SB No.

1408: On Barter

I. HISTORICAL BACKGROUND

Text Source
The pre-colonial Philippines used barter as a form of trade with China as early
as the 13th and 14th centuries.1 Lacquered ware, ceramic, earthenware, and
other articles from the Celestial Kingdom were exchanged for such culinary
delicacies as beche-de-mer, shark's fin, and bird's nest.2 Sulu appears in
Chinese sources as early as the Yuan Dynasty(1268-1368) and a lengthy
account of a tributary mission in 1417 from Sulu to the celestial court is
recorded in the Ming Annals.3 The presence of Islam in the Philippine
Archipelago resulted in the incorporation of the Southeast Asia (SEA) region
into the Islamic World. Hence, SEA became part of the global commerce
between the Middle East and China. Being initially a middle pass, SEA
attracted the international commerce as mediator. In so doing, Islam emerged
as the political tool of legitimacy in an economic world dominated by Muslim
traders.4

In Sino-Sulu Trade, Warren pointed that the Ching Annals recorded five
separate tribute-bearing missions dispatched by the Sultans of Sulu in the
years between 1727 and 1763.5 This indicates trade relations between China
and Sulu including Central and Southern Visayas. As Chinese coasters from
Amoy and Pactow threaded their way down through the various islands of
the archipelago to the Sultanate, they were known to have stopped to barter
some of their wares in the central and southern Visayas.6 The arrival of these
huge vessels of up to 800 tons brought economic activity. There was no ad
valorem duty levied on the cargo. Instead a single impost was negotiated by
the Sultan and prestigious datus in consultation with the vessel's commander
and supercargo. The Sultan collected anything up to 10 percent on imported
Chinese goods or sometimes even above 50 percent.

“Teston” a Spanish silver coin was used in trade as a form of currency.

However, since the Philippines was fast becoming a melting pot of cultures,
with different ethnicities bringing in their own forms of currency, the ruling
Spanish regime introduced the “peso fuerte” or strong peso, printed on paper,
functioning as the first instance of paper money in the Philippines.7 Despite
the development in the use of currency for commercial and non-commercial
transactions, barter is still being practiced is some parts of the country. In his

1
http://www.zamboanga.gov.ph/index2.php?option=com_content&do_pdf=1&id=18
2
Sino-Sulu Trade in the Late Eighteenth and Nineteenth Century James F. Warren Philippine Studies vol. 25, no.
1 (1977) 51.
3
Ibid. p. 50.
4
Donoso Jiménez. philippine islamic manuscripts (http://manuscripta-
orientalia.kunstkamera.ru/files/mo/2010_02/donosojimenez.pdf)
5
Op cit. Sino-Sulu Trade.
6
Ibid, p. 51.
7
(http://www.choosephilippines.com/do/history-and-culture/3156/evolution-philippine-currency-bartering-
paper-bill)
 Book, The Sulu Zone,8 Warren speaks about the patterns of trading from
1768-1898.9 The rise of Sulu from its earlier position as one of many small
trading states throughout the eastern part of insular Southeast Asia to
becoming the major state still independent of European control was, so to
speak, a by-product of the increasing British demand for Chinese tea.

The chain of islands was the center of international commerce during the
height of Sulu’s glory. In the late 19th century, the Sultanate of Sulu took
part in the bold European expansion throughout Southeast Asia, where the
Dutch, British, and Spanish angled for a share of the highly profitable
Chinese trade.10

The English East India Company having been cut off from the inland trade
of India in 1767, soon found itself faced with bankruptcy from the continued
flow of silver into China in exchange for tea. No longer being able to supply
sufficient trade goods for the Canton tea market, they turned to Sulu as a
source for goods, desired by the Chinese - tripang (sea slugs), edible bird's
nests, wax, pearls, and other sea and forest products. In exchange, the British
supplied the Taosugs with opium, arms, and ammunition.11

And when the Philippines was liberated from Spain and the United States,
barter trade was not legalized until 9 January 1973 when President Ferdinand
E. Marcos issued PD No. 9312 which legalized barter trading in the Sulu
Archipelago and adjacent areas.

1. That bonafide Filipino resident traders in Sulu Archipelago, the island

of Balabac and Zamboanga del Sur who desire to engage in trade with
neighboring islands shall properly register with the branches of the
Philippine National Bank in Jolo or Zamboanga City or their
designated representatives. Said traders may sell, buy, barter or trade
any merchandise, goods or articles except those which are contraband
or prohibited by the Tariff and Customs Code, as amended, or those
which are banned by special laws and regulations, the value of which
does not exceed Five Thousand Pesos (P5,000.00) per trip, not to
exceed two trips per month, with such trading houses in neighboring
islands as shall be duly approved and certified by the Philippine
National Bank. The registry list containing the names of
authorized traders and trading houses shall be transmitted to the
Commander of the Southwest Command, who is hereby
empowered to coordinate all activities and to undertake all necessary
measures for the implementation of this Decree.

8
The Sulu Zone, 1768-1898: The Dynamics of External Trade, Slavery, And Ethnicity in the Transformation of
a Southeast Asian Maritime State. By James Francis Warren. Singapore: Singapore University Press, 1981.
9
John N. Schumacher, S.J., Philippine Studies vol. 30, no. 4 (1982) p. 580.
(http://philippinestudies.net/ojs/index.php/ps/article/view/1627/4564)
10
http://chinabusinessphilippines.com/index.php?option=com_content&view=article&id=56:sulu-the-heart-of-
a-trading-zone&catid=58:museum-musings&Itemid=87
11
The Sulu Zone, 1768-1898: The Dynamics of External Trade, Slavery, And Ethnicity in the Transformation of
a Southeast Asian Maritime State. By James Francis Warren. Singapore: Singapore University Press, 1981.
12
Establishing Guidelines for Liberalizing Traditional Trade for the Sulu Archipelago and Adjacent Areas
 2. That the formalities relative to the entrance and clearance of traders,
vessel and cargoes and military clearances shall be required and
effected at the ports of Jolo and Zamboanga City.
3. That only vessels duly registered with the Philippine Coast Guard
shall be allowed to carry, convey or transport merchandise, goods or
articles for purposes of the trade. To facilitate the registration of
vessels, the Philippine Coast guard may avail of the services of the
Philippine Constabulary and the Bureau of Customs.
4. The Monetary Board is authorized to waive the requirements of
Central Bank rules and regulations for purposes of carrying out
this trade. The Philippine National Bank shall also undertake such
measures as shall be necessary to promote the greater participation of
the banking systems in the trade areas, including the designation of
correspondent banks to pave the way for the gradual shift from barter
trade.
5. Merchandise, goods or articles imported pursuant to this Decree shall
be free of import duties or taxes when sold and consumed either
in Jolo or in an area in Zamboanga City which shall be determined
under the implementing regulations. Merchandise, goods or articles
removed or taken out from these two areas shall pay the
necessary import taxes and duties and any individual in
possession of untaxed merchandise, goods or articles outside of
these two areas shall be held liable pursuant to the provisions of
existing laws.
6. The Commander of the Southwest Command shall, in consultation
with the representatives of the Philippine National Bank, the Bureau
of Customs and the Philippine Coast Guard, issue the regulations
necessary to implement this Decree and shall recommend to me the
necessity of modifying this Decree after six months from the date
hereof.

In 1983, by virtue of the said decree, there was a PhP 5 million Barter Trade
Market building constructed on lot donated by Zamboanga Barter Traders
Kilusang Bayan, Inc.s (ZBTKBIs).13

13
Zamboanga Barter Traders Kilusang Bayan, Inc. represented by its President, ATTY. HASAN G. ALAM,
Petitioner, vs. Hon. Julius Rhett J. Plagata, in his capacity as Executive Labor Arbiter of NLRC-RAB No. IX, et
al. Respondents. G.R. No. 148433, September 30, 2008.
(http://sc.judiciary.gov.ph/jurisprudence/2008/september2008/148433.htm#_ftnref4)
Figure 1: Source (http://www.mima.gov.my/v2/data/img/content/Session2Paper2Mr.Ramli.pdf)

Figure 2: Source (http://www.mima.gov.my/v2/data/img/content/Session2Paper2Mr.Ramli.pdf)

Conventional Trading http://www.

zamboanga.
When the barter trade, which the city had been known for, stopped, net/sepvol2c
conventional trading intensified. hap2c.htm

At present, there are nine cooperatives composed of Muslim traders engaged

in conventional trading. However, only Zamboanga Barter Traders Kilusang
Bayan, Inc. (ZBTKBI) is the regular importer of products. The other groups
have no regular importation, and instead procure their requirements from
ZBTKBI.

Based on records, there are 25 vessels involved in this activity, with

destinations such as Labuan, Malaysia and Bitung., Indonesia. These are
shown in Table III-32. Zamboanga City serves as a transshipment point for
“barter” goods brought to Davao City, General Santos City, Iloilo and
Dumaguete.

There are approximately 3,000 active conventional traders based in

Zamboanga City who primarily sell textile, garments, linen, umbrellas,
brassware, ceramics, traveling bags and footwear.
In the city, there are five major conventional trade centers as shown in Table
III-33. These are commonly known as “barter” trade centers as the types of
goods have been previously associated with barter trade.

According to key informants, goods traded in this scheme range froom P30
million to P100 million (US$ 100, 000) a month.

Domestic Trading

Zamboanga City serves as a trading and transshipment point for domestically

traded products. The value of commodities loaded and unloaded at the ports
reveals an increasing gap, depicting increased trading activities inbound
rather than outbound.

From 1991-1993, there was an increasing trend in the quantity and value of
coastwise cargo loaded and unloaded in the city. However, in 1994, both
dropped drastically.
Source: NSO, Community Flow in the Philippines

EXECUTIVE ORDER NO. 427, October 12, 1990 - PLACING THE http://www.l
CONTROL AND SUPERVISION OF BARTER TRADE IN JOLO, SULU awphil.net/e
WITH THE REGIONAL GOVERNMENT OF THE AUTONOMOUS xecutive/exe
REGION IN MUSLIM MINDANAO, AND FOR OTHER PURPOSES cord/eo1990
/eo_427_19
90.html
The Muslim Private Sector in Southeast Asia: Islam and the Economic https://books
Development of Southeast Asia .google.com.
ph/books?id
Mohamed Ariff, editor =BCC6veZP
Institute of Southeast Asian Studies, 1991 fNoC&pg=P
A39&lpg=P
3. Muslim Business in Mindanao by Mohd. Musib Buat pp. 22-56 A39&dq=tot
al+volume+
See particularly page 35. “The Barter Trade” of+barter+tr
Members of traders and volume on page 39. ade+busines
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REPUBLIC ACT NO. 9054 March 31, 2001 http://www.l
awphil.net/st
AN ACT TO STRENGTHEN AND EXPAND THE ORGANIC ACT FOR atutes/repact
THE AUTONOMOUS REGION IN MUSLIM MINDANAO, AMENDING s/ra2001/ra_
FOR THE PURPOSE REPUBLIC ACT NO. 6734, ENTITLED "AN ACT 9054_2001.
PROVIDING FOR THE AUTONOMOUS REGION IN MUSLIM html
MINDANAO," AS AMENDED

Section 7. Extent of Tax Powers; Exceptions. - Unless otherwise provided

herein, the taxing power of the regional government and of the provinces,
cities, municipalities, and barangay located therein shall not extend to the
following:
(i)Percentage or value-added tax (VAT) on sales, barters, or exchanges or
similar transactions on goods or services except as otherwise provided by
law;
Section 31. Barter and Counter-Trade. - Subject to existing laws, the
Regional Government shall regulate traditional barter trade and counter-trade
with Indonesia, Malaysia, or Brunei. The goods or items that are bartered or
counter-traded with the said countries shall not be sold elsewhere in the
country without payment of appropriate customs or import duties. The
Department of Finance shall, in consultation with the Regional Government,
promulgate the rules to govern barter and counter-trade within six (6) months
from the approval of this Organic Act.
2016 - The virtual embargo of Malaysian goods seems to be a direct response http://www.
by the Malaysian government to the abduction of four Malaysians off the gmanetwork
waters of Tawi Tawi. .com/news/n
ews/specialr
Since March 26, the barter and trade industry in the southern Mindanao eports/5644
provinces of Jolo, Tawi-tawi and Basilan has suffered a crippling blow. 80/malaysia-
stops-
decades-old-
barter-trade-
in-southern-
mindanao/st
ory/
President Rodrigo Duterte made good his promise to Muslims in southern http://www.
Philippines to revive barter trading with Malaysia, particularly in the Sulu manilatimes.
Archipelago, to revive a tradition and help the local economy. net/duterte-
revive-
Duterte sent Customs Commissioner Nicanor Faeldon to Sulu where he met barter-trade-
with provincial leaders led by Gov. Toto Tan and representatives of various mindanao/3
sectors to discuss the revival of the barter trade which had flourished for 25377/
many centuries in the past.

Faeldon said Duterte instructed him to go to Zamboanga and discuss the

barter trade with Malaysia and neighboring countries as well such as
Indonesia.
2017 - The cross border trade between Sabah, Malaysia and island provinces http://news.
of the Autonomous Region in Muslim Mindanao (ARMM) will reopen on mb.com.ph/
February 1, almost a year after it was shut down, Mindanao Development 2017/01/26/
Authority (MinDA) secretary Abdul Khayr Alonto announced on ph-
Wednesday. malaysia-
 barter-trade-
Alonto told “Wednesdays at Habi at Kape” at the Abreeza Mall that no less reopens-feb-
than Musa Aman, Chief Minister of Sabah, Malaysia made the announcement 1/
regarding the lifting of the trade embargo which came about after a string of
kidnapping incidents involving Malaysian victims by the terrorist Abu
Sayyaf Group in the island provinces.

“As per announcement by the chief Minister of Sabah, starting February 1,

the ban on doing the economic activities will be lifted. Sabah is open once
again to our Muslim/Filipino traders going to that part of Malaysia,” he said.

II. FEATURES OF THE BILL ON BARTER

Text Source
The bill is the Senate version of TRAIN or the Tax Reform and Inclusion. SB 1408
The bill hinges on the mantra “the poorest first, the poor second.” The bill http://www.s
proposes an exemption on the taxation of exchange of goods or services enate.gov.ph/
between non-commercial parties, also known as “barter.” The bill cognizant lisdata/25787
of the yoke upon the poor “during these hard times, programs like food for 22153!.pdf
work that do not involve cash must not be subjected to the rigors of
taxation.”

SEC. 9. Section 32 of NIRC is hereby further amended to read as follows:

SEC. 32. Gross Income. —

(B) Exclusions from Gross Income. - The following items shall not be
included in gross income and shall be exempt from taxation under this Title:

xxx

(7) Miscellaneous Items. -

xxx

(I) BARTER TRADE. - CASUAL EXCHANGE OF GOODS OR

SERVICES THAT DO NOT INVOLVE PAYMENT OF CASH
BETWEEN NONCOMMERCIAL PARTIES, PROVIDED, THAT THE
VALUE OF THE GOODS OR SERVICES EXCHANGED DOES NOT
EXCEED FIVE HUNDRED THOUSAND PESOS (P500,000.00).

BARTER OR EXCHANGE DEFINED NCC

Art. 1638. By the contract of barter or exchange one of the parties binds
himself to give one thing in consideration of the other’s promise to give
another thing.
RULE TO DETERMINE WHETHER CONTRACT IS ONE OF SALE OR NCC
BARTER

Art. 1468: “If the consideration of the contract consists partly in money, and
partly in another thing, the transaction shall be characterized by the manifest
intention of the parties. If such intention does not clearly appear, it shall be
considered a barter if the thing given as a part of the consideration exceeds
the amount of the money or equivalent; otherwise, it is a sale.”

Rules to Determine Whether Contract is One of Sale or Barter Civil Code of

(a) First Rule — Intent. the
(b) If intent does not clearly appear — Philippines
1) if thing is more valuable than money — BARTER Annotated:
2) if 50-50 — SALE Volume Five
3) if thing is less valuable than the money — SALE Arts. 1458-
2270 (Special
(NOTE: If I exchange at the Bangko Sentral my Philippine pesos for U.S. Contracts),
dollars at the rate of exchange, plus the marginal fee, if any, this should be Edgardo L.
regarded as a sale, not as a barter.) Paras,
Sixteenth
Edition, Rex
Book Store,
2008, p. 28.
BARTER OF NON-CONSUMABLE THINGS NCC
Art. 1954. A contract whereby one person transfers the ownership of non-
fungible things to another with the obligation on the part of the latter to give
things of the same kind, quantity, and quality be considered a barter.

Consummation and Perfection of the Contract Civil Code of

Barter, to be consummated, requires mutual delivery (Biaglan v. Viuda de the
Oller, 62 Phil. 933), but is perfected from moment of consent. (Tagaytay Philippines
Dev. Co. v. Osorio, 69 Phil. 180). Annotated:
Volume Five
If there is NO acceptance of the offer there is NO perfected contract of Arts. 1458-
barter. (Meads v. Lasedeco, 98 Phil. 119). 2270 (Special
Contracts),
Art. 1639. If one of the contracting parties, having received Edgardo L.
the thing promised him in barter, should prove that Paras,
it did not belong to the person who gave it, he cannot be Sixteenth
compelled to deliver that which he offered in exchange, but Edition, Rex
he shall be entitled to damages. Book Store,
2008, pp.
Effect if Giver was NOT the Owner of the Thing Delivered 319-321
The aggrieved person is freed from his own duty to DELIVER. Moreover,
he can claim DAMAGES.

Art. 1640. One who loses by eviction the thing received in barter may
recover that which he gave in exchange with a right to damages, or he may
only demand an indemnity for damages. However, he can only make use of
the right to recover the thing which he has delivered while the same remains
in the possession of the other party, and without prejudice to the rights
acquired in good faith in the meantime by a third person.

Effect of Eviction in Case of Barter

If evicted, the loser can choose between
 (a) recovery of what he has given PLUS damages, or
(b) claim DAMAGES

(NOTE: The right to recover is subject to the condition laid down in the
Article.)

Art. 1641. As to all matters not specifically provided for in this Title, barter
shall be governed by the provisions of the preceding Title relating to sales.

Supplemental Use of the Provision on Sales

If one party fails to perform, the other can demand resolution of the contract.
(Biagtan v. Viuda de Oller, 62 Phil. 933).

Implications of Barter trade

(http://www.mima.gov.my/v2/data/img/content/Session2Paper2Mr.Ramli.pdf)
1. a marginalized area can be developed into barter trade hub o catch up with development
of other region
2. It will certainly reap enormous commercial benefits to the country through trade
activities
3. During economic crisis 1997 barter trade – played a major role in the recovery of
Malaysia – in the second quarter of 1998, the value of barter trade reached RM1 bilion
(BT, 20.2.99)
4. With various taxes and duties imposed, activity generated considerable amount of
income for the government. Taxes and duties collected between 2000-05 amounted
more than RM6 million.
5. Job Opportunities
a. Indirectly provided job opportunities to the local population. In Sandakan for
example, 60% of the workers are Malaysian (based on the registered name)
(Senisia, 2014).
b. In Tawau, study shows that barter trade activities had encouraged more women
to be involve in small business – with small capital they can set up new business
(Sabturiana, 2014).
i. Improve their socio-economic status.
6. Diversity of Consumer Goods wherein the local people can get goods that are not
produced in Malaysia.
7. Provide Cheap Consumer Goods • It provide a relatively cheap price for several items
especially marine products.
8. Regional Cooperation
a. Diplomacy at the low level – people to people.
b. Interdependence – harmony
c. Encourage sub-regional development – ASEAN
d. Framework for regional development.
Negative Implications
1. Illegal immigrants
a. Sometimes, the boats used for barter trade are also used by illegal immigrants.
If such situations are left unchecked, it will encourage others to follow suit and
used barter trade as a channel for illegal entry into Malaysia.
b. Smuggling
i. Subsidized goods such as sugar, petrol, rice.
 ii. Illegal shipment of firearms and contrabands items.
iii. Several methods of smuggling are conducted and barter trade is used
most commonly used.
iv. Tax evasion through smuggling resulting in losses for the government.