Sourcing from the Philippines: Settling trade disputes

This article is an excerpt from Sourcing From: the Philippines, a series of reports that provides buyers sourcing information from alternative manufacturing hubs in Asia. To read the entire articles, click here.

The Sourcing From series is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia. It also produces industry-specific sourcing reports through Online Developing Country Sourcing.

The growth in foreign trade inevitably brings a corresponding increase in trade disputes. Although care and attention to detail are encouraged in negotiation, disputes can arise even if both parties have acted conscientiously and in good faith. The multi-faceted nature of international sales contracts, as well as differences in quality standards, commercial practices and the interpretation of trade terms can create misunderstandings.

When disputes occur, the involved parties usually prefer to settle them quickly and amicably. One way of doing this is through conciliation, or the settling of a dispute through an impartial third party. Conciliation is the fastest and cheapest way of solving a dispute, and should not hinder the development of a long-term trading relationship between parties. Arbitration is the next effective option. If all means fail, litigation is the last resort.

Traders should avoid getting into trade disputes. However, disputes are a normal occurrence in international trade, resulting from delayed or incomplete shipment, non-shipment, and defective or substandard products, among other reasons. If a supplier is doing business with a supplier for the first time, it pays to discuss and agree on the manner of settling disputes and have the agreement incorporated into the contract.

To avoid possible disputes and costly settlements, find a trustworthy supplier with whom you can settle disputes cordially. To many traders, an informal settlement remains the most attractive option.

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Causes of trade disputes

Most trade disputes in the Philippines arise from non-payment of goods, substandard goods, incorrect quantities and price increases.

Tips to avoid the common causes of trade disputes:
• Non-shipment: Contract should indicate payment only after receipt of consignment.
• Delay in shipment: Establish good relationship with the supplier. Monitor production.
• Price hikes: Select a reliable and honest supplier. Specify price computation in the contract.
• Shortages: Specify in the contract the maximum percentage difference acceptable to the buyer.
• Inferior quality: Have the goods inspected by an independent inspection company.

Avoiding trade disputes

Each year, commercial disputes between Filipino exporters and foreign buyers are heard in the Philippines by trade officials, tribunals and courts. Some – not all – are easily resolved, but sometimes only after foreigners decide to cut their losses while they can and accept the other party's proposal.

But there are a number of simple precautions which, if taken right at the start, could limit or even eliminate the possibility of damage to the buyer.

Tips to avoid trade disputes:
• Get the exact address of your prospective supplier. A P.O. Box number is not sufficient.
• Know the official company registration to track down records if the need arises.
• Do business with a reputable and financially stable supplier and beware of start-ups.
• Pay only by an irrevocable “sight” L/C not by telegraphic transfer

Trade assistance resources

• Department of Trade and Industry (DTI)
• The Bureau of Export Trade Promotion (BETP) oversees the country's export program
• The BETP's Export Assistance Network (EXPONET) helps exporters and prospective exporters access information, resolves specific problems related to exporting and handles all trade-related complaints

Procedures for complaints

Complaints must be made in writing and submitted under oath by the complainant. EXPONET assigns a mediating officer to attend to the complainant and identify the parties concerned. If the buyer is involved, the office informs the Philippine trade representative in the buyers' country. If the supplier is involved, the officer advises the DTI regional or provincial officer.

The EXPONET officer informs the concerned party within three days upon receipt of the complaint, and provides a definite period during which to file a reply. An extension of 15 days is given to respondents. Non-reply will be considered admission to the allegation, and the respondent will consequently be placed under BETP's watch list. The watch list indicates the offenses committed by buyers and suppliers, and guides EXPONET on its actions.

If the respondent denies or refutes the complaint, he is required to answer to the Trade Complaints Committee, preferably under oath and with supporting documents. If the supplier admits guilt, BETP, through the regional officer, facilitates resolution of the complaint. If it is the buyer at fault, the bureau expedites resolution through the trade representative.

A buyer or supplier on the watch list is denied the following services and assistance from DTI:
• Recommendation to any public or private lending entity for the availment of a loan
• Referral to any domestic or foreign buyer
• Participation in any DTI-sponsored fair or exhibit

Arbitration

The inclusion of an arbitration clause in the contract is one of the best ways to effect a fair and speedy settlement of more serious commercial disputes. Conducted under the international arbitration rules of the United Nations Commission on International Trade Law to which the Philippines subscribes, or under rules for domestic arbitration, it has the following advantages:

• It allows the two parties to decide the rules under which arbitration is conducted subject to modifications that they may negotiate and agree on
• They can specify a third country ass the venue for the hearing and the language to be used
• The hearing can be conducted on the basis of documents and other materials or oral evidence by witnesses
• The award is final and binding on the parties and carried out without delay

Protection of intellectual property rights, trademarks and patents

The inclusion of an arbitration clause in the contract is one of the best ways to effect a fair and speedy settlement of more serious commercial disputes. Conducted under the international arbitration rules of the United Nations Commission on International Trade Law to which the Philippines subscribes, or under rules for domestic arbitration, it has the following advantages:

• It allows the two parties to decide the rules under which arbitration is conducted subject to modifications that they may negotiate and agree on
• They can specify a third country ass the venue for the hearing and the language to be used
• The hearing can be conducted on the basis of documents and other materials or oral evidence by witnesses
• The award is final and binding on the parties and carried out without delay

Protection of intellectual property rights, trademarks and patents

The Intellectual Property Office of the Philippines evaluates applications for and issues patents, trademarks, trade names and service marks.

Patents are issued for an invention, a utility model and an industrial design. A patent remains in force for 17 years without extension. The life term of a patent for a design and a utility model is five years, renewable for additional five-year terms.

Foreigners may apply for a Philippine patent provided they are a citizen of a country that grants similar privileges to citizens of the Philippines. An applicant based abroad has to appoint an agent or representative in the Philippines to handle any matter relating to this application.

A trademark has to have been in commercial use in the Philippines for at least two months before the date of filing. The registration is valid for 20 years as long as the owner files an affidavit of use with the bureau within one year from the 5th, 10th and 15th anniversary of the date of issue of the certification.