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Monday / 14 JULY 2014

IN FOCUS: TRADE AGREEMENTS

Increasing East Asian economic integration impelled the country to enter into bilateral and regional free trade agreements (FTAs) to overcome barriers to trade, amid continued deadlock in multilateral trade talks under the World Trade Organization. The country has engaged in 15 FTAs, seven of which are in effect and two are under negotiation. Six of these FTAs were proposed recently.

A historic feat is the entry into force of the Philippines-Japan Economic Partnership Agreement (PJEPA), the Philippines’ first bilateral free trade agreement. A study by the Philippine Institute for Development Studies (PIDS), titled “PJEPA: An initial ex-post review”, by Senior Research Fellow Erlinda Medalla and Supervising Research Specialist Veredigna Ledda, found that concerns over the supposed negative impact of the PJEPA, in particular on the automotive sector because of adjustment costs, did not materialize. The most visible benefit of a trade agreement such as the PJEPA is greater market access resulting from the elimination or reduction of tariffs. The PJEPA covers 7,476 tariff lines of Philippine exports, 93 percent of which are industrial goods, with the rest consisting of agricultural products. According to the provisions of the PJEPA, tariffs on 5,994 product lines or around 85 percent of these goods were scheduled for immediate elimination when the agreement entered into force in 2008. Emerging winners are agricultural products, as indicated by the surge in exports of fresh bananas after the implementation of the PJEPA. Beyond market access, the Philippines will benefit from training and the transfer of technology and skills as well as the opportunity for institution building and domestic reforms.

The Regional Comprehensive Economic Partnership (RCEP), negotiations for which were launched by the ASEAN+6 member-states in 2012, is poised to be the world’s biggest trading block, covering 40 percent of world trade. As a region-wide FTA, it holds great promise for stronger economic cooperation by achieving robust trade and investment flows. It is estimated that the value of trade between the Philippines and RCEP members is USD 60 billion. However, for the country to maximize the potential of RCEP, it has to address the impediments that have continued to stall the country’s growth: low utilization of FTAs, narrow fiscal space, inadequate infrastructure, and weak investor confidence, according to the policy paper titled “Key reforms for an effective Regional Comprehensive Economic Partnership” by PIDS President Gilberto Llanto and Ma. Kristina Ortiz. FTAs generally call for market access and investment liberalization, but they can also be instruments to increase competitiveness, enabling the country to compete better in the global economy.

Another FTA in the offing is the United States-led Trans-Pacific Partnership (TPP). Currently at an advanced stage of negotiations, which also involves Australia, Malaysia, Peru, Viet Nam, Canada, and Mexico, this trade alliance is envisioned to serve as a vehicle for Asia-Pacific-wide integration, representing more than 658 million people and a combined gross domestic product of USD 20.5 trillion or26 percent of global trade. More countries in the region are expected to join eventually. With its Asia-Pacific coverage, TPP aims for wider and deeper free trade scope encompassing investments, goods, and services. Erlinda Medalla asserts that the Philippines stands to gain from the TPP, particularly in increasing its exports or defending its market share. However, an issue that the Philippines should address both with the RCEP and the TPP is its ability to realize the benefits and manage the costs from these agreements.

To know more about PIDS research on FTAs, visit the SocioEconomic Research Portal for the Philippines. Simply type trade, trade liberalization, bilateral trade agreement, tariff, FTAs, PJEPA, RCEP, and related terms in the Search box.

NEW SECTION ON OUTREACH ACTIVITIES

Part of the Institute's mandate is to provide technical expertise to policymakers and shed light on important issues. The PIDS website now has a section containing the comments and position papers on various topics submitted by the Institute's research staff upon the request of Senate and House committees.

Visit the new Outreach section

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CALENDAR OF EVENTS

07-08 JULY 2014
East Asian Development Annual Meeting 2013/2014
The Peninsula Manila Hotel, Makati City, Philippines

02 JULY 2014
PIDS-CPBRD Knowledge-Sharing Seminar on Quick Response Funds and Disaster Risk Reduction Management Resources in the DND
Conf. Rm. Nos. 1 & 2, Mitra Bldg., House of Representatives, Q.C.

June 05, 2014
PASCN Symposium and 18th General Assembly
CLSU RET Amphitheater, Science City of Munoz, Nueva Ecija

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SPECIAL FEATURE:

National Scientist calls for “technology-explicit” dev’t agenda

A “technology-explicit” development agenda is needed to increase productivity and foster inclusive growth, according to one of the country’s top scientists.

Dr. William Padolina, president of the National Academy of Science and Technology and member of the board of trustees of the Philippine Institute for Development Studies (PIDS), made the call in his keynote address during the annual Symposium and General Assembly of the Philippine APEC Study Center Network (PASCN), the local research network focused on the Asia-Pacific Economic Cooperation (APEC) agenda. PIDS serves as the PASCN secretariat.

Read the full speech here

NEW PUBLICATIONS

DEVELOPMENT RESEARCH NEWS

DRN 2014 Vol. XXXII No. 2: Multisectoral Coalition to Advocate for Reforms in Services Sector
by PIDS Research Information Staff

This second issue of the Development Research News announces the revival of the Philippine Services Coalition that will study and advocate for reforms in the services sector, parts of which are said to have restrictive policies on investment. The sector is the engine of growth for the Philippine economy with a potential to attract a large amount of foreign direct investments and generate millions of jobs. Competitive services, however, are necessary to maximize the country`s potential and sustain real growth amid integration in the region that requires the smooth flow of both goods and services.

This issue also features the results of an impact evaluation of labor policies, in particular the minimum wage. Other stories tackle the need for reforms in rice and transport; the series of seminars under the Health Systems Research Program aimed at improving the capacity of the Department of Health and the Philippine Health Insurance Corporation to formulate, implement, and monitor health policies supportive of the government`s health care agenda; and this year`s symposium and general assembly of the Philippine APEC Study Center Network, which focused on attaining inclusive growth through science and technology. A contribution from an eminent economist, Dr. Dan Steinbock, outlines the imperatives for the Philippines to boost foreign direct investment.

Click here to download

RESEARCH PAPER SERIES

RPS No. 2014-01: Regional Integration, Inclusive Growth, and Poverty: Enhancing Employment Opportunities for the Poor
by Celia Reyes, Aubrey Tabuga, Christian Mina, and Ronina Asis

Regional economic integration in East Asia is characterized initially as a market-driven process of increased trade and foreign direct investment (FDI) inflows, and eventually by formal arrangements to liberalize trade and integrate economic activities through free trade agreements (FTAs) among East and Southeast Asian countries. This has led to more intensified regional production networks in which East and Southeast Asian countries, including the Philippines, participated. Set against the backdrop of continuing economic integration in the region, it seems that economic growth in the Philippines has not been as inclusive as in the other countries as manifested in the increase in the magnitude of poverty incidence.

This paper examines how the Philippines can improve its record on poverty reduction by looking at how it can generate greater demand for the labor services of the poor. Specifically, this paper looks into the linkage between regional production networks and inclusive growth in the Philippines through employment generation for the poor. The manufacturing sector can provide employment opportunities for the poor and can offer relatively higher wages. However, expected high-productivity employment opportunities from manufacturing were not fully realized due to some bottlenecks in the sector. This partly explains the persistence of poverty in the Philippines. To promote inclusive growth and reduce poverty, the manufacturing sector has to be made more competitive and, at the same time, productivity in the agriculture sector (the major employer of the poor) has to be increased.

Click here to download

DISCUSSION PAPER SERIES

DP 2014-32: The Philippine Manufacturing Industry Roadmap: Agenda for New Industrial Policy, High Productivity Jobs, and Inclusive Growth
by Rafaelita M. Aldaba

In light of the weak performance of the Philippine manufacturing industry and the absence of structural transformation of the economy from agriculture to manufacturing in the last two decades, the paper calls for the implementation of a new industrial policy. This is crucial not only to upgrade Philippine industries, generate more and better jobs, and reduce poverty, but also to take advantage of the market opportunities and face the challenges arising from the ASEAN Economic Community.

Based on the sectoral roadmaps submitted by industries to the Department of Trade and Industry and Board of Investments, the paper has formulated a comprehensive industrial strategy to enable manufacturing firms to upgrade, thrive, and become catalysts and engines for sustained and inclusive growth. The long-term vision of the Manufacturing Industry Roadmap is to develop a globally competitive manufacturing industry supported by strong backward and forward linkages with both domestic and global supply chains. With the implementation of the roadmap, manufacturing contribution to the economy is expected to account for 30 percent of total value added and generate 15 percent of total employment.

Click here for the full article
DP 2014-31: Designing a Cooperation Framework for Philippine Competition and Regulatory Agencies
by Rafaelita M. Aldaba and Geronimo S. Sy

As the Philippines moves toward the legislation of its comprehensive competition law, one important issue that has emerged is the interaction between the competition agency and sector regulators. Based on a review of different approaches that different countries have adopted, the paper develops a framework for the interplay between regulatory agencies and competition authority in the Philippines. Taking into account the country`s stages of institutional development and market and policy reforms, the paper proposes an approach that would leave competition enforcement exclusively in the hands of the competition authority while technical and economic regulation would be performed by the sector regulator. At the same time, the sector regulator may be given competition law enforcement functions to be performed in coordination with the competition authority.

The proposed approach would be based on a cooperation mechanism with sector regulators taking the leading role in economic and technical issues while the competition authority will be the lead in competition issues like abuse of dominance, anticompetitive agreements, cartels, and merger review. It is important that the two coordinate and consult with each other to ensure that the policies or remedial measures taken by one would not be against the mandate of the other. The competition functions of the authority such as assuring nondiscriminatory access to essential networks, controlling other forms of anticompetitive conduct, and merger review may be shared with sector regulators.

Click here for the full article
DP 2014-30: Toward Competitive and Innovative ASEAN SMEs: Philippine SME Policy Index 2012
by Rafaelita M. Aldaba and Fernando T. Aldaba

The ASEAN SME Policy Index is an analytical tool to review, track, and identify gaps in small and medium enterprise (SME) policy development and implementation. The index covers the following eight policy areas: institutional framework; cheaper and faster start-up and better legislation and regulation for SMEs; access to information and supporting services; access to finance; technology and technology transfer; market access and getting more output of the single market; promotion of entrepreneurial education; and developing stronger, more effective representation for SMEs` interests.

Applying the above framework, the paper assesses whether the policies, programs, and institutions in the Philippines are supportive of the development of SMEs in the region. On the average, the overall score for the country is quite modest and to move forward, it is important to simplify and streamline the overall registration process. Existing government programs must be evaluated in terms of scope and delivery with a view to improve and broaden support services for start-ups to include business incubators as well as vouchers, grants, and loans on favorable terms especially for the most dynamic enterprises. There is also a need to institutionalize the framework for conducting regulatory impact assessment in the country.

Click here for the full article

PRESS RELEASES

AEC OPPORTUNITIES MUST BE SEIZED, NOT FEARED

The ASEAN Economic Community (AEC) offers immense business opportunities that both the government and the private sector must exploit to fully benefit from its advantages.

This was underscored in a regional forum on the AEC organized by the National Economic and Development Authority (NEDA) Regional Office 9 with the participation of state think tank Philippine Institute for Development Studies (PIDS) and the Department of Trade and Industry (DTI) regional office in Zamboanga City.

COMPETITION POLICY NEEDED FOR PHL RICE AND TRANSPORT SECTORS

A competition policy for the rice and passenger transport sector is needed to encourage innovation and prevent cartels.

This was stressed in a national reference group meeting organized by state think tank Philippine Institute for Development Studies (PIDS) with the Consumer Unity and Trust Society (CUTS) International based in Jaipur, India, and the Action for Economic Reforms (AER) and attended by various sector leaders.

SERVICES SECTOR NEEDS NATIONAL VISION

The Philippine services sector needs an articulated and comprehensive national strategy to maximize its potentials as a growth engine for the economy.

In the National Workshop on Services organized by state think tank Philippine Institute for Development Studies (PIDS) and the Department of Foreign Affairs (DFA), experts and stakeholders from the private and public sectors underscored the need for a more focused national strategy for services.

DATABASE UPDATES

Overseas Filipino Remittances

The Total Overseas Filipinos' Cash Remittances stood at USD 1.9 billion in April 2014. This was higher compared with the USD 1.8 billion recorded in April 2013.

Source: Bangko Sentral ng Pilipinas

VIEW TABLE for time-series data on Total Overseas Filipinos' Remittances.

Inflation Rate

The country's year-on-year headline inflation rate went up to 4.5 percent in May from 4.1 percent in April. According to the Philippine Statistics Authority, the growth was primarily brought about by the higher annual rate posted in the heavily weighted food and non-alcoholic beverages index. Other indices that contributed to the increase were clothing and footwear; housing, water, electricity, gas, and other fuels; furnishing, household equipment, and routine maintenance of the house; transport; and communication. Likewise, core inflation rate increased to 3.1 percent in May from 2.9 percent in April 2014.

Source: Philippine Statistics Authority-National Statistics Office (PSA-NSO)

VIEW TABLE for time-series data on year-on-year inflation rate.

Exchange Rate

The peso continued to rally versus the US dollar. The monthly average peso-dollar exchange rate strengthened to PHP 43.9263 in May, from PHP 44.9266 in January 2014.

Source: Bangko Sentral ng Pilipinas

VIEW TABLE for time-series data on monthly peso-dollar exchange rate.

Philippine Stock Exchange Index

The Philippine Stock Exchange index (PSEi) ended at 6,648 for the month of May. This was lower compared with April's 6,708.

Source: Philippine Stock Exchange

VIEW TABLE for time-series data on Philippine stock exchange index (PSEi)

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