DOJ Opinion No. 090, s. 1995

DOJ OPINION NO. 090 , s. 1995 September 12, 1995 The Administrator Export Processing Zone Authority 4th Floor, Legaspi Towers 300 Roxas Boulevard, Manila Sir : This refers to your request for reconsideration of this Department's Opinion No. 5, current series, involving a proposed Board Resolution of the Fertilizer and Pesticide Authority (FPA) Board which reads: "Approving the recommendation of FPA Management that the domestic gap of September 28, 1994 is now 240,000 MT (an increase from the previous gap of 200,000 MT) based on a projected demand of 525,000 MT. Further, that PHILPHOS may sell over the 240,000 MT gap into the domestic market provided that such sales be considered as 'import' and all duties and taxes paid thereon and no subsidy for its raw material component be enjoyed, and provided further that EPZA shall have approved such domestic sales in accordance with the EPZA law. This is in consonance with the Government policy on import liberalization". At the outset, we wish to inform you that, as matter of policy, we do not entertain a request for reconsideration of this Department's opinion, unless the request comes from the office/official which/who requested the opinion, and who, in this case, is the Secretary of Agriculture. Nonetheless, since the proposed FPA Board Resolution cites EPZA approval as a condition for availment by PHILPHOS of the privilege to sell its fertilizer products to the domestic market in excess of the 240,000 MT gap set by the FPA Board, we shall give due course to your present request, we shall give due course to your present request, which we shall consider as a request for clarification. In subject Opinion No. 5, current series, we ruled, in answer to the specific query raised by the Secretary of Agriculture and concurrently Chairman of the FPA Board, that the sale by PHILPHOS of phosphatic fertilizers over the proposed 240,000 MT domestic gap set by the FPA Board may "constitute a violation of the EPZA law" if the EPZA Board would determine that such sale "over the recommended supply demand gap will, indeed, have adverse effects on the local fertilizer industry situation". The basis for this ruling was Section 8 of Rule XVII of the Amended Rules and Regulations To Implement P.D. No. 66 ("Amended IRR") which allows a zone export enterprise to sell locally a portion of its yearly production or output in the following instances: (1) where the finished product is not produced in the Philippines and the only source is importation; (2) where there is cessation and closure of operations of the zone export enterprise; and (3) where the study of the domestic industry situation in meritorious cases, rules out adverse effects as determined by the EPZA Board. In subject Opinion, we also made the observation that domestic sales by PHILPHOS of its fertilizer products over the proposed 240,000 MT domestic gap may not be deemed "imports" "under the country's import liberalization policy" and within the meaning of the EPZA charter, citing the technical definition of the word "import" as signifying physical entry of goods into the Philippine territory from a foreign country. It is this specific observation we made in Opinion No. 5, current series, which you would like us to reconsider. We find it unnecessary to dwell at length on the technical meaning of "imports" as applied in the case of PHILPHOS' sales to the domestic market since we perceive that the problem relates not so much as to whether PHILPHOS can sell its fertilizer products to the domestic market as "imports", which we believe it can do under the instances mentioned in Section 8 of the Amended IRR, but whether such sales would not be violative of the EPZA law. Re-examining Section 8 of the Amended IRR, we reiterate the view expressed in Opinion No. 5, current series, that PHILPHOS' sales to the domestic market would not violate the EPZA law if, as determined by the EPZA Board, the domestic industry situation would not be adversely affected by such domestic sales of PHILPHOS' products. Of course, the best evidence of PHILPHOS' authority to undertake domestic sales would be the pertinent EPZA Board Resolution itself issued pursuant to the said Section 8 of the Amended IRR which provides: "Section 8. Local Sale Consistent with the objectives of the Decree and the Code, a zone export enterprise engaged in the production, processing, packaging, or manipulation of export products shall export its entire output or production. However, the Authority may allow a portion of the yearly production or output of a zone export enterprise to enter the customs territory and be sold locally in any of the following instances : (a) where the finished product is not produced in the Philippines and the only source is through importation; (b) where there is cessation and closure of operations of zone export enterprises; and (c) where the study of the domestic industry situation in meritorious cases, rules out adverse effects as determine by the EPZA Board . Provided , That the applicant zone export enterprise must have attained a reasonable percentage of its projected export sales for the year or period immediately preceding the date the application is filed: Provided further , That the corresponding taxes and duties shall be paid therefore : Provided, finally , That all other conditions as may be imposed by the Board are complied with." (Emphasis supplied.) It should be emphasized that the authority of PHILPHOS under Section 8, supra , to sell a portion of its total annual production to the domestic market is subject to the condition that its products, sold locally, shall, like all imported products, be subject to payment of the "corresponding taxes and duties". We believe that the proposed FPA Board Resolution which would allow PHILPHOS, a registered producer of fertilizer products under the FPA law (P.D. No. 1144), to sell its fertilizers to the domestic market free of duties and taxes within a prescribed "supply-demand gap" is not deemed inconsistent with the EPZA Board's power under Section 8 of its Amended IRR to authorize an EPZA-registered enterprise, like PHILPHOS also in this case, to sell, subject to payment of the corresponding taxes and duties, some of its products locally upon the EPZA Board's determination that the domestic industry situation will not be adversely affected thereby. The proposed FPA Board Resolution is evidently intended to equalize the subsidy privileges of PHILPHOS, on the one hand, and the local manufacturers of fertilizers, on the other hand, and may not necessarily be reflective of the real local fertilizer industry situation. Take note that under the proposed FPA Board Resolution, PHILPHOS could sell its products to the domestic market over and above the prescribed "supply demand gap" provided that "all duties and taxes [are] paid thereon and no subsidy for its raw material component be enjoyed, and provided further that EPZA shall have approved such domestic sales in accordance with the EPZA law ", referring evidently to the authority of EPZA to allow such sales under Section 8 of its Amended IRR, which is deemed part of EPZA law. This provision in the proposed FPA Board Resolution is an implied admission on the part of the FPA Board that the authority to determine whether PHILPHOS' sales to the domestic market would have adverse effects on the domestic fertilizer industry situation pertains primarily to the EPZA Board. It goes without saying that in making such determination, the EPZA Board may logically consult with the FPA and be guided by the pertinent FPA issuances/studies on the matter. LibLex Please be advised accordingly. Very truly yours, (SGD.) TEOFISTO T. GUINGONA, JR. Secretary