Again, we do not need to reinvent the wheel. There is a learned consensus positively inclined to our cause since 1999.
Prepared by the Congressional Planning and Budget Department
February 2003
PROPOSED ECONOMIC REFORMS
In 1999, President Joseph Estrada issued Executive Order 43 to create the Philippine
Commission on Constitutional Reforms (PCCR) to "facilitate the study of proposals on
economic reforms that can be accomplished through constitutional amendments." President Estrada’s administration recognized that the economic provisions of the 1987 Constitution were very restrictive stifling government’s flexibility to formulate economic policy and to attract investments.
The findings and recommendations of the PCCR are discussed below.
Economic Policy Formulation.
1. The restrictive provisions of the 1987 constitution have limited the ability of our country to compete in the global economy. PCCR submits that “the basic legal framework of the (1987)Constitution presents practical and philosophical difficulties in approaches to economic,trade and investment policies.” It has limited the flexibility of the government to respond to the changes in the global environment, hence adversely affecting the economy’s capacity to achieve higher growth.
2. These restrictive provisions can be found in Sections 9 & 19 of Article II, Declaration of Principles and Article XII on the National Economy and Patrimony.
3. Section 19 of Article II needs to be reviewed because of ambiguity in language. The phraseology aspiring for “independent” national economy “effectively controlled” by Filipinos taken together with other provisions in the Constitution gives rise to controversial policy decisions that affect investments. A concrete example is the Supreme Court decision on the choice of site for a proposed petrochemical complex. When the decision was made in 1990, investments from Taiwan fell from P3.4 billion in 1990 to P329 million in 1991.
4. The provision of Section 1 Article XII dictates that the economic base of the country shall be agricultural development and agrarian reform. This precludes a shift to other economic models for development. Note that in other countries the share of agriculture to total GNP ranges only from 5-16% as compared to the Philippines' 20%. This provision together with other provisions in the Constitution “prevents responsive government action to address problems in the
management of economic affairs”. It is proposed by PCCR that the constitution give
Congress and other government institutions the flexibility to craft and formulate policies responsive to the changing economic environment.
Removing Equity Restrictions on Foreign Investments
5. We need to attract foreign capital badly needed to finance economic growth. The study cited that to achieve a growth rate of 5.2 – 5.8%, the Medium Term Development Plan for 2000 – 2004 estimates an additional investment requirement of P31.7 billion a year (US$826 million). To reach a growth rate of 8%, the additional capital resource requirement will increase to P618.3 billion per year (US$15.3 billion).
6. Compared to other Asian countries it is only in the Philippine Constitution where restrictions on foreign investments are expressly stated. In other countries, foreign investment polices are regulated by legislation. There are no provisions prescribing citizenship or foreign investment equity ratios in their constitutions. The only exception is the constitution of Thailand which restricts foreign ownership in mass media companies. Some quarters say that this kind of provision in the Philippines' and Thailand's Constitution is no longer relevant because of mass access to foreign satellite television and the internet.
7. The Commission recommended that the following restricted areas in the 1987 Constitution be liberalized and subjected to regulation by law. The arguments for liberalizing these sectors are given below:
7.1. Public Utilities, Franchises and Infrastructure
PCCR recommended that foreigners be allowed to invest in and manage public utilities,
transportation, communication, power and water supply based on a policy of nondiscrimination and merit. The power granting franchises should be given to specialized regulatory agencies, which would result in greater efficiency and expertise in the supervision of the industry.
7.2. Mass Media and Advertising
The equity restrictions in the Constitution has denied Filipinos access to new
technological innovations which require huge investments that local companies find
difficult to raise. Certain sectors oppose the liberalization of mass media because of the fear of foreign influence. However this is unfounded because foreign media is already accessible to Filipinos through cable television and the Internet. In the case of advertising the arguments for liberalizing this sector are the need for new
capital, technology and expertise. It has been noted by the study that the ten top
advertising firms are already partly owned by foreign entities.
7.3. Educational Institutions
The educational sector in the Philippines is also being left behind because of lack of funds for new technology, basic facilities and infrastructure. The latest techniques in education need greater use of information technology and alternative media, which require huge investments. There is a need therefore to open up this sector to foreign investors to give our students access to better education and raise educational standards up to par with other countries. Sectors opposed to this proposal cite the possible influence of foreigners shaping the students patriotic values. The PCCR study however contends that the curricula will still be controlled by the Department of Education. At present, the Constitution already allows foreigners to own and manage educational institutions but only through religious
orders and mission boards.
7.4. Land Ownership
The recommendation of the PCCR is to liberalize the ownership of industrial and
commercial land, which represents less than 1% of the total land area of the Philippines, in order to attract more investments and increase job opportunities.
Those against this proposal advocate that liberalizing land ownership would make
Filipinos lose control of their land. Also there is lack of evidence that land ownership would improve attractiveness of Philippines as an investment site and the current law allowing long term lease is sufficient to attract investors to the economic zones. (Some countries like China and Vietnam do not even allow private land ownership but are receiving huge amounts of foreign investment.)
7.5. Natural Resources
The huge capital requirement to develop our natural resources particularly the energy, mining, fisheries and forestry sectors is the main argument to liberalize these sectors. Likewise, the entry of foreign investors into these areas of the economy is expected to bring in not only capital but new technology and expertise in operating these industries. The PCCR recommended that these sectors be regulated by law and not through the Constitution.
Ø The capital needed to develop the country’s energy resources to meet the energy requirements of the economy is estimated at P486 billion for a five year period 1999 – 2004. (Medium Term Development Plan)
Ø The mining industry’s performance has been on a steady decline since 1993. This
sector used to be a significant contributor to the national economy in 1980,
generating 20% of the country’s export earnings. To revive this sector there is a need to infuse huge investment capital. To develop and operate a single copper or gold mine requires around US$200 million to US$ 300 million.
Ø Fisheries production in the country hardly grew to meet the needs of the population. The growth of the sector from 1997 to 2000 averaged 1.97 % compared the
population growth of 2.4%.To revitalize the fisheries industry we need to develop
capacity for distant water fleets, exploit new fishing grounds, strengthen policing and surveillance of fishing grounds, and establish new infrastructure facilities. Equally important in this program is the strengthening of government regulations against illegal fishing and environmental measures to restore the ecology of Philippine waters.
Ø The country’s forest cover has been reduced to 18% of total land area of the country or around 5.4 million hectares. Forest denudation has cost the economy P10.6 billion a year in terms of losses in productivity and utility of infrastructure. It has brought about environmental disasters such as flash floods and drought, causing more damage to the country. Forest Master Plan estimates a total expenditure of P35 to P40 billion a year to counter damage and depletion of our forests. To do this, we do not only need capital but also foreign technology and expertise.
Reference:
Proceedings of the Preparatory Commission on Constitutional Reforms, 1999.
Tuesday, October 7, 2008
Monday, October 6, 2008
Fil-Am PAG Directions
Fil-Am PAG outlined current and immediate past materials on Article 12 of the Philippine Constitution to establish basis. Among the materials included were transcripts of meetings of the Committe on National Patrimony and Economy. Hence, readers are transported inside that session were it was shown that in general, there is a positive inclination to consider what we espouse.
Surprisingly, even the Trade Union Congress of the Philippines supports changing Article 12. Proposed changes were captured from other blogs also. An AIM speech by Girardo Sicat in favor of changing Article 12 was also highlighted. There is even a report from the Philippine Development Forum's Working Group on Growth and Investment Climate participated by mainstream businessmen like Don Jaime Zobel de Ayala among others, who needs no introductions.
But since Fil-Am PAG espouses mainstream politics and advocates critiques not via short smarty quips but via Memorandum of Arguments and SOLUTIONS, on the premise that its webpresence shall be read by policy makers and taken in a positive context, it shall remain rooted to such strategy. We can discuss less formal quips here in EPIC25, for example. But, Fil-Am PAG should become as trustworthy to be read in a joint session of Congress - if it would mature and have that aspirations in the future.
We have read a lot of negative statements espousing retention in toto of Article 12 or retention partial. Most of them, however, are not as eloquent as the one made by Justice Isagani Cruz in the article A Test of Resilience for the Constitution. Hence, that was the only one posted in Fil-Am PAG.
Fil-Am PAG has closed its academic presentation on other articles as it feels it has enough basis material and the others are just redundant noise. It is now time for everyone else to post their Memorandum of Arguments and SOLUTIONS, pros or cons.
As everyone else, the administration, mainstream politicians and mainstream businessmen seem to be aligned with what we espouse there is nothing else perhaps we should do but wait. In short, they have jumped the gun on us already demonstrating deep concern for the Philippines' growth and whatever we add if not of equal eloquence would just be redundant noise, tinkling cymbals.
What is derailing these right now is the widespread perception that any changes in the constitution (Article 12 included) is synonymous to the infamous cha cha, or con con, con ass, synonymous to the president's alleged wishes to perpetuate herself in power. This is where it stopped. Who is to blame? Civil Society, that chic group that we are all dying to be identified with as identification to it is social climbing that needs no apologies as it retains social relevance. Hmmp! Certainly, it would be political suicide for the president to push the issue. We, civil society, do have the penchance to shoot ourselves on the foot!
And yet, Fil-Am PAG also cannot be bullied into a one-sided addition to the political noise that already have consensus. Civil Society, on the other hand, must walk their talk and not just talk their talk.
That being settled, we have to look at OTHER causes why the Philippines is not yet tigerizing.
One of these causes is the issue of debt, worldwide debt for that matter. In the Philippines, payment on INTEREST (that word again!) is the single biggest item in the national budget. In 2003, it ate up more than 28% share of the budget. The following year, allocations for interest payment took up more than 33% of the budget - bigger than allocations for all social services combined.
In 2004, actual payments on interest and principal combined exceeded the total tax collections at 100.6%. This represents 86.2% of national government revenues (tax and non-tax) for the year. In 2005, it may have been 85% of total revenues also. This means that only 15% of NG revenues can be spent on everything else. HOW DO YOU RUN A COUNTRY WITH THAT and the Holier than the Pope Civil Society breathing down your neck? Add the league of local governments advocating federalization (including budget).
An opening line was earlier posted, i.e., Interests, WHAT KEEPS US RICH WHAT KEEPS US (AND OUR COUNTRY AND THE REST OF THE WORLD) POOR.
The next punch is to analyze advocacies on dealing with debt. And here is an opening proposition critiquing debtor nations:
Debt is an efficient tool. It ensures access to other peoples’ raw materials and infrastructure on the cheapest possible terms. Dozens of countries must compete for shrinking export markets and can export only a limited range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters’ income to a bare minimum while the North enjoys huge savings
— Susan George, A Fate Worse Than Debt, (New York: Grove Weidenfeld, 1990), pp. 143, 187, 235
[I]f a society spends one hundred dollars to manufacture a product within its borders, the money that is used to pay for materials, labor and, other costs moves through the economy as each recipient spends it. Due to this multiplier effect, a hundred dollars worth of primary production can add several hundred dollars to the Gross National Product (GNP) of that country. If money is spent in another country, circulation of that money is within the exporting country. This is the reason an industrialized product-exporting/commodity-importing country is wealthy and an undeveloped product-importing/commodity-exporting country is poor. Developed countries grow rich by selling capital-intensive (thus cheap) products for a high price and buying labor-intensive (thus expensive) products for a low price. This imbalance of trade expands the gap between rich and poor. The wealthy sell products to be consumed, not tools to produce. This maintains the monopolization of the tools of production, and assures a continued market for the product. [Such control of tools of production is a strategy of a mercantilist process. That control often requires military might.]
— J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), pp. 127, 139.
And so Fil-Am PAG need not beam its banter only on the Philippines and the administration. It must also allow consensus and bright ideas on how to discuss debt and how can David twist Goliath's hand and hit the Illuminatis right on the eye - that we, too, are part of the godhead.
And so must we eat cake and let Rome burn?
Surprisingly, even the Trade Union Congress of the Philippines supports changing Article 12. Proposed changes were captured from other blogs also. An AIM speech by Girardo Sicat in favor of changing Article 12 was also highlighted. There is even a report from the Philippine Development Forum's Working Group on Growth and Investment Climate participated by mainstream businessmen like Don Jaime Zobel de Ayala among others, who needs no introductions.
But since Fil-Am PAG espouses mainstream politics and advocates critiques not via short smarty quips but via Memorandum of Arguments and SOLUTIONS, on the premise that its webpresence shall be read by policy makers and taken in a positive context, it shall remain rooted to such strategy. We can discuss less formal quips here in EPIC25, for example. But, Fil-Am PAG should become as trustworthy to be read in a joint session of Congress - if it would mature and have that aspirations in the future.
We have read a lot of negative statements espousing retention in toto of Article 12 or retention partial. Most of them, however, are not as eloquent as the one made by Justice Isagani Cruz in the article A Test of Resilience for the Constitution. Hence, that was the only one posted in Fil-Am PAG.
Fil-Am PAG has closed its academic presentation on other articles as it feels it has enough basis material and the others are just redundant noise. It is now time for everyone else to post their Memorandum of Arguments and SOLUTIONS, pros or cons.
As everyone else, the administration, mainstream politicians and mainstream businessmen seem to be aligned with what we espouse there is nothing else perhaps we should do but wait. In short, they have jumped the gun on us already demonstrating deep concern for the Philippines' growth and whatever we add if not of equal eloquence would just be redundant noise, tinkling cymbals.
What is derailing these right now is the widespread perception that any changes in the constitution (Article 12 included) is synonymous to the infamous cha cha, or con con, con ass, synonymous to the president's alleged wishes to perpetuate herself in power. This is where it stopped. Who is to blame? Civil Society, that chic group that we are all dying to be identified with as identification to it is social climbing that needs no apologies as it retains social relevance. Hmmp! Certainly, it would be political suicide for the president to push the issue. We, civil society, do have the penchance to shoot ourselves on the foot!
And yet, Fil-Am PAG also cannot be bullied into a one-sided addition to the political noise that already have consensus. Civil Society, on the other hand, must walk their talk and not just talk their talk.
That being settled, we have to look at OTHER causes why the Philippines is not yet tigerizing.
One of these causes is the issue of debt, worldwide debt for that matter. In the Philippines, payment on INTEREST (that word again!) is the single biggest item in the national budget. In 2003, it ate up more than 28% share of the budget. The following year, allocations for interest payment took up more than 33% of the budget - bigger than allocations for all social services combined.
In 2004, actual payments on interest and principal combined exceeded the total tax collections at 100.6%. This represents 86.2% of national government revenues (tax and non-tax) for the year. In 2005, it may have been 85% of total revenues also. This means that only 15% of NG revenues can be spent on everything else. HOW DO YOU RUN A COUNTRY WITH THAT and the Holier than the Pope Civil Society breathing down your neck? Add the league of local governments advocating federalization (including budget).
An opening line was earlier posted, i.e., Interests, WHAT KEEPS US RICH WHAT KEEPS US (AND OUR COUNTRY AND THE REST OF THE WORLD) POOR.
The next punch is to analyze advocacies on dealing with debt. And here is an opening proposition critiquing debtor nations:
Debt is an efficient tool. It ensures access to other peoples’ raw materials and infrastructure on the cheapest possible terms. Dozens of countries must compete for shrinking export markets and can export only a limited range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters’ income to a bare minimum while the North enjoys huge savings
— Susan George, A Fate Worse Than Debt, (New York: Grove Weidenfeld, 1990), pp. 143, 187, 235
[I]f a society spends one hundred dollars to manufacture a product within its borders, the money that is used to pay for materials, labor and, other costs moves through the economy as each recipient spends it. Due to this multiplier effect, a hundred dollars worth of primary production can add several hundred dollars to the Gross National Product (GNP) of that country. If money is spent in another country, circulation of that money is within the exporting country. This is the reason an industrialized product-exporting/commodity-importing country is wealthy and an undeveloped product-importing/commodity-exporting country is poor. Developed countries grow rich by selling capital-intensive (thus cheap) products for a high price and buying labor-intensive (thus expensive) products for a low price. This imbalance of trade expands the gap between rich and poor. The wealthy sell products to be consumed, not tools to produce. This maintains the monopolization of the tools of production, and assures a continued market for the product. [Such control of tools of production is a strategy of a mercantilist process. That control often requires military might.]
— J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), pp. 127, 139.
And so Fil-Am PAG need not beam its banter only on the Philippines and the administration. It must also allow consensus and bright ideas on how to discuss debt and how can David twist Goliath's hand and hit the Illuminatis right on the eye - that we, too, are part of the godhead.
And so must we eat cake and let Rome burn?
PDF: Working Group on Growth and Investment Climate
PDF is the Philippine Development Forum
Under the Government's updated 2007-2010 Comprehensive Infrastructure Investment Program (CIIP), total investment is estimated at about P2.1 trillion ($52.5billion), 59% of which is expected to come from the national government, 28% from the private sector, 7% from government corporations and government financial institutions, and the rest from other sources.
Click on the Title above to get the latest accomplishment report on this working group.
Under the Government's updated 2007-2010 Comprehensive Infrastructure Investment Program (CIIP), total investment is estimated at about P2.1 trillion ($52.5billion), 59% of which is expected to come from the national government, 28% from the private sector, 7% from government corporations and government financial institutions, and the rest from other sources.
Click on the Title above to get the latest accomplishment report on this working group.
Saturday, October 4, 2008
Hidden Economy of the Philippines
Done in 2006
Excerpts:
The study finds a positive relationship between the degree of regulation and the incidence of public corruption. As strictness of regulation was not observed to relate to low product quality or a greater degree of environmental degradation, the study contradicts public interest theories of regulation and supports public choice models in that the primary benefactor of regulation appears to be the bureacrats.
Size of the Shadow Economy (As Percentage of GDP)
Bolivia 65.6%, Peru 57.4%, Costa Rica 23.2%, Argentina 21.8%, Chile 18.2%, Thailand 71%, PHILIPPINES 50%, Sri Lanka 40%, Egypt 68%, Nigeria 76%, Morocco 39%, Ukraine 53.7%, Croatia 38.2%, USA 8.8%...
The Informal Workforce and Gender: Percentage of Non-agricultural workforce in the Informal Sector 1991-1997
Philippines, Women 64%, Men 46%
Major Causes: Corruption of Bureaucrats, Lack of access to credit
Excerpts:
The study finds a positive relationship between the degree of regulation and the incidence of public corruption. As strictness of regulation was not observed to relate to low product quality or a greater degree of environmental degradation, the study contradicts public interest theories of regulation and supports public choice models in that the primary benefactor of regulation appears to be the bureacrats.
Size of the Shadow Economy (As Percentage of GDP)
Bolivia 65.6%, Peru 57.4%, Costa Rica 23.2%, Argentina 21.8%, Chile 18.2%, Thailand 71%, PHILIPPINES 50%, Sri Lanka 40%, Egypt 68%, Nigeria 76%, Morocco 39%, Ukraine 53.7%, Croatia 38.2%, USA 8.8%...
The Informal Workforce and Gender: Percentage of Non-agricultural workforce in the Informal Sector 1991-1997
Philippines, Women 64%, Men 46%
Major Causes: Corruption of Bureaucrats, Lack of access to credit
Thursday, October 2, 2008
EXPORT PROCESSING ZONES: PAST AND FUTURE ROLE IN TRADE AND DEVELOPMENT
Organisation de Coopération et de Développement Economiques
Organisation for Economic Co-operation and Development
OECD Trade Policy Working Paper No. 53
23-May-2007
PART IV CONCLUSIONS
111. Export processing zones (EPZs) as a policy tool for development and export-oriented growth has proliferated over the last four decades. More than 100 countries have currently implemented some form of zone policy for the supply of goods and services to foreign markets. EPZs have had mixed impacts on countries’ economic development. While in some countries it has led to export diversification and growth,
employment creation, and foreign exchange generation, in others results have been disappointing.
112. In this paper, we reviewed the evolution of EPZs and reviewed EPZs from and economic and trade rule perspective. The analysis in this paper indicates that:
• EPZs are a suboptimal policy from an economic point of view. Improvement of the business environment through trade and investment liberalisation, establishment of good infrastructure, rule of law and administrative simplification remains the optimal policy option to promote investment, employment and growth.
• EPZs however can provide an interim solution to developing countries with poor business environments where bridging deficiencies at a national level is not possible. This type of policy – with resources and market incentives focused on a subset of the economy– may be less timeconsuming and require less political capital in the short term as it allows for continued protection of domestic industry.
• As an interim solution EPZs should not be considered a substitute for general economic reform. While incentives may make up for certain deficiencies, governments should bear in mind that such incentives are provided by taxing other parts of the economy, and thus should provide commensurate benefits to the economy.
• EPZs and similar policy instruments can logically serve as a stepping stone to trade liberalisation on a national basis. They reduce anti-export bias of high tariffs by allowing an exporting company to access inputs at global prices, and thus may facilitate the creation of an export industry and improve a country’s trade balance.
• Governments should consider all available policy options when examining strategies for export promotion, including general trade liberalisation, bonded warehouse schemes, duty drawback schemes, zone type EPZs and enterprise type EPZs. Each scheme has its advantages and disadvantages. In some cases countries have pursued a combination.
• In designing an EPZ policy, a government should set realistic expectations and conduct a thorough cost/benefit analysis. In conducting such an analysis, it should bear in mind that benefits are dependent on private investment which are unpredictable and rely on external factors. Thus governments should minimise upfront costs (e.g. infrastructure costs) whenever possible.
• Choice of location is critical for zone type EPZs. Companies look for, among other things,reliable infrastructure (energy, logistics, telecommunications), adequate supply of labour, and a TD/TC/WP(2006)39/FINAL 53 well-functioning legal environment. A good location will minimise the costs of putting these
requirements into place. Tax incentives provided to compensate for deficiencies are costly and unsustainable. More importantly, access to local suppliers is the key to promote technology transfers from foreign companies to domestic companies.
• While the use of financial and other incentives to attract foreign investors may be necessary in the short term, such incentives have government revenue implications and do not provide a substitute for policy measures towards a sound investment environment. Such incentives should be minimal and time bound. Long-term commitments create equity problems by discriminating an EPZ company and non-EPZ company which both are inherently equally important for the economy and go against the “temporary” nature of EPZs.
• Improved legal services, enforcement of the rule of law – even designated courts for dispute settlement - and streamlined procedures can significantly reduce business risk and help attract investors. Bearing in mind that FDI may pull out when incentives phase out, improvements in the business environment should be made expeditiously. EPZs can be a first step to such improvements by providing an avenue for consultation between governments and businesses. Improvements in the business environment thus achieved should be extended on a national basis.
• Exemptions or relaxation of labour rules and other regulations have often been detrimental by creating differential standards within a country which may disadvantage certain classes of workers and contribute to economic distortions.
• Interaction of EPZs and regional trade agreements may also lead to MFN tariff cuts. Phase out provisions for EPZs and duty drawback schemes often contained in regional trade agreements to avoid circumvention may force governments to respond in different ways. Governments can either phase-out tariff exemptions on inputs for exports to RTA partners and risk losing FDI, or allow continued access to inputs at global prices by cutting tariffs on an MFN basis.
Organisation for Economic Co-operation and Development
OECD Trade Policy Working Paper No. 53
23-May-2007
PART IV CONCLUSIONS
111. Export processing zones (EPZs) as a policy tool for development and export-oriented growth has proliferated over the last four decades. More than 100 countries have currently implemented some form of zone policy for the supply of goods and services to foreign markets. EPZs have had mixed impacts on countries’ economic development. While in some countries it has led to export diversification and growth,
employment creation, and foreign exchange generation, in others results have been disappointing.
112. In this paper, we reviewed the evolution of EPZs and reviewed EPZs from and economic and trade rule perspective. The analysis in this paper indicates that:
• EPZs are a suboptimal policy from an economic point of view. Improvement of the business environment through trade and investment liberalisation, establishment of good infrastructure, rule of law and administrative simplification remains the optimal policy option to promote investment, employment and growth.
• EPZs however can provide an interim solution to developing countries with poor business environments where bridging deficiencies at a national level is not possible. This type of policy – with resources and market incentives focused on a subset of the economy– may be less timeconsuming and require less political capital in the short term as it allows for continued protection of domestic industry.
• As an interim solution EPZs should not be considered a substitute for general economic reform. While incentives may make up for certain deficiencies, governments should bear in mind that such incentives are provided by taxing other parts of the economy, and thus should provide commensurate benefits to the economy.
• EPZs and similar policy instruments can logically serve as a stepping stone to trade liberalisation on a national basis. They reduce anti-export bias of high tariffs by allowing an exporting company to access inputs at global prices, and thus may facilitate the creation of an export industry and improve a country’s trade balance.
• Governments should consider all available policy options when examining strategies for export promotion, including general trade liberalisation, bonded warehouse schemes, duty drawback schemes, zone type EPZs and enterprise type EPZs. Each scheme has its advantages and disadvantages. In some cases countries have pursued a combination.
• In designing an EPZ policy, a government should set realistic expectations and conduct a thorough cost/benefit analysis. In conducting such an analysis, it should bear in mind that benefits are dependent on private investment which are unpredictable and rely on external factors. Thus governments should minimise upfront costs (e.g. infrastructure costs) whenever possible.
• Choice of location is critical for zone type EPZs. Companies look for, among other things,reliable infrastructure (energy, logistics, telecommunications), adequate supply of labour, and a TD/TC/WP(2006)39/FINAL 53 well-functioning legal environment. A good location will minimise the costs of putting these
requirements into place. Tax incentives provided to compensate for deficiencies are costly and unsustainable. More importantly, access to local suppliers is the key to promote technology transfers from foreign companies to domestic companies.
• While the use of financial and other incentives to attract foreign investors may be necessary in the short term, such incentives have government revenue implications and do not provide a substitute for policy measures towards a sound investment environment. Such incentives should be minimal and time bound. Long-term commitments create equity problems by discriminating an EPZ company and non-EPZ company which both are inherently equally important for the economy and go against the “temporary” nature of EPZs.
• Improved legal services, enforcement of the rule of law – even designated courts for dispute settlement - and streamlined procedures can significantly reduce business risk and help attract investors. Bearing in mind that FDI may pull out when incentives phase out, improvements in the business environment should be made expeditiously. EPZs can be a first step to such improvements by providing an avenue for consultation between governments and businesses. Improvements in the business environment thus achieved should be extended on a national basis.
• Exemptions or relaxation of labour rules and other regulations have often been detrimental by creating differential standards within a country which may disadvantage certain classes of workers and contribute to economic distortions.
• Interaction of EPZs and regional trade agreements may also lead to MFN tariff cuts. Phase out provisions for EPZs and duty drawback schemes often contained in regional trade agreements to avoid circumvention may force governments to respond in different ways. Governments can either phase-out tariff exemptions on inputs for exports to RTA partners and risk losing FDI, or allow continued access to inputs at global prices by cutting tariffs on an MFN basis.
Philippines at the Crossroads of Competitiveness
Philippines
GLOBALLY COMPETITIVE
SERVICES/INDUSTRIES
1. Tourism
2. Electronics
3. BPO ( Outsourcing/Offshoring)
4. Health & Wellness including Retirement
5. Supply Chain Logistics value-added
6. Agri-industries
7. Mining
8. Vehicles/Shipbuilding/Parts
GLOBALLY COMPETITIVE
SERVICES/INDUSTRIES
1. Tourism
2. Electronics
3. BPO ( Outsourcing/Offshoring)
4. Health & Wellness including Retirement
5. Supply Chain Logistics value-added
6. Agri-industries
7. Mining
8. Vehicles/Shipbuilding/Parts
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