I
Introduction

In the interest of facilitating investment projects, technology transfer, training, research and other projects that are deemed vital to the Philippine economy, the banking of offset credits awarded to a foreign supplier (or its designated countertrader), for offset activities undertaken pursuant to E.O. 120, s. 1993 and its Implementing Rules and Regulations (IRR) shall be allowed subject to the guidelines prescribed hereunder. Counterpurchase activities are not eligible for banking of credits.

II
Definition of Terms

2.1       As used herein, the following terms shall mean as follows:

2.1.1 œBankable or Eligible Offset Credits  means the offset credits referred to in Section 3.1.1 hereof.

2.1.2 œBanking Approval Certificate  means the clearance issued by PITC to a foreign supplier (or countertrader) to proceed with the implementation of the proposed offset project.

2.1.3 œCertificate of Banked (Forward) Credits  means the certification issued by PITC accrediting completed offset project to be applied against future offset obligations with the Philippine Government.

2.1.4 œForward Credits  means offset credits held by a foreign supplier or its designated countertrader which are accredited by PITC (as the Philippine Government ™s countertrade crediting office under the IRR0 and substantiated by a Certificate/s of Banked Credits issued by PITC to be used/applied, subject to the conditions hereinafter outlined, against future offset obligations with the Philippine Government.

2.1.5 œOffset Priorities  means the Offset Priorities listing drawn up by procuring government departments, agencies or offices as part of their respective development or modernization programs and/or those investment activities that are contained/listed in the current Investment Priorities Plan (IPP) of the Board of Investment.

2.1.6 œOffset Credits  means the value claimed by and awarded to a foreign supplier (or its designated countertrader) once said foreign supplier or countertrader discharges/performs the amount of its offset obligation/commitment in accordance with the Offset Priorities pursuant to E.O. 120, s. 1993 and its IRR or other pertinent Philippine laws or regulations on countertrade in government procurement.

2.2       Unless otherwise modified by or defined in the next preceding paragraph, the terms used in this circular shall have the same meanings attributed to them in E.O. 120, s. 1993, its IRR and pertinent countertrade-related circulars or issuances issued by this office.

III
Banking of Offset Credits

3.1       POLICY GUIDELINES

3.1.1   Subject to the conditions and procedures outlined in this circular, banking of credits or forward credits under E.O. 120, s. 1993 and its IRR shall refer only to the following offset credits:

a.      Offset credits awarded to a foreign supplier or its designated countertrader by PITC for offset transactions covered/included under the Offset Priorities as defined in Section 2.1.5 above, which credits are in excess of the offset obligation or commitment of said foreign supplier or countertrader with an existing offset obligation/commitment arising from a Supply Contract with the Philippine Government.

b.      Offset credits awarded to a foreign supplier or its designated countertrader by PITC for offset transactions covered/included under the Offset Priorities as defined in Section 2.1.5 above, which credits are awarded in advance of a Supply Contract with the Philippine Government.

hereinafter referred to as œBANKABLE OFFSET CREDITS .

3.1.2   The foreign supplier or countertrader is given only one (1) year from date of issue of the Banking Approval Certificate granted by PITC within which to start implementation of the Offset Project. Failure to implement the said project within the herein period shall automatically nullify the said Certificate and PITC shall be authorized to grant approval to another foreign supplier or countertrader to pursue the same project.

3.1.3   Only the holder of a Certificate of Banked Credits is entitled use/apply said credits against future offset obligations with the Philippine Government under the guidelines herein established.

Example: If a foreign supplier has designated a countertrader to perform the former ™s offset obligations, and the latter, after performance of the offsets, has bankable offset credits, only the said countertrader (and not the foreign supplier) may apply/use the bankable offset credits for future offset obligations with the Philippine government since it was the countertrader that actually performed the offset obligation/activity. The foreign supplier is not entitled to avail of such bankable offset credits.

3.1.4   Bankable Offset Credits may be applied/used against future offset obligations with the Philippine government only within three (3) years from the date of the Certificate of Banked Offset Credits. Said Certificates shall only be issued after evaluation and approval of the completed offset project/activity.

3.1.5   An original holder of Certificate of Banked Credits (whether a foreign supplier or its designated countertrader) may assign or transfer unapplied or unused banked credits, either wholly or partially, to another firm or entity, for purposes of allowing the assignee/transferee to apply said credits against the latter ™s existing offset obligation with the Philippine government subject, however, to all of the following conditions:

a.       Formal written notification of a proposed transfer or assignment is given to PITC by the holder of Certificate of Banked Credits PRIOR to the transfer/assignment, providing PITC with the full details of the prospective assignee/transferee (i.e. company name and profile, etc) including the latter ™s existing offset obligations with the Philippine government to which such assigned/transferred credits are intended to be applied/used;

b.       The transfer or assignment is subject to the final written approval/acceptance of PITC subject to the next succeeding section;

c.       The said credits can only be applied against the said assignee ™s/transferee ™s existing offset obligations with the Philippine government only if the importing government agency/office concerned approves such application of credits;

d.       Once transferred/assigned, the said assignee/transferee may no longer further transfer or assign such credits to any party for any reason whether such party is an affiliate or subsidiary or the original holder of the Certificate of Banked Credits; and

e.       The said credits must be used by said assignee/transferee within the three (3) year period stated in Section 3.1.4. above.

Transfer or assignment of bankable offset credits not compliant with the foregoing conditions shall have no legal or binding effect on the Philippine government.

3.1.6 The foreign supplier or countertrader shall be given three (3) years from date of Banking Approval Certificate to complete implementation of the proposed offset project. A grace period of two (2) or more years may be granted on a case-to-case basis subject to PITC approval/assessment of the offset project.

3.1.7 In the event the foreign supplier or countertrader fails to complete the offset project within the periods given in 3.1.6, the Banking Approval Certificate previously granted shall be revoked and no offset credit shall accrue to the foreign supplier or countertrader.

3.1.8 If the foreign supplier or countertrader fails to win a Supply Contract with any Philippine government agency or office within the validity period of the banked offset credit, as established in 3.1.4 above, there shall be no obligation to refund any of the fees paid to PITC in connection with the banking of offset credits and no obligation whatsoever on the part of PITC or the Philippine government shall arise relative to the credits banked under these guidelines.

3.2       BANKING PROCEDURES

3.2.1    Application for Offset Project Eligibility

For an offset project to qualify as eligible for banking under this circular, the foreign supplier or countertrader shall secure pre-approval to proceed with the said offset project and earn bankable offset credits and submit the following documents/requirements to PITC:

a.      Letter of Intent/Application to bank EXCESS offset credits (arising from an existing offset obligation where an excess credit is expected) or FORWARD credits (for an offset project to be undertaken an anticipation of a supply contract with the Philippine government).

b.      Offset Project Profile detailing the offset activity to be undertaken, with a Project Feasibility Study or similar document which provides a technical description of project, benefits to be derived from the project, company or people behind the project (and their track record), resources required, and other information relevant to the project that will enable PITC to assess the viability and acceptability of the proposed project in collaboration with concerned government and industry sectors.

c.       Company Profile of foreign supplier or countertrader, detailing, among others, ownership structure and subsidiaries/affiliates, financial statement for at last 3 years, major business/projects, highlighting previous offset projects accomplished in the Philippines and in other countries.

d.      Payment of PITC processing fees of US DOLLARS ONE THOUSAND ($1000.00) per application.

3.2.2   Review and Approval of Offset Project Proposal

PITC shall review and, if acceptable, approve the proposed offset project submitted by the foreign submitted by the foreign supplier or countertrader (for implementation) within at least thirty (30) days from date of submission of complete data/documents enumerated under 3.2.1 above. Said period may be extended depending on the complexities of the project and the feedback process hereinafter outlined. The review/approval process shall entail the following:

a.      Assessment as to whether the proposed offset project is listed/included in the Offset Priorities as defined in Section 2.1 above.

b.      Consultations with the government office or agency where the foreign supplier or countertrader expects to win a supply contract and where the offset credit is initially expected to be applied.

c.       Review/assessment of viability of the proposed offset project in consultations with the Board of Investments (BOI), National Economic and Development Authority (NEDA) and related industry sectors. For technology transfer, training, or research and development projects, the endorsement of the pertinent government office/agency (supervising the industry involved) attesting to the need/acceptability of the project shall likewise be secured.

d.      Securing the approval/endorsement of the procuring government agency/office accepting the proposed offset project and allowing the banking of offset credits resulting from the said project. (as applicable)

e.      Preparation and release of the Banking Approval Certificate by PITC officially authorizing the foreign supplier or countertrader to implement the approved offset project.

3.2.3   Requirements for Implementation and Monitoring of Approved Offset Projects:

a.      Investment Projects: The foreign supplier or countertrader shall submit/comply with the following:

a.1     Submit to PITC a Business Plan and Timetable to develop/operationalize the Offset Project within 90 days from receipt of the Banking Approval Certificate.

a.2     Should the investment project entail a joint venture with a Philippine firm, the foreign supplier/countertrader has six (6) months from submission of the said Business Plan to identify, negotiate and finalize the terms of the Joint Venture Agreement with the Philippine joint venture partner. The list of prospective partners shall be furnished PITC who shall conduct its own assessment of the proposed partners. In this regard, the foreign supplier may, if it is so desires, request the assistance of PITC to package the joint venture, subject to payment of appropriate service fees. PITC shall act as witness to the Joint Venture Agreement who shall likewise be furnished a copy of the JVA.

a.3     If the investment project will not entail the formation of a Joint Venture with a Philippine partner, but merely an investment in an existing firm/project, the foreign supplier has six (6) months from submission of the Business Plan to submit the nature/details of said firm/project and the extent of investment therein.

a.4     The foreign supplier/countertrader has ninety (90) days from date of signing of the Joint Venture Agreement (for joint ventures) or Investment Agreement (for non- joint ventures) to register the business venture with the Securities and Exchange Commission and the Board of Investments, furnishing PITC with copies of the pertinent Certificates of Registration within five (5) days from release thereof.

a.5     The foreign supplier shall submit a report of the remittance of its equity investments in the new joint venture or business venture within sixty (60) days from release of Certificates of Registration with the SEC and BOI.

a.6     The foreign supplier/countertrader shall submit to PITC a Quarterly Report of operations of the venture/activity for the first two (2) years of operation within 60 days from the end of the quarter and a Semi-Annual Report for the succeeding three (3) years thereafter within 90 days from the end of the semester. These reports shall contain, among other, the following:

*        Start-up and operational costs, financial reports, cash flows, personnel complement (technical and administrative), organizational structure and the like;

*        Report on operations, including on-going and future projects, contracts and agreements signed by the new venture.

*        Report on sales and prospective sales and other related activities.

b.      Technology Transfers, Research and Development, Donations, Training and Other Offset Projects: The foreign supplier/countertrader shall submit/comply with the following:

b.1     Submit a PITC a Business Plan and Timetable to develop/operationalize the offset project within ninety (90) days from the date of the Banking Approval Certificate.

b.2     The foreign supplier/countertrader has six/countertrader has six (6) months from date of submission of the Business Plan to identify, negotiate and, upon assessment and approval of PITC, finalize/sign agreements with the chosen Philippine beneficiary/company of the proposed offset project.

b.3     The pertinent agreement(s) with the Philippine beneficiary/company of the offset project shall be witnessed by PITC who shall likewise be furnished with a copy of said agreement(s).

b.4     The foreign supplier/countertrade shall submit a Quarterly Progress Report for the first two (2) years of operation reckoned from the date of the pertinent agreement(s) with the Philippine beneficiary/company within 60 days from the end of the quarter, and a Semi-Annual Report for the succeeding three (3) years thereafter within 90 days from the end of the semester. These reports must likewise be accompanied by the Acceptance Certificate of the offset project recipient/beneficiary.

3.3       ACCREDITATION PROCEDURES

3.3.3.  For Investment Projects:

a.      Foreign supplier/countertrader shall, upon completion of the offset project, submit to PITC a Request for Accreditation (for banking purposes) indicating the offset value being claimed for accreditation as per the form attached hereto as Annex œA  *.

b.      Together with the Request for Accreditation shall be attached a Transaction Summary detailing the total equity investments in support of the offset value being claimed for crediting classified as cash, property, equipment or the like, duly supported by the following:

*        Certified true copy of wire transfers or remittance of the funds/cash representing the foreign investment in the offset project;

*        Summary/list of property or equipment imported into the Philippines and invested/purchased for the project and the FOB/CIF costs thereof, together with certified copies of importation documents such as bills of lading/airway bill, SGS, CRF, commercial invoice, payment documents (Letter of credit, telegraphic transfer, etc.)

*        Certified copies of Certificates of title or lease agreement for property/warehouse/office used by the JV company or firm (except those used for residential purposes).

*        Other documents as may be deemed necessary in support of the offset values being claimed for crediting.

*        Secretary ™s Certificate of the JV Company or Firm attesting to the Board Resolution approving the total value of equity investments made by the foreign supplier/countertrader for this offset project, per the Transaction Summary above.

c.       PITC shall have at least thirty (30) days within which to review and process the above Request for Accreditation and all the supporting documents thereto. PITC shall also compute multipliers (where applicable) for the offset project and discuss the same with the foreign supplier/countertrader.

d.      Upon approval of the accreditation, PITC shall issue the following in the name of the foreign supplier/countertrader:

*        Certificate of Banked (Forward) Credits - per the form attached hereto as Annex œB ; and

*        Debit Note for PITC Monitoring fees per the schedule outlined in (e) below

e.         The foreign supplier/countertrader shall pay PITC ™s monitoring/accreditation fees per the following rates based on the offset value accredited by PITC:

OFFSET VALUE (in US$)	FEES (in US$)
1M - 50 M	1.5%
over 50 M - 100 M	750,000 plus 1.25% over 50 M - 100M
over 100 M - 150 M	1,375,000 plus 1% over 100 M - 150 M
over 150 M - 200 M	1,875,000 plus .75% over 150 M - 200 M
over 200 M - 400 M	2,250,000 plus .5% over 200 M - 400 M

Said fees shall be paid directly to PITC (Attn: Treasury Department) either in bank draft or through telegraphic transfer to PITC designated account within fifteen (15) banking days from the receipt of PITCs debit note and Certificate of Banked (Forward) Credits. Non-payment of the said fees shall be a ground to revoke/cancel Certificate of Banked (Forward) Credits issued by PITC to the foreign supplier/countertrader concerned.

The above-mentioned monitoring fees shall be in lieu of the monitoring fees due PITC for the same accredited offset activity in the event the same is applied to an existing offset obligation with the Philippine government.

3.3.4   For Technology Transfers, Research and Development, Donations, Training and other offset projects:

a.         Foreign supplier/countertrader shall, upon completion of the offset project, submit to PITC a Request for Accreditation (for banking purposes) indicating the offset value being claimed for accreditation as per the form attached as Annex œA .

b.         Together with the Request for Accreditation shall be attached a Transaction Summary detailing the accomplishments and breakdown of offset value being claimed for crediting and banking, duly supported by the following:

*        Certified copy of agreements/contracts signed between the foreign supplier/countertrader and the offset project recipient relative to the offset project.

*        Acceptance Certificate evidencing the written approval/acceptance of the completed offset project by the recipient thereof, duly confirmed by its governing board, if a corporation, or by its Department Secretary, if a government agency or office;

*        Justification for the proposed offset value being claimed for crediting/banking; and

*        Documents/contracts/receipts in support of the expenditures being claimed as offset credit for the project.

*        Certified copy of the Final Report submitted for the offset project, i.e. Research and Development Studies ( for R & D projects); Post-Training Report (for training projects); Technology Transfer Report, duly certified by the Intellectual Property Office and DOST Registration of technology transfer projects, etc.

c.         PITC shall have at least thirty (30) days within which to review and process the above Request for Accreditation and all the supporting documents thereto. PITC shall also compute multipliers (where applicable) for the offset project and discuss the same with the foreign supplier/countertrader.

d.         Upon approval of the accreditation, PITC shall issue the following in the name of the foreign supplier/countertrader:

*        Certificate of Banked (Forward) Credits - per the form attached hereto as Annex œB ; and

*        Debit Note for PITC monitoring fees per the schedule outlined in (e) below.

e.         Upon filing of the Request for Accreditation and Transaction Summary, the foreign supplier/countertrader shall pay PITC ™s monitoring/accreditation fees per the following rates based on the offset value being submitted for accreditation:

OFFSET VALUE (in US$)	FEES (in US$)
1M - 50 M	1.5%
over 50 M - 100 M	750,000 plus 1.25% over 50 M - 100M
over 100 M - 150 M	1,375,000 plus 1% over 100 M - 150 M
over 150 M - 200 M	1,875,000 plus .75% over 150 M - 200 M
over 200 M - 400 M	2,250,000 plus .5% over 200 M - 400 M
over 400 M	3,250,000 plus .25% over 400 M

Said fees shall be paid directly to PITC (Attn: Treasury Department) either in bank draft or through telegraphic transfer to PITC designated account within fifteen (15) banking days from the receipt of PITC ™s debit note and Certificate of Banked (Forward) Credits. Non-payment of the said fees shall be a ground to revoke/cancel Certificate of Banked (Forward) Credits issued by PITC to the foreign supplier/countertrader concerned.

The above-mentioned monitoring fees shall be in lieu of the monitoring fees due PITC for the same accredited offset activity in the event the same is applied to an existing offset obligation with the Philippine government.

IV
PITC Reportorial Requirements

PITC shall maintain records/reports of all transactions covered by this circular, as follows:

4.1       Monitoring Logbook for individual foreign suppliers/countertraders containing records of all approved applications for banking of offset credits and progress of accomplishments of the same.

4.2       Record of all Certificates of Banked Credits released/approved for both forward and excess credits including its utilization, applications and approved transfer/assignments thereof.

4.3       For completed offset projects, a Statement of Outstanding Offset Credits reflecting all unused/unapplied offset credits shall be submitted by PITC to the foreign supplier/countertrader every six (6) months from date of release of the Certificate of Banked Credits.

4.4       For on-going offset projects, a Performance Report Summary shall be furnished by PITC to the foreign supplier/countertrader every six (6) months from date of release of the Certificate of Banked Credits, reflecting progress of accomplishments and expected completion dates.

4.5       The concerned government procuring agency or office through their respective Heads, shall be furnished a copy of the reports listed in 4.3 and 4.4 above.

V
Suppletory Document

This circular shall be considered as a binding supplement to the IRR and shall form integral parts thereof.

VI
Repealing Clause

PITC Memorandum Circular No. CT-98.41/01 dated April 1, 1998 and all prior issuances inconsistent herewith are hereby repealed.

VII
Application

The provision hereof shall not apply retroactively to offset transactions already completed, undertaken or approved for implementation PRIOR to June 15, 2000.

VIII
Effectivity

This circular shall take effect on June 15, 2000.

Adopted: 15 June 2000

(SGD.) SYLVIA R. VELOSO
President