Transcript Philippine Globalization in the New Millennium

Philippine Globalization
in the New Millennium
IDEAs Conference on
A Decade After: Recovery and
Adjustment since the East Asian Crisis
12-14 July 2007
Macroeconomic Context
“Jobless Growth”
 MTPDP 2004 – 2010
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acknowledged the need to address the country’s
unemployment problem
1.5 million jobs per year; 10 million jobs by 2010
 Early indications
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In 2004: 977,000 new jobs were created; 1,289,000 new
entrants into the labor market
In 2005: 455,000 new jobs were created; led to a drop in
the unemployed by 100,000 but unemployment rate
remained high at 11.4%.
Such inability to create enough jobs points to the
absence of a cohesive strategy to address the
unemployment issue.
RP’s External Economic Ties:
Three Salient Features
Business process outsourcing (BPO)
Labor migration / Labor “exports”
Bilateral trade and / or investment treaties
Business Process Outsourcing (BPO)
Types of BPO Services in the Philippines
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Contact / Call Center
Back Office
Data Transcription
Animation
Software Development
Engineering Development
Digital Content
BPO Sector: Recent Trends
As of end-2005, the BPO sector employed
163,000 workers.
The contact / call center sub-sector
employed 70% of the BPO workers in the
Philippines.
The same sub-sector contributed 75% (USD
1.8 billion) of total BPO revenues in 2005.
The whole BPO sector represented 0.075%
of GDP in 2000, but this increased to 2.4% in
2005.
BPO Sector Overview
No. of
Firms
Contact Center
Revenues
USD
Million
Employment
% Share
Employees
% Share
114
1,792
75.10
112,000
68.61
Back Office
62
180
7.54
22,500
13.78
Medical Transcription
64
70
2.93
5,500
3.37
9
6
0.25
450
0.28
39
1.63
3,000
1.84
300
204
8.55
12,000
7.35
Animation
42
40
1.68
4,500
2.76
Engineering Design
14
48
2.01
2,800
1.72
Digital Content
11
7
0.29
500
0.31
616
2,386
100.00
163,250
100.00
Legal Transcriptions
Other Data Transcription
Software Development
Total
BPO Sector: Recent Trends
 Sole dynamic sector in the economy in recent
years.
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Regarded by the government as the panacea of the
unemployment problem / jobless growth phenomenon.
 Employment in this sector is projected to rise by
38% annually between 2005 and 2010.
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27% of all new jobs in the country (if current trends
persist) in 2010 will be generated by the BPO industry.
 Credited for surge in demand for office spaces / real
estate, thus making the real property sector the
highest-growing Services sub-sector in 2006.
Development Implications of the
BPO Sector
 Threats to Philippine performance in the global BPO
industry abound
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safety and political issues; poor infrastructure; expensive inputs
stiff competition from India, Malaysia, China
Job and Skills mismatch: Hiring rate for call center applicants is only
14%.
 Employee profile biased not only for highly educated
individuals, but particularly graduates of top schools who
could otherwise have been employed in more dynamic
sectors of the economy.
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Diploma from a top school guarantees English proficiency, computer
literacy.
Call centers also hire on average twice as many middle managers
than call center agents.
Non-trivial wage premium.
Development Implications of the
BPO Sector
Low knowledge intensity, no technology
transfer / human resource development
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BPO sector is clearly taking advantage of cheap
skilled labor.
How can the sector move up the knowledge
intensity ladder?
Very low inter-sectoral linkages
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Estimates of the sector’s forward and backward
linkages are well below 1.
The Philippine BPO industry is not a key sector.
Development Implications of the
BPO Sector
BPO sector does not represent any
opportunity for majority of the unemployed,
much less the poor.
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Most of the unemployed are 15 – 24 years old
with no college diploma.
Poverty is still most deeply felt by the
agricultural peasantry.
BPO has no linkage to agricultural sector.
Philippine Labor Exports
Deployed Overseas Filipino Workers (OFWs)
Year
Total
Land-Based
Sea-Based
1990
446,095
334,883
111,212
1995
654.022
488,621
165,401
2000
841,628
643,304
198,324
2001
866,599
661,648
204,951
2002
891,908
682,315
209,593
2003
867,969
651,938
216,031
2004
933,588
704,586
229,002
2005
988,6155
740,632
247,983
2006
1,062,567
788,070
274,497
OFW Remittances, 1990 – 2006
(USD Thousands)
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
1990
1992
1994
1996
1998
Year
2000
2002
2004
2006
Annual Growth Rate of OFW
Remittances
40.00
30.00
20.00
10.00
0.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-10.00
-20.00
-30.00
Remittances & FDI (1999 - 2006)
USD Millions
14000
12000
10000
8000
Remittances
6000
FDI
Portfolio Inflows
4000
2000
0
1999 2000 2001 2002 2003 2004 2005 2006
Philippine Labor Exports
Remittances have grown at an annual
average of 16.286% in the past five years
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16.91% average annual growth rate since 1991
Dip in remittances occurred during the Estrada
Administration (1998 – 2001)
Along with the BPO sector, these
remittances have fueled consumption
growth and the recent real estate surge.
Dramatic appreciation of the Philippine peso
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The government is by and large pleased with
this.
PhP / USD Exchange Rate Trends
1996
1997
1998
1999
2000
2001
2002
2003
PhP/
USD
26.22
29.47
40.89
39.09
44.19
50.99
51.60
54.20
%D
-1.9
-12.4
-38.8
4.4
-13.1
-15.4
-1.2
-5.0
2004
2005
2006
PhP/
USD
56.04
55.09
51.31
%D
-3.4
1.7
6.8
2007
Jan
Feb
Mar
Apr
May
48.91
48.38
48.52
47.82
46.81
8.8
PhP Cross Rates
Period
EURO
HK
SK
Sing
Malay
Thai
Indo
India
Dollar
Dollar
Won
Dollar
Ringgit
Baht
Rupiah
Rupee
1997
3.8068
0.0314
19.7974
10.5341
0.9684
0.0105
1998
5.279
0.0294
24.4744
10.4582
0.9981
0.0042
1999
41.7205
5.0337
0.0329
23.0852
10.2879
1.034
0.0051
0.9093
2000
40.7246
5.6715
0.0391
25.6243
11.6296
1.0997
0.0053
0.984
2001
45.6939
6.5404
0.0397
28.4775
13.4208
1.1472
0.005
1.0826
2002
48.8125
6.6174
0.0424
28.8364
13.6979
1.2006
0.0056
1.0764
2003
61.3506
6.961
0.0456
31.1237
14.2659
1.307
0.0063
1.1661
2004
69.6852
7.1955
0.049
33.1644
14.749
1.3932
0.0063
1.2391
2005
68.6102
7.083
0.0538
33.109
14.5482
1.3697
0.0057
1.2523
2006
64.4473
6.606
0.0538
32.302
13.9972
1.3542
0.0056
1.136
PhP has been appreciating against other
currencies as well in the past two years.
Philippine Labor Exports
Moreover, the inflow of OFW remittances
has enabled the BSP to increase its foreign
exchange reserves to about 4 months’ worth
of imports.
Gross Intl Reserves (1997-2007)
USD Millions
30000
25000
20000
15000
10000
5000
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Development Implications of
Labor Exports
Primary example of brain drain
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Mobile labor is well-educated, highly-skilled,
and often belonging to the Philippine middle
class
Medical doctors, nurses, and other medical
practitioners, engineers, teachers.
De-skilling:
 Doctors taking up nursing courses in order to leave
the country.
 Nurses becoming careworkers.
Development Implications of
Labor Exports
Hollowing out of the labor market
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More difficult to move up the knowledgeintensity ladder in exports
Development Implications of
Labor Exports
 Peso appreciation
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With further appreciation of the peso, the effect of
cheaper inputs (since exports are also largely input
dependent) will be outweighed by higher domestic costs,
thus eroding whatever little export competitiveness the
Philippines possesses.
Already, exporters have been wary of signing contracts
 Standard contracts are for 2 years.
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De facto Factor Price Equalization, but via the exchange
rate
 OFWs are complaining more and more about the smaller wage
premium they enjoy.
Development Implications of
Labor Exports
Social cost of foreign reserves
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Reserves generally seen as necessary to preclude
financial crises
Bilateral Investment and/or Trade
Treaties (BITTs)
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Argentina
Australia
Austria
Bangladesh
Belgium
Cambodia
Canada
Chile
China
Czech Republic
Denmark
Finland
France
Germany
Italy
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Japan
Myanmar
Netherlands
Pakistan
Portugal
Republic of Korea
Romania
Russian Federation
Spain
Sweden
Switzerland
Thailand
Turkey
United Kingdom
BITTs Overview
Standard provisions on
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national treatment
Expropriation
Compensation
Dispute settlement.
Excerpts from Australia – RP BIT
1. Neither Party shall nationalise, expropriate or subject to measures having
effect equivalent to nationalisation or expropriation (hereinafter
referred to as "expropriation") the investments of investors of the other
Party unless the following conditions are complied with:
(a) the expropriation is for a public purpose related to the internal needs of
that Party and under due process of law;
(b) the expropriation is non-discriminatory; and
(c) the expropriation is accompanied by the payment of prompt, adequate
and effective compensation.
2. The compensation … shall be computed on the basis of the market value
of the investment immediately before the expropriation or impending
expropriation became public knowledge. Where that value cannot be
readily ascertained, the compensation shall be determined in
accordance with generally recognised principles of valuation and
equitable principles taking into account the capital invested,
depreciation, capital already repatriated, replacement value, currency
exchange rate movements and other relevant factors.
BITTs Overview
Rejection of the Calvo doctrine
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insists that investment disputes lie within the
exclusive purview of domestic legislation, and
strikes at the core of the international minimum
standard by repudiating the claim to MFN status.
Japan – Philippines Economic Partnership
Agreement (JPEPA):
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9 September 2006
most recent and probably the most controversial
BITT that the Philippines is party to.
JPEPA Provisions
Comprehensive BITT covering major areas including:
 trade in goods and services
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Removal of tariffs on products (agricultural and nonagricultural)
Gradual tariff reduction towards zero tariff on selected
agricultural and non-agricultural items.
MFN tariffs on the automotive sector (sensitive sector for
RP)
 elimination of tariffs by 2010 under AFTA
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Exclusions:
Rice, wheat, milk, herrings, sardines,
mackerel, and other fish.
Japan will allow Filipino nurses and careworkers to
access the Japanese market, with conditions.
 must master written and spoken Nippongo
 must pass the nursing board exam within two years
JPEPA Provisions
 investments
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Article 89: National Treatment
Article 90: MFN Treatment
prohibits requirements on export volumes, domestic
content, input, foreign exchange earning , employment,
technology transfer, R&D, etc
 intellectual property
Article 127
New Varieties of Plants
Each Party recognizes the importance of providing a system of
protection of new varieties of plants and shall, within its
capabilities, endeavor to increase the number of plant
genera and species that can be protected under its laws and
regulations. In this regard, each Party shall consider the
concerns of the other Party.
JPEPA Provisions
government procurement
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accords MFN treatment in government
procurement procedures, with a new round of
negotiations for national treatment in five years.
Trade facilitation and harmonization of
customs procedures, use of ICT and paperless
trading
movement of natural persons
competition policy
JPEPA’s Development Implications
 Philippine trade law experts have said that the
JPEPA’s implications are “very far-reaching” that it
may possibly require full-bodied legislation and/or
amendments to existing legislation.
 Fiscal Impact
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DOF estimates PhP 4 billion in forgone revenues.
Other estimates: PhP 3 – 5 billion range.
huge costs in order to comply with numerous provisions
of the treaty, most if not all of which are not
development priorities.
JPEPA’s Development Implications
Negligible growth impact:
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Most upbeat estimate is that the treaty will
contribute 0.09% GDP growth.
Japan is already the 2nd largest trading partner
of the Philippines
 USD 1.5B total exports and imports in 2005)
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any comparative advantage the Philippines has
vis-a-vis Japan will come to pass with or without
a JPEPA.
Overview of Philippine Tariffs
Sector
No. of Lines
Simple Average
Weighted Ave.
1,407
11.85
9.22
2,122
4.64
4.16
and
1,966
9.18
6.84
Non-base
1,317
5.69
3.69
Transport
4,497
7.96
1.78
1,407
11.87
9.22
131
2.47
2.79
9,711
7.26
2.97
11,309
7.77
3.56
Agriculture and Food
Chemicals
Products
Textiles,
Leather
and
Paper,
Base Metals
Metals
Machinery
Equipment
Agriculture
Mining
Manufacturing
Overall
Chemical
Wood,
and
and
JPEPA’s Development Implications
It can be argued that further reduction of tariffs will no longer
pose much harm to industries. JPEPA’s pernicious elements,
however, lie beyond the standard tariff reduction
requirements of a FTA / BTT agreement, particularly in its
provisions on other issues such as the following:
 The Singapore Issues:
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investment, competition policy, trade facilitation, and government
procurement
have not made headway in the WTO talks, with developing-country
members insisting that the more fundamental and developmental
issues.
The Philippines was part of the G-22 alliance during the Cancun
ministerial of the WTO (2003).
All these issues now have been included in the JPEPA.
JPEPA’s Development Implications
 JPEPA and IPR
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JPEPA effectively restricts and stifles the recognized
flexibilities under the TRIPS
International Treaty on Plant Genetic Resources for
Food and Agriculture (ITPGRFA) (September 2006);
awaiting concrete national implementation.
JPEPA does not recognize the inherent right of farmers
to accumulate, use, exchange and sell farm-saved seeds
and/or propagating materials by either providing a
limitation on its IPR provisions or sufficient safeguards
acknowledging and protecting it.
Strengthening and increasing the scope of plant variety
protection will only promote further monopoly control
over seeds by TNCs.
JPEPA’s Development Implications
 Legalization of trade in hazardous and toxic waste
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Almost all goods, including toxic wastes, will be granted a
preferential tariff rate of zero percent.
Article 29
Originating Goods
2. For the purposes of subparagraph 1(a) above, the following goods shall be
considered as being wholly obtained or produced entirely in a Party:
…
“(i) articles collected in the Party which can no longer perform their
original purpose in the Party nor are capable of being restored or
repaired and which are fit only for disposal or for the recovery of parts
or raw materials;
“(j) scrap and waste derived from manufacturing or processing operations
or from consumption in the Party and fit only for disposal or for the
recovery of raw materials;
“(k) parts or raw materials recovered in the Party from articles which can
no longer perform their original purpose nor are capable of being
restored or repaired;
DESCRIPTION
MFN
JPEPA
Ash and residues (other than from the manufacture of iron or steel), containing
arsenic, mercury, thallium or their mixtures
3%
0%
Ash and residues from the incineration of municipal waste
3%
0%
Waste pharmaceuticals
20%
0%
Residual products of the chemical or allied industries, not elsewhere specified or
included; municipal waste; sewage sludge; other wastes
30%
0%
Municipal waste
30%
0%
Sewage sludge
30%
0%
Clinical waste — adhesive dressings and other articles having adhesive layer;
wadding gauze bandages, surgical gloves
30%
0%
Other clinical waste
30%
0%
Waste organic solvents — halogenated, and other
30%
0%
Other wastes from other chemical or allied industries containing organic
constituents, other
30%
0%
Wastes of metal pickling liquors, hydraulic fluids, brake fluids and anti-freeze
fluids
30%
0%
Worn clothing and other worn articles
/
0%
Used or new rags, scrap twine, cordage, rope and cables and worn out articles of
twine, cordage, rope or cables, of textile materials
/
0%
JPEPA’s Development Implications
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According to law experts, the importation of toxic and
hazardous wastes comes into conflict with numerous
Philippines laws:
 Under the Constitution, the State is mandated to promote the
people’s right to health (Art. II, Sec. 15) and right to a balanced
and healthful ecology (Art. II, Sec. 16).
 Republic Act No. 6969, the Toxic Substance and Hazardous and
Nuclear Waste Act of 1990
 Clean Air Act of 1999
 Republic Act No. 4653
 Basel Convention, which was adopted in 1989 by 133 countries
(including the Philippines and Japan) to minimize the
production and regulate the trans-boundary movement of
hazardous and toxic materials.
Overall Development Challenges
Absence of an overarching industrial and
development strategy
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Particularly in the context of already extremely
low tariffs
Aggressive negotiation and pursuit of trade deals
in spite of the absence of a master plan
 DTI handles GATT, NAMA, et al
 DoA handles AoA
 NEDA handles GATS
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The Government’s strategy is laissez faire.
Overall Development Challenges
GDP Growth at 6.9% in the first three months of 2007
 On the production side:
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Service sector is highest contributor to growth (9.1%)
 Important Sub-sectors: finance (13.4%); transport, communications, and
storage (9.6%); wholesale and retail trade (9.1%); private services
(8.9%); government services (7.1%)
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Industry grew at 5.3%
Agriculture at 4.3%
 Demand / Expenditure Side:
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Consumption grew at 5.9%
Government Spending grew at 13.1%
 Due to expenditures in preparation for May 2007 elections
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Exports grew at 9.1%
Investments grew at 0.6%
 Investments in durable equipment decreased by -0.4%
 Government construction grew 16.9%
Overall Development Challenges
Dismal outlook on overall economic performance
 Government spending surely not sustainable:
News on recent fiscal revenues have not been good.
 Export outlook has also been bleak.
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Electronics demand worldwide is expected to slow
down, alongside projected slowdowns of major
economies in the world. Electronics exports comprise
almost 75% of our exports in recent years.
Indeed, the paradoxical shrinking of the import bill has
been partly due to a weakening of imports of electronic
inputs. This is clear evidence of an export slowdown in
the near future.