Keynote Speech of Secretary Ramon M. Lopez
PHILEXPORT 2nd QUARTER GENERAL MEMBERSHIP MEETING
18 June 2019, New World Manila Bay Hotel
[As delivered]
Ladies and gentlemen, Magandang hapon ho sa inyong lahat.
Salamat at naimbitahan din ako sa GMM. It’s my first time here after two, three years tama, on the third year June I remember three years ago about this days, same time, same day, same month three years ago we were in the period of being called to Malacanang of the South, sa Davao at that time and little did I know I would be invited to be the DTI Secretary. But it’s really good to have with you this afternoon a dialogue.
I’ve been wanting really to have a closer interaction with the export group although we do we have our regular EDC meeting that would be good to be really near for everyone especially, as we tackle the challenges in the export sector. They were presented earlier by the three speakers earlier. And we really would like to give you an update at least to give you information also on what government is doing and what else can we do to so that we can really address and arrest the weak trend of export nowadays. We want to assure you, the exporters, that the government is really working hard and we would like to do more innovations in our programs as well as in policies as we address the uncertainties of the world.
Nabanggit na ang mga challenges sa US-China trade war, but I shall be explaining to you in a while how can we really prepare ourselves to those issues. I have some numbers here but many of these have been presented earlier so I’ll just go quickly.
So let me just start with the Philippine Statistics Authority PSA numbers. As you know, every year we hear the performance of the exports and its reported month on month. Frankly speaking, month on month we have become really defensive di’ba we’ve been hearing a relatively weak export performance versus the previous year but if you are up the level wherein your growth is like single digit, adjustments do play important role. What do I mean by that, you know what’s happening, there’s been a delay in the recording and encoding of numbers on the current year month on month, and then you’ll have the adjustment the year after. So case in point, in 2017 you were supposed to grow 10% then towards about five months. In 2018, PSA announced that there are adjustments on some documents were encoded after 2018 and guess what, we grew 20% instead of 10%. So anong ibig sabihin nun, we have a higher base in 2017. So month on month on 2018, we are receiving reports that we are experiencing a decline versus last year di’ba tapos naging higher base and then in the meantime, understated yung current year. So I guess it will always be like that because you know what in 2018, yung report kanina we decline. But guess what, we increase from there’s an additional 1.8 billion dollars recorded for 2018.
So manipis lang kaya nga sabi ko from single digit decline or growth napakaimportante nung mga namimiss na ganun, eh kung 30% growth it doesn’t matter but since were like on the border line, from 2018 ang adjustment 69.3 billion dollars from 67.5 billion dollars so, 1.8 billion dollar difference that translates to about 1% positive growth for 2018. So it’s not a decline anymore. From what we heard there might still be some document that would be coming in so it’s possible there still be some adjustment. So this means that again, we now have a relatively a higher base for 2018 as we receive this correction. So month on month on 2019 again we shall expect a relatively challenge statistics di’ba as the month on month come in.
And in January to April 2019 the merchandise exports amounted to 21.9 billion dollars down to 2.1% compared to the same period in 2018. Electronics exports accounted for more than half parating electronics 55-54% percent of total exports and for the first time they recorded a negative, a decline .06%. You know electronics been growing typically 5 to 6% , so 5 to 6% growing year on year on more than one half of your total exports so means a lot. At pag iyon ang nagdecline which is now una nag slow down ito about 1.9 and now decline 0.06, napupull down na syempre in the total export performance.
The non-electronic export also drop 3.8% year on year to $10 billion dollars. So again, I just don’t want to base this on statistics there might be some adjustment again but let’s take that for a while. So the electronics if you know is our electronics business is part of the global value chain. So ito nga ‘yun sinasabi nating collateral damage that if the orders from other countries slow down then slow down din ‘yung orders satin because its doing one part of the chain. So that we are started to experience a decline for the first time after reaching 5 to 6 growth. But within electronics there are sectors that grew for the first four months. These are electric data processing, consumer electronics +17% growth, communication and radar 40.7% growth, automotive electronics and in contrast, those that contracted were semiconductors which is the big chunk of electronics sector, office equipment, telephone control and instrumentation, medical and industrial instrumentation.
In the non-electronics sector, those top export items that grew during January-April 2019 including mineral products +3%, bananas 80% and in bananas there are countries were in we tripled, quadrupled our exports, I’ll explain in a while, forest products.
Meanwhile, those major export products that recorded decreases include machinery and transport equipment, chemicals, processed food and beverages, coconuts, fresh preserved fish kasama na dun ‘yung shrimps and prawns, wood manufactures, petroleum products, and sugar.
So ‘yung shrimps and prawns I remember the major factor for this is that were supposed to have a big export of this, but the domestic demand is so strong as well because we have a fast growing economy that those exports actually returned to fill up the domestic demand rather than being exported.
Wood manufactures, if you’ll remember there’s a big wood manufacturer facility in Cavite that got burnt. It took some time I think two years before the facility was rebuilt. So really were running short of that capacity that was a full capacity, 100% for export capacity a Japanese company that we loss and only last year or in fact early this year na rebuild yung capacity. Now that there’s a capacity, yung orders from the mother company slow down, so ‘yun ‘yung problema but at least we have now the capacity to export that particular item.
Among the top ten export markets of the Philippines, only three recorded higher exports in January-April and these were US (+6%) growth, China (+7), and South Korea (+17). The rest incurred lower Philippine exports and these were Japan, Hong Kong, Singapore, Thailand, Netherlands, Germany, and Taiwan.
Also a reflection of a weaker global economy in January to April would show that out of 11 trade oriented economies, 9 show that a declined in their exports so di tayo nagiisa so di lang tayo ang nagdecline, 9 out of 11, dalawa lang ang nag continue ng kanilang growth. I think that’s China and Vietnam.
There are many factors dampening merchandise export performance. We’ve mention the weakening global tensions, weakening business sentiment to a certain extent, and the slowdown in China affected again by the US-China trade war. The Philippines, in particular, is being affected by the negative sentiments by trade friction between China and US and I mentioned already that the Philippines is part of the production network especially the region.
Another factor that we are trying to address is that the presence of mga non-tariff measures for example, if we are looking into trades and tariff reduction program among all ASEAN and trading partners, kahit nagbaba na ng tariff ‘yung mga non-tariff measures in some countries there’s still there. So in fact, we are the number one proponent of reviewing all this NTMs non-tariff measures especially in ASEAN. We’ve been telling our partners that we reduce our tariff rates pero pagdating sa non-tariff measures, di rin easily makapasok ang ating mga produkto and that’s the reason why we are negotiating hard on this aspect. And in fact, in ASEAN we are starting to move to have a review of all NTMs. There has to be a set of parameters in which a NTMs can be approve if it passes all these criteria mention in the set of parameters.
Of course, the third factor mentioned is the logistic cost (shipping, ports, telco, etc.) and infrastructure issues and the port congestion and perennial vehicular congestion. Dito naman sa mga factors na to, I must tell you that we are addressing this one. The shipping, we mention the JAO na mention pala ang JAO kanina of course the port congestion. Even prior to the JAO at least in our initiated several meetings with the agencies concerned, there are moves already done by customs so they adjusted the port rates nabawasan na ‘yung congestion and their down to I think 65 to 70% utilization so technically nabawasan na yung problema natin/nila sa congestion ‘yung isa na lang ang sinosolve natin which is the shipping rates.
Iyong shipping rates actually we have the draft kaya lang nagtagal ilang consultation ang ginawa and even among agencies there were still additional comments. So as we speak right now, the draft is with the DOTR so getting reviewed but I talked to Sec. Tugade, sabi nya that he would give that support that we need, sabi nya nga gusto mo magpirmahan na tayo. So malapit na ‘yun give me about maybe one or two weeks the draft is with our Undersecretaries right now. With the JAO (Joint Administrative Order), we hope to really identify ano na ang allowed na shipping charges or fees that will be included in that charged sheet and no longer including other charges that would simply add cost. So we are identifying already the cost that can be charged.
Of course the infrastructure, as we speak we were addressing it with aggressive infra program lahat yan we have the benefit of lowering the logistics cost as we finish all these roads, bridges, transport projects.
Legislative and policy issues: the budget, the Public Service Act, even the retail trade revision, Retail Trade law, the Land Use Act. All these are being worked on. Di umabot sa 17th Congress but we are telling them approve dito sa 18th Congress, the incoming Congress. So we shall have this certified urgent again by the President especially the PSA and Retail trade that will improve hopefully more investments in the service and utility sector, as well as the retail trade law that will encourage more investments in the country.
We’re talking also the second tranche of tax reform package, as you know this is called the TRABAHO bill and the DTI is very much in support of this. I just like to tell you that in the TRABAHO bill the reason why we’re supporting this is we should encourage more investments. On the total, those not usually getting incentives the corporate income tax will be brought down from 30% to 20% in ten years. Generally, that’s our initiative for investments to create more domestic capacity. Kasi alam nyo po ang ating problema sa totoo lang is our lack of domestic capacity. We need to revive many industries that we loss and we have to reduce the domestic capacity such that, in times when the economy is growing and there is a strong domestic demand. In that economic equation, yung consumption malakas, investment malakas, ‘yung government nagspend, saan kukuha ‘yan, domestic supply. The domestic capacity is not enough where will be getting imports that’s why we’ve been importing a lot. Our import growth has grown much faster than export growth buti kung export is growing it’s relatively flat a bit of grow 1%. So we really need to build that domestic capacity. So we need all this investment promotion policy and programs to happen. So when we talk of policy, aside from the usual investment promotion policy where we give tax incentives, that will continue even under the TRABAHO bill, meron pa tayong income tax holiday aside from lowering income taxes, there will be incentives to be given aside from income tax holiday, nandyan pa ‘yun duty free of importation of capital equipment. But in addition, we should have additional deduction on R&D that’s a 100% so double deduction on R&D, double deduction on training, 150% deduction on direct labor, 150% deduction even on infrastructure that you will spend around your plant.
There will be NOLCO and 50% additional deduction on the increment of domestic input to encourage the local content. In others words, rather than import, you source it locally so there will be an additional deduction. So there’ll be more deduction in place that is the reason why we are supporting our tax reform the TRABAHO bill.
What we have just to really manage is the part of the PEZA. The PEZA existing exporters, because this is the guys enjoying that what we called perpetual GIE of 5%. As we know, in all countries, Philippines lang ang nagbibigay ng perpetual, may forever, eh sabi wala daw forever, and it has be a time bound incentives. These companies are enjoying this perpetual 5% GIE, these are high performing companies – labor intensive, 100% for export, they employed 10,000, 20,000. Many of these are as you know Japanese, Korean companies, we just have to manage that transition so they won’t leave otherwise, we will suffer again from a reduction in domestic capacity. And therefore, nothing to export kahit bumalik ang global economy bounce back for example. By that time wala kang capacity because all your exporters probably would leave you. But we don’t want that to happen and therefore, so we just have to manage the transition cautiously. And how are we going to do that so there are ways we are talking with DOF right now and also with Senate. So that we can apply certain provisions especially for the existing PEZA exporters, the locators who are already enjoying the 5% GIE. Sila lang ang tatamaan dito sa TRABAHO bill because ‘yung forever magiging time bound.
The time bound it won’t be implemented like tomorrow or the day after the bill is passed. That’s the transition that we’re talking about will it be 5 years, 10 years or 15 years. Of course, were looking for a longer transition. The other option of course, is probably we’ve been talking to them some of them are saying don’t remove it. If you want, you can increase it because TRABAHO bill is supposed to be revenue neutral. You reducing the corporate income tax dapat meron ka din mabawasan na additional revenue by lowering or making time bound incentives or if you don’t cut the incentive you increase the current, instead of 5% GIE we need to understand that the exporters are open to maybe 8% GIE so, at least there might be 3% additional GIE tax rate on the gross income earn.
There are many ways so that we can apply the grandfather rule. In other words, if you are already enjoying this incentive, you can continue to enjoy but at a higher rate so that meron naman gain on the revenue. So, this are the things that we are discussing right now. Hopefully that move certainly will help encourage more investments and create greater domestic capacity either for the domestic market or for the export market.
There are varying reasons behind the decline of the miller sectors, madalas napapagusapan of course ‘yung issue sa sugar so madalas natin dinidiscuss na ito. We’ve been talking to the SRA also. But here’s the thing on the the sugar. On the sugar, as a general policy just like with all of you here – your manufacturers, your exporters, as much as possible we’d like to have the domestic capacity, source it locally. Let’s support the domestic production. The producers as well as, in this case the sugar, the farmers, the millers. But there must be an end to any support that has to be given. In other words, we will support them to the extent that they are competitive. Kung di sila competitive in the same way that you import it. You probably have about 50% 60% of the cost compared to buying locally then we should certainly allow importation. That’s the point there, mamanage natin ‘yun to the point na magallow tayo ng importation especially for end users pag hindi mabigay ng SRA or ng mga domestic producer ‘yung competitive price and supply that is needed by the end users.
This will be a working progress but frankly if we talk of liberalization while we are studying it, I think the quicker approach now is to manage the supply of sugar so that immediately they should be able to bring to you the more competitive sugar import cost so that especially those exporters can be competitive as well.
Because of high cost of sugar, for example, the high cost of local mango, because may shortage din ang mango, generally speaking there’s a shortage. Nagkaroon lang delay ng harvest so biglang naglabasan recently but really there’s a shortage. So problema talaga agri inputs especially tayo ‘yung agri processor. That’s the reason we have to work closely with agri. We’ve been telling Secretary Piñol na let’s work together closely and let’s focus on high valued crops.
Then the RAPID project mentioned by Ms. Diana is actually moving to that direction. That’s a project is supposed to link agri production, may agri technology support, bigyan sila ng seeds — the four sectors coffee, cacao, coconut and fruits and nuts. Bigyan sila ng technology on the agri side, seeds, fertilizer and other training so that their yield and productivity will improve and the output would now be given to the 1,000 SMEs also identified. They are the ones who will process it and then will export it. So ‘yun ‘yung RAPID project — that’s the way it should work, that’s the project that will strengthen the link between agri and industry, so that’s one example.
Then we have this ongoing project with FDA, which is another challenge to many of us hanggang sa napalitan na ‘yung Director General but definitely ‘yung system and people problem nandun pa rin but anyway meron kaming winork out with FDA pinapilot test ngayon in some Negosyo Centers first in NCR wherein for micro players di na kailanganin ‘yun CPR. LTO na lang no need for CPRs. And then they can start to operate already. But if that becomes successful, hopefully we can also do it for the less risky products even for exporters, at least for if that can be done but I’m sure buyers might be looking also for this certification. But the point there is dapat mabilis din ‘yung processes nila and then be subjected to EODB.
In EODB naman, yes wala pang Director General but there will be one hopefully in the next two weeks also kasi meron na kaming nakapila na kay Presidente na daw na who will be the Director General. Nahirapan kami to endorse about three people, nagbaback check, may problema so palit ng palit another ano nanaman kami dun.
I’ll tell you that law is already effective so kaya nga namin sinasabi kahit wala yung IRR self executing ‘yung law so if there are complaints that you like to file, file it already. We have the ARTA already it’s headed by a Deputy Director General si Ernesto Perez who also came from DTI, our former Assistant Secretary.
We’ve been receiving complaints, they are able to address many of these complaint especially ‘yung mga agencies ‘yung tumatagal ang applications or pinahirapan sila lumalabas agad. Because meron tayong 3,7, 20 days rule in that EODB. That is a law that should be implemented and the agencies are aware that this is a on a two-strike policy. First strike, they can get suspended. Second trike, they will be terminated. No retirement pay, may penalty pa sila and they can be imprisoned. This is really a harsh law we just have to start implementing it actually in many cases na implement na ‘to. We don’t want naman na marami ‘yung puro inaaksyunan kapag dinala lang ng ARTA. What we’re saying is that part of the law is that all government agencies should continue to streamline by themselves and also automate that’s mandated in the law.
There’s also a citizen charter wherein all frontline service agencies, wherein the documents required to process where all listed there. In other words, they cannot ask for additional document every time you submit all the documents listed pag kumpleto na ‘yun, there’s no reason not to accept. Malinaw dun sa citizen’s charter what should be submitted.
Also another issue mention especially in chemical sector, we need to rationalize ‘yung PNP Regulations on Licensing, Import, Transport, and Distribution of chemicals used in export products.
To future-proof Philippine exports from both internal and external challenges. Moving forward, we’ve proposed the following points but before that let me to tell you that ‘yung pinaka key dito, I’ve been mentioning domestic capacity. Industrialization strategy is our best offense for export development strategy. In other words, we really need to a greater capacity and a competitive, innovative set of industries that we need to develop.
We need also to have this coherent policymaking. I’ve mention agri industry, integration for example. We need to diversify our export products, services, and markets. Si Mr. Sergio Ortiz Luis mentioned earlier some of the export champions we need to have more of that because there’s a study that showed that medyo limited ‘yung spectrum natin when it comes to winnable exports so we need to develop more products and at the same time look into non-traditional markets.
There are several goods that we can consider as export growth drivers. The consumer electronics, motor vehicles and parts, forest products–that’s the plywood and fiberboard, even office equipment, the wearables, footwear and the handbags, ‘yung handbags or the travel goods nasama na sa GSP in the US. So, we are working now on the footwear para masama na rin sa US GSP.
Of course, we have arms and ammunition, high-value coconut products so ito ‘yung mga moving forward natin na kailangang madevelop pa. Activated carbon for example, innovative products from globalizing startups so meron tayong lalabas na din na start up community na law also the innovation act about the design.
For services, we can consider also the following: audio-visual and creative industries (like film, animation, and game development); software development; healthcare information management systems; and tourism-related services.
Going back to ways that we can future-proof our exports, a third point is growing innovative and globally competitive manufacturing, agriculture, and services sectors. We also need further integration of our industries and businesses in the Global Value Chains through our Inclusive, Innovation-led Industrial Strategy.
We need to increase our domestic capacity to supply exports as mentioned. At the same time, we need to consider incentives for strategic industries in manufacturing and services, like IT-BPM, AI, and tourism. So even in the TRABAHO bill the Tax Reform bill there will be a continuing incentives also for the strategic industries.
We also have to build or improve our capacity to support ‘yung export promotion. So if you have the capacity already that’s the time we can really focus on export promotion so mahirap din magpromote kung wala ‘yung capacity pag umorder na ng malaki.
For our commercial attaches based in abroad, we have about 24. Dalawa ‘yung mandate nila from the DTI now. First, is to analyze the condition the bilateral between that country and the Philippines. Why do we have with any or if ever a trade deficit. They are not supposed to just attend meetings, they will now have to lobby or work on certain policy, tariff rate negotiation in those countries. For example, ‘yung kanina nababanggit ‘yung banana. We’ve been working on banana, pineapple, mango, everytime we meet bilaterally with Japan, South Korea. Kaya nagkaroon tayo ng usapan on FTA starting the FTA talks with South Korea it’s because of our push to revise the tariff rates on banana, for example. We are the biggest supplier of banana to South Korea. We use to cover about 95% of their market now it’s down to 85%. The bananas from Ecuador, from South America, they’re penetrating now countries like in South Korea.
In Japan, the same story, we are the biggest supplier of bananas but our share is going down. But still we are dominant were like 70-85% supplier of bananas.
In Japan, we have good accessibility but our tariff rates are at 18% so mataas pa din so were saying how come in with other countries their tariff rates on bananas are in their single digit level. So that’s why we are really pushing hard to negotiate with them and bring down the tariff rates to have a better market penetration even though we are the biggest already. We just don’t want to lose the market share, that’s the reason why with our push on lowering tariffs in Japan. Sabi naman ng Japan, sige let’s discuss this in PJEPA FTA natin. So nirereview ngayon ‘yun the same way lang kaya na trigger ang Philippines- South Korea FTA, it’s because of this push kinukulit natin sila sa tariff revision.
To revise the tariff, di pwedeng bukas lang irevise ‘yan dapat merong inirevive mo yung negotiation and of course, something has to give also in our products. If they give us this market access, we have to allow them certain market access especially to industries na wala namang domestic producers and we can also offer so ‘yun ‘yung minamanage. Just to let you know how important this topics are even up to the bilateral with our leaders.
President Duterte, this is already part of his talking points as he meets Prime Minister Abe for example, or even President Moon when we were in Korea last year, June din last year. Niraraise itong mga issues on tariff rates on this particular specific items. Because of that we want to really level up the discussion there so that the mandate and instruction will come from their leaders kaya umandar kaya nagkaroon ngayon ng mga all these FTA discussions or review of FTA.
We’re also doing the same with Australia. Tariffs are zero but because of NTMs, we cannot penetrate them. We cannot sell our Cavendish banana. Dami nilang nirerequire, non-porous plastic, packaging, eh di mabubulok ‘yun pano pagdating dun so spoil na ’yun so madami tayong kinocontest, but that’s part of the international trade negotiation.
And the other thing of course, one, we have the GSP+ to EU and GSP to US. To EU, we have about 6,274 items zero duty, so that in effect should attract like China companies to locate in Philippines, because like in China would export their bicycle to EU di lang may MFM rate meron pang minsang anti-dumping duty on top of the MFM rat. So duty probably from 25 to 50%. But if they relocate in the Philippines, and that’s the reason why we’ve been getting Chinese locators here, is that because from here to the EU, zero duty for that example in bicycle. So hopefully, we can catch up.
The reason why we’re lagging behind ‘yung sinasabing countries that are gaining from the China and US, why? Because for many years, Japan, Vietnam, China they’ve been preparing already with their infrastructure, tayo ngayon pa lang tayo nagkacatch up mode.
You’ve heard the report of the Build Build Build team, like the Philippines has been underspending for many years 1 to 2% only of the GDP, so now, were spending 5-7% GDP catch up mode. And also the other requirement that affect logistics, modernized especial eco zones, data connectivity issue ‘yan. Infrastructures must be in place so that you are prepared. We just have to continue with many more reforms so that we can really attract more otherwise, we are at the disadvantage, that’s the reality. We’re able to do some of these reforms already in the first three years hopefully in the next 1-2 years maimplement na din ‘yung ibang reforms.
The other are promotional in nature, of course, we have a very dynamic CITEM all these business missions, trade missions outside, FAME, IFEX etc. We’re an active participant in the CIIE, Mr. Amores, last year China International Import Expo, we invite everyone to be part of that I think we have 100 exhibitors this time, around last time about 50 only. For the second time, it’s their way to encourage to more imports into their country so baliktad ‘yung import, ‘yung supplier na, exporters from other countries yung mag-e- exhibit in that 40 hectare expo, so tayo participant ‘nun since last year.
We need to push for trade promotions in non-traditional markets. There’s lot of discussions with Russia, with Africa, South America, South Asia. We’re going to Chile also for possible FTA if not PTA muna. PTA is Preferential Trade Agreement goods muna not the other aspects like in FTA we discuss services, investment and many other goods kahit PTA, we are working on those. So that in goods we will be able to penetrate their market, and Chile would be the gateway in South America. In Africa, again also in the world fast growing economies in some countries in Africa.
Whole-of-government approach, the DTI has signed a Memorandum Circular with other government agencies to support the Philippine Export Development Plan (PEDP) 2018-2022. This will prioritize addressing core issues like supply, competitiveness, port operations and logistics, and infrastructure gaps that we had discussed. We have submitted this to the Office of the President in August 2018, and more follow ups are being made, so sabi nasa office na ng Presidente for signature at kahit wala naman ‘to, gumagalaw na tayo so importante dun, but of course, in all other agencies are just implementing also the programs especially in infrastructure that we mentioned earlier and other policy reforms.
DTI remains confident that we are still on track in meeting our total export targets to reach the range of US$122B to US$130B by the year 2022. So may challenges, but looking into 2022, doable pa rin ‘yung projects that we have set. As mentioned in 2017, we posted very strong growth of about 20% so medyo maganda ‘yung base period natin, tumaas din ‘yun.
More importantly, DTI has been pushing for investments that will increase our domestic capacities for both export and supplying the fast-growing domestic demand. This, in turn, will help generate more jobs and employment for our countrymen.
In conclusion, I want to reiterate that the government is fiercely committed in its support for our exporters. That’s why even with the uncertainties in today’s global trade, we’re working hard to find solutions.
We’re also determined to reach out to you and gain your inputs on how we can resolve these challenges. This is in line with President Rodrigo Roa Duterte’s promise of Tapang at Malasakit, that the government is responsive to your needs.
We believe that through continued collaboration with private sector partners, we can strengthen the exports sector even as we fulfil the demand of the domestic market. This, in turn, means better business and more jobs for our people leading to greater inclusive growth and shared prosperity for all.
Thank you at mabuhay po kayong lahat.