Tax Articles

DTI-STMO’s Authorization for Exporting Strategic Goods Begins

Atty. Lino Ernie M. Guevara

In May 2012, an Iranian citizen and international trader, Parviz Khaki, was arrested in Manila based on America’s provisional arrest request for a U.S. Court indictment for exporting dual-use goods (i.e., maraging steel suited with nuclear applications). Khaki died in 2014 while at the National Bureau of Investigation’s custody with an extradition case pending in court. A few months after Khaki’s arrest, Daniel Frosch, an Austrian designated by the U.S. as a key supplier to Iran’s ballistic missile program, was arrested also in Manila. A Philippine trading company offering electronic components, measuring equipment and machine tools was being linked to him. Unlike Khaki, Frosch was extradited to Austria where he was criminally charged.

These cases highlighted the urgency for the Philippines to manage and regulate the trade of strategic goods or technology that could be potentially used in the proliferation and manufacture of harmful device and prohibited weapon and to prevent the country from becoming a potential hub for illicit trafficking for proliferators.

As early as 2009, there were attempts to pass this trade and security legislation. But it was only in 2015 that the Sixteenth Congress, after the failed bids of the two previous ones, finally succeeded in enacting Republic Act (RA) No. 10697, otherwise known as the “Strategic Trade Management Act” (STMA). It seeks to prevent the proliferation of weapons of mass destruction (WMDs) by managing the trading of strategic goods. This is in line with the Philippines’ binding commitment to U.N Security Council Resolution 1540, which it co-sponsored and was adopted unanimously by UN Member States in 2004. It imposes upon States to take and enforce measures to establish domestic controls preventing the proliferation of nuclear, chemical or biological weapons and their means of delivery. Per our Constitution, the Philippines adopts and pursues a policy of freedom from nuclear weapons in its territory.

But what are these “strategic goods” subject to trade management and regulation?

They are products that, for security reasons or due to international agreements, are considered to be of military importance that their export is either prohibited or subject to specific conditions. There is a published National Strategic Goods List (NSGL), describing with specificity the strategic goods to be subject to authorization. It is comprised of: (a) Military Goods (Annex 1); (b) Dual-Use Goods (Annex 2); and (3) Nationally Controlled Goods (Annex 3).

“Military goods” are items or technology developed for military-end use while “nationally controlled goods” are those placed under control for reasons of national security, foreign policy, anti-terrorism and public safety. The complications may relate more to “dual-use goods” which refer to items, software, and technology that can be used for both civil and military end-use or in connection with the development, production, storage or dissemination of WMD or their means of delivery. Examples of these are aluminum alloy, machine tools, telecom systems, equipment, etc., which are ordinarily manufactured by companies for export or local use.

In addition to the above lists, Section 11 of the law provides for end-use controls to be imposed on strategic goods NOT in the NSGL, i.e., unlisted goods or service, but where individual license may still be required as they may be used in the acquisition, development or production of WMDs, among others or their means of delivery. This is the “catch-all” provision of the law.
Under the STMA, the National Security Council – Strategic Trade Management Committee (NSC-STMCom) is the central authority on all matters relating to strategic trade management. The Executive Secretary serves as the Chairperson while the Secretary of Department of Trade and Industry (DTI) is the Vice-Chairperson with the Secretaries from the different departments (e.g., Foreign Affairs, Justice, National Defense, Finance, etc.) as members, plus the National Security Adviser. On the other hand, the Strategic Trade Management Office (STMO), an attached bureau of the DTI and headed by a Director, serves as the executive and technical agency to establish the management systems for the trade in strategic goods.

RA 10697 applies to and requires the authorization by STMO of any natural or juridical persons operating within the Philippines or Filipinos wherever located providing these services or activities:
• Export, import, transit or transshipment;
• Provision of related services (i.e., brokering, financing and transporting); and
• Re-export or reassignment of goods.

Based on DTI’s Administrative Order 19-07, STMO adopts a phased implementation of the above activities. It started with Registration under Phase 1 last year and now with Export under Phase 2, up to Phase 6 for Importations. This is to give the stakeholders ample time to properly comply.

Starting July 1, 2020, the STMO has begun the authorization for the export of strategic goods. Prior to applying for such authorization, all persons engaged in the export of such strategic goods are required to register first with the STMO starting last October 14, 2019 (i.e., entering into the STMO Register those covered entities). Note that aside from actual shipment of strategic goods out of the Philippines, regulated export activities include transmission of software and technology as well.

There are three (3) types of export authorization or licenses to be secured prior to exporting:

Among those exempted from said authorization would include those made by the government for the use of the military or police forces or if connected with law enforcement activities.

The Philippines had already taken the first step in having the legal framework for trade management to protect the nation’s security as well as the integrity of the international supply chain. This becomes more significant as Asia, including the Philippines, is expanding its role in the global economy particularly in the manufacturing and service sectors. For this, we need an effective management regime of these strategic goods. Aside from a comprehensive legislative framework and rules, the other critical factors for success would be an effective enforcement and implementation as well as local and global cooperation and coordination.Among those exempted from said authorization would include those made by the government for the use of the military or police forces or if connected with law enforcement activities.

The law and the related rules should address the clear and tight controls on all trade activities by covered as well as unauthorized persons but balancing it against excessive interference and complicating one’s business transactions. During the registration phase, a solid database for companies and goods should be created for effective monitoring and smooth processing of current and future transactions. The law, rules and policies should provide the implementing agencies involved (e.g., trade, customs, military, police authorities, etc.) with a clear mandate and authority, technical training and resources for effective and strict enforcement. Lastly, raising the awareness of and educating the stakeholders involved, both the business and industry sectors that would be covered (e.g., exporters and manufactures or those registered under our investments laws such as the Philippine Economic Zone Authority) and the implementing agencies, as well as reaching out to the international community for proper coordination and learning from their best practices that we could adopt, are all valuable factors to achieve the objectives of this very important trade and security legislation.