The country will need the able partnership of the private sector to harness the full potential offered by the Asean Economic Community (AEC) which will formally come into force at the end of December this year, a top government official said.
“As the integration grows and deepens, so will public-private sector collaboration. Private enterprises will better be able to influence the business environment, clarify rules affecting their operations and industries, and provide feedback and recommendations to regulators and legislators,” Department of Trade and Industry (DTI) Secretary Gregory Domingo said on Wednesday.
Speaking at the Manila Times 2nd Business Forum held in Makati City, Domingo said: “What is important for Philippine enterprises [is that they]should not let up on efforts to improve their competitiveness. This way they will be ready to take advantage of opportunities that will open up as the AEC grows and develops.”
Domingo said that for its part, government will continue to increase its efforts to strengthen local industries, especially the micro, small, medium enterprises (MSMEs) and attract investments through policy and program initiatives.
“The primary constraints to address are the complex and inefficient administrative processes and procedures and lack of effective competition in key sectors of the economy,” he added.
The economic integration aims to establish Asean as a single market and production base with four main objectives: free trade in goods; free trade in services; freer flow of skilled labor; and free flow on investments.
Trade liberalization is a key component of this effort and the Asean trade in goods agreement (ATIGA) has been implemented since January 2010.
Among the Asean-6—that is, Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, and Thailand—99.7 percent of goods sourced within Asean are already being traded without any tariffs.
The rest of Asean – Cambodia, Laos, Myanmar and Vietnam — are not far behind as they already offer zero to five percent duties on 98.9 percent of goods sourced within the region and are committed to reduce tariffs to zero by 2018.
Only a very small number of goods are exempted from duty elimination. In the Philippines, these are primarily agricultural products such as rice, sugar, cassava and sweet potatoes, maize, chicken and swine.
“The Philippines is fully committed to the pursuit of an open, liberal and integrated market — as a founding member of Asean it actively participates in further steps to facilitate the movement of goods across borders,” Domingo said.
“These include measures enhancing or improving customs and cross-border procedures, clarifying issues regarding rules of origin, as well as developing transportation and logistics infrastructures across the Asean economies,” he said.
“The Philippines also supports ongoing efforts to address non- tariff barriers such as product standards, sanitary and phytosanitary measures, and import licensing,” he added.
Mutual recognition arrangements
According to Domingo, as for the free flow of services, the Philippines has been participating in negotiations that began in 2007. These have focused not on blanket coverage of services sectors, but on progressively opening up the various sectors based on specified thresholds.
To date, Asean has completed mutual recognition arrangements on eight areas: accountancy services; architectural services; dental practitioners; engineering services; medical practitioners; nursing services; surveyors; and tourism.
“Meanwhile, work on agreements covering 128 services sectors [is]due for submission this year; of these, 80 percent has already been liberalized. So, similar to the trade in goods, the Philippines is already competing with our Asean neighbors in services,” Domingo said.
“It is in the free flow of skilled labor and investments within Asean that more work needs to be done and negotiations are being conducted in earnest,” he emphasized.
Asean members can gain ready access to a market of over 600 million people, with a combined gross domestic product of $2.4 trillion, the third largest labor force in the world, and the fourth largest exporting region—behind the European Union, the United States, and China.
Domingo said that Philippine enterprises could diversify their investments or choose to expand their markets overseas. In doing so they could choose from a variety of business models and approaches such as joint venture arrangements, overseas distribution, and outsourcing.
“Companies and entrepreneurs could also offer a wider range of products and services as the local industry will also be open to a broader pool of qualified talents and skilled workers since there will be freer movement of talents in the region,” he said.
The AEC in full force will enable enterprises in member states to minimize transaction costs and optimize trade gains. The cost of doing business would be reduced with lower tariffs, port and import procedures, easier access to supplier, and better business licensing processes, among others.
“With this, Asean companies can engage in best fit tie-ups with enterprises in other member states and together establish a competitive edge that would facilitate their entry into regional and global value chains or enhance their current participation. This would effectively realize the advantage of a single production base,” he added.
This will also position such companies to take full advantage of Asean-driven initiatives such as the Asean Plus One free trade agreements and the regional comprehensive economic partnership.
PH legislative reforms
The trade chief cited four legislative amendments that would help the Philippines become regionally competitive. These include:
• The recently signed Philippine fair competition act, which effectively levels the playing field as it criminalizes and imposes heavy fines on business activities that promote monopolies and obstruct equal access to market opportunities;
• The amended Cabotage Law, which will allow foreign vessels to call on multiple Philippine ports to load and unload;
• The amended banking law (Republic Act 7721), which has opened up the banking sector, eliminating restrictions on foreign ownership; and
• The Quadruple A rating, a new license category for contractors will enable foreign companies to secure construction permits as regular contractors and participate in local projects with full equity.
“Overall, the Philippines is in a good position to benefit from the establishment from the establishment of the AEC as our unequivocal commitment to transparency and good governance has fostered an enabling business environment,” Domingo said.
“If Philippine enterprises effectively harness the native industry and creativity of Filipinos, they will surely flourish in the AEC’S integrated environment. All that an integral feature of the Asean Economic Community is that the development gains that it engenders should be sustainable and inclusive,” he added.