KEYNOTE SPEECH OF SECRETARY RAMON M. LOPEZ
NATIONAL EXPORT CONGRESS 2019
6 December 2019, PICC, Pasay City

[Acknowledgements]

Ladies and gentlemen, magandang umaga po sa inyong lahat!

Before I begin, please allow me to inform you that we are celebrating two very important occasions for the export community.

First is the National Exporters’ Week, which is an annual event led by the Department of Trade and Industry (DTI) thru its Export Marketing Bureau (EMB). This is done in collaboration with the Philippine Exporters Confederation, Inc. (PHILEXPORT) and the Export Development Council (EDC). Second, the implementation of Republic Act (RA) No. 7844—or the Export Development Act— celebrating its 25th anniversary if this act on December 21.

These events celebrate the strength and resilience of Filipino exporters despite the odds and challenges facing the sector.

STATUS OF PH EXPORTS

Foremost of the challenge today is the global slowdown brought about by the US-China trade war, which started in 2018. This dispute has resulted in positive and negative impacts of the trade war spilling over to the rest of the world. On the negative side, there is the slowdown in global trade growth, the disruption of the supply chains, and increased policy uncertainty. The positive effects that the Philippine can capitalize however can include trade diversion and shifting of production bases.

Despite this slowdown that affected the global sector in 2018-2019, the Philippines has weathered the challenge and thanks to a very strong domestic demand and resilience of our economy as compared to other ASEAN nations whose share of exports to GDP were more than ours. Our GDP grew year-on-year by 6.2% in the third quarter of this year, making us the 2nd fastest growing economy in East Asia.

Our country’s manufacturing performance as compared to our ASEAN neighbors has also been respectable, with our manufacturing growth at 3.7% for the first 3 quarters of 2019. Philippine manufacturing grew at an adequate rate reaching even 10.3% in the early part of the decade, with Philippine manufacturing share to GDP remaining almost unchanged. But you will notice that all the economies experienced the slowdown starting 2018, with Japan, Singapore, and Thailand even posting negative growth rate in the first three quarters of this year.

Philippine exports amounted to 39.5% of our total external trade in goods worth US$14.9B. Meanwhile, our balance of trade in goods recorded at US$3.1B-deficit in September 2019, lower by 22.5% during the same period last year. Relative to our neighboring countries, Philippines posting positive growth rate up to second quarter. So I remembered about May, June and July we were posting positive growth but this September already experience a decline of 2.6% from the US$6.1B total export sales in the same period last year. Electronic products continued to be our top export with total earnings of US$3.6B, accounting for 60.9% of total exports’ revenue. Meanwhile, total export services for the first six months of the year reached US$19.2B

We expect merchandise export performance to be flat and services exports to post a moderate single digit growth. However, the Export Development Council (EDC) is maintaining a target of US$122B-130B for 2022.

While our imports are currently helping to bolster our country’s growth, we need to strengthen our exports and address the obstacles in the way. This will not only strengthen our export sector—especially amidst the ongoing global slowdown—and address our trade deficit, it will also support our goal of creating more jobs and employment for our people.

TRADE & MANUFACTURING

One opportunity available to our exports is our unrivaled access to key markets. The Philippines is strategically located in South East Asia and is a critical entry point to ASEAN especially if you take the view of transacting with the right side of the Pacific Ocean and that would be the Canada, US and the South America. Philippines you can imagine will be at the center of that map. Even as we are pursuing free trade agreements (FTA) with the US and EU, we already enjoy good market access to these countries.

Majority of the products coming from the Philippines enjoy 0% duty because we have the Generalized Scheme of Preference (GSP) program of both the US and EU. However, the Philippines is a fast-growing economy and we foresee that we will probably soon graduate from the GSP programs soon. That is the reason why it is imperative for us to work for an FTA arrangement with the US as well as with the EU so that there is a more long-term FTA with these two countries and region.

In the meantime, we have also opportunities of greater market access with the ASEAN-Hong Kong which is a new FTA of ASEAN. We have several Joint Economic Cooperations (JECs) with other countries to discuss the initiatives to improve bilateral trade, investment and economic cooperation. Likewise, the Philippine-Japan Economic Partnership Agreement (PJEPA) is undergoing review right now and as you may know we have also concluded the negotiation in the Regional Comprehensive Economic Partnership (RCEP) is when it comes to the text base. RCEP is physically ASEAN plus six other countries but India of course decided to settle other issues in the provisions in the text base part of the agreement and therefore we will continue to work with India until next year so that they can hopefully decide to participate. Otherwise, RCEP will be the ASEAN plus the five countries.

Lastly, we were trying to work out on an FTA to be concluded with Korea last November, but we lack time. We submitted a preliminary achievement package which we hope to finalize still by next year so that we can have a new FTA with Korea. Offensive interest there would be basically banana so that we can have greater market access in the Korean market by Korea lowering their tariff rates from 30% down to 0%. Hopefully, within five years. And other products there would be basically auto parts and the garments and of course there would be agricultural products included.   

Even as other nations are affected by the US-China trade war, we are promoting the Philippines as an alternative location for companies affected by the dispute. We believe that the Philippine trade strategy follows industrial policy.

Let me put it another way around, it is the industrial development that determines our trade policy. It is therefore important that we have a firm, robust, industrial sector that can support the demand of the export sector.

As we say it will be useless to sell and promote Philippine export if there would be lacking in capacity with respect to industrial sector. So, we need to expand that production capacity. The other way to look at it also is to increase the value adding aspect of our production sector. 

Therefore, DTI is employing the “Last Touch Strategy” with the vision for the Philippines to become a strategic manufacturing and export Base. Philippines is basically part of the regional supply chain but in the end, we want not just to be on the stage in the production but really to be part of the latter part or the assembly and the last touch because that is where greater value can be achieve. It is also the Philippines that would have as mentioned unrivaled market access to the other parts of the world – to US, to EU.

And just to give you an example, if you produce bicycle from China and China would be exporting to the EU aside from a high tariff maybe 30% and they are slapped with the anti-dumping duty that can increase the tariff rates to over 50% coming from China to EU. But if they produce in the Philippines and which they are doing already, that’s why they have transfer their production base from Philippines to EU that over 50% will be actually 0% because that particular product when exported to the EU from the Philippines will enjoy the 0% duty. 

To reap the maximum benefits from this strategy, the Philippines must ensure deep industrial capability in basic industries and have the widest network of supplying industries. That is the reason why last Tuesday at the height of the storm which fortunately did not hit directly Metro Manila we had that Manufacturing Summit and we were really emphasizing the need to strengthen the manufacturing sector that will backed up our export strategy.

And part of the industrialization policy and strategy that we have adapted the Inclusive Innovation Industrial Strategy (i³S) that means to grow innovative and globally competitive manufacturing, agriculture, and services while strengthening their linkages into the domestic and global value chains. As part of this strategy, we are establishing right now Regional Inclusive Innovation Centers (RIICs) to bridge the gap between industry and academe and create regional ecosystems.

The intention is for our production sector to continuously innovate and to link them with respective innovation centers, R&D centers or even State Universities and Colleges in the region so that there is greater link between industry production and R&D that will terminate and result into more innovative activities that is really to continue doing challenge for many more industries – to continuously innovate. It cannot be the same thing over and over again. That is the continuing challenge to this sector.

Meanwhile, our current Investment Priorities Plan (IPP) and sector-focused programs will help us attract investments in the development of key industries.

DTI is working as well with the National Economic Development Authority (NEDA) on recommendations ranging from short-term to long-term strategies. For short-term strategies, we would like to eliminate investor uncertainty by supporting the immediate passage of the Corporate Income Tax and Incentives Rationalization Act (CITIRA). This is really an effort to modernize and harmonize the incentive regime at the policy level.

And just to let you know we are working on better incentives especially for new projects under the CITIRA. And we are also currently working on a better transition period especially for the existing exporters. And I know many of you are here and you need not worry. We are working on that longer transition so that there will be better adjustments and definitely recognition of those high performing export-oriented companies – high export and high labor-intensive companies.

So, there will be due consideration. And we understand that the Senate will be starting to deliberate on a version of the bill that will be passed by the Committee of Senator Pia Cayetano. And you know very well during the public hearing Senator Pia Cayetano together with the other Senators have been very receptive as to the comments also coming from the various sectors. We are also doing other reforms that will improve the investment environment by passing the Retail Trade Liberalization Act, Foreign Investment Act, a revision of Public Service Act that can hopefully attract more investments and greater production capacity in the Philippines.

MANUFACTURING SUPPORT

Even as DTI addresses trade and manufacturing constraints, we need proper program support. While we have industrial plans and strategies in place, we have limited program fund support, especially our manufacturing sector. We intend to correct this. We mentioned in the last Manufacturing Summit last Tuesday that we are preparing for more programs support to basically backed up all programs that is basically strengthen the Manufacturing sector.

Under i³S, DTI has chosen 15 priority industries for domestic and export markets. These industries were selected for their comparative advantage and strong potential that are necessary for business support and industry development. They also have a high multiplier effect for being high-technology and labor intensive, and they act as links to disconnected supply chains. To support these industries, we’ve included priority activities focusing on Electronics and Electrical; Automotive; Metal Products, Machinery, and Equipment; and Aerospace Parts and MRO in our Strategic Investment Priorities Plan (SIPP). So, this will be the SIPP that will be part of the CITIRA – the new law hopefully that will be passed before the end of the year.

The industrial projects that we will support are the following:

1. The Eco-PUV Program which involves the manufacture of jeepneys. This is the modern jeepneys using both Internal Combustion Engines (ICE) that will use Euro 4 standards and the Electronic Vehicle (EV) technology as well. This involves the parts and components of Original Equipment Manufacturers (OEM) platform and the Eco-PUV body with production volume incentives and fixed investment support. Presently, an Executive Order (EO) is pending with Malacañang.
2. The EV Incentive Scheme (EVIS) involves CARS-like incentives with fixed and production volume covering e-jeepneys, e-buses, e-trikes, and e-motorcycles.
3. The DTI-National Development Corporation (NDC) Co-Investment Program will have NDC co-fund innovation projects to develop new products and capabilities in other industries. Recently, about four months ago, the President has signed into law for the Innovation Act and as well the Innovative Startup Act. It will have funding assistance for developing and testing technology projects, as well as matching grants.
4. The Industrial Transformation Program is supporting companies that are shifting to Industry 4.0 technologies to improve productivity. These technologies include digitalization, automation, and technology adoption. So, this aligned basically with the current team of this Export Congress essentially supporting and encouraging companies towards their industry or digital transformation.

Speaking of Industry 4.0, DTI will also support the funding to ensure that our country is ready for the Fourth Industrial Revolution. These projects include:

1. Industry 4.0 Roadmaps to help firms transform with new technologies;
2. The SME Academy to establish training facilities for SMEs;
3. The Industry 4.0 Pilot Factory to serve as demonstration facilities;
4. The Philippines as AI Center of Excellence to build a pool of data scientists; and,
5. The upskilling and reskilling of our workforce.

While we have incentives under our SIPP, standards, and safeguard measures to support our manufacturing sector, we also hope to use soft loans, reduced trade barriers, and fund support. Reduced trade barriers would basically refer to inputs for the export sector. So notable among this would be the sugar and even other industrial inputs that will help basically the exports sector. We have to make sure that the importation will not be curtail. And to encourage basically better pricing for these especial inputs.

PH CREATIVE INDUSTRIES

To boost our exports in services, we need to look at creative industries that can bring in economic growth through trade and intellectual property rights activities. That’s why we are aiming for the Philippines to be the top Creative Economy in ASEAN in terms of size and value by 2030. By this time, we also want to make our creative talent pool competitive and attractive in the international markets.

To achieve this vision, we’ve come up with a Creative Economy Roadmap that outlines six priority initiatives and five priority subsectors wherein the public and private sectors need to work together to accelerate our creative economy. Just to explain, the creative economy is an emerging type of economy that deals with creativity, culture, economics and technology.

Vital to this are goods and services that use creativity and intellectual property as primary inputs. Please note the without any support the creativity economy has basically accounted for about ½ in value relative to the merchandise goods. So, you can imagine the potential that means that definitely the creative services is a natural competitive advantage of the Philippines because of the pool of talents that we have in terms of creativity, design and other high value adding services.

The priority initiatives in our Creative Economy Roadmap are shaping and identifying creative policies, industries, clusters, cities, tourism, and education. Meanwhile, the priority sectors are: advertising, film, animation, game development, and graphic arts and design.

ADDRESSING EXPORT OBSTACLES

To support our exports, we’ve also come up with an action plan in line with the Philippine Development Plan (PDP) and the Philippine Export Development Plan (PEDP). First, we’re addressing core issues like supply, competitiveness of industries it’s very essential that as we open up market and make sure that the industries are prepared, and they are competitive in the world market and of course and efficient logistics and infrastructure gaps which have been addressed by the BUILD, BUILD, BUILD – the aggressive infrastructure development program together with other agencies. We are also continuously working on diversifying our export offerings and destinations with focus on promotional efforts for specific products and services.

DTI is likewise pursuing trade initiatives to increase exports to trade partners like Indonesia and Singapore. Moreover, we’re maximizing opportunities under existing preferential trade agreements with ASEAN, China, Japan, South Korea, India, Australia and New Zealand. The RCEP that I was mentioning earlier. And hopefully, India to follow as well as our new FTA with EFTA countries. We are promoting more products as well to the US and EU to expand utilization of our GSP program. What you can see there are different countries with which we are working on Joint Economic Cooperation in preparation for hopefully better trading relationship with them. There’s a lot there and hopefully they graduate in either having GSP like what we have in the US and EU. But you will see there that even we have existing GSPs with other countries right now even the Russian Federation is one. And hopefully graduating into FTA. So, the FTA is the ones that we have now so ASEAN, EFTA, ASEAN plus FTA partners that would be the RCEP trying to work on with Korea. And hopefully, we can start the negotiation with the Philippines and the US FTA. So, we are hopeful that by next year once the US Congress gives the go signal to their USTR, we can already start the negotiation or the Philippine-US FTA.

DIGITALIZATION OF EXPORTS

Lastly, DTI is funding and supporting the digital transformation of our Micro, Small, and Medium Enterprises (MSMEs), including exporters, which will be ready for Industry 4.0. We need to prepare for the wide range implementation of the digital transformation by focusing on innovation and embracing the rigors of the digital era.

DTI has the following plans and programs to help MSMEs and exporters cope with the country’s digital transformation. First is the i³S, which focuses on 3 major areas: (1) Creation of an innovation and entrepreneurship ecosystem through Inclusive Filipinnovation; (2) Removal of obstacles to growth to build industry clusters; and (3) strengthening domestic supply and value chains to deepen our participation in the global value chains and networks.

Second is the Philippine Inclusive Filipinnovation and Entrepreneurship Roadmap, which recommends establishing RIICSs across the country to bridge the gaps in the Philippine innovation and entrepreneurship ecosystem.

With the passage of the Innovative Start-Up Act and the Philippine Innovation Act, we are optimistic that these will help in making the Philippines as one of the leading countries in developing disruptive start-up concepts. Through these laws, which will be backed up by funding support, we can build an entrepreneurial ecosystem that will push for innovation through more internet platforms and new business models.

DTI also concluded a technical assistance agreement with the University of the Philippines (UP) Law Center to put together the Philippine e-Commerce Roadmap to 2022. We are likewise consulting on the plan with digital platforms, financial technology companies, and logistics service providers.

With these plans and programs in place, we expect e-commerce to account for about 40-50% of GDP by 2022.

CONCLUSION

To close, I want to reiterate the programs of government and full support to the exporters, especially in these times of global trade uncertainty. By doing so, we will not only bolster our economic growth and address our trade deficit, we will generate more jobs and employment and income opportunities for our people. And through effective collaborations among the government, academe, and industry, we can catapult the gains of our export sector even as we prepare it for Industry 4.0. And I would say that this is really a good time to invest in Philippine economy. So that’s the reason why we continue to attract more foreign investors.

The growth rate that we have, much lower unemployment rate that came out yesterday I remember 4.5% is the latest. The inflation rate is stable 1.3% these are really remarkable figures as mentioned to continuing growth rate that we are experiencing backed up by strong manufacturing, capital formation and of course the demographic sweet spot that we still enjoy. So, this really for a much stronger economic development and much stronger economic growth     

By working together, we can shape a future that puts our countrymen first and that would empower them. This is the future promised by our President Rodrigo Roa Duterte, one which offers a better quality of life for our people.

Magandang Umaga po sa inyong lahat! Maraming Salamat po!