RP missing out on ASEAN opportunities?

"Are you a domestic manufacturer hurt by the sudden surge of imports?," asked an ad for a seminar held last month. "Do you want to take action on these matters? Then this seminar is for you," it continued. Apparently effective, some 20 businessmen and lawyers subsequently attended a course on raising trade disputes against competing imports. Two weeks later the Association of Southeast Asian Nations (ASEAN) marked its 43rd anniversary. Most products traded in the bloc -- at least among the six earliest members including the Philippines -- can today cross borders duty-free. "The people need to be made aware of the benefits of ASEAN," the organization’s Secretary-General, Surin Pitsuwan, said during the anniversary ceremonies in Vietnam. The Philippines, however, seems to be missing out on these gains especially as the country’s exports to its fellow ASEAN members continue to make up a small share of total outbound shipments. Meanwhile its Southeast Asian neighbors have become more adept at luring manufacturing investments to take a larger part of the envisioned regional assembly line. "We don’t really export to Southeast Asia since we have similar products," said Sergio R. Ortiz-Luis, Jr., Philippine Exporters Confederation president. "Also, pricing isn’t as attractive when their domestic products are cheaper," Mr. Ortiz-Luis added. The hesitation is apparent. Philippine export sales to the region accounted for just 8.7% of total sales to the world in 2009 after peaking at just over a tenth in 2003, according to central bank data. This was little changed from the 7.2% share the region accounted for in 1999 when Cambodia completed the 10-member regional bloc. The Philippines, on the other hand, sourced 16.8% of its imports from ASEAN member states in 2009, roughly double the 8.8% share the region cornered ten years back. Experts reckon the trade imbalance partly stems from the makeup of the Philippines’ export portfolio, which caters more to non-ASEAN members. More importantly, it could also be due to the country’s inability to attract investments that would have made it a more active player. "Your disadvantage is you’re concentrated in one industry," said Ganeshan Wignaraja, principal economist of the Asian Development Bank’s office of regional economic integration. Roughly two-thirds of the Philippines’ export sales are brought in by electronic components, most of which are shipped off to non-ASEAN members Taiwan, Japan and China for further assembly. Finished goods like furniture, garments, and processed food, meanwhile, mostly bypass the region as the Philippines’ niche in higher-priced products find more willing consumers in richer economies. "And there are more investors in other ASEAN countries," Federation of Philippine Industries President Jesus L. Arranza said. As such, neighbors like Thailand enjoy higher export sales as they have been selected by multinationals as production hubs to supply the region, he explained. In the automotive industry, for instance, Thailand continued to lead the pack last year by churning out 1.2 million cars for both domestic and export markets while the Philippines only assembled 50,000 units, data from the Motor Vehicle Parts Manufacturers Association of the Philippines showed. The gap could widen as the local arm of Ford Motor Co. has announced that it would start manufacturing Focus sedans in Thailand instead of the Philippines by 2012, although it is reportedly mulling a new model for assembly here. And while the country boasts of its own share of manufacturing operations -- Nestle Philippines and Philip Morris Philippines Manufacturing, Inc., among others, ship out products to the rest of the region -- this is dwarfed by investments in other ASEAN members. Last year, the Philippines lured only 5.3% of the $36.803 billion worth foreign direct investment that flowed into the region, according to United Nations data. Conclusion: Despite missed chances, ASEAN still good for RP It is little wonder that with the country’s poor showing in trade and investment, Philippine firms’ use of ASEAN free trade agreements to facilitate export sales pales in comparison to its neighbors’. Only 20% of the 155 exporters from the food, electronics and automotive industries surveyed in 2008 said they take advantage of tariff cuts under the ASEAN Free Trade Area, a study by Ganeshan Wignaraja, principal economist of the Asian Development Bank’s office of regional economic integration, found. In contrast, the usage rate in Thailand and Malaysia is at a higher 25-27% range. Low awareness of the tariff scheme, now streamlined under the ASEAN Trade in Goods Agreement implemented early this year, is primarily to blame for the poor usage rate, according to Mr. Wignaraja. It is frustrating considering officials have toiled to negotiate such agreements, Bureau of Export Trade Promotions Director Senen M. Perlada said, adding that the government will continue its information campaigns. But Manila would also do well to address the country’s attractiveness to export-oriented investments, Mr. Wignaraja said. "Electricity cost is high and so is labor cost relatively. And the Philippines looks a little bit in need of infrastructure [such as] roads between economic zones and ports, airports and rail [systems]," he said. It is this lack of competitiveness, reckons Federation of Philippine Industries President Jesus L. Arranza, that has so far prevented the Philippines from truly reaping the gains of the ASEAN free trade area. "We’ve not benefited from it," he said, pointing to the smaller market share local tiles, glass, and sanitary ware manufacturers now have against imports from Southeast Asia and elsewhere crowding the market. The victims include local manufacturer AGC Flat Glass Philippines, Inc. -- the country’s lone glass pane producer -- whose 84% market share in 1998 figured glass sales contracted to 68% in 2002 according to Tariff Commission data. Safeguard duties on competing imports have since been imposed, a move which has been opposed by Thai exporter Guardian Industries Corp. and even the Thai government. Despite this, industry leaders still contend the Philippines remains better off inside ASEAN than be left out of the bloc. "Southeast Asia isn’t our main export market. But if we don’t join [the ASEAN] we will be out of the loop," said Sergio R. Ortiz-Luis, Jr., Philippine Exporters Confederation president. And for Mr. Wignaraja: "Overall, there has been net benefits for the Philippines being part of the ASEAN." Membership has allowed the Philippines to bag trade deals with China, Korea, India, Australia and New Zealand which it was unlikely to forge if it were negotiating on its own, he said. "ASEAN’s real strength is its linking with the ‘Plus Ones’," Mr. Wignaraja said, citing in particular the ASEAN-China deal which has created the world’s largest free trade zone. It is these markets the Philippines must now target to fully take advantage of its ASEAN membership, he said. Under the draft 2011-2013 Philippine Export Development Plan due to come out next month, the country seems to be moving towards that direction. While it retains traditional markets like the United States, Europe and Japan as key export destinations, the road map also prescribes directing marketing efforts towards China and India. The plan also makes a pitch for luring investments that will entrench the country into the global supply chain already dominated by the two emerging economies. "As a global player, the Philippines cannot afford to focus only on the domestic market alone or just its traditional trading partners," Mr. Perlada said. This should to yield more than a 10% increase in total export sales every year until 2013 under the plan. At the very least, it will make it easier for the Philippines to declare its own success story at the next ASEAN anniversary. -- Jessica Anne D. Hermosa, BusinessWorld