Speech of Secretary Ramon M. Lopez
Manufacturing Summit 2018
Nov. 22, 2018, PICC

Magandang umaga sa inyong lahat. Maraming salamat sa pagsama ngayong umaga.

Salamat President and Chairman ng Federation of Philippine Industries Jess Aranza sa ating partnership in this Manufacturing Summit. Of course Chairman Emeritus Carlos, Former Secretary Che Cristobal, ating pong partners agencies, business chambers, industries, government, and academe.

I must start with saying also that I’m not only a champion of MSMEs, but also a champion of the manufacturing sector. If you’ve been hearing the statements that we’re issuing or answers to interviews, I’ve been really pushing manufacturing to have more sustained growth in our country.

And I’m always citing and bragging about the kind of growth that we’re having in manufacturing in the recent years. We’ve been citing growth rates of 6% to 8%, which have not been achieved for many years, but now we are hitting those numbers in a consistent basis. And that to me is a good indication that we’re on the right track. Pero marami pa tayong gagawin. Kaya kung si President Duterte ay galit sa pusher, hindi siya magagalit sa atin dahil pusher tayo ng manufacturing sector.

In answer also, bago ko makalimutan, to the concern of the Chairman Aranza. In fact, one item that we addressed is the issue on steel importation because of the ratio that you cited that for every 20,000, we sample….So what we did in the steel, because of the very small sample taken, for only 5,000 only three bars. We’ve revised the Department Administrative Order already. And we’ve tried an ISO sampling size. If I remember right, for a 5,000 metric ton, it’s over 100 pieces now, no longer three. Marami nang samples so we can be assured of the quality. It’s really important to assure standard to our people. We’re doing that for cement and we’re doing that also for the steel industry. That Department Order has been issued po, just to update our partner.

We are also reviewing the inclusion of glass in the mandatory listing. As we push for manufacturing, it’s not enough that we have a supportive environment, but we really have to address these issues of standards, protection to the consumers, and to make sure that there are no illicit or unfair trading practices. So we are also your partner when it comes to guarding against smugglers who are really killing the industry,
Hindi po natin papayagan ng ating pangulong Duterte yan. Kung galit na galit yan sa mga drug pushers, lalong galit yan sa mga smugglers. Yan ang pumapatay ng mga trabaho ng mga kababayan natin, mga trabahong gusting-gusto niyang ibigay sa ating mga kababayan. Kaya number one na kalaban ng mga smugglers ang ating Pangulo. Mag-ingat na po, warning na po sa mga smugglers.

I would like to read the speech.

I would like to thank all of you for coming to this year’s Manufacturing Summit. Holding the yearly summit is part of DTI’s continuing commitment to sustain the resurgence of the manufacturing sector as a major pillar in our pursuit to become an industrialized nation and achieve inclusive growth in the country.

I also wish to thank the Federation of Philippine Industries, the Voice of Philippine Industry, for partnering with us in hosting the Summit this year.

Our economy has had a strong, sustained performance growing at an annual average rate of 6.4%. A key driver of this growth is our manufacturing sector, which grew at an average quarterly growth rate of 7.6% in the same period. I always push for manufacturing because it is the sector that provides decent jobs on a sustained basis.
If you look at some numbers beyond the GDP growth, we see a lot of growth on steel and cement. Kulang ang manufacturing, imports ang coming in. We have to replace that. We have to import substitute. We have to increase our capacities on steel, Atty. Che Cristobal. And also expand the capacity on cement. We have to do these things locally.

We have more competitive industries. We don’t have to give them tariff protection already, unlike in the past decades—that for them to survive, we have to protect them with tariffs. Tariffs now are very low; we just have to apply the right standards and internal controls. With the reasonable amount of protection, our industries survive. Because of technology they become competitive.

In the first three quarters of 2018, the country’s GDP still grew above 6%, keeping the Philippines among the top economies in the region in recent years. Despite this, we remain confident and optimistic that the sector will pick up by the end of 2018 and in 2019 and in the years ahead, as we continue to formulate and implement policies and roadmaps. The focus there is to remove the roadblocks in the roadmap. Actual action needed to answer the needs of those clusters and industries.

Consistent with the President’s socioeconomic agenda, we fully support the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) bill, which has been approved in the House and now pending in the Senate. TRABAHO is set to reduce corporate income tax rate at a level much closer to our neighbors—from 30% to 20% in a period of 10 years. It will also rationalize our fiscal incentives to make them targeted, time-bound, performance-based, and transparent, consistent with our Inclusive Innovation Industrial Strategy (i³S).

We are working closely with the Department of Finance (DOF) and the Senate, so we can have provisions that are effective, but at the same time, manage transition as we shift the tax regime and minimize risk that are being discussed in different fora like concerns being raised on the sudden change, etc. We are working with DOF on several provisions, but in totality, we definitely support the bill. It will be really beneficial, it is a reform that will really attract the investments moving forward. It will level the playing field because we are lowering the corporate income tax for most companies. Mas maraming magbe-benefit doon.

Some provisions that we are working on are:

  1. The extension of the Income Tax Holiday (ITH) to five (5) years, instead of three (3), as well as lengthening the income tax-based incentives to five (5) years, instead of two (2). You can disregard the numbers because these are still being discussed. But you know the general direction is to provide a smoother transition;
  2. The extension of the domestic input expense incentive (as an additional deduction) for five (5) years after the ITH period in order to encourage exporters and manufacturers to source their raw materials locally (thereby addressing missing linkages and gaps in our industries’ supply and value chains);
  3. The inclusion of VAT zero-rating for direct and constructive exports, regardless of location, whether ecozones or freeport zones (this is intended to shift behavior away from low value, back-end processes, and legacy products, which are heavily dependent on imported materials, towards more high-value added processes and parts and components that can be produced domestically based on our strengths and comparative advantage);
  4. The reduction of the 90% export threshold entitled to VAT exemption and zero-rating, as the case may be, I won’t gove any number yet. But this is also to smoothen the transition and also minimize the impact to export-oriented industries.
  5. Providing a reduced corporate income tax incentive based on performance to footloose industries, or those economic activities that rely solely on low labor cost or does not require high technology but are needed as part of the supply and value chains and whose operations are sensitive to any cost increases;
  6. Allowing the continued application of gross income earned (GIE) based on performance or, alternatively, increasing the 5% GIE. Just so it can be workable on both sides;
  7. The inclusion of 100% additional deduction on the costs of participation in international trade fairs so that we can give extra push to these products. Wala tayong kasupport-support dyan. After we manufacture our products, we also have to market it.;
  8. The extension of the GIE transition period from 5 to anywhere 10 years to 15 years if possible; and,
  9. The maintenance of the “one-stop shop character” mechanism of ecozones and freeport zones in operations of registered enterprises by providing for the local government share allocation during the corporate income tax (CIT) period.

We’re working closely with the DOF to ensure that the transition will be smooth and also we have to protect the manufacturing base for exporters. The long-term solution to our perennial trade imbalance is to have a strong and wide manufacturing base. We have to produce a surplus. We have to strengthen the manufacturing base to serve the local requirements and export the surplus. If you don’t have enough capacity, then you would always be lacking in export supply.

But the good news on imports is, its composed mostly of capital goods. So this is preparing of the future to expand our capacity. The kind of growth that we’re having is one that we really like to have, building the capacity for the future. It’s not a consumption-led growth. Our growth rate now is investment-led, government spending-led because of the infrastructure buildup.

On the production side, it is now industry and manufacturing-led, as well as services. In agriculture, from negative, it is now positive, although a very small percentage. But we hope to see that grow with support on agriculture and productivity building.

Other reforms that we are doing, the President signed the Ease of Doing Business law and our IRR is ready to be officially issued once the Anti Red Tape Authority is established and the Director General is appointed. Right now, I must say that the law is in effect. The IRR just provides the details for the implementation, but the law itself is in effect. So if you have complaints on transactions that are taking too many days, like over 20 days, you can already file a complaint. Kung pinahihirapan kayo sa mga frontline service transactions with the government, you can already file complaints with the DTI or the Civil Service Commission.

Meanwhile, our Competitiveness Bureau, which continues to serve as the ad hoc secretariat for the EODB law. We are likewise planning to scale up Project Repeal, which would remove antiquated and redundant rules and regulations in government.

Nonetheless, we are heartened by our most improved performance in the latest Global Competitiveness Report of the World Economic Forum, in which we leaped 12 places and ranked 56th of 140 economies. We believe that we could continue doing better in the coming years.

We are also doing something with starting a business, putting them in one portal. If you remember, I think it was in this hall that we shared that we planned to have a one form system. Filling it up, paying, and having your certificate on the same day. Malapit-lapit na po. We have the portal already, where you have all the information needed by the government agencies will now be placed in that one portal. All you have to do is to fill up that one form and that process will already run by itself and hopefully you can register your business in less than one hour. In fact, 40 minutes yung target namin in filling that up.

As we carry out reforms domestically, we recognize the impact of global developments on our industries.
With the advent of the Fourth Industrial Revolution, we are working to prepare our firms to seize opportunities and address the challenges brought about by disruptive technologies.

The adoption of Industry 4.0 technologies could spur the development of new production techniques and business models; transform global production systems; and drive new, more distributed and connected value chains. These could put at risk the viability of low-cost manufacturing and services exports as a source of growth and development.

As such, we have formulated the Inclusive Filipinnovation and Entrepreneurship Roadmap that will help us innovate our industries. To implement the recommendations of the Roadmap, we signed an MOU with the following agencies: the departments of Science and Technology (DOST), Agriculture (DA), Education (DepEd), and Information and Communications Technology (DICT); the Commission on Higher Education (CHED); and the National Economic and Development Authority (NEDA).

After DOST turned over the chairmanship of the Filipinnovation Council to us, DTI formed an innovation group to coordinate and monitor the implementation of the Roadmap. Our first meeting will be in January 2019 to discuss the Roadmap and the next steps to move its implementation forward.

Our major recommendation in the Roadmap is the creation of Regional Inclusive Innovation Centers (RIICs), which would serve as the cornerstone of i³S and the heart of our country’s economic transformation. The RIICs would bridge the gap between government, industry & academe, and create the regional ecosystem covering both virtual & physical connectivity of the various stakeholders and players (including universities, R&D labs, S&T parks, incubators, fab labs, co-working spaces, investors, LGUs, start-ups, SMEs, and large enterprises).

We’re making sure that our industries are innovation and R&D oriented by linking them with academic institutions and we also ensure that the academic institutions are coming out with relevant research work that would be needed by the industry, as they are commissioned to conduct certain studies and more importantly solutions to industry problems.

Presently, we are working with the USAID STRIDE Program in building the regional innovation and entrepreneurship ecosystem in four pilot regions: Cebu, Cagayan de Oro, Davao, and Legaspi. In these regions, our Negosyo Centers will become a key element of the RIICs we envision to establish.

The Philippine Embassy in Tel Aviv has also helped us send an Innovation and Entrepreneurship Mission to Israel recently. The mission not only learned from Israel’s innovation experience in terms of innovation policy implementation, but also how it built its innovation ecosystem.

Lastly, DTI just signed a Country Program Framework with the United Nations Industrial Development Organization (UNIDO) to pursue innovation, Industry 4.0, and industrial upgrading in the Philippines. This would include cooperation in the following areas: (a) building the innovation ecosystem in the Philippines particularly for the automotive, semi-conductor and electronics, IT-BPM, aerospace, and biotechnology industry clusters; (b) developing a roadmap for the adoption of Industry 4.0 in the above industries and upgrading strategies for other manufacturing sectors, such as textile and garments, leather, iron and steel, food processing, and marine-based sectors; and (3) establishing an Academy and Innovation Center for small and medium-sized enterprises (SMEs) with focus on the above-mentioned priority industries, including agribusiness.

I am glad that UNIDO’s Dr. Olga Memedovic, who will lead the conduct of preliminary assessment of the above cooperation areas, will speak at the Summit tomorrow.

While we adapt to the global technological revolution, we are also bracing ourselves in the face of the increasing trade tensions between the United States and China. It is our prayer that those tensions will subside because nobody wins in a trade war. We are also friends with both countries. They are both important trading partners.

Both countries are among our key trading partners. In 2017, China was our top trading partner, being our 4th-biggest export market and largest import supplier. In the same year, US was our 3rd major trading partner–serving as our 2nd-biggest export market and 4th import supplier.

China’s import tariffs are seen to have an impact on our exports to China of agricultural products, aluminum waste and scrap, and line pipes. Meanwhile, we have three key products that may be affected by US measures: steel, aluminum, and photosensitive semiconductors. But as of the moment, we have filed our request for exemptions. So far, the effect has been very minimal. There are even upsides as these countries are exploring possible relocation in the Philippines to enter other markets. We’ve been getting inquiries in that regard.
We are reviewing our trade position, exploring our options, and working towards strategically engaging our trade partners and assisting our local firms to navigate the turbulence in world trade.

As the Chinese saying goes, we certainly live in interesting times. We’ve seen that in the recently-concluded APEC and ASEAN, but definitely, I can say that all these countries are still working toward continuing globalization towards open, free and fair trade environments. We will continue to observe this while working toward the competitiveness of our industries.

I am confident that with everyone’s continued collaboration, we can realize our President’s vision of a better life for all Filipinos.

Thank you and mabuhay tayong lahat.