The ultimate goal of Korean antitrust law is to improve consumer welfare and economic efficiency like in most other nations.
Imports and Exporter. The External Trade Act super-sides three laws, which are the Export Union Act in 1961, the Trade Transaction Act of 1967 and the Plant Export Promotion Act of 1978. It has been effective from July 1, 1987. To supply a new system for dealing with trade that will facilitate the government to deal efficiently with the active trade environment at home and abroad is the intention of the new law Basic intentions of the Act are:
-          The private sector that carries out both imports and exports, as part of a transition from government-management trade to trade should phase out the restrictions on it.
- In order to reduce trade conflicts and problems with trading partners, they should guarantee the maximum possible extent that trade will be conducted in a fair and ethical manner.
- In dealing with the effects of import flow arising after the liberalization, they should create an institutional framework.
-To easily understand and apply the system of laws by the people involved in trade they should simplify and consolidate the system.

Consumer Protection. Since its enactment in 1980, the Consumer Protection Act has been a basic law in the area of Consumer Protection. Planning
·         Local government and businesses and the role of consumer organization should provide the obligations of the state to protect the fundamental rights and interests of consumers. To specify the organization and purpose of the Korea Consumer Protection Board (KCPB).
·         To make the general stipulations of execution and preparation of the policies for consumer protection.
     Pollution Control. The management of urban air quality is very difficult because Seoul and its vicinities take up only 12 % of the total national land area yet it accounts for 46% of the total population and vehicles. The social costs imposed by air pollution arrived at 10 trillion Won (8.7 billion USD) and the air pollution level in the region marks 1.7-3.5 times higher than those in other major cities globally. The Ministry of Environment being against these serious challenges, has been promoting the Special Measures for Metropolitan Air Quality Improvement that includes total air pollution load management, emission trading system, and mandatory purchase of low emission vehicles.
 In December 2003, the Special Act on Metropolitan Air Quality Improvement legislates due to such efforts By 2012 they plan is to invest 6 trillion Won (5.2 billion USD) to promote the Special Act in stages, which will direct to a important reduction of major pollutants including particular matters and sulfur oxides.
·          The Ministry of Environment has set the emission standard on each pollutant and is expanding the restrictions in stages to control point pollution sources (e.g. particulate matters, SOx, NOx) coming from the industrial sites. To make a stronger control over the large-scale industrial activities, the industrial sites were categorized into five groups according to the amount of annual emission discharge.
Patents, Trademarks and Copyrights. On December 13, 1961 Law No. 950 the Korean Patent Law was enacted. It has been revised many times in answer to the changing conditions in industry and intellectual property, both domestic and international since then. The most recent amendments were made to correspond to the Korean intellectual property laws with the Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement, which are effective as of July 1, 1996. The stipulation of a twenty-year patent term is of particular note. The changes to the opposition procedure, effective July 1, 1997, and the changes to the trial system, effective March 1, 1998 were included in the upcoming amendments.

Product Life Cycle and Industry Analysis

Product Life Cycle
Figure 1
Product Life Cycle





The prawn industry in South Korea is on the growth stage. The company’s initial strategy to penetrate the market is that a representative of the company will personally go to Korea in trade fairs to distribute catalogues, brochures and samples.

The company will make proposals to prospective buyers by stating the necessary information. An agent will be located in Seoul who will be our distributor. Agents are familiar with the ins and outs of selling in Korea and have daily contact with changing market developments

Since prawn industry in Korea is in the growth stage, The company will apply effective and efficient strategies to improve our product in order for us to stay in the competition.

 Industry Analysis
Figure 2
Porter’s Five Forces Model

Threats of Entry
            Prawn industry exists in Korea but is limited due to its weather conditions. They have more imports than exports regarding fish/seafood products. 
    Bargaining Power of Buyers
            It is a packed and stripped frozen prawn that has flavoring inside. The company will offer a very affordable price with better quality so that the consumer will be willing to buy because of its convenience wherein it is already stripped and have a reasonable price. The product will always be sold with the highest quality achievable. Since there are many competitors, customers will definitely look for the cheapest price with a good quality. We will offer promos and incentives to the buyers.

   Bargaining Power of Suppliers
            As a supplier, the company’s bargaining power against Korean counterparts is having low cost production in terms of labor, manner of acquisition & packaging. Also, our edge against our competitors is that we can supply prawns for the whole year while our competitors have difficulties in producing when winter season arrives due to Korea’s climate. This is not a problem for the company because Philippines is a tropical country.  
     Threats of Substitute
            South Korea’s other major suppliers of prawns includes China, Russia, United States, Japan & Vietnam. In 2003, these five countries accounted for over 70% of total Korean seafood imports on a value basis.
These countries are threats for the company because they are also a large exporter of prawns in Korea.    
Rivalry among industry players
The edge of the company is producing quality, stripped and packed prawns with very affordable price. This will definitely be a sure catch for the consumers because the company offer the best possible offer.
     Industry Conclusion
            The Porter’s model represents the opportunities and threats of the company for its target market country. The threats of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute and the rivalry among industry players are the forces that this model shows.
            Based on the researched analysis on the Porter’s Five Model, there will be a slight threat with regards our competitors, since there are many exporters of prawns but the company could compete with the product’s value added that is stripped, packed, with flavor included at a very affordable prize.
            The company strategies to persuade the market would go directly to consumers such as hotels, restaurants and even the local wet markets with the help of the agent. These would be very convenient for them because they would not be needing to canvas for suppliers because the company will provide them every information.    

Industry Players

Industry Players
            The following are the Local Producers and Exporter of prawns in Philippines.
Table 6
Philippine Competitors

Name of Firm
Production Capacity
Per year
AA Export and Import Corporation
3,343 metric tons
Boom Marine Corporation
500 metric tons
Clamucha Prawn Farm
3 tons per year
Danilo L. Macayan Prawn Farm
5 tons per year
1,199 metric tons
226 metric tons
463 metric tons
Orient Marine and Fishing Resources, Inc.
1,217 metric tons
956 metric tons
745 metric tons
1,036 metric tons
395 metric tons
AA Export and Import Corporation
            They are a leading breeder, producer, and exporter of high quality seafoods. Mr. George Tan is the Executive Vice President and their main office is located at Solid House Bldg., 2285 Pasong Tamo Extension Makati City, Philippines. Their plant is located in Tondo, Manila; Roxas City, Capiz; Zamboanga City, Zamboanga del sur and Tacloban City, Leyte. Their contact numbers are (632) 843-1531.

Boom Marine Corportation
Contact Person
Mr. Jaime V. Bartolaba
General Manager/CEO
Phividec Industrial Estate Mohon, Tagoloan Misamis Oriental, Philippines
Telefax. No.
(+63 88) 5670435; (+63 8822) 740808
Plant Address
Phividec Industrial Estate Mohon, Tagoloan Misamis Oriental, Philippines
Form of Organization
Nature of Business
Year Established
Product Line(s)
frozen prawns/shrimps
Raw Material Source
Local (Mindanao Area)

Clamucha Prawn Farm
Contact Person
Mr. Mustiolo M. Clamucha
Office Address
Maranding, Lala Lanao del Norte Philippines
Plant Address
Matampay Ilaya, Lala Lanao del Norte Philippines
Tel. No.
(+63 63) 388-7004; (+63 919) 383-5186 ;
(+63 919) 513-5019
Form of Organization
Single Proprietorship
Nature of Business
Production, Exporter
Year Established
Initial Capital
PhP 1 M
Present Capital
PhP 1.2 M
Asset Size
PhP 1.2 M (February 2003)
Prawn, Bangus, Tilapia

Danilo L. Macayan Prawn Farm
Contact Person
Mr. Danilo L. Macayan
Office Address
Maranding, Lala Lanao del Norte Philippines
Plant Address
Maranding, Lala Lanao del Norte Philippines
Tel. No.
(+63 63) 388-7165
Form of Organization
Single Proprietorship
Nature of Business
Production, Exporter
Year Established
Initial Capital
PhP 800,000.00
Present Capital
PhP 1.2 M
Asset Size
PhP 1.5 M (December 2002)
Raw Materials
Frys, Feeds
Raw Material Source

South Korea
            The following are the domestic sellers of prawns in South Korea.
Zalgachi Korean Corporation
1-61Bug Nampo-Dong Jung-Ku, Pusan Korea, Busan  ( South Korea )
Phone: 82-51-2453666                               Fax: 82-51-2453668
Zagalchi is largest traditional marine foods super market in Korea.
Price: Frozen Prawn (KRW 30,216.0) = (USD 30.00) per kilo
Dong-Won Fishery Company
523-52, Nambumin-dong, So-gu, Pusan
Phone: 051-246-1005-9                             Fax: 051-244-1004
Contact Person: Song Young-seok
Manufactured Items: Mackarel/ Chub Mackerel/ Horse Mackerel/ Sardines Frozen Tuna / Frozen Pollack Fillet/ Frozen Chub Mackerel / Frozen Shrimp Meat / Seasoned Squid / Seasoned Mackerel
Price: Frozen Shrimp (KRW 27,194.4) = (USD 27.00) per kilo
Global Seafoods Company Limited
Suite 1001, 1355-3, Seocho 2-dong, Seocho-ku, Seoul, Seoul  ( South Korea )
Phone: 82-2-5865161/4                              Fax: 82-2-5865165
Global Seafoods Company Limited  main items are Illex Squid, Mackerel, Ribbon Fish, Red Fish, Pollack, Cod, roe/milt, Shrimp, Salmon, Snapper, Grouper, and so on. They manage all kind of frozen seafood.
Price: Frozen Shrimp (KRW 28,201.6) = (USD 28.00) per kilo

Samsung Frozen Food Co., Ltd.
125-9, Kamjon-dong, Sasang-gu, Pusan
Phone: 051-312-1820                                             Fax: 051-327-1014
Contact Person: Hu Suck-geun
Manufactured Items: Frozen Shrimp
Price: Frozen Shrimp (KRW 28,201.6) = (USD 28.00) per kilo
High Line Company Limited
300. Dangsan-dong 3st. Yongdengpo-ku, ., Seoul  ( South Korea )
Phone: 82-2-26750943                                           Fax: 82-2-26750944
Freshwater shrimp and  Kuruma prawn
Price: Frozen Prawn (KRW 30,216.0) = (USD 30.00)/ per kilo