Tuesday, October 5, 2010

Toward An Industrial Policy

 The Philippine Department of Trade and Industry (DTI) recently sponsored a trade forum at the Philippine Embassy in Washington, D.C. which I attended as one of the representatives of the Philippine American Bar Association (PABA). 

Headed by DTI Undersecretary Cristino Panlilio, the group was asking the Fil-Am community to support the Save Our Industries Act – a bill that seeks to expand Philippine-U.S. Trade in Textiles and Apparel.  Based on their presentation, the bill when it becomes law would grant duty-free treatment to certain products wholly assembled in the Philippines, provided that these are manufactured  from U.S.-made fabrics; reduced tariffs would be levied for U.S. made yarns; and U.S. duty-free treatment would be granted to a limited range of Philippine exports of “cut & sew” apparel products that are not produced in the U.S.  It is co-sponsored by San Diego’s Congressman Bob Filner. 

According to their estimates, the proposed law would provide incremental job recovery of 50,000 in Year 2 and increasing to 200,000 in Year 5.  We listened to the sad stories regarding the thousands of garment factory workers losing their jobs, and their industry being virtually in the ICU from Ms. Ma. Teresita Jocson-Agoncilio, Executive Director of the Confederation of Garment Exporters of the Philippines (CONGEP).  You could not help but pity the workers and resolve to assist in the lobby and advocacy efforts. 

The Philippine apparel exports which are down from $2.1 B in 2006 to $1.0 B in 2009 are expected to be $1.32 B by Year 2 and $3 B by Year 5. On the other hand, U.S. textile exports to the Philippines would increase from $13.5 Million in 2009 to $250 M by Year 2 and $500 M by Year 5 which means direct manufacturing jobs would also be created in the U.S. 

Objectively, it is really a win-win situation for both countries, more particularly the textile industry in the U.S. which lost 600,100 workers to China which now controls 40 % of the world textile market and the garment industry in the Philippines. 

There is a similar law between the U.S. and Sub-Saharan Africa. The sad consequence is that it virtually killed the textile industry of the latter. When I mentioned this privately to the group, saying that it could also kill the textile industry of the Philippines, I was told that the Philippine textile industry is virtually dead anyway. 

It is very sad indeed to think that textiles made out of pineapple, abaca, banana among  others could no longer be competitive worldwide resulting in the industries producing them  to die. In weddings and other social functions involving Filipinos, I still see Barong Tagalogs and Ternos being worn and getting raves, so I could not help but continue to hope.
         Barong Tagalog worn at a wedding in Canada.

When I was taking my Master of Laws, one of the subjects I took was International Trade Law. In that class, I did a research paper entitled: “Industrial Targeting”.  Based on my study, all the industrialized countries including the United States, Germany, France, Great Britain, Japan and the newly industrialized countries (NICs) at the time of my research such as South Korea, Singapore, Hong Kong and Taiwan, practiced industrial targeting in the early stages of their industrialization.  The Asian Tigers, specifically targeted and protected their textile and garment industries. What it means is that their respective governments provided any or all of the following assistance to certain industries that they thought could be competitive worldwide:

Financial Assistance - Loans at preferential terms; Loan guarantees; Export financing; Preferential access to investment funds; Preferential access to forex; Nationalization.
Science and Technology assistance - Support for research and development; Control over technology imports; Requiring technology sharing as a condition for exporting to or investing in the country; Assistance in acquiring foreign technology; Training.
Tax policies - Special depreciation rules; Exemption or Deferral for export earnings; Grants.
Home-market protection - Restraints on foreign investment; Tariffs, Quotas; Discriminatory government procurement; and other non-tariff barriers.
Anti-trust exemptions - Mergers; Price fixing cartels; Export cartels; Joint research and development; Restrictions against competition.     

The current NICs (Malaysia, etc.) and China, India, Vietnam, Bangladesh all have industrial policies. The latter four heavily subsidize their textile and garment industries while the Philippines is a loyal advocate and promoter of “free market”, “free enterprise” or “free trade” policies in this global economy. This would be okay if the other countries play fair but the sad fact is, they do not. That is a reality that the Philippines must reckon with. 

A few years ago, I was part of a law and lobby firm (O’Connor and Hannan) which represented the interests of the Philippines under President Fidel Ramos in Washington, D.C. As Executive Director of the Asian Pacific American Chamber of Commerce (APACC), I helped the American Indians lobby for their rights under existing Treaties  including but not limited to their right to operate casinos in their reservations. In the early fights for Filipino Veterans equity, I convinced the Department of Foreign Affairs to advance the funding of a Veterans Lobby Office headed by the late Ambassador Nick Jimenez, father of Inquirer Editor Letty Jimenez Magsanoc.  It eventually became self-sustaining and brought about some successes. Efforts are continuing to gain full equity for the aging veterans.
                Men's Barong Tagalog used at a recent wedding 

I reassured Ms. Jocson-Agoncilio and USEC Panlilio that I would join the Fil-Am community’s effort to get the Save Our Industries Act passed. I suggested however, that the Philippine government seriously consider targeting the garments industry and providing all the assistance needed to be competitive. It is an export-oriented industry. Any or all of the industrial targeting practices I enumerated above where applicable could be utilized. The 8 million Filipinos overseas would be good consuming markets and indirect agents in their respective residential locations.  

P-NOY is lucky to have Panlilio in his government. Known to be honest and competent, he has extensive experience in the private sector having been a banker and top executive of several companies prior to his appointment. He also obtained an MBA degree from Ateneo de Manila University and took an Advanced Management Program in nearby Wharton School of Business. 

Working under a corruption-free, non-adversarial and cooperative environment between and among the business, labor, and government sectors, Panlilio should be able to encourage and increase foreign and domestic investments especially in export-oriented industries within the next few years.

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