‘We are ready’ – DTI ‘Non-tariff barriers are a challenge’ – PCCI

“We are ready for the ASEAN Economic Community. We are very competitive,” declared Trade and Industry Secretary Gregory L. Domingo as the ASEAN economic integration moves closer to reality a few days from now.

Outside Singapore, Domingo said, the Philippines is the most competitive.

“We are ready because we were the first to liberalize in the region and so we already know how to compete. Trade liberalization is good for us,” he added noting that other ASEAN countries have more restrictions than us.

Naturally, investments would flow into a country where there are lesser business restrictions.

Domingo even stressed that the country’s liberalized economy has prepared businesses to compete in the global arena long before the AEC comes into force.

But business leader Alfredo M. Yao has cautioned that while Filipino businesses can easily look for foreign partners because doing business in the country has become very cheap, non-tariff barriers (NTBs) have also become more prevalent, not just in ASEAN but non-ASEAN countries, as well.

“It is very cheap to do business here so we can look for partners, but we are talking here of zero tariff, which means we have to look at the non-tariff side,” Yao pointed out.

He cited the case of the banking sector, which has been fully liberalized, but which the other ASEAN countries still heavily protect.

“We should look at non-tariff barriers,” stressed Yao.

While it is the private sector’s lookout, Yao has urged government to ensure that domestic industries are not being disadvantaged by the NTBs being implemented by other ASEAN countries.

“The government should assign one czar/trade attaché per country to just monitor the NTBs of other trading parties,” he said.

source:  Manila Bulletin

Localize plans to benefit from ASEAN integration, business, gov’t leaders told

CEBU CITY -- With the completion of a national game plan for ASEAN integration, the Department of Trade and Industry (DTI) is encouraging regional government and business leaders to localize the plan and craft their own regional industry road maps.

Trade Undersecretary Zenaida C. Maglaya said existing industry clusters in each region are encouraged to look at the national game plan and check how they can relate to it.

“There are peculiarities in each region. You cannot just give the plan to them and ask them to implement it. They have to see whether the plan applies to them. One thing good about bringing it down is that there will be buy-in by the private sector. Eventually, they will own the plan. It will become their regional plan,” she said in a press conference on the sidelines of a forum here on the ASEAN (Association of Southeast Asian Nations) Economic Community (AEC) game plan.

The AEC game plan consists of industry road maps that the private sector, with the assistance of government agencies, crafted. As of Monday, Trade Assistant Secretary Rafaelita M. Aldaba said 30 sectors have completed national road maps and submitted these to the Board of Investments while 22 others, including those which are still undergoing rapid industry assessment, are working on theirs.

Of the 22 sectors, the road maps for jewelry, bamboo, coco coir, creative industries and gold are in the final stages of development.

These road maps form the building blocks of the Manufacturing Industry Roadmap, which serves as the blueprint for the Manufacturing Resurgence Program, as well as the Comprehensive National Industrial Strategy.

In Central Visayas, DTI Regional Director Asteria C. Caberte said that the agency has created technical working groups for the information and communications technology, human resources, agriculture, tourism, retail, furniture, and creative sectors.

Some of the road maps were crafted and funded solely by the private sector while others were drawn up with the assistance of the government and foreign funds.

Among the strong industry sectors that funded their road-mapping activities was the furniture sector, Ms. Maglaya said. Other sectors, such as the auto parts and IC design sectors, are getting assistance from the EU-Philippines Trade Related Technical Assistance Project.

In her keynote speech during the forum, Ms. Maglaya said most of the industry sectors have realized “that they really have to go big because the market is getting bigger. They cannot work as individuals, they need the industry. When orders come and one company alone cannot meet it, that company will lose the order,” she said.

The AEC aims to establish a single market and production base with free movement of goods, services and investments across the 10 ASEAN member countries by end-2015. Tariffs on 99.6% of products traded within the region have already been eliminated.

The Philippines, for its part, has 439 policy commitments such as the adoption of open skies, trade facilitation and passage of a competition law, among others.

source:  Businessworld

Bangsamoro crucial to ASEAN integration

THE PROPOSED Bangsamoro political entity would be crucial to the upcoming integration of the Philippines into the Southeast Asian economic community because Mindanao “is our gateway to our ASEAN [Association of Southeast Asian Nations] neighbors.”

The Office of the Presidential Adviser on the Peace Process (OPAPP) issued this statement on Tuesday, adding that regional development brought on by a more stable situation would be vital in boosting the national economy.

“When we achieve peace in the Bangsamoro, we will accelerate progress in an entire region whose growth has been stunted through four decades by armed conflict,” chief government negotiator Miriam Colonel-Ferrer said.

She added that “collaborative programs and mechanisms are already being created and set in motion in order to support conflict-affected MILF communities towards a smooth transition into the Bangsamoro era.”

The so-called Sajahatra Bangsamoro Program (SBP), meanwhile, had already been mobilized to improve the delivery of basic services and implement livelihood program in Moro Islamic Liberation Front (MILF) communities, as part of initial preparations for the political entity’s formation, which would be created by a bill currently expected to be approved by the Congress in February.

Top economists have previously noted that with its proximity to the Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA), Mindanao should be able to better reap the touted benefits of integration.

Optimistic about the Bangsamoro deal, oil palm companies have recently expressed interest in the Mindanao region for plantation sites.

CALLS FOR FEDERALISM IN DAVAO
In Davao City, calls for a shift to a federal form of government were renewed, initiated by the informal group Council of Leaders of Mindanao, which organized a forum about the matter on Monday.

Davao Mayor Rodrigo R. Duterte, a member of the Council of Leaders and organizer of the forum, said discussions on federalism is important now that the proposed Bangsamoro Basic Law (BBL) is being deliberated on by Congress and public consultations are being held around the country.

“The catalyst is the BBL because if you do not give to other regions the same, there will be a clamor,” said Mr. Duterte. “Both these proposals (BBL and federalism) would provide mechanisms for equal opportunities to all groups in the country,” he added.

Among those in the forum was former military officer Alexander Noble, representing indigenous people (IP) communities, who have expressed fear of losing rights and being marginalized once the BBL is passed and implemented.

Mr. Noble, a leader of the Reform the Armed Forces Movement during the time of the late President Corazon C. Aquino, said while several indigenous groups are opposing the creation of the Bangsamoro territory, they believe that federalism would address their concerns through the formation of IP states.

Also in attendance were Catholic Church leaders, including Davao Archbishop Emeritus Fernando D. Capalla, who is also chair of the interreligious group Bishops Ulama Conference.

Mr. Capalla, while stressing his support for federalism is personal and not representative of the Catholic Church nor the Ulama group, said a federal form of government will be a solution to an “incompetent and morally bankrupt” government.

Federalism, he said, will ensure the “adequate and humane promotion of the common good.”

The Council of Leaders of Mindanao include Governor Jose Maria R. Zubiri, Jr. of Bukidnon, Reuben Canoy of the Radio Mindanao Network, former Transportation and Communications secretary Pantaleon D. Alvarez, former Zamboanga Rep. Romeo G. Jalosjos, and former Cagayan de Oro City mayor Vicente Y. Emano.

The group has also gathered support from leaders in the Visayas. -- Vince Alvic Alexis F. Nonato and Carmelito Q. Francisco

source:  Businessworld

Banks face challenge in integration

FINANCIAL INTEGRATION in Southeast Asia will make the region less vulnerable to external shocks, according to a report Standard & Poor’s (S&P) released yesterday, but the process will be a rough ride for banks like those in the Philippines which, despite current strengths, could “find it difficult to compete if larger banks join the fray.”

In its report, titled “ASEAN Financial Integration: The Long Road to Bank Consolidation,” the credit rater said completion of the process by 2020 could result in “emergence of major banks that can compete with large banks outside the region.”

“Better economies of scale would also make financial systems within the region more efficient... [and] make banking sectors more resilient to external shocks,” S&P said.

Financial integration in the Association of Southeast Asian Nations (ASEAN) is part of the planned ASEAN Economic Community (AEC) that is scheduled to formally take effect next year.

AEC will transform the region into a single market and production hub where goods, services, capital, and labor move freely across borders.

The report said AEC will make ASEAN the fifth-biggest trading bloc in the world with combined gross domestic product (GDP) of about $2.4 trillion “and a young, growing and consumption-driven population of 625 million.”

S&P said it projects regional GDP growth to pick up to 5.8% in 2016 from 4.9% this year, “second only to China.”

More intensive intra-ASEAN trade, S&P said, “could encourage banks to expand regionally to better serve their clients.”

‘LONG WAY TO GO’
At the same time, however, the credit rater noted the process of creating a regional financial system will not be “entirely smooth.”

“ASEAN’s financial system still has a way to go to meet its goal of integration by 2020,” S&P said.

“The uneven pace of financial liberalization in different countries -- along with significant divergence in regulatory frameworks -- could complicate cross-border mergers,” it added.

“We believe national regulators will proceed with gradual financial liberalization and ensure that domestic banks are strong enough to compete before they allow full liberalization -- allowing the entry of qualified ASEAN banks.”

CONDITIONS ‘GOOD’
In the case of the Philippines, the recent easing of a law that had restricted the entry of foreign banks into the country for two decades “could gradually boost foreign investor participation” in the local banking industry and “trigger some industry consolidation, particularly for small- to mid-sized banks.”

Last July 21, President Benigno S.C. Aquino III signed into law Republic Act (RA) No. 10641 -- An Act Allowing the Full Entry of Foreign Banks in the Philippines -- amending RA 7721 which had sanctioned entry of a limited number of foreign banks since 1994.

The new law stated that more foreign banks -- which should be publicly listed in their home countries -- could operate in the Philippines through any one of three modes of entry, namely by:

• acquiring, purchasing or owning up to 100% of the voting stock of an existing local bank;

• investing in up to 100% in the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or

• establishing branches with full banking authority.

At the same time, RA 10641 mandated the Monetary Board to ensure that at least 60% of the resources or assets of the entire Philippine banking system is held by domestic lenders majority-owned by Filipinos.

Section 6 of RA 7721 had allowed up to 10 foreign banks to enter the Philippines within five years from effectivity of the law.

Currently, all those slots have been filled by: CTBC Bank (Philippines) Corp.; Maybank Philippines, Inc.; Bangkok Bank Public Co. Ltd.; Bank of America, N.A.; Bank of China Limited-Manila Branch; Citibank, N.A.; JP Morgan Chase Bank, N.A.; Korea Exchange Bank; Mega International Commercial Bank Co., Ltd.; and the Bank of Tokyo-Mitsubishi UFJ, Ltd.

Only should one of the 10 banks pull out could another foreign lender enter the Philippine market under the previous law.

On the whole, the credit rater noted that “good economic conditions and ample liquidity continue to bolster loan growth and mildly improve” bad-loan ratios of Philippine banks.

Moreover, S&P said it expected local banks’ net interest margins “to gradually improve” as they reprice loans to keep in tune with increases in key policy rates earlier this year.

At the same time, however, increasing competition will likely temper such improvement in their interest margins.

OUTLIER
The perception of relatively well-cushioned Philippine banks was shared by Moody’s Investors Service in a separate report it released also yesterday.

In its report, titled “ASEAN Banks’ Bond Issuance Set to Increase As Loan Growth Continues to Outpace Deposit Inflows”, Moody’s said it expected Southeast Asian banks to increasingly turn to capital markets -- particularly by issuing bonds -- to help fund lending operations.

“Loan growth in most parts of the ASEAN region has steadily outpaced deposit inflows over the past several years, leading banks to use most of their stock of deposits for the purpose of funding loans,” the credit rating agency said.

“There is evidence that some banks have turned to their excess liquid assets as an alternative source of funds, and we believe this source is also diminishing,” it added.

Moody’s, however, cited Philippine banks as outliers, noting they “continue to have very strong funding cushions” -- with deposits “still well in excess of loans” -- hence, “liquidity is unlikely to become a constraining factor for their credit profiles in the next few years”.

COMPETITION INCREASING
Region-wide, S&P said in its report, characteristics specific to certain Southeast Asian countries -- such as entrenched family ownership of the banking sector in the Philippines and strong labor unions in Malaysia -- will make industry consolidation “more difficult”.

High acquisition costs have also been cited as a “significant obstacle” in many deals, the debt watcher added.

And as the region’s banking sectors become more integrated, S&P said asset quality will remain a major risk factor in ASEAN banks’ credit profiles.

Integration, S&P added, will also increase the risk of contagion and spillover effects within the region.

‘PLAYING DEFENSE’
Currently, major Singaporean and Malaysian banks were noted as being the most active in regional expansion.

Thai banks have also been expanding, though to adjacent Vietnam, Laos, Cambodia, Myanmar and parts of China.

“Indonesian and Philippine banks, on the other hand, are playing defense and strengthening their domestic networks,” S&P said.

Banks in Southeast Asia were noted in the report to be largely “small by global standards and don’t have the scale and footprint to compete effectively with global behemoths.”

“In particular, the fragmented banking systems in some countries -- such as the Philippines, Indonesia and Vietnam -- have a large number of small financial institutions with weaker financial profiles than their global peers,” S&P noted.

“These systems will find it difficult to compete if larger banks join the fray.”

source:  Businessworld

Delays to ASEAN integration reining in expansion -- Moody’s

DELAYS in the implementation of the planned Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) could discourage companies from expanding within the region, Moody’s Investors Service said.

The global debt watcher, in a report titled “Inside ASEAN” released last week, noted that expansion of Southeast Asian companies within the region has been largely limited, with cross-border acquisitions within ASEAN making up just 9% of their overall expansion activities.

On the other hand, domestic acquisitions by ASEAN-based companies accounted for 55%, while acquisitions outside the region made up 36%.

“While the AEC is scheduled to be in place by end-2015, member countries have yet to make significant headway in areas such as eliminating non-tariff barriers, reducing cross-border investment obstacles and improving labor mobility,” Moody’s said.

“Until further clarity on such pertinent issues materializes, ASEAN companies may be tempted to hold off on large scale intra-regional investments despite the secular story of increasing trade integration,” it said.

ASEAN -- composed of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam -- aims to transform the region into a single market and production base next year.

Moody’s said “deeper financial integration” is needed in ASEAN given that markets in the region remain largely fragmented.

The debt watchdog noted the wide disparities among the 10-member alliance’s domestic regulations and corporate governance, as well as currency and interest rates, limiting the availability of funding for regional expansion.

“Capital market integration is a cornerstone of the AEC, which will help reduce barriers to ASEAN cross-border activity over time,” Moody’s said, noting the ASEAN Banking Integration Framework launched in 2011 as part of the broader AEC objectives.

The ASEAN Banking Integration Framework aims to achieve multilateral liberalization in the banking sector by 2020 for ASEAN commercial banks by liberalizing capital accounts and domestic financial markets in individual countries, regulatory harmonization, and stronger policy coordination among the member states.

The framework is part of the AEC Blueprint, which aims to bring economic benefits and financial stability to the region through multilateral liberalization by 2015. -- Daryll Edisonn D. Saclag

source:  Businessworld

Small business and Asean integration

You’re probably familiar with the 80-20 rule, which says that 80 percent of outcomes can be attributed to (the top) 20 percent of the players. In the Philippine enterprise sector, the interesting numbers are not 80-20 but 68-0.4. That is, 68 percent of our economy’s total output can be attributed just to the largest 0.4 percent of Philippine enterprises, or 3,023 out of a total 777,687 firms counted in 2010. The rest—the 99.6 percent composed of microenterprises (making up 91.6 percent) and small and medium enterprises or SMEs (comprising 8 percent)—account for less than a third (32 percent) of our gross domestic product (GDP).

I recently cited figures from a 2008 study that showed Philippine microenterprises and SMEs contributing a smaller share to GDP than those of our neighbors, with the share reaching up to 57 percent in Indonesia. The same holds for contribution to total jobs: Philippine SMEs account for 61 percent, versus 68 percent in Singapore, 73 percent in Cambodia, 77 percent in Thailand, 81 percent in Laos, and 97 percent in Indonesia. These comparisons show that great scope remains for strengthening the role of SMEs in the Philippine economy, if we could only help them overcome traditional hurdles in access to finance, technology, raw materials and markets.

I have long maintained that widening and strengthening the SME sector is key to overcoming the Philippines’ long-standing lack of inclusive economic growth. The problem is tied to our economy’s persistent struggle with “jobless growth,” clearly reflected in last year’s 7.2-percent GDP growth that came with a meager 0.17-percent growth in jobs. The only way this can change is to have SMEs more prominently propel growth and job creation, not rely primarily on large investments and enterprises especially of the capital-intensive kind. It stands to reason that where workers are in abundance and capital is limited, we must strive to generate employment where it costs less to create a job—and that is in the SME sector. The onset of the Asean Economic Community (AEC) makes the task even more challenging, as SMEs must find proper positioning in a more closely integrated regional economy, with all its peculiar opportunities and challenges.

The foremost and seemingly intractable challenge is in providing financing for our SMEs. Bank financing is estimated to account for only 11 to 21 percent of capital raised by Philippine SMEs, much lower than the 30-percent international benchmark seen in other developing countries like Thailand and India. The SME Policy Index recently developed by the Economic Research Institute for Asean and East Asia rated the Philippines lowest among the original Asean-5 in terms of SMEs’ access to finance. The index considers factors such as collateral and provisioning requirements, credit guarantee schemes, credit bureau/registries, availability of risk capital (including venture capital, private equity funds and “business angels”), and access to the stock market. There is much to learn just by looking at what our neighbors have done on SME finance.

But enabling SMEs to take on the opportunities and challenges of AEC is not a task for government alone. SMEs have to do their homework too. Basic to this is putting their business planning and management and financial record-keeping in order. It’s a common lament that banks do not lend enough to SMEs despite a great abundance of loanable funds in the system. But one can’t fault the banks when small firms that seek their loans are unable to demonstrate a minimum of responsible business and financial management. Targeted capacity-building in these areas for SMEs would be a worthy service that government (especially local governments) and nongovernment organizations (including banks themselves) could provide, as direct contribution to inclusive growth. I’d also like to see organizations of bookkeepers and accountants provide time-bound, free or discounted accounting services to struggling SMEs as a public service, which could after all turn into sustained business relationships later.

More stable SMEs ready to expand their horizons would do well to invest time and effort to study the particular documentary procedures and requirements for taking advantage of trade and investment concessions under the AEC. The Department of Trade and Industry conducts seminars on these all around the country through their Doing Business in Free Trade Areas program, targeting particularly the SMEs. These have already helped boost the level of utilization and availment by Philippine firms of trading privileges under our various free trade agreements, including the AEC.

SMEs also need to be prepared to cluster together, team up and unite, as no single small firm can meet the volume orders that inevitably come from export buyers. A businessman friend once shared with me his experience when he secured a sizable order for his product from overseas; the order was too large for him to fill all by himself. So he invited his known competitors to team up with him to collectively meet the large order. To his utter frustration, no one was willing to do so, all preferring to go it alone. He lost the order, and with it, the opportunity of establishing a foothold in the export market. This seeming propensity for individualism is incompatible with the wealth of export opportunities that the much larger Asean market would present, and is something our SMEs must learn to overcome if they are to reap the benefits of the AEC.

The AEC, after all, was never meant to benefit only the big guys.

* * *

E-mail: cielito.habito@gmail.com

By Cielito F. Habito |Philippine Daily Inquirer

12:06 am | Tuesday, September 30th, 2014

ASEAN sees global threat from terror groups in Iraq, Syria

THE RISE of violence and brutality committed by terrorist groups in Iraq and Syria poses a threat to the Middle East and, if left unchecked, the world, according to the Association of South East Asian Nations.

“Asean denounces all acts of destruction, violence and terror in all its forms and manifestations,” the organization of 10 Southeast Asian member states said in a statement posted on its website yesterday. “Asean renews its commitment to work with the international community to fight against extremism, radicalism and terrorism and address its root causes.”

The U.S. expanded its bombing of militants from Islamic State, an al-Qaeda breakaway group from Iraq to Syria, this week. The strikes, backed by the broadest Arab-U.S. military coalition since the 1991 Gulf War, seek to rein in militants who have rampaged through Syria and threatened to ignite a civil war in Iraq.

Asean supports the United Nations Security Council resolutions, which call on the international community to suppress the flow of foreign terrorist fighters and financing of such groups, the bloc said in the statement. Asean comprises Indonesia, Malaysia, Singapore, Philippines, Laos, Cambodia, Myanmar, Thailand, Vietnam and Brunei.

Misguided Leaders

As many as 200 Indonesians and at least 30 Malaysians have traveled to Syria to fight with the Islamic State and other rebel groups via countries such as Egypt and Turkey, according to a report last month by New York-based Soufan Group, which provides strategic analysis to governments. This raises the risk they will return to carry out attacks in their home countries, Soufan Group said in the report.

“Governments and Muslim community organizations must maintain vigilance against attempts by misguided leaders to spread propaganda to recruit Muslim youth to extremism and violence,” said Rohan Gunaratna, head of the International Centre for Political Violence and Terrorism Research at Nanyang Technological University in Singapore. “Governments should criminalize by law its nationals advocating, supporting or participating in fighting overseas.”

Should there be an Islamic State strike in Malaysia, it will be along the Sulu Straits, between Sabah on the island of Borneo and the southern Philippines, The Star reported today, citing Malaysian Defense Minister Hishammuddin Hussein. A meeting will be held with Prime Minister Najib Razak to discuss allocating funds to safeguard the country’s waters, Hishammuddin told the Kuala Lumpur-based newspaper.

The Philippines government has been alerted to the possible entry of Islamic State operatives into the country, the Philippine Daily Inquirer reported today, citing President Benigno Aquino’s spokesman Abigail Valte. Authorities are tapping into the Moro Islamic Liberation Front, which has signed a peace treaty with the government, to gather and share information, according to the report. -- Bloomberg

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Homegrown franchises see ASEAN as challenge

Homegrown Filipino franchisers should view the full Asean economic integration in 2015 as a challenge rather than as purely competition in nature.

“It is really an awakening for us to level up. It is more of a challenge than a competition,” said Milkin’ Corp. president and chief executive officer Richie Z. Cuna during a press conference for the 2014 Filipino Franchise Show slated on October 3-5 at the World Trade Center to help promote this sector.

Cuna said that with the regional economic integration, entry of foreign franchises cannot be prevented anymore, in the same manner that Filipino franchisers are also expanding overseas.

“At least a dozen of our members have already opened franchises abroad. We are going global,” said Cuna, who is the chairman of this year’s franchise show.

To help the existing franchisees gear up for ASEAN 2015, AFFI is also organizing the 1st Franchisee’s Conference on October 1 with the theme “Turning Your Franchise Investment to Success”.

The conference envisions existing franchisees to develop business synergy and networking with other franchisees. It will assist them as they manage their own franchise branches.

The conference shall serve as a learning opportunity for franchisees as they listen to other franchisees talk about their successes as well as their challenges.

Part of the conference will also be a walk through with franchisees on the basics of franchising. This discussion will eliminate the franchisees misconceptions and myths they have on franchising. Basics of franchising will set the record straight on what really is franchising.

A discussion will also focus on international franchisees benchmarks for success.  An appreciation of these benchmarks will allow franchisees an opportunity to put their own benchmarks to higher levels.

Speakers of the 1st Franchisee Conference are franchisees themselves who have been franchisees for over 20 years. They will share their experiences and their stories will surely encourage franchisees become successful in their own franchise branches.

AFFI groups a total of 118 homegrown small and medium Filipino franchising companies which have a total of 19,312 stores in the country employing 135,184 people.

The most affordable AFFI franchises are engaged in food court business with investments range of between P300,000 to P350,000. Financing support from the Bank of Philippine Islands only shows that banks have faith in the franchising sector as one of the most successful business models.

AFFI is expected to grow 20 percent this year from both in terms of sales and number of franchises. In 2013, the 118 AFFI members reported estimated combined total sales of P63.4 billion.

sourcE:  Manila Bulletin

Challenges with the coming ASEAN 2015

ASEAN integration in 2015 will spur greater demand for both skilled and unskilled workers and help create up to 14 million additional jobs by 2025, says a joint study by the Asian Development Bank and the International Labour Organization (ILO).  Some 3 million new jobs will be found in the Philippines.

However, the associated gains may not be distributed evenly and could result in deeper inequality. Because competition over talent will intensify and push wages upwards, workers who are high-skilled and well-educated will be in a better position to benefit — a situation that could see millions of unskilled workers wage and welfare decline.

In the Philippines, laborers and unskilled workers in the labor force account for the biggest portion of the employed — some 12.5 million or 32.3 percent as of April 2014.  They are the ones compelled by circumstances to accept vulnerable, even informal, employment arrangements, characterized by lower wages and unsafe working conditions.

Filipino unskilled workers are also among the least productive in the world, according to a 2014 World Bank study.  Mandatory annual minimum wage increases have not been accompanied by workers’ increased productivity.  World Bank economists point to decades of underinvestment in education and skills training as the culprit.

Several educational reforms have been introduced recently, including the Early Years Act, Universal Kindergarten Education Act and the Enhanced Basic Education Act (K to 12). Successive increases in the national budget for public education have been made.   However, among ASEAN countries, the Philippines still holds the dubious distinction of having the highest proportion of children, at 11.3 percent, out of school.

Even more disturbing — and a major cause of the high drop out rate — is the fact that almost 37% of children five years and under are malnourished.

These are some of the challenges the nation faces on the eve of ASEAN 2015.

 E-mail: angara.ed@gmail.com

Benefit from ASEAN integration? Forget it

THIS IS MY SECOND article on the upcoming 2015 ASEAN integration (see ASEAN Integration, March 14, 2014). Many still express concern about it, although most of the perceived issues are really off, arising from two misconceptions: the first is that the ASEAN Economic Community (AEC) will lead to a common market in the mold of the European Union, and the second is that the Philippines needs to prepare for 2015. Both are incorrect.

The AEC is not envisioned as an Asian version of the European Union. The AEC, at best, would be one of continuing evolution. As pointed out by Coraline Goron: “The ASEAN Economic Blueprint presents two main objectives: to transform ASEAN into a single market and production base and make it a competitive economic region. One should be aware, however, that despite the bold language, the ideas put forward in this document remain significantly lower than the economic integration in the EU. Notably, no customs union and no single currency are envisaged.”

By the way, a “customs union” focuses on uniform external tariffs, which is different from a free trade agreement or FTA (which also has lowered tariffs but maintains separate external trade policies).

Finally, the idea that integration will take place next year is not exactly accurate. ASEAN integration has long begun. In fact, we have long been living in an integrated ASEAN. The truth is that many of the provisions of the ASEAN integration plans are already in place: from the lowered tariffs, to increased FTA activity, to the smoothening of customs procedures.

As of 2012, Philippine compliance with ASEAN integration is at 76.9%. Many members are at more than 80%. But Vietnam is still at 79.6%, Cambodia 76.6% and Brunei 75.5% (lower than the Philippines).

In other words, intra-ASEAN trade is already virtually duty-free, providing a relative advantage (price-wise) on the cost of goods when compared to other countries. Plus, note the various FTAs that ASEAN has with other countries

Having said that, there is certainly work to be done. The question really is not the dangers that ASEAN integration can bring (if there are any) but rather if the Philippines itself is ready to take advantage of it or be left again in the dust.

One challenge for the Philippines is to realize and manage the transition from a negotiations-based system to a more legal, rule-oriented paradigm. As far as legalities are concerned, the main source of Philippine obligations is found in Article 5.2 of the ASEAN Charter: “Member States shall take all necessary measures, including the enactment of appropriate legislation, to effectively implement the provisions of this Charter and to comply with all obligations of membership.”

Incidentally, Article 24 states that all disputes “relating to specific ASEAN instruments shall be settled through the mechanisms and procedures provided for in such instruments.”

With such general-sounding obligations, our government is nevertheless mandated to review Philippine laws to determine compliance on matters relating to: tariff and non-tariff barriers, rules of origin, customs integration, professional and employment qualifications, investment laws, capital markets, securities standards, intellectual property, taxation, competition policy, and the like. Our courts and administrative agencies must now be brought up to speed on the demands of ASEAN.

Incidentally, the foregoing also highlights the need for lawyers not only with professed international law capabilities but also business orientation and ASEAN competence. Emphatically, there is a necessity now for our lawyers to develop an “international” outlook. Which is inevitable, what with international law forming part of the laws of the Philippines.

But this globalization of our lawyers’ mindsets must also be based on pragmatic considerations, including particularly our nation’s interests. The decision of some local law schools to favor World Trade Organization or international commercial arbitration courses (or even that of the European Commission), for example, has sadly come at the expense of lawyers being completely unfamiliar with the legal systems of our neighboring trading partners in ASEAN and the Asia-Pacific Economic Community.

Finally, to reiterate what I wrote the last time, what is the point of opened markets if we don’t have the know-how and capacity to satisfy those markets? And what is the point of opening up the country for investments if the environment does not make it attractive for investors?

Our use of the ASEAN FTA benefits continues to hover at a mere 20%. This low rate has never been resolved, and even up to now a lot of Philippine firms are still baffled by the mechanics of FTAs.

Despite reported improvements in the area of competitiveness, our foreign direct investments, ease of doing business, power, transport, productivity, infrastructure, education, and rule of law protection lag behind most other ASEAN countries. Our worsening traffic, rather than a sign of progress, allegedly costs the country an amount equal to 7% of the GDP.

So, really: the best way to deal with ASEAN integration is to forget about it. And instead focus on improving ourselves.

Jemy Gatdula specializes in international economic law (WTO and ASEAN), and teaches international law and legal philosophy at the UA&P School of Law and Governance.

jemygatdula@yahoo.com

www.jemygatdula.blogspot.com

source:  Businessworld