Agreement on Duty Free Treatment of Multi-Chip Integrated Circuits

Multi-Chip Integrated Circuits Defined as: Two or more interconnected monolithic integrated circuits combined to all intents and purposes indivisibly, whether or not on one or more insulating substrates, with or without lead frames, but with no other active or passive circuit elements

The MCP Agreement Government Authorities Meeting on Semiconductors (GAMS) through the European Commission, Japan, Rep. of Korea, USA, Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu agreed on: elimination of all customs duties and other charges and duties on multi-chip packages (MCPs) -Applies to all MCPs, regardless of their classification in the HS - to reduce the cost of products which use MCPs.

Parties to the Agreement Major semi-conductor trading countries, namely: the US, EU, Korea, Japan and Taiwan which concluded their negotiations on 15 September Entered into force on 1 April GAMS member or any WTO member that has deposited its instrument of acceptance to the depositary

Negotiations initiated in 2004 based on the following considerations: MCPs represent a recent evolution in the packaging of certain semi-conductor devices that allows for a multitude of semi- conductor integrated chips to be combined into one product; Reclassification of MCPs that led to the imposition of duties.

The MCPs would have been included in the ITA; the MCP Agreement can be considered an updating of the ITA Agreement. In May 2004, the World Semi-conductor Council (WSC), composed of executives from SIA, took a strong stand on the elimination of duties. The growing market and business opportunities for MCPs.

Key Issue. US wants to secure ASEAN commitment to join the plurilateral agreement on MCPs which the former is pursuing under the ambit of the 2006 ASEAN – US Trade and Investment Facilitation Arrangement (TIFA). Forms part of an overall strategy of the MCPs Parties to expand the benefits of the Agreement to other WTO members –MCP Parties will be working toward having the MCP tariffs bound under the WTO, on the condition that a sufficient amount of world trade is covered (e.g., 90%).

Profile of ASEAN Trade in MCPs Among ASEAN, Singapore, Malaysia and Thailand registered the highest trade with the (5) MCPs Parties, including intra-ASEAN trade. The Philippines came in 4th. Exports: Singapore posted a trade value of US$ 20.6B; Malaysia (US$12.8B); Thailand (US$5.8B) and the Philippines (US$4.4B). Imports: Singapore registered US$16.3B total imports from the MCPs parties (including intra- ASEAN); Thailand (US$7.8B); Malaysia (US$7.2B), and the Philippines (US$3.6B).

ASEANs Top MCPs Trading Partners ASEAN registered the highest export trade with the US (US$11.3B); followed by EU (US$7.8B) and Japan (US$4.8B). Combined exports to the (5) member countries is US$25.9B, slightly higher compared to the intra-ASEAN trade figure of US$21B Japan as ASEAN´s top import source (US$10B); US (US$4.43B); and EU (US$4.41B). Total imports from the (5) MCPs Parties at US$20.7B, intra-ASEAN at US$16.5B

MCPs Tariffs in ASEAN Bulk of the MCPs products in ASEAN are levied tariffs within the range (>0 - 5%) representing a combined 478 tariff lines; those within the range (>10% - 20%) or 380 tariff lines; and those levied zero duties (275 tariff lines). Those levied with tariffs greater than 20% registered the lowest number of tariff lines.

RP Tariff on MCPs Bulk are in the (greater than 0 - 5%) range or 115 tariff lines out of 206; 45 tariff lines (greater than 5%-10%); 33 tariff lines with zero duties.

Key Considerations Revenue implications Philippine semi-conductor industry decides to join the MCPs Agreement. Bulk of MCPs are dutiable –may be an indication that Philippine domestic industry may not be ready to commit to the said Agreement.