Further market opening to boost trade in ASEAN

Local firms are gearing up for further liberalization this year as the Philippines and 10 other economies in the region grant duty-free entry to more goods. Under regional and bilateral trade pacts, Philippine tariffs on nearly all imports from five other Association of Southeast Asian Nations (ASEAN) members and China dropped to 0 percent as of January 1, as did those levied on a number of products from Australia, New Zealand, Korea, and Japan. The tariff cut round for 2010 will boost consumers’ purchasing power and make imported raw materials cheaper for manufacturers, industry groups told BusinessWorld, but may also hurt industries that can’t keep up with foreign competition. Likely gainers this year include hog exporters, plastic and soap makers, and other manufacturers that use imported inputs, according to interviews with business leaders and previous reports. Philippine-based car assemblers and steel mills, meanwhile, were among those apprehensive. "The usual vulnerable industries, those that are labor-intensive, will find they will have to compete with low-cost products coming in. Our domestic manufacturers must improve their products," Philippine Chamber of Commerce and Industry Chairman Emeritus Donald G. Dee said in a telephone interview. "[But the deals] will help consumers because the cost of goods will be lower. These might indirectly help our members -- those in banking, real estate and telecommunications -- because it increases purchasing power," Makati Business Club Executive Director Alberto A. Lim said in a separate phone interview. Exporters, meanwhile, are looking forward to increased access to other economies especially Japan and China, an industry group leader said. The two Asian giants accounted for 26.8 percent of 2008’s $49.026 billion in exports and ranked as the Philippines’ third and fourth largest markets behind the US and the EU. "Any agreement we enter into should be positive for exports," Confederation of Philippine Exporters President Sergio R. Ortiz-Luis, Jr. said. Under the ASEAN-China free trade deal, China should have removed tariffs on 90 percent of goods from the Philippines, Indonesia, Brunei, Malaysia, Singapore and Thailand (ASEAN-6) by Jan. 1. Manila did the same through Executive Order 814 issued in July 2009 and added certain marine products, vegetables, fruits, edible oils, grains, liquor, textiles, garments, and building materials as among the imports granted duty-free entry this year. For Japan, the Philippines is supposed to drop tariffs on imported cars and auto parts this year under the Japan-Philippines Economic Partnership Agreement but these have not budged as negotiations are stalled. Both Japan and the Philippines are also to reduce other tariffs in line with annual commitments that will eventually eliminate 95 percent of duties by 2018. Regional deals among ASEAN, Australia and New Zealand, and one between ASEAN and Korea likewise require a round of tariff cuts this year. In contrast, tariff elimination among the ASEAN-6 under a separate deal, the ASEAN Trade in Goods Agreement (ATIGA), will be swifter. Roughly 17 percent of the remaining tariff lines representing automotives and parts, certain fruits, vegetables, coffee beans, tobacco, spirits, processed meat, chemicals, fuel, as well as steel and plywood should now be at 0 percent. Hog farmers, for instance, are looking forward to selling to Singapore this year, said Albert R. T. Lim, Jr., president of the National Federation of Hog Farmers. But the Federation of Philippine Industries (FPI) was more apprehensive. "We’re worried about ATIGA because [most tariffs] will be at zero already and we have more similar exports among ASEAN," said Mario Jose E. Sereno, head of the FPI’s international trade policy committee. He conceded, however, that manufacturers might benefit from cheaper imported inputs and that firms are "exploring now which sources will yield cheaper freight costs." Plastic and soap manufacturers, for instance, will get what they have earlier petitioned the Tariff Commission for: duty-free resins and acids. Other manufacturers similarly expressed anxiety over this year’s tariff cuts. "Japan is a very significant exporter of high-end steel products [like] tin plates, heavy plates, pipes, automotive-grade steel sheets... Thailand and Vietnam are [also] active in steel material exports but not yet in significant numbers," Arthur M. Florendo, president of Union Galvasteel Corp., said in an e-mail. Groups representing other building materials -- cement and ceramic tiles -- also said in interviews that they were bracing for increased competition. For her part, Chamber of Automotive Manufacturers of the Philippines, Inc. President Elizabeth H. Lee said in an e-mail: "ASEAN neighbors and Japan are significant car exporters not only to the Philippines but globally as well." Ms. Lee noted that imports have been eating up more market share over the years. Local assemblers, she added, are counting on import bans on used vehicles and other measures favoring Philippine-made cars to cope. Other industry groups meanwhile cited indirect benefits to their sectors. The electronics industry is expected to lure more Japanese investors as the free trade deal makes foreign firms more comfortable with the Philippines, Semiconductors and Electronic Industries in the Philippines, Inc. Chairman Arthur J. Young, Jr. said.