“WE will not wake up to a lot of cheap products.” This, trade officials stressed to allay fears about cheap products and services from our Asean neighbors flooding the local market when Asean integration takes effect at the end of the year.
Specifically, small and medium enterprises will not be left out or be left behind when the AEC comes into full play, said trade officials. In fact, the Department of Trade and Industry (DTI) has seen liberalization working well for the country, pushing it to be more competitive.
“Many sectors are worried, especially SMES, that after Asean economies integrate, we will be flooded with cheap products. We will not wake up to a lot of cheap products just like that,” said Department of Trade Secretary Gregory L. Domingo.
While AEC aims to establish a single market and production base with free movement of goods, services and investments across the 10 Asean member-countries (AMC) by December 31, 2015, Domingo stressed that free trade has been happening for the past five years,
“Tariffs of more than 90 percent of the products have been reduced to zero since January 1, 2010,” Domingo said.
Domingo said however that some sectors are expected to have significant challenges with regards traded goods. In agriculture particularly, sugar will be most affected since its tariff would be reduced to 5 percent by this year from 38 percent.
As for rice, Domingo said the effects would not be drastic since from 40 percent the tariff would be down to 35 percent in 2015 and would remain at that level.
Domingo admits there are still sticky issues in Asean concerning non-tariff barriers (NTBs)such as standards or regulations that make it difficult to enter another market even after duties have already been eliminated.
“Asean is doing extra work with regards addressing the NTBs,” he said.
Giving SMEs a boost
Considered as the backbone of the Philippine economy, SMEs comprise 99 percent of all enterprises. These certainly need extra boost. To give SMEs a push in Asean, Domingo said government is working on trade facilitation measures that would ensure industries as small as cottage industries and micro enterprises would be part of the supply chain in the flow of goods and services between countries in the region.
Domingo acknowledged that exporting to another Asean country entails tight processes and tedious rules that SMEs might find difficult to comply with, such as the rules of origin.
To enjoy zero duties, products need to have at least 40 percent Asean content.
“We need to fast track the way small industries like processed food manufacturing and handicraft can participate in Asean trade by giving them leeway. Unlike multinational corporations which have an army of accountants and lawyers who can fill out voluminous forms, these small companies do not have resources to do just that,” Domingo said.
Domingo has proposed the creation of super green lanes for SMEs to facilitate shipments with less paper work, and setting de minimis rules allowing minimal requirements for goods traded below a set amount or value.
The Philippines has been pushing fellow Asean members to consider simplifying rules for export such as the rules of origin. This would enable SMEs to gain direct market access to a liberalized region not only as a part of a supply chain but a direct exporter.
The rules of origin require a certification that the product is indeed made from the home country, ensuring that there is no third-party transhipment. A certification earns zero tariffs. Rules of origin are, however, meant for big business.
“Our furniture and handicraft exporters want to export directly but they are so small. What we are pushing within Asean is for them to export freely,” he said. “Rules of origin are designed for big enterprises and not for SMEs. We need to make changes to ensure SMEs participate in an easy manner by making rules very simple for small companies to feel the effect and benefits of (free trade). Without that, it is hard to push the free trade agenda,” Dommngo said another interview.
Surging in services
Even in services, the Philippines is seen to come out ahead. Domingo said Asean since 2007 has been progressively opening up services based on specified threshold. As it is, the region has completed the mutual recognition agreement on services including accountancy, architecture, dental, engineering, medical, nursing, surveyors and tourism.
But those are not regarded as threat to Filipino workers who do similar services. Trade Undersecretary Adrian Cristobal Jr. said services would be opened gradually and cautiously between 51 and 70 except for those covered by Constitutional limits to the extent that foreigners are allowed only 40 percent equity in some sectors.
Those covered by the liberalization include business services, professional services, construction services, education services, environment services, healthcare services, maritime services, maritime transport services among others.
Sectors like financial services are covered by a separate agreement under Asean wherein it would be opened by 2020 consistent with each Asean member-country’s national laws.
Plans are afoot to have one Asean bank admitted in the region. Each country is allowed certain flexibilities in services by exempting 15 percent of some 150 services sectors up for liberalization.”We will come ahead in AEC. We have educated, and capable and loyal Filipinos. The OFW phenomenon is not a fluke, it is real. We have the best value for money,” Domingo said.
At the forum entitled “Industry Roadmaps and the AEC Game Plan: Regional Roadmaps for Competitiveness” held in Iloilo City last November, Domingo said “the goal is to increase efficiency and maximize productivity to enhance competitiveness. AEC drives us to improve the way we do things.”
Domingo emphasized the need for industry to understand how global reforms impact on industrial development so that down to the rural communities, MSMEs, are assured to benefit from Asean integration.
Based on the country’s high GDP growth which is fastest in the region after China, Domingo said that “many of our companies are already competitive given the onslaught of products (from Asean). Our companies are growing.”
Liberalization has worked very well for the Philippines, in general. “It made many of our sectors competitive regionally and globally, allowing us to outperform in many sector,” Domingo said but added that many industries still need to be moved.
The Philippines, he said, is already competitive in electronics, information communication technology, high-end garments, and furniture.
“We welcome continued liberalization. In fact in the enabling trade survey of the WEF (World Economic Forum) we ranked very high at the globally in terms of least barriers to trade. We will continue to take that position,” he said.
The Philippines in fact has one of the highest level of compliance in the commitments provided for under the AEC.
As Asean’s average rate compliance is between 84 and 89 percent, Cristobal said of the 439 measures specified in the AEC Blueprint commitments, the Philippines has a compliance rate of 87 percent as of 2013.
Cristobal said there is a need for collaboration “to harmonize and complement the initiatives of both the government and private sector - where all players come together, converging on a coordinated plan and movement to achieve a goal or objective.”
“While government has already taken steps to enhance the country’s competitiveness through industry development roadmaps and appropriate policy reforms, it is equally important to communicate both the opportunities and challenges of the AEC to guide businesses,government agencies, and civil society.” Cristobal added.
Domingo echoed Cristobal’s call for collaboration. “The ball is in our court, so to speak. And we need to level up our game, intensify our strategic initiatives, and adopt a unified approach,” Domingo said in one of the fora on AEC.
Government seeks to further enhance the country’s competitiveness through policy and program initiatives that strengthen local industries. This endeavor is based on the strengthened partnership of government and the private sector. Areas covered by these initiatives: simplifying government transactions; ensuring transparency in bidding of government projects; developing industry roadmaps; fixing tariff distortions; enhancing infrastructure development; and focusing on education and skills training of the Filipino workforce, the backbone of the national economy.
Domingo added that government is also reviewing its tax regime to make the country even more competitive.
The DTI has been benchmarking the country’s tax structure against other Asean members, according to Domingo. He said that taxation significantly affects investment decisions.
Business groups, for their part, urged Congress to speed up the crafting of a Competition Law that would prevent anti-competitive business practices, abuse of market power, and anti-competitive mergers and other unfair trade practices; the end-goal: to strengthen local businesses of the integrated economies in Asean.
The Philippine Chamber of Commerce and Industry (PCCI), on the other hand, said that a strong law on fair competition serves as the best defense of local businesses amid the influx of cheap commodities in the region.
Such a law provides protection to investments flowing into the country. PCCI president Alfredo Yao said, in a seminar-workshop on competition policy and law, that the Competition Law will promote a more open environment for investments and will level the playing field for new entrants and current investors wishing to expand or diversify their investments in the domestic market.