BREAKOUT SESSION

MANUFACTURING SECTOR

Prof. Jorge V. Sibal

Mr. Meneleo Carlos

Mr. Dave Diwa

Manufacturing Sector Workshop Outputs

Proceedings of the 14th Diliman Governance Forum 1

Trade on Human Terms: Makatao Pa Ba?
 The State, Problems and Prospects of Pro-human Development Trade in the
Manufacturing and Garment Sector1
Prof. Jorge V. Sibal, UP SOLAIR

The state and problems of the Philippine manufacturing and garments sectors of the
industry is reflected in the summary of Chapter 2 of the Asia-Pacific Human Development report
2006 on "Trade and Human Development, The Asia-Pacific Experience" (p. 48):

"The share of manufacturing output and export of high tech, skill intensive products rose,
while that of labor-intensive products declined ... Industries shifted towards greater capital
intensity. Employment growth rate plummeted even in the presence of faster growth in output.

There was 'jobless growth' both in agriculture and manufacturing. The over-all
unemployment rate increased, and labor market conditions probably deteriorated for unskilled
workers. The rising gaps between urban and rural income, between capital and labor income
and between the incomes of skilled and unskilled workers have led to sharp increases in
inequality.

The failure of employment to rise and the growing income disparities imply that the 'trickle
down' effect of fast trade and income growth on human development and poverty reduction is
limited."

Globalization and Industrial Development

The Philippine industrial sector has not performed well in the last three decades even
after it has joined WTO in the last 10 years. With the lowering of tariffs, many small to medium
sized manufacturing and agricultural enterprises closed down (Table 3) due to lack of
preparations, safety nets and unfair playing field where smuggled goods abound in the market.
Investments in long-term industrial projects were not encouraged and investors shifted to import
or trading business for easier profits.

Since 1980, the share of manufacturing continued to decline (Table 1) unlike in other
Asian countries (Chart 2). The manufacturing to employment ratio over the last two decades has
not changed to about 4%. In 2005, employment in industry grew only at 0.05 percent due to the
slack in manufacturing and construction (Labstat Updates 2006).

Agriculture's contribution to GDP continued to decline from 33.3 percent in 1967 to 20.0 percent
in 2000. The service sector increased significantly from 36 percent in 1980 to 45.6 percent in
2000. Hence, the Philippine growth pattern was characterized by the increase in services with
agricultural and industrial sectors decliningi. As of 2000, more than half of the country's

1
Lead discussant, Round Table Discussion on "Trade on Human Terms: Makatao Pa Ba? (Making Trade Work for the Poor) based
on the 2006 Asia-Pacific Regional Human Development Report, August 17, 2006, Assembly Hall, UP National College of Public
Administration and Governance (NCPAG), Quezon City, sponsored by UP NCPAG in cooperation with UP School of Economics,
Fair Trade Alliance, NEDA and UNDP.

Proceedings of the 14th Diliman Governance Forum 2

Trade on Human Terms: Makatao Pa Ba?
employed labor force that used to be in agriculture was absorbed by the service sector. Please
refer to Table 2 and Chart 1 below.

Chart 1. Percent Share of Agriculture, Manufacturing, Other Industries and Services

to Gross Domestic Production, 1967, 1970, 1980, 1990, 2000

50

40
Agriculture
30
Manufacturing
20
Other Industries
10 Services

0
1967 1970 1980 1990 2000

These trends continued up to the present. Employment in 2005 grew by 2.2 percent.
This was driven by the service sector at 2.8 percent and supported by agriculture at 2.2 percent
(Labstat Updates 2006).

Chart 2. Share of Manufacturing to Total Output (1980-2004)

Select Asian Economies
50
45

40
35
Percent share

30
25
20

15
10

5
0
Indo nesia M alaysia P hilippines Thailand Vietnam China
1980 15.2 19.6 27.6 23.1 19.2 44.2
1990 20.7 23.8 24.8 27.2 12.3 37
2000 27.7 31.1 22.2 33.6 18.6 43.6
2004 28.3 30.8 23 35.2 20.3 46

Source: ADB Key Indicators 2001, 2003, 2005.

Note: for China manufacturing also includes mining, electricity, gas and water

The country's export sector grew rapidly from 1980 led by electronics and garments
sectors. Both industries were spurred by global supply chain demands of multinational retailers
and producers as a result of increased trade liberalization. These enterprises especially
electronics are import dependent. They have to increase their domestic value content (or climb
the value chain) in order to sustain industrial growth (Ofreneo 2002, Lim and Montes 2004).

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Trade on Human Terms: Makatao Pa Ba?
 Lately, garments have gone down when quotas \\iere phased out in 2004 and are losing
to China and other cheaper garments producersii. Electronics enterprises have slowed down in
2000 and some electronics companies have transferred part, if not whole, of their operations to
China and Vietnam where power, infrastructure and labor are cheaper.

Chart 3. Electronics vs. Non-electronics exports 1992-2005

45
FOB Value of Exports in US$ Billion

40
35
30
25
20
15
10
5
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

electronics 2.97 3.78 4.89 7.55 10.61 14.98 19.87 25.34 26.57 21.62 24.32 24.18 26.73 27.28
Non-electronics 6.83 7.62 8.61 9.85 9.89 10.22 9.63 9.66 11.53 10.58 10.88 11.62 8.77 9.62
Total exports 9.8 11.4 13.5 17.4 20.5 25.2 29.5 35 38.1 32.2 35.2 35.8 35.5 36.9

electronics Non-electronics Total exports

Source
: Bureau of Export Trade Promotion

The share of manufactured exports increased from 60% in 1985 to 90% in 2000 despite
the overall decline of manufacturing and other industries (Villamil and Hernandez 2005). This
growth in the export sector is not enough to compensate for the setbacks of other enterprises
that have been neglected and even discriminated by the lowering of tariffs for imports coming
from countries that impose higher tariffs such as China and Thailand. In fact, the average
applied tariffs of Thailand for industry and agriculture are three times those of the Philippines.

As shown in Chart 4, the contribution of electronics to the manufacturing value added

increased from a low 4.4% in 1970 to 11.6% in 2000. Food, beverages and tobacco, garments,
textiles and other traditional industries declined moderately. Wood products and furniture
declined from 7.8% in 1970 to 2.4% in 2000. In the textile industry, which had 300 firms in the
1970s, only five integrated firms are still operating.

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Trade on Human Terms: Makatao Pa Ba?
 Chart 4. Structure of Manufacturing Output, 1970-2000
(% of Total Manufacturing Value Added)

60
Food, beverage & tobacco
50
40
Wood products & furniture
30
20 Electronics

10
Garm ents, footw ear, textile &
0 leather
1970 1980 1985 1990 1995 2000

Source: Hill (2003)

Domestic producers are faced with higher cost of doing business in the country due to
high power cost, inadequate infrastructure, government red tapes and corruption, and shaky
peace and order situation while being exposed to a liberalized and globalized domestic market.
In 1999, several drug and pharmaceutical multinationals transferred their manufacturing
operations to Thailand and Indonesia and shifted to importation and distribution business. The
Fair Trade Alliance on September 11, 2001 reported the negative effect on the following
industries-- steel, rubber and tire, shoe, tiles, coal, medicines, cement, batteries and agricultural
crops like sugar, corn, vegetables and rice.

Jobless Growth

A consolation to the weakening industry and agriculture sectors in the country is the
modest economic growth of 6% in 2004. This was described by the World Bank (2005) as the
fastest in 16 years. Among the factors that contributed to this growth were: 1) the electronics
industry and offshore business process services estimated at $3.8 Billion in 2006; 2) inflow of
earnings of overseas Filipino workers (OFWs) amounting to $11.6 Billion in 2005iii; and 3) gross
international reserves of $20.58 Billion in 2006iv.

It was only in electronics and garments where employment increased from 1975 to 1994.
The percent share of electronics to the total manufacturing employment increased from 4.2% in
1975 to 12.2% in 1994. Garments share increased from 6.4% in 1975 to 16.3% in 1994. All other
industries' share in employment declined slightly with the exception of textilev and wood products
whose employment shares declined by fifty percent from 14.2% to 7.1% and 10.6% to 5.4%,
respectively.
ADB economist Felipe noted that the Philippine growth rate was driven by domestic demand and
consumer spending unlike the Asian NICs where exports led the economic growth. According to
the Economist.com (2005), the economy failed to "grow fast enough to provide jobs for them". vi

More than 8 million Filipinos (about 10% of the population, of which 3 million were
permanent residents) work abroad in land and sea based jobs and remitted earnings equal to
8.8% of the gross national product (GNP) in 2003 or 10.5% of the GDP. This was augmented by
local employment from offshore business processing jobs which is expected to generate more
than $2 billion in 2006.vii

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Trade on Human Terms: Makatao Pa Ba?
 With a $10.7 billion OFW earnings in 2005 remitted through the banking system and an
undetermined amount through informal channels, the country's consumption-led economic
growth spurred urban growth in real estate, shopping malls and other services. It has at the
same time contributed to the strengthening of the currency against the US dollarviii.

Majority of big enterprises benefited from increased consumer spending brought about
by the increased earnings of OFWs, and employment in offshore business process services and
non-traditional exports. San Miguel Corporation, Manila Electric Company, Bayan
Telecommunications Inc., United Laboratories, SM Investments, and Jollibee Foods Corporation
were among those that expanded operations locally and abroad, particularly in other Asian
countries.

The small and micro enterprises that account for 99% of enterprises and 65% of local
employment are constantly threatened by cheap imports that include those smuggled in the
country. According to the Federation of Filipino Industries (FPI), the government loses P174
billion revenues a year from smuggling. The medium and big enterprises were adversely
affected external factors since many of their inputs like raw materials, electricity and parts were
dependent on imports.

The Problems Caused by Liberalization

The increase in unemployment and underemployment (Table 5) which

exacerbates the problems of deficit fiscal spending, low delivery of social services,
poor infrastructure, armed communist insurgents and Muslim separatists in the
poorest areas of the country and political instability.

The shift of employment from industry and agriculture to the services (majority in
the low tech informal sector) (Table 7) contributed to the country's over-all low
productivity performance which increased only at 1 % per year on the average in
contrast with 4.4% average of neighboring countries (China, Indonesia, Korea,
Malaysia, Singapore, Taiwan and Thailand) or 1.4% for all developing countries.
For 4 decades, output per worker in the Philippines increased only by 50% while
other East Asian countries increased by 450%.

The increasing income inequality among classes and among regions (Sibal 2002). A
2004 ADB study noted that 40% of Filipinos are living on $2 or less a dayix. The 2005 last
quarter survey of the Social Weather Station (SWS) reported that the poverty situation worsened
since it started surveying in mid-1998, with 17% “they had nothing to eat at least once over a 3
month periodx.” This is because of the failure to develop the agro-industrial base and not enough
jobs were created to absorb the unemployed and the new entrants in the labor force (Tables 5
and 6). There was no trickle down effect to the poor.

The Economist (2005) noted the great disparities in ownership of assets, in income, in
levels of technology in production and in the geographical concentration of activity. The National
Capital Region (NCR) produced one-third of GDP. Being the richest region, income per head
was nine times that in the poorest region in 2001. Disparity is evident between the richest and
poorest households. In 2000, the richest 10% of the population had an income 23 times that of
the poorest 10%. Those living in poverty were estimated at 39.4% of the population in the same

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Trade on Human Terms: Makatao Pa Ba?
year, with the rate in rural areas put at 46.9%, whereas the poverty rate in the NCR was only
12.7%.

The World Bank however, reported a different trend and cited the decline of the incidence
of poverty between 2000 and 2003. The number of poor declined from 25.4 million in 2000 to
23.5 million in 2003, or from 33% to 30.4% of the population. It however placed certain
precaution on its report (World Bank Report 2005).

Virolaxi (2006) observed the following based on statistics from the United Nations, Food
and Agriculture Organization (F AO) and Philippine Statistical System (PSS):

1. On food availability, the Philippines was ahead of Thailand, Vietnam, Lao PDR and
Cambodia in 1990-1992. By 2000-2002, Vietnam and Thailand caught up with the
Philippines and Lao PDR is getting close.

2. The country's incidence of undernourishment was higher than the whole Asia and the
Pacific.

3. The Philippines has shown modest improvement in addressing poverty and hunger
but the Asian neighbors have succeeded at faster rates and overtaken the country's
record.

General Strategies on the Problems of Industry

The UNDP Asia-Pacific Human Development Report of 2006 listed in Chapter 7 an Eight-
Point Agenda in helping solve the problems of industry. These are summarized as follows:

1. Invest for competitiveness.

• Align basic infrastructure with national needs to gain competitiveness in both the
local and global markets.
• Focus human development on healthy, well-educated, skilled and flexible
workforce.

• Increase investments in R & D that will address the needs of the poor people
through public-private partnership.

2. Adopt strategic trade policies.

• Undertake industry targeting through selective time-bound protection and
enhance local competition to prevent local monopolies and crony capitalism.

3. Restore a focus on agriculture.

• Restore national food security by protecting and assisting the farmer.

4. Combat jobless growth.

• Focus on labor-intensive industries and scale the value chain [forward and
backward linkaging.
• Allow enterprises to choose the lowest cost option for production but not biased
against labor. [Lower cost of doing business- power, infrastructure, government
bureaucracy, peace and order, cost of living, etc.]

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Trade on Human Terms: Makatao Pa Ba?
 • Allow labor flexibility arrangements.
• Strengthen state support to workers through health insurance, social security,
retraining and redeployment.

5. Prepare a new tax regime.

• Focus on new progressive taxes that will not hurt the poor. [This should be
instituted before import liberalization. Much of the income taxes are levied on the
wage and salaried workers in the formal sector.]

6. Maintain stable exchange rates.

• Maintain realistic exchange rate [by 'managing floating'] that will balance the
producers and exporters' interests.

7. Persist with multilateralism.

• Tie-up trade agreements with human development goals with preference to
multilateral trade relations.

8. Cooperate with neighbors.

• Focus more on regional trade pacts such as the ASEAN Free Trade Agreement.
• Promote regional cooperation to accumulate foreign exchange reserves to
protect the region from another Asian financial crisis.

Another set of recommended strategies were presented by the Fair Trade Alliance (FT A). The
FT A is a multi-sectoral group of entrepreneurs, trade unions, non-government organizations
and other peoples' organizations like farmers, youth, consumers, women, religious, informal
workers, environmental advocates, etc. It presented a national road map encompassed in the
Fair Trade's 5-Point Economic Program (or the Nationalist Development Agenda) as follows:

Adopt a coherent, balanced and pro-Filipino development compass.

a. Junk the neo-liberal paradigm.

• Develop both the export and domestic markets,
• Rely on the contributions of both foreign and domestic investment,
• Preserve and strengthen local industry and jobs amidst global and regional
integration,
• Promote greater value addition and employment in existing capacities through
more value-adding and networking activities that give greater depth and breadth
to the agro-industrial structure,
• Depend less on foreign borrowings and advice,
• Strengthen national sovereignty and independence, and
• Promote global and regional integration in a calibrated and nuanced way and is
sensitive to the level of development of existing industries and the development
needs of the country.

b. Foster coherence in trade and development policies and define the national interest
in each trade agreement.

2. Rebuild the nation's fences.

a. Recalibrate tariffs for locally-produced industrial and agricultural goods should be

Proceedings of the 14th Diliman Governance Forum 8

Trade on Human Terms: Makatao Pa Ba?
 adjusted upward to their maximum WTO binding rates.

b. Fortify the walls against smuggling.

c. Strengthen the safety net laws and the rules against unfair trade practices.

d. Promote genuine, not ruinous competition in a free economy.

3. Build up the nation's productive capacity.

a. Resolve the fiscal and debt crisis now, but not at the expense of domestic industry.

b. Mobilize domestic investments for recovery, jobs and incomes.

c. Rebuild the nation's industrial base.

d. Rebuild the nation's agricultural base.

e. Strategize the development of the service sector.

f. Scale the value chain.

4. Unleash the peoples' productive capacity.

5. Develop a culture of industrialism, tangkilikan (patronage of locally-produced products),

excellence and economic nationalism.

Sustaining and Developing the Agro-Industrial Base

A final note of the FTA's Nationalist Development Agenda in sustaining and developing
Philippine industry is quoted below:

"To sustain growth, an economy can not stand still. It must continue
improving. The agro-industrial structure must develop its breadth, depth and
sophistication which lead to economic dynamism and continuous growth.

We need to grow from industry to industry. We need to scale the chain,

downstream or upstream or sidestream, in order to create values and jobs. We
need to develop industrial capacity at deepening levels of sophistication. A good
illustration of this is China. China joined the electronics assembly business only 20
years ago and yet is now already into its own original parts manufacture,
production of basic materials (wafer fabrication), application of electronics into
Chinese goods and doing R & D in electronics. In contrast, the Philippines, which
started in electronics assembly 30 years ago is now still in the assembly work.

In the case of the call center and BPOs, why can the Philippines not adopt
what the Indians have been doing - scaling the IT and ICT enabled services. From
data encoding to customer service, the Indians have been offering all kinds of
business solutions, including legal backups in insurance cases, and producing all
kinds of IT programs and subprograms. This propensity of the Indians to scale the
chain has spread to its domestic industry and agriculture, which are undergoing a

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Trade on Human Terms: Makatao Pa Ba?
 major modernization lift due to the application of lT.

The lack of agro-industrial linkages for many crops is a very good

illustration of our failure to scale the chain and create the necessary technology to
produce more values and jobs. In turn, this leads to a shallow and weak agro-
industrial base.

Hence, we are proposing that a strategic industry-government partnership

be forged solely on the issue of promoting these necessary linkages and value
creations. DTI, DA, DOST, CHED and TESDA should be involved in this
enterprise. Further, we should focus more on product development and move
away from the use of cheap labor and subcontracting." (FTA 2006)

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Trade on Human Terms: Makatao Pa Ba?
Tables:

Table 1. Percent Share of Agriculture, Manufacturing, Other Industries and Services to Gross
Domestic Production (GDP), 1967, 1970, 1980, 1990, 2000

Sector 1967 1970 1980 1990 2000

Agriculture 33.3% 27.8% 23.5% 22.4%
20.0%
Industry-
>Manufacturing 18.3 22.5 27.6 25.6 24.8
>Other Industries 5.2 7.1 12.9 10.0 9.6
Services 43.2 42.6 36.0 42.0 45.6
Source of Data: National Statistics Coordination Board, Philippine Statistical Yearbook. Other industries include mining and
quarrying, construction, electricity, gas and water

Table 2. Labor Absorption of Agriculture, Manufacturing and Services (in percentage)

Sector 1971 1981 1991 2000

Agriculture 50.4 51.4 45.2 37.0
Manufacturing 12.0 10.5 11.0 10.3
Services 37.6 38.1 43.8 52.7
Totals 100.0 100.0 100.0 100.0
Reference: Phil. Statistical Yearbook, National Statistics Coordination Board

Table 3. Establishments Resorting to Permanent Closure/Retrenchment Due to Economic reasons

and Workers Displaced (2000-2003)

2000 2001 2002 2003

Establishments reporting a) 2,258 2,589 3,403 3,262
• Closure 494 617 762 577
• Reduction of workforce 1,788 2,276 2,702 2,710
Workers displaced 67,624 71,864 80,091 67,977
• Closure 21,367 25,468 25,240 24,638
• Reduction of workforce 46,257 46,396 54,851 43,339
a) Details may not add up due to multiple reporting
Source of Data: Department of Labor and Employment and published in Birdtalk, July] 5, 2004

Table 4. Unemployment and Underemployment (5 year averages) 1975-2004

Unemployment (%) Underemployment (%)

1975-1980 5.40 12.68
198] -1985 9.93 24.88
1985-1990 10.48 21.88
1991 - 1 994 9.50 20.00
1995-1999 9.32 20.82
2000-2004 11.40 18.10
2004 11.00 (6.5- ILO) 17.50
2005 11.30 (7.3- ILO) 16.10
•1998 figures based on NSO April rounds statistics, 2004 based on BLES statistics

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Trade on Human Terms: Makatao Pa Ba?
Table 5. Addition to the Labor Force vs. Job Creation (OOOs) (1996-2004)

Year Addition to the Labor Job Creation Addition to

Force Unemployment
1996 1,353 1,510 157
1997 621 530 (91)
1998 700 196 (504)
1999 (295) (170) (442)
2000 152 (290) (442)
2001 1,903 1,704 (199)
2002 1,122 906 (216)
2003 635 566 (69)
2004 1,289 976 (313)
1996-2004 7,480 5,928 (1,552)
Source: Soriano, Rene (2005)

Table 6. Employment Generated by Sector and Number of Unemployed

Sector Number Percentage

Agriculture 6,039,000 41.0%
Services 5,501,000 37.3
Industry 3,196,000 21.7
[Includes manufacturing] [1,142,000] [ 7.7]
Total 14,736,000 100.0%
New Labor Entrants 17,705,000
Unemployment 2,567,000
Source: Felipe & Lanzona (2005)

Table 7. Employment by Class of Workers 2003-2005 (Annual Averages) (in thousands

except rates)

INDUSTRY Total Employed Persons Growth Rate (%)

Year 2003 2004 2005 2003 2004 2005
All Employed Persons 30,635 31,613 32,313 1.9 3.2 2.2
> Wage and salary workers 15,354 16,472 16,316 0.2 7.3 (0.9)
> Own-account workers 11,517 11,614 12,104 3.8 0.8 4.2
> Unpaid family workers 3,756 3,527 3,894 (23.0) (6.3) lO.4

Source of Basic Data: NSO, Labor Force Survey, Labstat Update, January 2006, DOLE-BLES

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Trade on Human Terms: Makatao Pa Ba?
References:

Economist (2005), "In Search of Elusive Domestic Demand", Bangkok:

economist. com, October 13, 2005,
http://www.economisLcom/PrinterFriendly.cfm?story_id=5025883 , (opened 1.11.06-jvs)

Fair Trade Alliance 2006, "Nationalist development Agenda: A Road Map for Economic Revival,
Growth and Sustainability", Quezon City: Fair Trade Alliance.

Felipe, Jesus and Leonardo Lanzona (2004), "Unemployment, Labor Laws and
Economic Policies on the Philippines", Pasig City: Asian Development Bank.
Labstat Updates (2006), Manila: DOLE Bureau of Labor Statistics.

Lim, Joseph and Manuel Montes (2004), "Structural Adjustment Program after Structural
Adjustment Program, But Why Still No Development in the Philippines?", Quezon City: UP
School of Economics (manuscript).

Ofreneo, Rene (2002), "Globalization, Liberalization and Philippine Agro-Industrial

Readiness", paper circulated during the 2yd National Conference of Employers, May 30-
31,2002 at Westin Plaza Hotel, Makati City.
Sibal, Jorge (2002), "Measures of Economic Development: How the Philippines Fares",
Philippine Journal of Labor and lndustrial Relations, Quezon City: UP SOLAIR.

Sibal, Jorge (2005), "The Effects of Globalization and Economic Restructuring on

Philippine Labor Policies and the Responses of the Actors of the Philippine Industrial Relations
System", International Society of Labour and Social Security Law (ISLSSL) 8th Asian Regional
Congress, Holiday Inn Asia World, Taipei, October 31- November 3, 2005.

United Nations Development Program 2006, Asia Pacific Human Development

Report 2006, Colombo: UNDP

Villamil, Winfred and Joel Hernandez (2005), "The Labor Market and Adjustments
...“Conference on Production, Institutions, Policies and Regional Cooperation, Angelo King
International Conference Center Hotel, Manila, DLSU Angelo King Institute for Economic and
Business Studies and the International Development Centre of Canada, Sept. 26-27,2005.

Virola, Romulo (2006), "Gutom Ka Ba? [Are You Hungry?]", Labstat Update, Manila:
DOLE BLES, March 2006, pp. 1-5.

World Bank (2005), "Philippines, From Short-term Growth to Sustained Development",

April IS, 2005,
http://wdsbeta.worldbank.org/externalldefault/WDSContentServer/IW3P/IB/2005/05/10/0001127
42 20050510170444/Rendered/INDEX/320550PH.txt (opened 12.30.05- jvs).

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Trade on Human Terms: Makatao Pa Ba?
Endnotes:

1
Structural changes in the economy (or growth of industry and the decline in agriculture share
to GDP) are also measures of economic development. The transformation of an economy from
agricultural to industrial is an indication of a successful economic development.
ii
The garments industry today is partly alive simply because the United States has retained
restrictions on the imports of Chinese-sewn garments and textiles. But how long will this
continue? (FT A 2006)
iii
Remo, Michelle, "UN urges freer flow of workers", Philippine Daily Inquirer, April 12, 2006, p.
B6. Remo cited economist George Manzano's report to the UN that the OFWs' remittances
contributed 13.7% to the GDP. Other countries that benefited from overseas remittances in 2005
were India, $21.7 Billion and China, $21.3 Billion.
iv
How long shall we be able to retain the electronics assembly industry? And the call center
industry? In the electronics industry, we have seen the relocation of some companies to Vietnam
and China. In the case of the call center industry, how shall we be able to retain this industry
once a new generation of IT-savvy and English speaking Chinese, V Vietnamese and other
foreign graduates in developing countries join the global labor force? (FT A 2006)
v
The textile industry was booming in the 1970s and 1980s and partly modernizing in response
to an expanding market. The industry collapsed in the 1990s due to widespread smuggling of
textiles, yarns, threads and other materials imp0l1ed largely through the bonded warehousing
facilities of some garments exporters. The collapse was further aided by government neglect,
which did not bother to take a second look at the precarious situation of the textile industry
and which did not have any ambition of developing an integrated textile-garments industry (FT
A 2006).
vi
The Economist (2005), "In Search of Elusive Domestic Demand", Bangkok: economist. com,
October 13, 2005, http://www.economist.com/PrinterFriendly.cfm?storv id=5025883, (opened
1.l1.06-jvs)
vi
Domingo, Ronnel, "Outsource industry seen growing", Philippine Daily Inquirer, February 17,
2006, p. B6
viii
Dumlao, Doris, "OFW remittances surge 16.5% to P977 M", Philippine Daily Inquirer, March
16,2006, p. BI.
iix
Asian Development Bank (2004) study on the economic status of the country under the
Arroyo administration (www.adb.org)
x
Cabacungan Jr., Gil (2005), "Number of hungry Pinoys hits new high, says survey", Philippine
Daily Inquirer, Jan. 7,2005, pp. Al & A4
xi
Dr. Romulo Virola is the secretary general of the National Statistical Coordination Board
(NSCB), chairman of the Statistical Research and Training Center (SRTC) and past present of
the Philippine Statistical Association.

Proceedings of the 14th Diliman Governance Forum 14

Trade on Human Terms: Makatao Pa Ba?
 Mr. Meneleo Carlos
Chairperson, Federation of Philippine Industries

When trade enriches the rich and impoverishes the poor it means that there is no healthy
balance in the economy. This afternoon I would like to present my comments on Chapter Seven
– Trade for Human Development: An Eight-Point Agenda of the Asia Pacific Human
Development Report 2006.

I believe the global market represents a global resource for progress. Like other
countries, the Philippines need to tap the outside market to really grow. And we should seek
being competitive if we are to play in the global market. However, trade liberalization in our
country has been very disappointing. Factories of multinational companies, instead of relocating
here, have been moving out. The soap and detergent factories and electronics industries are a
few examples of these factories. This should have sent a message to our leaders. There is
something wrong with the way we are globalizing.

Invest for Competitiveness

We should invest more in particular areas if only to develop our competitiveness. We

should invest in our transport systems: build more roads and railways. We should build schools
and training facilities, and support advanced education and training. We should promote private
research and development (R&D) because it is market driven, and the results are directly
introduced in the market. We should also promote R&D in the universities and take advantage of
their linkages with the private sector through their consulting services. We should promote
private R&D because government R&D has not been able to produce the expected results.

Adopt Strategic Trade Policies

In adopting a strategic trade policy, we should know and capitalize on the strengths of our
industries, and liberalize mainly in areas where we are strong, not all over the place. On the
other hand, we must protect and strengthen our weak industries by putting up tariffs, investing
more capital, and developing technological know-how. We must remove tariffs on imported raw
materials and, at the same time, apply tariffs on finished goods to support our local industries.
More importantly, we must continue to eliminate bureaucratic pathologies and corruption
because these weaken our global competitiveness.

Restore Focus on Agriculture

Restoring our focus on agriculture, fisheries and forestry is the single most important
element that we should pay attention to. These industries provide a living for the poor people and
the marginalized. Restoring our focus means providing the marginalized people with the basic
capital resources. We must provide farmers with land, and we should open up our seas to
fishermen so they can have access to the basic resources if we want to improve their well-being.
I believe this is the only way we can provide the poor with the needed capital. The government
has natural resources yet these are not being used with efficacy. These efforts coupled with rural
electrification and communication will greatly improve the lives of many marginalized Filipinos.

We should maintain tariff support for these products and protect the local producers. We
want the poor to be able to produce forest, marine and, agricultural products. If imports are
necessary then mechanisms such as a tariff protection to benefit small but not big traders should
be in place.

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Combat Jobless Growth

We should liberalize the utilization of our land and marine resources, most especially for
the poor. By doing so, we will provide a lot of Filipinos with jobs thus addressing in part poverty
in the country. At present a lot of Filipinos are migrating abroad to find jobs. To support that
activity the government must provide education and training. There is no doubt that Filipinos will
have to migrate abroad, we really do not have any jobs available for them, and I do not blame
them. That is why we have to provide them with education and training and craft a program
where they will learn and bring home what they have learned abroad. Our OFWs (Overseas
Filipino Workers) do not go abroad permanently since they just go there to work. We should also
provide better diplomatic support for our overseas workers, and also extend health insurance
and social security to them. Right now health benefits and social security are only for corporate
employees but I am glad that PhilHealth and SSS are already beginning to look at this.

Improve Tax Collection

Our government only collects 16% to 17% of our GDP while Thailand and Malaysia
collect about 25%. Poor tax collection efficiency is one of the causes of budget deficit. There is
something wrong with our tax regime. Our government should raise more revenues not by
collecting more from tax payers and increasing the value added tax (VAT) but by persecuting tax
evaders. We should revert to our old VAT and income tax rates system. We should rationalize
tax incentives but we must also continue to prosecute tax evasion cases and punish illegitimate
practices. The bottom line is: tax evasion in our country disadvantages the legitimate tax payers.

We must also resolve two pertinent issues to improve our tax regime problems: (1) stop
the worsening situation of smuggling and (2) protect local producers from the influx of fake,
substandard goods and unfair trade practices. We must also strengthen our regulatory measures
to protect consumers from substandard products.

Maintain Stable Exchange Rates

Our present exchange rates are fairly stable, yet the peso is really undervalued. The
exchange rates are being managed discreetly to prevent disturbing fluctuations, yet the high
exchange rates continue to punish the poor.

Persist with Multilateralism

I agree with the report that there is danger in entering into bilateral trade agreements with
developed countries. I think when we band together as ASEAN (Association of Southeast Asian
Nations) we become stronger in terms of our negotiating power. There is strength in numbers
after all.

Cooperate with Neighbors

We should continue to strengthen our ASEAN relations in preparation for the resumption of the
trade talks with the developed countries.

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 Mr. Dave Diwa
National Confederation of Labor

My task this afternoon is to point out issues just like what Mr. Meneleo “Mr. Manufacturer”
Carlos did, and point out the facts just like what Dr. Sibal did, and to invite you to come to a
discussion.

I’ll make three broad outlines in my presentation.

Number one: I would like to invite you to focus on the report itself because that is the main
purpose of this forum. I would really want to impress upon all of us the framework that is being
used. The primary focus of the entire report is a proposal to have a development strategy that
links trade and poverty alleviation. So the question is: can it be done? I think the Asia Pacific
Development Report is an incomplete one. Many things have yet to be done from which certain
concrete policy directions can be crafted and perhaps adopted by industries or stakeholders, and
the government. So it is incomplete in itself.

Number two: I think the report is a repetition and recapitulation of all the issues that have been
going on for the last couple of years. The report itself is not feasible, particularly the funding
aspect especially if the report is meant to address some big problems in the Asia Pacific Region.
I think, as what happened in Africa and the Latin America with the United Nations, when there is
no concrete provision for funding of programs, nothing will materialize.

Number three: I think to the extent that the report is founded on a neo-liberal view of the world
of trade, nothing much can be expected from it. The problems identified are spawned by
globalization and coming up with solutions that are part of the globalization process will not solve
the problems of inequality, efficiency, and poverty.

Having said that, I think the report is part of the UN System – part of the global framework
that is being done throughout the world on how precisely life on earth can be made more livable.
So we have global institutions like the World Bank, the IMF, the GATT and the WTO. We also
have the ILO at a certain point. I think the UNDP report is part of that entire process. Other
global institutions would focus on the finance side, while other global institutions would focus on
the trade negotiation side. This particular plank of the UNDP seeks to address some dimensions
that are being left out so I would suppose that the poverty alleviation program is linked to the
millennium development goals being undertaken by UNDP.

Why is the report on Asia and the Pacific? The answer is quite simple. The report has
presented us a number of statistics and the main point is that if we have about six billion people
in the world today, two billion of that are coming from Asia and the Pacific. China and India alone
are huge countries. Cambodia, Vietnam, Sri Lanka, Pakistan, the Philippines, and other south
pacific countries represent the so-called areas where reinvestment is going on and where more
people are working. So the focus of the European Union will really be towards this region– the
parts of the world that are not benefiting from globalization. Now, trade will be an important
strategy for all of these countries to grow and to develop. For instance, in the Philippines, trade
represents the way its economy will grow. Compared to China which has a trade vis-à-vis GDP
moving towards 30%, the Philippines’ is pegged at 15% and still getting lower.

What is the relevance of the report to manufacturing? The link is that trade involves the
transport of manufactured items. But as Prof. Sibal pointed out earlier, the Philippines is not in a
very good situation as far as manufacturing is concerned, particularly in the textile and clothing
industry. I think textile and clothing will be the biggest industry in the coming years. However, this
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industry is pronounced dead in the Philippines. And if we continue to go into trade and
manufacturing in this manner, the situation of this industry will remain the same. The textile and
clothing industry will be the main industry in Cambodia and Vietnam; and it is now the industry in
China. In another five years China will move into the electronics industry; inevitably, its textile
and clothing industry will be transferred to another country. We used to be number one in the
textile and clothing industry in the 1950’s. Perhaps if we put our act together, we will regain the
industry in our country.

We at the labor sector do not believe that our country is now reindustrializing. There is no
such thing as reindustrialization because we never really industrialized in the degree that
industrialized countries have industrialized. In fact what we had is non-industrialization. I think we
really have to change our paradigm. We must have a self-reliant economic development strategy
combined with trade so we can still take advantage of our local market.

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 SOME ADDITIONAL POINTS

On the effects of imported surplus products and smuggled goods on the manufacturing
sector

Cheap imported products have penetrated the local market. The local manufacturing industries
such as garments and clothing are at the losing end. Prof. Sibal noted that while consumers are
able to buy cheaper clothes, shoes, and bags at the “ukay-ukay,” it is the informal workers in the
local clothing, shoe, and leather industries, however, that are losing profits and, worst, their jobs.
In addition, the continuous proliferation of smuggled goods is detrimental to the growth of the
manufacturing sector. The influx of cheap imported surplus products, which compete with local
products in the market, is a result of an unregulated liberalization and low tariff rates imposed on
imports.

On the implementation of tariff rates to make local manufacturers more competitive

The tariff rates set by the government have become detrimental to increase the competitiveness
of the manufacturing sector in the country vis-à-vis other Asian countries. Mr. Vincent Castillo of
the Cement Manufacturing Association of the Philippines pointed that the inappropriately low
tariff rate and the rising costs of fuel and coal is making the overall costs of production in the
Philippines higher compared to countries such as Malaysia. There is an immediate need to
identify strategic industries subjected to high costs and to protect them by recalibrating the tariff
rate. Mr. Castillo shared that local manufacturers have met with the policy-making government
agencies. Unfortunately, tariff rates remain unresponsive to the economic situation.

On the financial system and high interest rates of bank borrowings

The manufacturing sector relies mostly on borrowings for financing its operations. Unfortunately,
the current interest rates applied to bank borrowings are higher compared to other Asian
countries due to the cartels in the Philippine financial system. This problem prevents
manufacturers from expanding their operations for the last decade.

On the government’s foresight in developing the Philippine economy and its policies
regarding Call Centers and OFWs

There is an unprecedented growth in the services sector, particularly with the increase in the
number of Call Centers being established and the throng of Filipino workers working abroad. In
this context, several questions were raised such as: Were NEDA and other government
agencies able to project the probability of these industries at the onset? Were the policy makers
and decision makers of our country informed of such projections? Has the government been
responsive to the changes in the economy (e.g., setting up policies and guidelines to protect
Filipino workers). These questions must be answered by the concerned government agencies.
These agencies must conduct industry targeting and anticipate the effects of these new
industries on the economy.

On building local capacity and training for the informal sector and women

There is a need to upgrade the skills of the informal sector and women. These additional training
and education will help develop their skills in a competitive economic environment. To
accomplish this task, there must be networking between stakeholders and the concerned
government agencies. There must also be a continuous effort on the part of the government to
pursue an education and training program for the informal sector in the next five years.

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 MANUFACTURING SECTOR WORKSHOP UTPUTS

Major Issues/ Challenges Recommendations Agenda for Action/ Agency/

Next Step(s) Organization
Responsible
Within 2006 3 yrs 5 yrs

Scaling the value chain Backward and forward Tap Gokongwei Build Come up with - UP & other state
linkaging (techno park: fund infrastructure innovative colleges and
academe, local industries, & w/in the products and universities (SCUs)
technology agencies doing university processes - Later: DOST, DTI,
R&D for more competitive (Commonwealt private sector
Filipino products) h)
Need for more education & -Increase trainings for Focus on Upgrade skills Placement of - TESDA (already
skills training, especially for traditional skills for workers networking of multi- of workers workers & conducting
informal sector - Train women stakeholders; creation of trainings at
Create training permanent present), DTI,
regulations; laboratories for DOLE, SCUs,
Rebuild trainings (not private sector, etc.
infrastructure classroom type);
Scale up
enterprises
High cost of doing business Identify strategic industries Increase tariff rate; Review rates Review rates and OP, Tariff
(fuel, energy, etc.) subjected to high costs and Consider and adjust adjust (lower) commission,
protect them by immediately alternative (lower) based based on costs; NEDA, DTI, DOF,
Industrial integration recalibrating the tariff rate technologies that on costs; Continue efforts; legislative branch,
can lower the cost Continue Craft liberalization BOI, NGOs, UNDP,
of efforts; Craft schedule of the FTA, NAPC
power/energy/fuel; and implement sectors
Strengthen price the dev’t
monitoring; programs of the
Rationalize MFN sectors
tariffs and adjust
CEPT tariffs (EO)

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Proceedings of the 14th Diliman Governance Forum 21
Trade on Human Terms: Makatao Pa Ba?