Flexible Tariff

1
FLEXIBLE TARIFF CLAUSE

The power to fix tariff rates is significant for the chartering of the
economic course of the Philippines and accordingly for its economic
development. It is not only the power to control access to the internal
market of the country, but also an essential bargaining mechanism in
negotiations for securing access to the markets of other countries for the
exports of the Philippines.
SECTION 401
Sec. 401 Flexible Clause a.
In the interest of national
economy, general welfare and/or national security, and subjectto the
limitations herein prescribed, the President, upon recommendation of the
National Economic and Development Authority (hereinafter referred to as
NEDA), is hereby empowered:( 1) to increase, reduce or remove existing
protective rates of import duty (including any necessary change in
classification). The existing rates may be increased or decreased to any
level, in one or several stages but in no case shall the increased rate of
import duty be higher than a maximum of one hundred (100) per cent ad
valorem; (2) to establish import quota or to ban imports of any
commodity, as may be necessary; and (3) to impose an additional duty on
all imports not exceeding ten (10) per cent ad valorem whenever
necessary: Provided : That upon periodic investigations by the Tariff
Commission and recommendation of the NEDA, the President may cause a
gradual reduction of protection levels granted in Section One Hundred and
Four of this Code, including those subsequently granted pursuant to this

section.
b.
Before any recommendation is submitted to the President by the
NEDA pursuant to theprovisions of this section, except in the imposition of
an additional duty not exceeding ten (10)per cent ad valorem, the
Commission shall conduct an investigation in the course of which they
shall hold public hearings wherein interested p arties s hall b e afforded
reasonable opportunity to be present, produce evidence and to be heard.
The Commission shall also hear the views and recommendations of any
government office, agency or instrumentality concerned. The Commission
shall submit their findings and recommendations to the NEDA within thirty
(30) days after the termination of the public hearings.
c.
The power of the President to increase or decrease rates of import
duty within the limitsfixed in subsection "a " shall include the authority to
modify the form of duty. In modifying the form of duty, the corresponding
ad valorem or specific equivalents of the duty with respect to imports
from the principal competing foreign country for the most recent
representative period shall be used as bases.
d.
The Commissioner of Customs shall regularly furnish the
Commission a copy of allcustoms import entries as filed In the Bureau o f
Customs. The Commission or its duly authorized representatives shall
have access to, and the right to copy all liquidated customs Import entries
and other documents appended thereto as finally filed in the Commission
on Audit.
e.
The NEDA shall promulgate rules and regulations necessary to carry
out the provisionsof this section.
f.
Any Order issued by the President pursuant to the provisions of this
section shall takeeffect thirty (30) days after promulgation, except in the ,
imposition of additional duty not exceeding ten (10) per cent ad valorem
which shall take effect at the discretion of the President
BRIEF DISCUSSION
1. What is Section 401?
Section 401 of the Tariff and Customs Code provides the legal
basis by which the President may: (1) change the level and
form of import duties, (2) impose an import quota or ban
imports, and (3) levy an additional duty on all imports.
2. Who can file a Section 401 petition for tariff modification?
Any interested party including domestic manufacturers,
importers, exporters, customs brokers, and government
agencies may file a Section 401 petition for tariff
modification.
The Commission conducts investigations on the petitions it
receives during which public hearings are held to afford
interested parties reasonable opportunity to present their
views.
The Commission submits its findings and
recommendations to NEDA, which then schedules these for
deliberation by the Tariff and Related Matters (TRM) Technical
and Cabinet Committees.
Final approval is granted by the NEDA Board after which, the
Commission prepares the implementing Executive Order.
3. What is the procedure for filing a Section 401 petition for
tariff adjustments?
A petitioner is required to accomplish Tariff Commission Form
No. 3 (Information for Tariff Adjustment), which is available at
the Commission.
4. Are there any fees to be paid by petitioners?
Petitions found to be meritorious under Section 401 are
subject to a processing fee of one hundred twenty pesos
(P120.00) per article, collected upon assessment of the
petition, and a filing fee of two thousand pesos (P2,000.00)
per one (1) or more, but not exceeding five (5) articles, falling
in the same Harmonized System (HS) Heading or Chapter,
which is collected prior to the conduct of public hearing.
Petitioners also share in the publication cost of the

Commissions Notice of Public Hearing (which is published in
two [2] newspapers of general circulation). A petitioners
share in the publication cost is based on the number of
products petitioned for tariff modification and subject of the
public hearing.
5. What is the timetable for completion of a Section 401
investigation?
The Commission completes its investigation and submits its
report of findings and recommendations to NEDA within thirty
(30) days after the termination of the public hearing.
Delegation of legislative powers to the President is permitted

in Section 28(2) of Article VI of the Constitution and Sec. 401
of the TCCP
The Tariff and Customs Code which authorizes the President,
in the interest of national economy, general welfare and/or
national security, to, inter alia, prohibit the importation of
any commodity. Section 401 thereof, reads:
Sec. 401. Flexible Clause.
a.
In the interest of national economy, general
welfare and/or national security, and subject to the
limitations herein prescribed, the President, upon
recommendation
of
the
National
Economic
and
Development Authority (hereinafter referred to as
NEDA), is hereby empowered: x x x (2) to establish
import quota or to ban imports of any commodity, as
may be necessary; x x x Provided, That upon periodic
investigations
by
the
Tariff
Commission
and
recommendation of the NEDA, the President may cause a
gradual reduction of protection levels granted in Section
One hundred and four of this Code, including those
subsequently granted pursuant to this section.
In issuing EO 156, particularly the prohibition on importation
under Article 2, Section 3.1, the President envisioned to

rationalize the importation of used motor vehicles and to
enhance
the
capabilities
of
the
Philippine
motor
manufacturing firms to be globally competitive producers of
completely build-up units and their parts and components for
the local and export markets.
In justifying the issuance of EO 156, petitioners alleged that
there has been a decline in the sales of new vehicles and a
remarkable growth of the sales of imported used motor
vehicles. To address the same, the President issued the
questioned EO to prevent further erosion of the already
depressed market base of the local motor vehicle industry
and to curtail the harmful effects of the increase in the
importation of used motor vehicles.
Hon. Executive Secretary v. Southwing Heavy Industries
(2006); G.R. No. 164171
SECTION 402
SECTION 402. --- Promotion of Foreign Trade --a.
For the purpose of expanding foreign markets for
Philippine products as a means ofassistance in the economic
development of the country, in overcoming domestic
unemployment, in increasing the purchasing power of the
Philippine peso, and in establishing and maintaining better
relations between the Philippines and other countries, the
President, is authorized from time to time:
(1) To
enter
into
trade
agreements
with
foreign
governments or instrumentalities thereof; and
(2)
To modify import duties (including any necessary
change in classification) and other import restrictions, as are
required or appropriate to carry out and promote foreign
trade with other countries: Provided, however, That in
modifying import duties or fixing import quota the
requirements prescribed in subsection "a " of Section 401
shall be observed: Provided, further, That any modification of
import duties and any fixing of import quotas made pursuant
to
the
agreement
on
ASEAN
Preferential
Trading
Arrangements ratified on August 1, 1977 shall not be subject
to the limitations of aforesaid section "a " of Section 401.
b.
The duties and other import restrictions as modified in
subsection "a " above, shall apply to articles which are the
growth, produce or manufacture of the specific country,
whether imported directly or indirectly, with which the
Philippines has entered into a trade agreement: Provided,
That the President may suspend the application of any
concession to articles which are the growth, produce or
manufacture of such country because of acts (including the
operations of international cartels) or policies which in his
opinion tend to defeat the purpose set in this section; and the
duties and other import restrictions as negotiated shall be in
force and effect from and after such time as specified in the
Order.
c.
Nothing in this section shall be construed to give any
authority to cancel or reduce in any manner any of the
indebtedness of any foreign country t o t he Philippines or
any claim of the Philippines against any foreign country.
d.
Before any trade agreement is concluded with any
foreign government or instrumentality thereof, reasonable
public notice of the intention to negotiate an agreement with
such government or instrumentality shall be given in order
that any interested person may have an opportunity to
present his views to the Commission which shall seek
information and advice from the Department of Agriculture,
Department of Natural Resources, Department of Trade and
Industry, Department of Tourism, the Central Bank of the
Philippines, the Department of Foreign Affairs, the Board of
Investments and from such other sources as it may deem
appropriate.
e.
(1) In advising the President, as a result of the trade
agreement entered into, the Commission shall determine
whether the domestic industry has suffered or is being
threatened with injury and whether the wholesale prices at
which the domestic products are sold are reasonable, taking
into
2) The NEDA shall evaluate the report of the Commission
and submit recommendations to the President.
(3) Upon receipt of the report of the findings and
recommendations of the NEDA, the President may prescribe
such adjustments in the rates of import duties, withdraw,
modify or suspend, in whole or in part, any concession under
any trade agreement, establish import quota, or institute
such other import restrictions as the NEDA recommends to be
necessary in order to fully protect domestic industry and the
consumers, subject to the condition that the wholesale prices
of the domestic products concerned shall be reduced to, or
maintained at, the level recommended by the NEDA unless for

good cause shown, an increase thereof, as recommended by
the NEDA, is authorized by the President. Should increases be
made without such authority, the NEDA shall immediately
notify the President, who shall allow the importation of
competing products in such quantities as to project the public
from the unauthorized increase in wholesale prices.
f.
This section shall not prevent the effectivity of any
executive agreement or any future preferential trade
agreement with any foreign country.
g.
The NEDA and the Commission are authorized to
promulgate such reasonable procedure, rules and regulations
as they may deem necessary to execute their respective
functions under this section
BRIEF DISCUSSION
1. What is Section 402?
Section 402 of the Tariff and Customs Code provides the legal
basis by which the President may enter into trade
agreements with foreign governments and modify import
duties and other import restrictions as part of these trade
agreements.
2. Who can file and what are the filing procedures under
Section
402
petition
for
tariff
modification,
withdrawal/suspension of concessions under international
trading arrangements?
Interested parties may file with the Tariff Commission
petitions for tariff modification under Section 402.
A
petitioner is required to accomplish Tariff Commission Form 4
(See Annex C).
The Commission conducts investigations on the petitions it
receives during which public consultations are held to afford
interested parties reasonable opportunity to present their

views.
The Commission submits its findings and
recommendations to NEDA, which then schedules these for
deliberation by the Tariff and Related Matters (TRM) Technical
and Cabinet Committees.
Final approval is granted by the NEDA Board after which, the
Commission prepares the draft implementing Executive
Order. 10
3. Are there any fees to be paid by petitioners?
Petitions found to be meritorious under Section 402 are
subject to a processing fee of One Hundred Twenty Pesos
(P120.00) per article, collected upon assessment of the
petition, and a filing fee of Two Thousand Pesos (P2,000.00)
per one (1) or more, but not exceeding five (5) articles, falling
in the same Harmonized System (HS) Heading or Chapter,
which is collected prior to the conduct of a public
consultation. Petitioners also share in the publication cost of
the
Commissions Notice of Public Consultation (which is
published in two [2] newspapers of general circulation).
A petitioners share of the publication cost is based on the
number
of
products
he
is
petitioning
for
withdrawal/suspension of tariff concession and subject of the
public consultation.
4. What is the timetable of a Section 402 investigation?
Section 402 Tariff Modification
The Commission completes its investigation and submits its
Report of Findings and recommendations to NEDA within
thirty (30) days after the termination of the public
consultation.
Article 6 (Suspension/Withdrawal of Concessions)
10
Taking into account the emergency nature of an Article 6

petition, the Commission completes its investigation and
submits its Report of Findings and recommendations to NEDA
within sixty (60) days from receipt of a properly documented
petition.
Commission Order No. 02-01 provides the rules and
regulations governing the conduct of the Commissions
formal investigation on the withdrawal and/or suspension of
concessions under Section 402 of the Tariff and Customs Code
(available for reproduction at cost).
Commission Order 02-01

RULES AND REGULATIONS TO GOVERN CONDUCT OF FORMAL
INVESTIGATION BY THE TARIFF COMMISSION ON THE
WITHDRAWAL AND/OR SUSPENSION OF CONCESSIONS UNDER
SECTION 402 OF THE TARIFF AND CUSTOMS CODE OF THE
PHILIPPINES
11
Sources:
http://www.chanrobles.com/republicactno1937book1.htm#.VlDI3XYrLIU
http://www.angelfire.com/me4/francute/TCC.htm
http://www.tariffcommission.gov.ph/previous-website/tccp_provisions.htm
http://sc.judiciary.gov.ph/jurisprudence/2006/feb2006/G.R.%20No.
%20164171.htm
12

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1

FLEXIBLE TARIFF CLAUSE

Four of this Code, including those subsequently granted pursuant to this

Petitioners also share in the publication cost of the

Delegation of legislative powers to the President is permitted

under Article 2, Section 3.1, the President envisioned to

maintained at, the level recommended by the NEDA unless for

interested parties reasonable opportunity to present their

Taking into account the emergency nature of an Article 6

Commission Order 02-01

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