The government encouraged the country’s players and stakeholders in the manufacturing and its allied industries to take full advantage of the integrated ASEAN Economic Community (AEC) and other free trade agreements (FTAs) that the Philippines has with its trading partners given that the local sectors are heavily engaged in regional value chains. 

At the 17th Edition of the Trade and Industry Development (TID) Updates yesterday (August 22, 2016), a multi-sector conference regularly organized by the Philippine Board of Investments (BOI), Dr. Rafaelita Aldaba, who discussed the findings of a survey on the Awareness Level of Philippine industries and stakeholders on the AEC and FTAs, said that local industries have not fully maximized the benefits of the available FTAs.  The survey showed a 44 percent awareness level, with limited knowledge of the detailed impact of the AEC on business.

The survey indicated that based on various studies conducted in the past, the FTAs’ utilization rate is at a low of 11.8 percent in 2008, lower than 15 percent from 2006 to 2007.  The utilization rate however increased to 20 percent in 2010 and 30.8 percent in 2014, but Dr. Aldaba said country’s businesses and industries should have been utilizing more.   

According to the survey, ASEAN Trade in Goods Agreement is the most frequently used FTA, followed by ASEAN’s FTAs with China and Japan.

Findings of the survey showed that out of the 939 firms asked, only 207 or 22 percent are FTA users with the lack of knowledge on how to use the FTAs, difficulties in complying with rules of origin (ROO) requirements and high administrative costs as the top reasons for the low utilization rate.  Large enterprises have a higher utilization at 39% while among SMEs, only 16% are FTA users.

The study also said some businesses especially those located in special economic zones are less inclined to use FTAs since they already enjoy duty- and tax-free importation of raw materials, supplies, capital equipment, and spare parts.  The other factors behind the FTAs’ low utilization include small trade volumes with countries, and countries outside of AEC being their major markets, such as the United States and Mexico.

Dr. Aldaba cited recommendations to improve the industries understanding of the FTAs including more awareness programs on how to use FTAs and how firms can take advantage of opportunities, use of information and communication technology such as more interactive websites to increase scope and reach of promotional and technical training program, information and database on how to do business in different ASEAN countries, industry exchange visits, trade and investment missions, simplify ROO compliance administration such as electronic COO, self-certification, linkage to National Single Window, and government support to improve SME competitiveness and integration in regional economy and global value chains.

Dr. Ceferino Rodolfo meanwhile urged local industries attending the TID Updates to further seize the opportunities of the sound economic fundamentals and sustained investor confidence that the country is presently in as investment pledges continue to pour in.

He cited a report from Credit Suisse which indicated that the Philippines so far this year was the clear winner among member countries of the ASEAN, in attracting foreign direct investments which stood at a multi-decade high of $8 billion as of end-April, up from $6 billion in 2015 and $1 billion just five years ago.  Switzerland’s largest and most reputable bank also said in its report that the Philippines surpassed foreign direct investments inflows to Thailand this year for the first time in recent history.

Dr. Rodolfo also said the UNCTAD, in its World Investment Report 2016 launched this June highlighted the Philippines as “one of the world’s most prospective investment destinations for multinational enterprises until 2018”. The survey report showed that among decision makers at multinational enterprises who were asked to name their preferred global investment destinations for the period 2016 to 2018, the Philippines occupied a flattering 11th rank. It was the first time that the Philippines even made it on that list, and now competes with established investment destinations such as the US, China, India, UK, Germany, Japan, Brazil, Mexico and – regionally – Indonesia and Malaysia, and Myanmar.

At the TID Updates, DTI Bureau of International Trade Relations Assistant Director Butch Benedictos also discussed the country’s trade negotiation strategy in the light of AEC while University of the Asia and the Pacific Assistant-School of Economics Professor and Vice Dean Dr. George Manzano discussed the impact of the AEC integration among selected Philippine industries.

Philexport President Sergio Ortiz Luis Jr. and Ateneo de Manila School of Economics Professor Dr. Alvin Ang meanwhile provided reactions on the presentations.  A closing remark from BOI Officer-in-Charge for Investments Policy and Planning Fe del Rosario capped the multi-sector conference.