These guidelines are promulgated pursuant to the provisions of E.O. 120 dated August 19, 1993 and its Implementing Rules and Regulations (IRR) signed on November 14, 1994, directing the adoption of countertrade as a supplemental tool with respect to the importation or procurement of foreign capital equipment, machinery, products, goods and services of the National Government, its departments, bureaus, agencies and offices including government owned and controlled corporations.

These guidelines shall govern the evaluation, review, approval and implementation of OFFSET arrangements to be undertaken pursuant to E.O. 120 and its implementing Rules and Regulations.

B.
Objectives of Offsets

Offsets in its various forms are generally intended to enhance the industrialization and technological development of the country by encouraging investments, technology transfer research and development and related activities that would provide the appropriate environment and infrastructure needed to assist Philippine companies in achieving global product competitiveness and/or to correct imbalances in foreign exchange flows.

C.
Eligible Offsets

As cited in Annex "A" of the IRR to E.O. 120, offsets may be Direct or Indirect. When the offset to be undertaken is directly related to the capital equipment, machinery, goods or services imported by the Philippine government, the same is considered DIRECT. Otherwise, they are considered INDIRECT.

Subject to the provisions of E.O. 120 and its IRR, the following are eligible categories of offset activities, to wit:

C.1 Foreign Investments:

"Foreign investments - as defined E.O. 226 otherwise known as the "Omnibus Investment Code of 1987", shall mean equity investments owned by a Non-Philippine national (in a Philippine enterprise), made in the form of foreign exchange or other assets actually transferred to the Philippines and registered with the Bangko Sentral ng Pilipinas and the Board of Investments, which shall assess and appraise the value of such assets other than foreign exchange.

1. Pioneer Enterprises: Pioneer Enterprises expressly defined and enumerated in E.O. 226 and the current Investment Priorities Plan (IPP) of the BOI are eligible for investments hereunder.

2. Non-Pioneer Enterprises: Non-Pioneer Enterprises expressly defined and enumerated in E.O. 226 and the current IPP of the BOI are eligible for investments hereunder.

3. Investments in areas/activities not listed above or specifically identified in the IPP may be considered only on a case-to-case basis subject to such guidelines as may be determined by PITC.

1. Investments must come from a foreign-based institution or entity;

2. If the investments are made in the form of cash, the funds must not be sourced or borrowed from the local Philippine banking system but from overseas;

3. Where the investments are made in the form of personal property (other than cash), the same must be brand-new unless otherwise approved by PITC in writing; and

4. The investment, duly evidenced by stock certificates or similar instruments, must not be withdrawn, transferred or assigned to another firm or entity by the original investor within five (5) years from date of investment except with the prior express written approval of PITC and the Philippine beneficiary thereof. An Undertaking to this effect shall be executed by the original investor upon approval of the investment proposal by PITC.

5. The investment must comply with the requirements/provisions of E.O. 226 and the current IPP, including the ownership requirements for registered enterprises.

C.2. Technology Transfer

a. Patents, formulae, technological rights or processes, licensing or know-how agreements, technical data packs, software, continuing access to current overseas expertise or data, more particularly in the areas listed in Annex "A" hereof.

b. Transfer of equipment and resources not available in the Philippines under normal commercial terms.

c. Other forms of technology transfer defined and/or prescribed by the Department of Science and Technology (DOST).

a. All technology transfer arrangements must be subject of appropriate written contracts/documents which are duly registered/approved by the Bureau of Patents, Trademarks and Technology Transfer;

b. Technology transfer arrangements hereunder must result in the capability of the Philippine beneficiary to locally manufacture, manage, design, improve and/or utilize a new product or process, as certified to by the said Philippine beneficiary;

c. The technology or process transferred hereunder must not be normally available in the Philippines; and

d. Beneficiaries of these arrangements must be Filipinos or Philippine companies duly licensed or registered in accordance with the laws of the Philippines.

C.3 Research and Development

a. R & D must be initiated and substantially supported/financed by a foreign-based supplier/contractor;

b. R & D must be associated with a scientific or technological activity preferably in the export sector and falling within the Science and Technology Agenda for National Development;

c. R & D supplier/contractor must ensure that the results of the R & D are turned over to and owned by the Philippine beneficiary and if commercially viable, to be exploited under normal commercial terms for the benefit of the Philippine such terms to be incorporated in appropriate contracts/documents to be submitted to PITC;

d) R & D activities must utilize or be conducted in collaboration with local (Philippine) firms and institutions including government-owned manufacturing or research establishments or laboratories; and,

e) The R & D must be undertaken in accordance with the guidelines set forth by the DOST.

C.4 Training and Skills Upgrade

a. Training and skills upgrade programs must not be available in the Philippines;

b. Training and skills upgrade programs must be initiated and substantially supported/financed by foreign-based supplier;

c. Training and skills upgrade must assist in the dissemination of scarce, new or advanced technological or scientific knowledge or processes, particularly in the areas listed in Annex "A" hereof;

d. Training or skills upgrade must be applicable to the Philippine setting/environment; and

e. Beneficiaries of the training or skills upgrade program must submit appropriate post-training/skills upgrade reports to PITC, duly certified by the Head of the Office concerned.

C.5 Donations/Grants

a. Donations or grants should come from foreign-based institutions;

b. If donations/grants are in the form of foreign currency (cash), the same must be sourced from outside the Philippines arid inwardly remitted to the Philippines. If in the form of property, the same must be appraised, evaluated and approved by the Philippine beneficiary thereof.

c. Beneficiaries of the donations or grants may either be government or private institutions (including Non-governmental Organizations) duly organized and existing under the laws of the Philippines;

d. Donations or grants must be made directly to the Philippine beneficiaries thereof; and

e. Donations or grants shall be duly evidenced by appropriate documents/deeds to be submitted to PITC together with a Certification from the Philippine beneficiaries evidencing receipt of the funds or property.

C.6 Environmental Projects

a. Rehabilitation of degraded natural habitats within national parks or protected areas.

b. Watershed rehabilitation and reforestation activities.

c. Air, water and soil quality management projects including air and water pollution control projects.

d. Solid and Liquid Waste Disposal/Recycling Projects.

e. Projects pertaining to the introduction or development of renewable energy sources (i.e. solar energy and wind energy).

f. Projects analogous to the foregoing as expressly endorsed/approved by the DENR.

a. All environmental project proposals must be duly endorsed/approved for implementation by the DENR;

b. Said projects must be initialed and funded by foreign-based institutions from overseas sources;

c. Said projects shall be undertaken in close coordination with the DENR and local authorities of the targeted areas; and

d. Said projects shall be deemed completed/accomplished only after the appropriate Certification to this effect is issued by the DENR and submitted to PITC.

C.7 Others

Other activities or transactions similar to those previously enumerated above may be eligible as offsets PROVIDED: that all proposals relative thereto are submitted to PITC for proper evaluation and approval prior to implementation.

D.
Valuation of Offsets and Multipliers

D.1 Guidelines

a. Eligible offsets shall be valued based on the set criteria herein below established.

b. Basic Multipliers shall be applied to the offset values as incentives for pursuing these offsets. Certain categories of offsets, when undertaken under certain conditions, will be granted an incremental multiplier to be added to the Basic Multiplier. These conditions and their corresponding Multipliers are enumerated in Annex "B" and made integral parts hereof.

To illustrate: Foreign investments in Pioneer Enterprises are given a Basic Multiplier of x4. If the investment is made in an enterprise located in a Less Developed Area (LDA) as identified in the IPP, there is an incremental Multiplier of 2 added to the Principal Multiplier.

To Compute: In the case cited above, if the investment is US $20,000, then the computation will be as follows:

US $20,000 x (4 + 2) = US $ 120,000

c. In cases where the eligible offset falls within two or more categories of offsets, the Basic Multiplier to be applied to such activity shall be HIGHER multiplier without considering any incremental multiplier, if applicable.

d. Incremental Multipliers can only be added/applied if there is already a Basic Multiplier provided for a particular offset activity. Where there is no offset activity with a Basic Multiplier, then there can be no incremental multiplier which can be applied/added.

D.2 Criteria of Valuation and Application of Multipliers - The following are the criteria for valuation and application of multipliers for specified offset activities/projects:

a. Criteria for Valuation - Foreign investments are valued based on the foreign currency-denominated capitalization actually put into an eligible enterprise, whether in cash or assets, original or additional.

b. Basic Multiplier - The Basic Multiplier to be applied to a particular foreign investment shall depend on whether the same is made in a (i) Pioneer or (ii) Non-pioneer enterprise as defined in these guidelines, as follows:

Pioneer (P)	: x4
Non-Pioneer (NP)	: x2

c. Incremental Multipliers may be applied/added to this offset category per Annex "B" hereof.

a. Criteria for Valuation - Technology Transfer arrangements are valued based on the actual US$ (or equivalent in other foreign currency) costs of the transfer or transaction value.

b. Basic Multiplier - A Basic multiplier of 3x the value of the technology transfer shall be applied.

c. Incremental Multipliers may be applied/added to this offset category per Annex "B" hereof.

a. Criteria for Valuation - R & D is valued based on the actual US $ (or equivalent in other foreign currency) costs incurred for the R & D undertaken.

b. Basic Multiplier - A multiplier of 3 x the value of the R & D project shall be applied.

c. No Incremental Multiplier shall be applied/added to this offset category.

a. Criteria for Valuation - The basis for valuation for training and skills upgrade shall be the actual costs of training/skills upgrade, including travel and living expenses incurred by the overseas supplier.

b. Basic Multiplier - A multiplier of 3 x the actual costs of the training and skills upgrade program shall be applied.

c. No Incremental Multiplier shall be added/applied to this offset category.

a. Criteria for Valuation - Donations or grants shall be based on the US $ value for its equivalent in other foreign currency) of the donation or grant. If in property, the appraised market value thereof shall be used as basis.

b. Basic Multiplier - A multiplier equivalent to 2 X the value of the donation or grant shall be applied.

c. No Incremental Multiplier shall be applied/added to this offset category.

a. Criteria for Valuation - Environmental projects shall be valued based on the actual US $ (or its equivalent in other foreign currency) costs of the projects.

b. Basic Multiplier - A multiplier of 3 x the value of the project shall be applied.

c. No Incremental multiplier shall be applied/added to this offset category.

The Criteria for valuation and multipliers to be applied to other offset transactions/activities, not expressly provided hereunder shall be provided/decided by PITC on a case-to-case basis.

E.
Approval of Offset Proposals

Pursuant to the provisions of E.O. 120 and its IRR, all offset proposals of foreign suppliers of the government agencies or offices covered by IRR, shall be submitted to PITC for evaluation and approval not later than five (5) working days after the selection of the said foreign suppliers, unless the said period is extended by PITC.

F.
Suppletory Document

The provisions of E.O. 120 and its IRR shall be deemed incorporated and adopted by reference to this Circular and this Circular shall be considered as a binding supplement to the IRR.

G.
Effectivity

This Circular shall take effect immediately.

Adopted: 10 Jan. 1995

(SGD.) JOSE LUIS U. YULO, JR.
President

ANNEX "A"

Eligible Areas for Technology Transfer and Training/Skills Upgrade Programs

1. Archipelagic Geography

   - Mariculture
   - Aquaculture
   - Maritime Industries

2. Natural Resources

   - Ecosystem Farming
   - Geothermal Technology
   - Renewable Energy Technologies
   - Jewelry

3. Applied Sciences

   - Biotechnology
   - Medical/health professionals
   - Agribusiness
   - Management

4. Ethnolinguistic and Religious Diversity

   - Plural Development Processes
   - Tourism
   - Cross-cultural Communications

5. Educational Infrastructure

   - Soft or Behavioral Technologies
   - HRD tools
   - Group Dynamic Techniques
   - Computer Software
   - Entertainment

6. Population

   - Conflict Management
   - Community Development Tools

ANNEX "B"
Incremental Multipliers

A. Incremental Multipliers (mentioned in Item D.1 (b) of these Guidelines) may be applied/added to the Basic Multiplier of any of the following offset categories, to wit:

- Foreign Investments

- Technology Transfer

- Donations or Grants

B. The following Incremental Multipliers are applicable only if the offsets listed in (A) above are Undertaken or pursued in any one or more or the preferred areas enumerated below:

Preferred Areas		Incremental Multiplier
1. In Export Winners identified in the current IPP or in enterprises engaged in non-traditional exports, also specified in the current IPP, provided that, in either case, at least 70% of production is for the export market.		Basic Multiplier + 2
2. In less Developed Areas (LDA's) identified in the current IPP		Basic Multiplier + 2
3. In areas outside Metro Manila (other than LDA's)		Basic Multiplier + 1
4. In rehabilitation, expansion or modernization projects identified in the current IPP		Basic Multiplier + 1

C. Where the said offsets are undertaken or pursued in more than one of the preferred areas listed in (B) above, the total multipliers (basic + incremental) to be applied to such offset shall not exceed 6 X.