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Export Trivia

1. By 1946, the Philippines was an agricultural nation tied closely to its erstwhile colonizer, the United States. This was most clearly observed in trade relations between the two countries. In 1950, the value of the Philippines' ten principal exports added up to 85 percent of the country's exports -- all but one being agricultural or mineral products in raw or minimally processed form. For the first 25 years of independence, the structure of export trade remained relatively constant.

2. The direction of trade, however, did not remain constant. In 1949, 80 percent of total Philippine trade was with the United States. Thereafter, the United States portion declined as that of Japan rose. In 1970 the two countries' share was approximately 40 percent each, the United States slightly more, and Japan slightly less.

3. The pattern of import trade was similar, if not as concentrated. The United States share of Philippine imports declined more rapidly than Japan's share rose, so that by 1970 the two countries accounted for about 60 percent of total Philippine imports. After 1970 Philippine exporters began to find new markets, and on the import side the dramatic increases in petroleum prices shifted shares in value terms, if not in volume. In 1988 the United States accounted for 27 percent of total Philippine trade, Japan for 19 percent.

4. From the 1950s to the 1970s, the Philippines pursued restrictive and protectionist policies as part of its then inward-looking, import-substituting industrialization strategy. In the 1970s, the implementation of an export-incentives program and the opening of an export-processing zone at Mariveles on the Bataan Peninsula reduced the biases against exports somewhat. The export of manufactures (e.g., electronic components, garments, handicrafts, chemicals, furniture, and footwear) increased rapidly. Additional export-processing zones were constructed in Baguio City and on Mactan Island near Cebu City. During the 1970s and early 1980s, non-traditional exports (i.e., commodities not among the ten largest traditional exports) grew at a rate twice that of total exports. Their share of total exports increased from 8.3 percent in 1970 to 61.7 percent in 1985.

5. Further efforts to liberalize and support the export industry included the Philippines' accession to the World Trade Organization (WTO) and the implementation of the Export Development Act, both in 1995.

6. Following the signing of its first regional FTA, AFTA, in 1992, the Philippines' increasing outward orientation was complemented by a regional focus. Along with FTAs with the PRC, Korea, and Japan, implemented through the ASEAN channel, the Philippines has signed FTAs with Australia, New Zealand, and India. The country also recently became party to a bilateral FTA with Japan ([PHILEXPORT) 2007b; Senate of the Philippines, Senate Economic Planning Office 2007). In addition, the Philippines signed a trade and investment framework agreement4 with the United States (US) in 1989 and has agreed to various types of bilateral trade, investment treaties, and memoranda of understanding with more than 35 countries. Today, the country has a multi-track approach to liberalization—unilateral, regional, and bilateral.

7. Following the signing of AFTA in 1992, the Common Effective Preferential Tariff (CEPT) scheme with ASEAN member countries was implemented a year later (Philexport 2007a; Balboa, Medalla, and Yap 2007). AFTA's objective was to increase ASEAN's competitive edge as an integrated production base in overseas markets and the CEPT scheme's aim was to reduce intraregional tariffs to 0–5% on 99% of tariff lines by 2010 for ASEAN-6 countries, including the Philippines. Barriers to international and intra-ASEAN trade gradually fell over time. Average applied MFN tariffs for the Philippines fell from 12.1% to 6.3% between 1997 and 2008.

8. Furthermore, as part of the CEPT arrangement, the Philippines liberalized its economy to its ASEAN trading partners more rapidly than to the rest of the. The average CEPT rate for exports from the rest of ASEAN to the Philippines fell from 9.1% to 3.7% between 1997 and 2003 and is expected to further reduce to negligible rates by 2010. Likewise, Philippine exports to ASEAN economies have enjoyed lower preferential tariffs over time. For instance, average tariffs for ASEAN-6 economies fell from around 6% to 0.8% between 1997 and 2008.

9. Aside from the CEPT scheme, the Philippines is also party to ASEAN agreements on its 11 priority integration sectors (which include agro-based products, automotives, and electronics); investment area; mutual recognition; industrial cooperation scheme; and trade facilitation.

10. Trade liberalization efforts have changed the food sector's output structure, largely benefiting labor-intensive and competitive industries (Due?as-Caparas 2007). Since 1980, exports of commodity goods have shifted from traditional products (such as coconut, sugar, forest products, mineral products, fruits and vegetables, abaca, and tobacco) to non-traditional exports (specifically industrial manufactures), which accounted for 73% of total merchandise exports in 2006. The share of electronics—primarily semiconductors and data processing machines—was almost three quarters of total exports, while machinery and transport equipment, consumer manufactures, and food processing products contributed almost 10% of total exports.

11. The country's heavy reliance on electronics has raised serious concerns in light of the global recession, weakening demand for imported electronic products abroad, rising power costs and crude oil prices, and the sector's need for innovation (Philippine products in the electronics sector generally have low value-added and high import content). Primarily due to the slowdown in the US market, two of the country's biggest information technology companies—Texas Instruments Philippines and Intel Corp.—announced either the closure of their manufacturing plants or thousands of layoffs in the Philippines in early 2009.

12. Increased regional liberalization in ASEAN has coincided with a shift in the Philippines' exports toward its existing FTA partners (particularly in ASEAN and its Northeast Asian neighbors) and away from traditional markets like the US and the European Union (EU).

13. Highlighting the importance of AFTA, the Philippines' exports to ASEAN countries grew at an impressive rate of 20.4% per year in 1992–2008 and the share of ASEAN in its total exports reached 16.6% in 2008. The effect on Philippine exports of ASEAN+1 FTAs with its Northeast Asian neighbors is also becoming evident. Particularly impressive have been Philippine exports to the PRC, which have grown by 36.6% per year and now account for a quarter of the country's exports, despite worries of competitive threats from cheap imports (Palanca 2004). While exports to Korea still remain small (3% of exports), they have nearly doubled since 1992.

14. Meanwhile, exports to the US—the Philippines' largest trading partner in the 1980s and early 1990s—have contracted by more than two-thirds over the same period to 12.8% of total exports. By comparison, exports to Japan have remained relatively unchanged due to preferential market access via the bilateral FTA with Japan and the ASEAN-Japan FTA.

15. This rapid intraregional growth in trade has created new markets for consumer goods from Philippine firms, as well opportunities to participate in robust regional production (e.g., shipping intermediate goods to the PRC for further processing). Similar positive export trends can be seen with other new and potential FTA partners, such as Australia, New Zealand, and India. Overall, this structural shift suggests a link to the growth of regional production networks, increased participation of firms in exporting, and increased FTA activity.


Trade Team Says
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