Monday, April 28, 2014
AEC 2015 Prospects: Qualifying for FTA Tariffs
(Second in a five-part series)
ANY SAVVY executive knows that a deal isn’t done until the money is in the bank. The same may be said for the Association of Southeast Asian Nations (ASEAN) Trade in Goods Agreement (ATIGA), where negotiated tariff cuts are only meaningful when traders are able to use them.
Many more tariff cuts await enterprising companies in 2015 for goods including rice, sugar, and automotives, as discussed in the pilot of this five-part series on the ASEAN Economic Community (AEC). The next question, however, is how can traders qualify for such preferential tariffs?
So far, there has been mixed feedback on whether companies really take advantage of free trade agreements (FTAs) in the region. According to a 2009 study by Masahiro Kawai and Ganeshan Wignaraja of the Asian Development Bank, only 20% of companies surveyed in the Philippines said they were using FTAs, a rate bested by the 25% utilization in Thailand. Meanwhile, a figure from the ASEAN Secretariat quoted by the Department of Trade and Industry places the Philippines’ utilization at a less dire 41.15% in 2010.
One of the reasons firms reportedly hesitate to use FTAs is the cost associated with obtaining a Certificate of Origin, which proves that a certain good is made up of inputs from participating FTA members. Only then can it qualify for zero or lower tariffs. It is the exporter’s responsibility to secure this certificate so that the importer at the good’s destination can enjoy the preferential tariffs.
Obtaining the Certificate of Origin can be condensed into three steps. First, a trader must determine which FTA to use and what tariff rate is assigned to the product in question. For goods traded among Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam, traders should apply the provisions of the ATIGA. Firms would also do well to take a look at ASEAN FTAs with Australia, China, India, Japan, Korea, and New Zealand if their business involves these countries. The right tariff code and tariff rate are stated on the importing country’s Schedule of Tariff Commitments, which is usually posted as an annex to the agreements on the ASEAN Web site.
The second step is to prove that the product to be exported is produced mainly in the ASEAN. Two criteria are used to indicate this: either (1) the item derives not less than 40% of its inputs from the region -- a figure called the Regional Value Content (RVC), or (2) the non-ASEAN imported input was substantially transformed such that the tariff classification changes at the four-digit level.
If the exporter wants to qualify for preferential tariffs by demonstrating an RCV of not less than 40%, this can be computed directly by dividing the sum of the ASEAN material cost, direct labor, direct overhead, other costs, and profit over the good’s Freight on Board (FOB) price. Exporters are also allowed to meet the RVC rule through an indirect method of calculation wherein the value of non-originating materials is subtracted from the FOB price and the difference is divided by the FOB price. Supporting documents on these are needed for the application for and release of a Certificate of Origin.
Alternatively, an exporter may qualify for preferential tariffs by demonstrating a change in the tariff heading of the finished good. For instance, leather lining imported from Spain falls under Harmonized System Code (HSC) 6406.10.100. Assume that the leather lining is manufactured in the Philippines into shoes for export to the ASEAN. Since leather shoes are classified under HSC 6403.20.000, the first four numbers are different from that of the leather lining, and thus represent a substantial transformation. Because of this, the product is now eligible for preferential tariffs under ATIGA.
Once the Certificate of Origin is obtained, the third step is to send it to the importer who will then present the document to his or her country’s customs authority. Only then can the good enter its destination at the lower or zero tariffs provided by ATIGA or the other ASEAN FTAs.
Understandably, traders may find the process cumbersome, especially if they deal with fast-moving or perishable goods that cannot afford to be delayed by paperwork. Traders may also run into difficulties if they work with fledgling suppliers who may not be familiar with the systems needed to track the origin of inputs. This can be the case especially when a company applies for a certificate for the very first time for a certain product as there may be verification processes and ocular inspections to hurdle. While it can be faster to obtain a certificate for recurring shipments, it is important to note that Customs reserves the right of inspection whenever it deems it necessary. Recognizing this, some ASEAN members are trying out a self-certification program to make it even easier to avail of the preferential tariffs.
The Philippines, in particular, is part of the second pilot project on self-certification which aims to altogether do away with the process and instead allow qualified exporters to merely declare that their goods indeed comply with the rules of origin. Under Bureau of Customs (BoC) Administrative Order 06-2013 dated Dec. 12, 2013, exporters who wish to be certified must, among others, have been exporting to any ASEAN member state for at least a year, have officers who have sufficient knowledge and competence in the application of rules of origin and have undergone training on this pilot project conducted by BoC, and is a legitimate manufacturer or producer.
It should be emphasized, however, that the second pilot project counts Indonesia and Laos as the other participants, and in the meantime, self-certifications in the Philippines will only be honored in these participating countries. A separate pilot project implemented among Brunei, Malaysia, Thailand, and Singapore will end on Dec. 31, 2015. Hopefully, this will be replaced by a region-wide self-certification process.
This innovation -- along with many others in the pipeline, such as the ASEAN Single Window for faster Customs clearance, harmonization of members’ product standards, and engagement with the private sector on non-tariff barriers -- should further improve the ease and transparency of FTA usage in the region. A business-friendly regime for trade in goods, after all, is an essential complement to a thriving trade in services -- which will be the topic for next week’s installment of this AEC series. Businesses have much to look forward to on the road ahead.
Emmanuel C. Alcantara is the head of the tax division of SGV & Co.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
source: Businessworld
AEC 2015 Prospects: Services Integration
(Third in a five-part series)
THE PHILIPPINE economy is driven by the services sector. The country’s banks, telcos, malls, and call centers all hum with a level of frenzied activity, unmatched by farms and factories. Just last year, the sector accounted for roughly 60% of Gross Domestic Product (GDP).
It is therefore understandable that the planned integration of services into the Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) has caused firms and professionals to worry about foreign competition, falling market share, and a race for jobs.
This anxiety is largely unfounded or misplaced at best. The Philippines has in fact not made substantial commitments to open up its services market, a development which some have tagged as the true cause for concern.
Under the AEC Blueprint, members of the regional bloc are meant to “remove substantially” all restrictions on priority sectors -- air transport, e-ASEAN (information communication technology), health care, tourism, and logistics -- by 2013, and by 2015 for all the other sectors. Members are also supposed to allow ASEAN equity participation of 70% for all service sectors by 2015. This ambitious goal, however, is tempered by the provision that “pre-agreed flexibility shall be accorded to all ASEAN member countries.”
The Philippines has made use of this leeway. As such, it ranks second only to Brunei in promising the least services liberalization among the 10 member countries, according to a study published in 2012 by the Economic Research Institute for ASEAN and East Asia. Furthermore, what few commitments the Philippines signed are not substantially different from what it already offered under the 1995 General Agreement on Trade in Services (GATS).
UNCHANGED RESTRICTIONS
A closer look at the country’s package of commitments under the ASEAN Framework Agreement on Services (AFAS) confirms this. From the get-go, the Philippines has stated in its horizontal commitments that market access is to be limited “in all activities expressly reserved by law to citizens of the Philippines (i.e. foreign equity is limited to a minority or zero share.)”
Furthermore, it has also limited the entry and temporary stay of natural persons supplying services by stating: “Non-resident aliens may be admitted to the Philippines for the supply of a service after a determination of the non-availability of a person in the Philippines who is competent, able, and willing, at the time of application, to perform the services for which the alien is desired.”
These blanket conditions effectively narrow the liberalization expected from the Philippines in terms of the so-called Modes 3 and 4 deliveries of services. The two modes refer to provision of services either through the physical presence of a foreign company (by way of equity in a local firm) or an alien worker on Philippine soil -- areas where liberalization makes a greater impact. Modes 1 and 2 -- the consumption of services abroad or cross-border transactions, say, through online transactions -- are generally liberalized already but are useful only for those services which by nature do not require physical presence.
The restrictive conditions thus maintain the status quo for service subsectors. For instance, the transport, construction, energy distribution, and telecommunications sectors -- among the more vibrant sectors perceived critical to economic growth -- remain restricted with foreign equity permitted up to 40%.
Some subsectors are granted a higher foreign equity ceiling but actually entail steep requirements for the practice of the very professionals these businesses rely on. The Philippines’ AFAS annex states that wholesale and retail trade, publishing, management consultancy, property management, and research and development are among those where up to 51% foreign equity participation is allowed. However, foreigners who want to work in the companies they establish must secure government determination of non-availability of local labor.
ASEAN professionals, meanwhile, are allowed to set up firms or partnerships in the Philippines for the practice of architecture, civil engineering, and auditing, among others. However, the AFAS annex further states that they must not only acquire Philippine licenses and public practice experience, their own country must also admit Filipinos to “practice the same profession without restriction or allow Filipinos to practice it after passing the exam on equal terms with foreign citizens, including unconditional recognition of degrees/diplomas.” These sub-sectors are also covered by the blanket condition of local labor non-availability.
It is important to note, however, that temporary permits are nonetheless granted to foreign workers if they are business visitors, intra-corporate transferees, or investors.
OPPORTUNITIES IN THE PHILIPPINES
That is not to say that there are absolutely no opportunities for foreign investors (or local firms seeking foreign infusion). Perusing the AFAS annexes reveals three bright spots.
First, there are those subsectors for which the Philippines declared that 100% foreign equity participation is allowed: computer services, foreign-funded, internationally-bid construction projects, hospital services, international freight forwarding by sea, oil and gas exploration (subject to the President’s approval) and construction of power plants under the build-operate-transfer scheme.
A second opportunity to access the local market is through the delivery of certain services without the presence of the commercial entity or alien worker in the Philippines. Most of the service subsectors have been liberalized in this respect. Although this is not a new development with online transactions now commonplace, it is nevertheless an opportunity that can be explored. These specific services are detailed in the Philippines vertical commitments as part of the 8th AFAS package, which can be found on the Invest ASEAN Web site.
The third, albeit harder won, opportunity for market access is through reciprocity. As mentioned, ASEAN professionals may be allowed to practice locally if their country extends the same courtesy to Filipino counterparts. The Philippines is signatory to eight mutual recognition arrangements (MRAs), which pave the way for ASEAN members to accept accreditations and allow the practice of professionals in the following services: engineering, nursing, architecture, surveying, medicine, dentistry, accountancy, and tourism.
However, more work is needed to transform these frameworks into implementable procedures. According to a report from the Philippine Institute for Development Studies (PIDS), the government think tank, progress varies for each profession. For architecture and engineering, a registration mechanism is in place to qualify as an ASEAN architect or engineer, with a few more assessment policies left to be ironed out. For accounting, surveying, medical, dental, and nursing services, the MRA implementation mechanisms are reportedly still in the works. On top of these, PIDS has noted that “domestic laws and regulations need to be changed in order to align with and support the specific MRAs.”
As such, drastic policy changes for the service sector are not expected in the near term, even as the AEC is meant to be officially established next year. This at least provides the Philippines more time to assess its services strategy and also to take advantage of the existing offers from its neighbors, which will be detailed in the next installment of this series.
Indeed, competitive pressures may be felt if the services sector is opened up to our ASEAN neighbors but, at the same time, a well-planned liberalization effort that is coordinated with the rest of the region could also mean increased opportunities for Philippine firms and the world-class Filipino worker.
J. Carlitos G. Cruz is the vice-chairman and deputy managing partner of SGV & CO.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Thursday, April 24, 2014
Obama and Asia’s crock pot
WITH the country expectant at US President
Barack Obama’s visit to the Philippines, political commentators are
looking for clues as to how the US truly sees the Philippine. Oft times,
the analysis verges on two extreme ends: either indicating full support
(to the point of going to war) or a more “pragmatic” view decided
substantially by US’ commercial interests.
One book doing the rounds is Asia’s Cauldron by “ultra-realist” Robert Kaplan. To say that Mr. Kaplan is somewhat unimpressed by the Philippines would be a gross understatement. The Philippines, so says Mr. Kaplan, is “less a country than a ramshackle empire ruled from Luzon.” And it kind of goes downhill from there.
“‘This is still a bad Latin American economy, not an Asian one,’ a Manila-based Western economist told me. ‘It’s true that the Philippines was not much affected by the global recession of 2008, but that’s only because it was never integrated into the global economy in the first place. What you have,’ he went on, ‘is admittedly steady economic growth, lately over 6% per year, undermined by population growth of 1.7%, unlike other Pacific Rim economies that have churned ahead by almost a third higher that amount for decades, and without commensurate increases in population.’ Crucially, a ‘staggering’ 76.5% of that GDP growth in recent years went to the 40 richest Filipino families. It’s the old story, the Manila elite is getting rich at the expense of everyone else.”
Of course, the usual reaction among Filipinos is to go into a blind rage at the impertinence of this foreigner. But I myself can hardly argue with Mr. Kaplan’s assessment that in our culture, “prominent are the luxury, gated communities, inside which the wealthy can escape the dysfunctional environment through life-support systems.” In short, where our so-called “elite” can pretend that they’re Caucasians living a Spanish, American, or Mediterranean life.
The Financial Times (through book reviewer David Pilling, April 4) seems to back up Mr. Kaplan’s claims, particularly on the Philippines: “The chapter on Vietnam is strong because it draws out the historic antagonisms that underpin present frictions. Another, on the Philippines, highlights the near impossibility of a poor archipelago with a decrepit defence force -- Kaplan comes close to calling it a failed state -- being able to resist the rising power of China. The author deals in raw power, dismissing the Philippines’ appeal to international law in pursuit of its territorial claims as ‘the ultimate demonstration of weakness’.”
It is particularly here, however, on national security that I doubt the correctness of Mr. Kaplan’s views. Not that I argue against his view that our legal suit against China is indeed a sign of “weakness” but that our ally in this area -- the US -- is moving on pure amoral calculations.
As pointed out by David Feith (in his book review in the Wall Street Journal, March 25): “Less compelling is Mr. Kaplan’s confused argument about whether there is any moral dimension to China’s bid for dominance. ‘The South China Sea shows us a 21st century world void of moral struggles,’ he argues. ‘It is traditional nationalism that mainly drives politics in Asia, and will continue to do so.’ In contrast to World War II and the Cold War, ‘there is no philosophical enemy to confront.’ Yet he acknowledges that ‘Chinese dominance in Asia would be very different from American dominance,’ partly because China’s ‘authoritarian system’ is ‘less benign than the American model of government.’ No kidding.”
The fact is, the ongoing struggle (of which the Philippines is part of) right now with China is indeed moral in character. In simpler terms, it is about respect for humanity vis-à-vis love for money or power (commercial or otherwise). On a grander scale, Mr. Feith points out: “Domestically the Chinese government disdains the rule of law, denies property rights and crushes political dissent. Overseas it operates as if only might makes right, and today it is forcing confrontations across nearly all of its borders -- not just around the South China Sea but with Japan to the northeast and India to the southwest. Though Mr. Kaplan doesn’t say so, such behavior derives not from natural Chinese nationalism but from the worldview -- or moral character -- of this Chinese regime.”
What complicates the issue is Mr. Obama’s somewhat confused foreign policy and misguided cutting of its defense budget by 7.8% (which is to be contrasted to China’s increase in defense spending by 7.4%).
In the end, however, Mr. Kaplan exaggerates by labeling this area as a “cauldron.” It’s actually a crockpot: slow burning and with truly significant developments unnoticeable to Western eyes.
And I agree with The Economist’s call (“Troubled waters”, March 15): Mr. Kaplan is “too optimistic about China and enlightened authoritarianism, and China will not for a long time, if ever, replace America as the safeguarder of the global commons. Pax Sinica is still far beyond the horizon.”
(Contact the author at jemygatdula@yahoo.com. Visit his blog at www.jemygatdula.blogspot.com; and Facebook and Twitter.)
source: Businessworld
One book doing the rounds is Asia’s Cauldron by “ultra-realist” Robert Kaplan. To say that Mr. Kaplan is somewhat unimpressed by the Philippines would be a gross understatement. The Philippines, so says Mr. Kaplan, is “less a country than a ramshackle empire ruled from Luzon.” And it kind of goes downhill from there.
“‘This is still a bad Latin American economy, not an Asian one,’ a Manila-based Western economist told me. ‘It’s true that the Philippines was not much affected by the global recession of 2008, but that’s only because it was never integrated into the global economy in the first place. What you have,’ he went on, ‘is admittedly steady economic growth, lately over 6% per year, undermined by population growth of 1.7%, unlike other Pacific Rim economies that have churned ahead by almost a third higher that amount for decades, and without commensurate increases in population.’ Crucially, a ‘staggering’ 76.5% of that GDP growth in recent years went to the 40 richest Filipino families. It’s the old story, the Manila elite is getting rich at the expense of everyone else.”
Of course, the usual reaction among Filipinos is to go into a blind rage at the impertinence of this foreigner. But I myself can hardly argue with Mr. Kaplan’s assessment that in our culture, “prominent are the luxury, gated communities, inside which the wealthy can escape the dysfunctional environment through life-support systems.” In short, where our so-called “elite” can pretend that they’re Caucasians living a Spanish, American, or Mediterranean life.
The Financial Times (through book reviewer David Pilling, April 4) seems to back up Mr. Kaplan’s claims, particularly on the Philippines: “The chapter on Vietnam is strong because it draws out the historic antagonisms that underpin present frictions. Another, on the Philippines, highlights the near impossibility of a poor archipelago with a decrepit defence force -- Kaplan comes close to calling it a failed state -- being able to resist the rising power of China. The author deals in raw power, dismissing the Philippines’ appeal to international law in pursuit of its territorial claims as ‘the ultimate demonstration of weakness’.”
It is particularly here, however, on national security that I doubt the correctness of Mr. Kaplan’s views. Not that I argue against his view that our legal suit against China is indeed a sign of “weakness” but that our ally in this area -- the US -- is moving on pure amoral calculations.
As pointed out by David Feith (in his book review in the Wall Street Journal, March 25): “Less compelling is Mr. Kaplan’s confused argument about whether there is any moral dimension to China’s bid for dominance. ‘The South China Sea shows us a 21st century world void of moral struggles,’ he argues. ‘It is traditional nationalism that mainly drives politics in Asia, and will continue to do so.’ In contrast to World War II and the Cold War, ‘there is no philosophical enemy to confront.’ Yet he acknowledges that ‘Chinese dominance in Asia would be very different from American dominance,’ partly because China’s ‘authoritarian system’ is ‘less benign than the American model of government.’ No kidding.”
The fact is, the ongoing struggle (of which the Philippines is part of) right now with China is indeed moral in character. In simpler terms, it is about respect for humanity vis-à-vis love for money or power (commercial or otherwise). On a grander scale, Mr. Feith points out: “Domestically the Chinese government disdains the rule of law, denies property rights and crushes political dissent. Overseas it operates as if only might makes right, and today it is forcing confrontations across nearly all of its borders -- not just around the South China Sea but with Japan to the northeast and India to the southwest. Though Mr. Kaplan doesn’t say so, such behavior derives not from natural Chinese nationalism but from the worldview -- or moral character -- of this Chinese regime.”
What complicates the issue is Mr. Obama’s somewhat confused foreign policy and misguided cutting of its defense budget by 7.8% (which is to be contrasted to China’s increase in defense spending by 7.4%).
In the end, however, Mr. Kaplan exaggerates by labeling this area as a “cauldron.” It’s actually a crockpot: slow burning and with truly significant developments unnoticeable to Western eyes.
And I agree with The Economist’s call (“Troubled waters”, March 15): Mr. Kaplan is “too optimistic about China and enlightened authoritarianism, and China will not for a long time, if ever, replace America as the safeguarder of the global commons. Pax Sinica is still far beyond the horizon.”
(Contact the author at jemygatdula@yahoo.com. Visit his blog at www.jemygatdula.blogspot.com; and Facebook and Twitter.)
source: Businessworld
Wednesday, April 23, 2014
AEC: From targets to strategies
AS we see, again and again, targets and goals are one thing; strategies to achieving them are definitely another. Given the fact that Asean Economic Community’s (AEC) policy-making is pragmatic and cautious, taking cultural and political differences into consideration, it is important that efforts to strengthen the regional architecture of the AEC are taken into consideration. The regional architecture will have to be based on specific initiatives and objectives that make markets work better and deliver clear incentives for the member-states and the citizens. Measures with a clear payoff are likely to garner most support, involving areas such as expansion of trade, more productive investments, a focus on inclusive growth, and a clear undertaking to increase the per-capita income.
Institutions for
regional integration should be lean and carefully structured to achieve
results. Formulating a proper strategy to strengthen the economic
integration requires political will, leadership, financial resources,
and a good interaction between business leaders and government
officials.
The required effective
high-level political leadership to shape the new institutional
architecture was visible in Europe, historically coming from French and
German leaders, working together in an effort to preserve the balance of
power within the region. As the European integration progressed,
politicians from other European countries played a key leadership role
at important junctures.
With the AEC rapidly
approaching, we are witnessing a growing commitment from the region’s
leaders; we are seeing almost daily AEC forums in all parts of the
Philippines to convince all stakeholders that the challenges of economic
integration have to be met and converted into opportunities to develop
strategies to concur a 600-million-people market. In recent weeks, I
have outlined key recommendations covering the following sectors:
■ Food and beverage
■ Health care
■ Transport and connectivity
■ Financial services
■ Information and communications technology
■ Automotive
The road maps that the
Department of Trade and Industry is developing jointly with the private
sector are another way to prepare. The challenge remains: dreams have
to be converted into realities.
Within the European
Union (EU)–Association of Southeast Asian Nations (Asean) business
perspective, we are happy that the European Parliament and European
Commission are funding a project in most Asean countries to bring
European small and medium enterprise (SME) closer to Asean SMEs. More
specifically, the goal is to identify business opportunities per Asean
country and for the Asean region to make these opportunities visible in
the 28 EU member-states and then assist the European SMEs into the Asean
markets of their choice. Part of the project is also to create a
level-playing field for these European SMEs to remove technical and
other barriers to trade and investment and to foster B2B
(business-to-business) cooperation with Asean SMEs.
In the Philippines we
have launched the EU-Philippines Business Network that will implement
the project. Involved are all European business organizations in the
Philippines. The objective is to match European and Philippines SMEs in
partnerships that will allow stronger market positions in this country
and, at the same, time provide the basis to successfully benefit from
the market opportunities the AEC offers.
All of these efforts
have a purpose: to work toward the vision of an AEC. In the end, it is
about building a more integrated Asean region, free from poverty and
conflict, prosperous and confident, and well-equipped to shape its
destiny.
source: Business Mirror
AEC to boost consumer protection in Asean
As part of the Asean
Economic Community (AEC), the Asean Committee on Consumer Protection
(ACCP) is now intensifying its efforts on initiatives for consumer
protection.
ACCP members met on
Wednesday in Makati City to continue discussions on measures that will
assist consumers in coping with the effects of the AEC in 2015.
The ACCP targets that in the Association of Southeast Asian Nations (Asean) integration, all member-states must have consumer-protection law.
“In general in all
Asean, we achieved almost 90 percent,” Trade Consumer Protection Group
Undersecretary Victorio Mario Dimagiba said in the sidelines of the
ninth ACCP meeting.
To date, eight Asean members already have consumer-protection law. Myanmar and Cambodia are now working on this area.
To further hasten
consumer protection, the ACCP will be working on advocacies and crafting
policy digest, which will be “quick and easy-to-understand tools for
consumers,” according to Dimagiba.
The committee also targets to simplify procedures on cross-border mechanism.
“In consumer
protection, we are fine-tuning our cross-border mechanism. In simple
term, in the Philippines we have 3Rs; repair, replace and refund. We are
simplifying the procedures on how that could be also applied across the
10 Asean member-states,” Dimagiba explained.
The ACCP also pushes for harmonization of consumer-protection law.
In this case, Dimagiba
said the Department of Trade and Industry will be submitting a draft to
amend the national consumer-protection law to Sen. Paolo Benigno Aquino
IV, who chairs the Senate Committee on Trade, Commerce and
Entrepreneurship.
He noted that amendments to the law will include increasing administrative and criminal penalties.
Last the ACCP has set up a web site in which Asean consumers can file complaints online.
“We have a web site
already—aseanconsumer.org where any citizen of Asean, any citizen that
have complaint in any consumer transaction when they are visiting Asean,
can just log on to that web site and file the complaints,” Dimagiba
said.
“The group is doing
well in terms of achieving the deliverables for the target before 2015.
The next step is to think of the post-2015 agenda, the post-2015 work
plan. This time, we have to go beyond advocacy and more on the
implementation stage,” Brunei Darussalam Asean Chairman Hjh May Fa’ezah
Hj Ahmad Ariffin said.
Meanwhile, the
Philippines is now hosting the four-day ninth ACCP meeting, which is
attended by delegates from Asean members such as Brunei, Cambodia,
Indonesia, Lao PDR, Malaysia, Myanmar, Singapore, Thailand, Vietnam and
Philippines.
source: Business Mirror
Sunday, April 13, 2014
We are getting ready for the Asean Economic Community
Good news: At the Asean Economic Community Forum on Thursday at the
Crowne Plaza Hotel, the Department of Trade & Industry Secretary
Gregory Domingo, Committee on Asean Economic Community Chairman, and DTI
Undersecretary Adrian Cristobal, Jr. both said that we should be ready
and we are ready for the official start of the Asean Economic
Integration on January 1, 2016! The other speakers, namely Dr. Cielito
Habito, Assistant Secretary Rafaelita Aldaba, Private Sector Co-chair of
the National Competitiveness Council Guillermo Luz and game changers
Philippine Chamber of Commerce and Industry Honorary Chairman Sergio
Ortiz-Luis, Jr., Management Association of the Philippines President
Gregorio Navarro, Asean Business Advisory Council Philippine
Representative Jay Yuvallos and DTI Regional Director Asteria Caberte
all agreed that there is still a lot to be done, but we are prepared to
join the Asean Economic Community.
More good news: Important sectors of our society are contributing to our readiness—the academe, Technical Education and Skills Development Academy, private business —large, medium, small, labor organizations and government. The benefits of a collective market—600 million people—will surely augur well for a dynamic and profitable business activity. We are lagging, in more ways than one, in many aspects of the economy, but we are getting there. And as the speakers all said we need a lot more innovation, adoption of appropriate technology, improvement of the quality of our education, faculty and research output, step up education and training of our human resource, creating more niches and attracting more foreign investors. For example, one speaker suggested, we could develop our dental practice and make it our niche since we have very good dental schools and so many students enrolled in these courses. Not one country in Asean has focused on the dental practice.
Some challenging news: out of the 400 universities in the whole world ranked in 2013, Mr. Luz noted that two came from Singapore, one from Thailand and none from the Philippines. Out of 834 universities ranked in 2013, 29 came from the Asean. The highest ranked entry in the Philippines was the University of the Philippines, at No.380. UP was ranked No. 10 of the ten highest ranked schools in Asean.
Obviously, we need to do something about our educational system radically and quickly. Still our best resource is our people—English-speaking, talented, skillful, quick-learner, hard-working, creative and, may I add, team player.
The Asean Economic Community: why should we get excited about it? Adrian Cristobal reports that the AEC is all about
• making trade and investments flow freely
• creating an enabling environment for business to prosper
• ensuring that everybody participates and benefits in the development process
• seizing opportunities in the global market.
Actually, Mr. Cristobal continues, the Philippines and other Asean countries (Singapore, Malaysia, Brunei, Indonesia Thailand and Vietnam) have already been engaged in an economic community to a certain extent. As of 2010, all duties have been eliminated for all products except swine, poultry, cassava, sweet potatoes and corn (all at 5 percent). Rice duty will remain at 40 percent until 2015 and 35 percent by 2015. Sugar duty was 18 percent in 2013, 10 percent in 2014 and eventually 5 percent by 2015.
Next to be opened is the services industry: Engineering, nursing, architectural, surveyors, medical, dental, accountancy. The agreement here is that the professionals still need to pass the qualifying exam in the country where they intend to provide their service.
Mr. Cristobal said that to be really ready, we need to comply with our commitments, enhance our competitiveness, especially address the “ease of doing business” issues, promote collaboration between and among government, private sector, labor, academe and civil society organizations and intensify communication to promote one country, one voice and to form private-public partnerships.
The Philippines has a lot to gain from the AEC and is well positioned to seize opportunities. Mr. Cristobal asserted that we are the fastest growing among Asean members, second largest in Asean in terms of population, youngest workforce with 23.3 years as the median age, second to Lao PDR, and showing consistent upward trajectory in terms of score and global ranking (Global Trade Enabling Index and Global Competitiveness Index).
I personally feel very positive about the AEC. We could not survive on our own. We need allies who could be loyal to us just as we are loyal to them. Our biggest predator is China. With AEC, we can stop China from dumping (smuggling?) their goods here.
We will have access to quality products made in our neighbor countries at competitive prices. One more thing about AEC is that only products made inside member countries could be traded, duty-free.
source: Manila Times
More good news: Important sectors of our society are contributing to our readiness—the academe, Technical Education and Skills Development Academy, private business —large, medium, small, labor organizations and government. The benefits of a collective market—600 million people—will surely augur well for a dynamic and profitable business activity. We are lagging, in more ways than one, in many aspects of the economy, but we are getting there. And as the speakers all said we need a lot more innovation, adoption of appropriate technology, improvement of the quality of our education, faculty and research output, step up education and training of our human resource, creating more niches and attracting more foreign investors. For example, one speaker suggested, we could develop our dental practice and make it our niche since we have very good dental schools and so many students enrolled in these courses. Not one country in Asean has focused on the dental practice.
Some challenging news: out of the 400 universities in the whole world ranked in 2013, Mr. Luz noted that two came from Singapore, one from Thailand and none from the Philippines. Out of 834 universities ranked in 2013, 29 came from the Asean. The highest ranked entry in the Philippines was the University of the Philippines, at No.380. UP was ranked No. 10 of the ten highest ranked schools in Asean.
Obviously, we need to do something about our educational system radically and quickly. Still our best resource is our people—English-speaking, talented, skillful, quick-learner, hard-working, creative and, may I add, team player.
The Asean Economic Community: why should we get excited about it? Adrian Cristobal reports that the AEC is all about
• making trade and investments flow freely
• creating an enabling environment for business to prosper
• ensuring that everybody participates and benefits in the development process
• seizing opportunities in the global market.
Actually, Mr. Cristobal continues, the Philippines and other Asean countries (Singapore, Malaysia, Brunei, Indonesia Thailand and Vietnam) have already been engaged in an economic community to a certain extent. As of 2010, all duties have been eliminated for all products except swine, poultry, cassava, sweet potatoes and corn (all at 5 percent). Rice duty will remain at 40 percent until 2015 and 35 percent by 2015. Sugar duty was 18 percent in 2013, 10 percent in 2014 and eventually 5 percent by 2015.
Next to be opened is the services industry: Engineering, nursing, architectural, surveyors, medical, dental, accountancy. The agreement here is that the professionals still need to pass the qualifying exam in the country where they intend to provide their service.
Mr. Cristobal said that to be really ready, we need to comply with our commitments, enhance our competitiveness, especially address the “ease of doing business” issues, promote collaboration between and among government, private sector, labor, academe and civil society organizations and intensify communication to promote one country, one voice and to form private-public partnerships.
The Philippines has a lot to gain from the AEC and is well positioned to seize opportunities. Mr. Cristobal asserted that we are the fastest growing among Asean members, second largest in Asean in terms of population, youngest workforce with 23.3 years as the median age, second to Lao PDR, and showing consistent upward trajectory in terms of score and global ranking (Global Trade Enabling Index and Global Competitiveness Index).
I personally feel very positive about the AEC. We could not survive on our own. We need allies who could be loyal to us just as we are loyal to them. Our biggest predator is China. With AEC, we can stop China from dumping (smuggling?) their goods here.
We will have access to quality products made in our neighbor countries at competitive prices. One more thing about AEC is that only products made inside member countries could be traded, duty-free.
source: Manila Times
AEC 2015 Prospects: Part one: Overview and trade in goods
AS THE day of reckoning for the Association
of Southeast Asian Nations (ASEAN) Economic Community (AEC) draws
closer, our clients have been asking how further integration will impact
doing business and operating in a regional environment given the
diversity of culture, political platform, scale of market and geography.
Though many companies have long engaged in cross-border operations in the region, the larger market access envisioned under the AEC raises questions about what to expect and how to adjust. To answer these, we are rolling out a five-part series in this column to not only condense explanations on the ASEAN’s various agreements but also to pinpoint opportunities and challenges in 2015 and beyond.
This first installment will provide an overview of the opportunities, challenges and the overall big picture scenario in the AEC before delving into the nitty-gritty of trade in goods -- particularly what to expect in terms of tariff cuts as we move toward a single regional market and production base. Next week, Part Two will explain how to qualify for lower or zero tariffs by making sense of tariff codes and rules of origin. Parts Three and Four will go on to discuss services liberalization, starting with the Philippines’ commitments and then those of other key ASEAN members. Part Five will conclude with a look at envisioned enhancements to the flow of investment within the region.
OVERVIEW
The AEC is due to be officially realized by Dec. 31, 2015, five years ahead of the original deadline, following an acceleration agreement signed by ASEAN leaders in Cebu. However, in that same city just last February, Department of Trade and Industry Assistant Secretary Ceferino S. Rodolfo emphasized that the AEC is actually virtually upon us already.
Speaking to participants at the ASEAN Economic Forum organized by SGV & Co. and the Sun.Star media group, Mr. Rodolfo pointed out that more than 90% of tariffs among the ASEAN-6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) have already been at zero since 2010. The other members -- Cambodia, Myanmar, Laos, and Vietnam (CMLV) -- are likewise undertaking tariff cuts albeit at a slower pace.
After all, the idea underpinning the blueprint is to phase in the initiatives depending on the development of each member. This is in keeping with AEC’s goal to achieve not just a single competitive production base integrated with the rest of the world, but also one that engenders equitable economic development. By tailoring the initiatives to each member’s capabilities, the integration project does not pit ASEAN members only as competitors but also as complements.
Taking on this mindset of complementarity will help companies unlock the ability to imagine the full potential of the AEC. The question is no longer solely about what business will be lost to competitors but, instead, what gains can be reaped from new alliances.
Some firms have long recognized this. They import inputs such as intermediate goods and services from neighboring suppliers, allocate operations across their ASEAN subsidiaries, and leverage the region’s combined consumer bases as a larger selling platform. This has been the case in the electronics, automotive, and consumer products industries even back in the 1990s.
Moving forward, the AEC can be expected to enhance the use of such linked supply chains and cooperative strategies with the freer flow of capital, investments, services, and -- not least of all -- goods. Capital flow and demographic shift could also be enhanced with a single market and production base.
TRADE IN GOODS
For 2015 specifically, opportunities relating to the single market and production base can be gleaned from combing through the countries’ tariff commitments in the annexes of the ASEAN Trade in Goods Agreement (ATIGA).
Our research shows that the bright spots for 2015 are two-fold: first, increased market access to the lesser developed but fast-growing CMLV, which are beginning to ease more into the AEC; and second, a lowering of tariffs on sensitive agricultural products like rice and sugar among the more affluent ASEAN-6. In short, firms’ regional strategies will be enhanced with the inclusion of more members and more sectors into the integration project next year.
The CMLV market is particularly promising because it is a valuable addition to the market of the ASEAN-6, which had pursued integration more aggressively. The International Monetary Fund expects Vietnam’s Gross Domestic Product to grow by 5.4% in 2014 and 2015, while Cambodia’s economy is forecast to expand by a swifter 7.2%-7.3%.
A key change anticipated in 2015 is Vietnam’s commitment to cut even further tariffs on imported automotives and motorcycles, thus creating an opportunity, say, for car companies to export units from the Philippines instead of putting up a factory in Vietnam. Vietnam’s tariffs on imported vehicles are slated to fall to 35% in 2015 as part of a yearly cut in the tariff, which is meant to drop to 0% by 2018 according to news reports. Already, Vietnam’s 2012-2014 tariff schedule shows that import duties which stood at 70% in 2012 have been cut by 10 percentage points each year ending at 40% for 2014.
Furthermore, according to the Philippines’ Tariff Commission, Vietnam has committed to eliminate its existing tariff rate quotas (TRQs) in three tranches leading to 2015 with flexibility up to 2018. Vietnam imposes TRQs on eggs, cane sugar, tobacco, and salt.
Cambodia’s tariff schedule, on the other hand, shows that various goods imported with 5% tariffs will enjoy a 0% to 5% rate come 2015, signaling possible elimination of, or at least cuts in, duties. These goods include Philippine key exports such as wiring harnesses, chemicals, bananas, mangoes, seaweed, and many others.
Laos, for its part, had committed to implement tariff cuts on sensitive agricultural produce back in 2013, but it is slated to slash tariffs even further in 2015 for a host of vegetables and fruits such as onions, cucumber, sweet corn, cassava, and papaya. Myanmar, meanwhile, has pegged the tariff for certain rice varieties at 5% for the next year.
Similarly, the Philippines and other ASEAN members have committed to slash tariffs on rice and sugar. In the Philippines, rice tariffs will fall to 35% from 40% in 2015 under Executive Order (EO) 894, making it cheaper to import rice from ASEAN members like Thailand and Vietnam that are large rice producers. For sugar, the tariff imposed by the Philippines on ASEAN imports will fall to 5% from 10% in 2015 under EO 892.
Companies that work with these commodities would also do well to check tariff cuts in other ASEAN countries scheduled for 2015, as this could translate into opportunities to either export such goods or set up processing factories that rely on them as input.
Indonesia, for instance, has committed to slash rice tariffs to 25% in 2015 from 30% in 2014. It has also committed to cut tariffs on cane sugar to 5% from 10%, while for refined sugar, Indonesia’s commitment is to bring tariffs down to 10% from 20%
Besides tariff cuts among the 10 ASEAN members, there may be other opportunities in store in the six markets with which ASEAN has free trade agreements, namely: Australia, New Zealand, India, China, Korea, and Japan, which together account for a hefty portion of world trade.
Businesses equipping themselves with information may have already won half the battle as preparation can spell the difference between gains and losses. The next concern moving forward will be the execution steps across the region. A case in point is how to avail of such preferential tariffs amid the various rules on origin imposed by Customs authorities, a topic which will be tackled in the next part of this series.
Cirilo P. Noel is the Chairman and Managing Partner of SGV & Co.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
source: Businessworld
Though many companies have long engaged in cross-border operations in the region, the larger market access envisioned under the AEC raises questions about what to expect and how to adjust. To answer these, we are rolling out a five-part series in this column to not only condense explanations on the ASEAN’s various agreements but also to pinpoint opportunities and challenges in 2015 and beyond.
This first installment will provide an overview of the opportunities, challenges and the overall big picture scenario in the AEC before delving into the nitty-gritty of trade in goods -- particularly what to expect in terms of tariff cuts as we move toward a single regional market and production base. Next week, Part Two will explain how to qualify for lower or zero tariffs by making sense of tariff codes and rules of origin. Parts Three and Four will go on to discuss services liberalization, starting with the Philippines’ commitments and then those of other key ASEAN members. Part Five will conclude with a look at envisioned enhancements to the flow of investment within the region.
OVERVIEW
The AEC is due to be officially realized by Dec. 31, 2015, five years ahead of the original deadline, following an acceleration agreement signed by ASEAN leaders in Cebu. However, in that same city just last February, Department of Trade and Industry Assistant Secretary Ceferino S. Rodolfo emphasized that the AEC is actually virtually upon us already.
Speaking to participants at the ASEAN Economic Forum organized by SGV & Co. and the Sun.Star media group, Mr. Rodolfo pointed out that more than 90% of tariffs among the ASEAN-6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) have already been at zero since 2010. The other members -- Cambodia, Myanmar, Laos, and Vietnam (CMLV) -- are likewise undertaking tariff cuts albeit at a slower pace.
After all, the idea underpinning the blueprint is to phase in the initiatives depending on the development of each member. This is in keeping with AEC’s goal to achieve not just a single competitive production base integrated with the rest of the world, but also one that engenders equitable economic development. By tailoring the initiatives to each member’s capabilities, the integration project does not pit ASEAN members only as competitors but also as complements.
Taking on this mindset of complementarity will help companies unlock the ability to imagine the full potential of the AEC. The question is no longer solely about what business will be lost to competitors but, instead, what gains can be reaped from new alliances.
Some firms have long recognized this. They import inputs such as intermediate goods and services from neighboring suppliers, allocate operations across their ASEAN subsidiaries, and leverage the region’s combined consumer bases as a larger selling platform. This has been the case in the electronics, automotive, and consumer products industries even back in the 1990s.
Moving forward, the AEC can be expected to enhance the use of such linked supply chains and cooperative strategies with the freer flow of capital, investments, services, and -- not least of all -- goods. Capital flow and demographic shift could also be enhanced with a single market and production base.
TRADE IN GOODS
For 2015 specifically, opportunities relating to the single market and production base can be gleaned from combing through the countries’ tariff commitments in the annexes of the ASEAN Trade in Goods Agreement (ATIGA).
Our research shows that the bright spots for 2015 are two-fold: first, increased market access to the lesser developed but fast-growing CMLV, which are beginning to ease more into the AEC; and second, a lowering of tariffs on sensitive agricultural products like rice and sugar among the more affluent ASEAN-6. In short, firms’ regional strategies will be enhanced with the inclusion of more members and more sectors into the integration project next year.
The CMLV market is particularly promising because it is a valuable addition to the market of the ASEAN-6, which had pursued integration more aggressively. The International Monetary Fund expects Vietnam’s Gross Domestic Product to grow by 5.4% in 2014 and 2015, while Cambodia’s economy is forecast to expand by a swifter 7.2%-7.3%.
A key change anticipated in 2015 is Vietnam’s commitment to cut even further tariffs on imported automotives and motorcycles, thus creating an opportunity, say, for car companies to export units from the Philippines instead of putting up a factory in Vietnam. Vietnam’s tariffs on imported vehicles are slated to fall to 35% in 2015 as part of a yearly cut in the tariff, which is meant to drop to 0% by 2018 according to news reports. Already, Vietnam’s 2012-2014 tariff schedule shows that import duties which stood at 70% in 2012 have been cut by 10 percentage points each year ending at 40% for 2014.
Furthermore, according to the Philippines’ Tariff Commission, Vietnam has committed to eliminate its existing tariff rate quotas (TRQs) in three tranches leading to 2015 with flexibility up to 2018. Vietnam imposes TRQs on eggs, cane sugar, tobacco, and salt.
Cambodia’s tariff schedule, on the other hand, shows that various goods imported with 5% tariffs will enjoy a 0% to 5% rate come 2015, signaling possible elimination of, or at least cuts in, duties. These goods include Philippine key exports such as wiring harnesses, chemicals, bananas, mangoes, seaweed, and many others.
Laos, for its part, had committed to implement tariff cuts on sensitive agricultural produce back in 2013, but it is slated to slash tariffs even further in 2015 for a host of vegetables and fruits such as onions, cucumber, sweet corn, cassava, and papaya. Myanmar, meanwhile, has pegged the tariff for certain rice varieties at 5% for the next year.
Similarly, the Philippines and other ASEAN members have committed to slash tariffs on rice and sugar. In the Philippines, rice tariffs will fall to 35% from 40% in 2015 under Executive Order (EO) 894, making it cheaper to import rice from ASEAN members like Thailand and Vietnam that are large rice producers. For sugar, the tariff imposed by the Philippines on ASEAN imports will fall to 5% from 10% in 2015 under EO 892.
Companies that work with these commodities would also do well to check tariff cuts in other ASEAN countries scheduled for 2015, as this could translate into opportunities to either export such goods or set up processing factories that rely on them as input.
Indonesia, for instance, has committed to slash rice tariffs to 25% in 2015 from 30% in 2014. It has also committed to cut tariffs on cane sugar to 5% from 10%, while for refined sugar, Indonesia’s commitment is to bring tariffs down to 10% from 20%
Besides tariff cuts among the 10 ASEAN members, there may be other opportunities in store in the six markets with which ASEAN has free trade agreements, namely: Australia, New Zealand, India, China, Korea, and Japan, which together account for a hefty portion of world trade.
Businesses equipping themselves with information may have already won half the battle as preparation can spell the difference between gains and losses. The next concern moving forward will be the execution steps across the region. A case in point is how to avail of such preferential tariffs amid the various rules on origin imposed by Customs authorities, a topic which will be tackled in the next part of this series.
Cirilo P. Noel is the Chairman and Managing Partner of SGV & Co.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
source: Businessworld
Thursday, April 3, 2014
Asean benefits
Local
companies will have more opportunities for regional expansion and
productivity enhancement under the Association of Southeast Asian
Nations economic integration, which will start next year, the National
Economic and Development Authority said Wednesday.
“Businesses in the Philippines can engage more in intra-regional trade, increase their market access within and outside of Asean, and expand their production capacities in the course of the Asean integration,” Economic Planning Secretary and Neda director general Arsenio Balisacan said in a speech.
He said businesses would benefit from the Asean economic community as logistics and policies would be more favorable.
The Asean region has a market of around 600 million people, with a combined gross domestic product of $2.2 trillion in 2011.
“Asean is now deemed as an ideal investment site and regional production hub. As the region becomes a more dynamic economic block, it becomes more attractive to the rest of the world as investors are expected to take advantage of economies of scale and the large number of consumers,” said Balisacan.
source: Manila Standard Today
“Businesses in the Philippines can engage more in intra-regional trade, increase their market access within and outside of Asean, and expand their production capacities in the course of the Asean integration,” Economic Planning Secretary and Neda director general Arsenio Balisacan said in a speech.
He said businesses would benefit from the Asean economic community as logistics and policies would be more favorable.
The Asean region has a market of around 600 million people, with a combined gross domestic product of $2.2 trillion in 2011.
“Asean is now deemed as an ideal investment site and regional production hub. As the region becomes a more dynamic economic block, it becomes more attractive to the rest of the world as investors are expected to take advantage of economies of scale and the large number of consumers,” said Balisacan.
source: Manila Standard Today
Tuesday, April 1, 2014
Hunt for new emerging tigers: MINT, PPICS and CIVETS
PARIS -- For more than 10 years the rise of
big emerging markets has re-shaped the global economy but these are now
slowing with maturity, and the hunt is on to identify which upstarts
will be tomorrow’s tigers.
The big five, which recently helped the world through financial crisis but are now experiencing marked growing pains, are Brazil, Russia, India, China and South Africa, the BRICS.
On their heels come the MINT, PPICS and CIVETS: acronyms created by economists and investors to describe groups of countries of similar type which could lead the next wave of emerging energy.
Last week more signs of economic tensions became evident in China and Brazil, just as the French trade insurance group Coface produced its list of what it called “neo-emerging” economies: the PPICS.
This creature comprises Peru, the Philippines, Indonesia, Colombia, and Sri Lanka.
All of them have strong growth potential exceeding 4%, diversified economies, are not unduly dependent on exporting raw materials and have financial systems capable of supporting growth and of absorbing a degree of external shocks.
Coface came up with a second list of countries, making 10 in all, comprising Kenya, Tanzania, Zambia, Bangladesh and Ethiopia.
These countries also offer growth potential but carry higher intrinsic risks.
Coface said that analysis of which countries, albeit smaller than the big five, could take over as leading emerging economies was needed because the big five were losing their competitive edge and had not yet become competitive in producing high valued-added goods and services.
For nearly a year many emerging markets, and notably the BRICS, have been undermined notably by the winding down of easy-money policies in the United States, which has raised risk and caused large amounts of investment funding to flow out of emerging markets back to advanced economies.
In Russia, a sharp slowing of growth is now being exacerbated by the back-draft of the Ukraine crisis and an outflow of capital.
Brazil has just been downgraded by the Standard & Poor’s rating agency.
China is experiencing incidents in its credit system. At the beginning of March there was a payment default on some bonds, and the beginning of a minor run on a small bank, highlighting concerns about obscure parts of the banking system.
The monitoring of the landscape of emerging markets has been underway for many years. In 1988 a barometer called the MSCI Emerging Markets Index was launched to follow 10 countries, and today it tracks 21 economies.
The MSCI investment group has also created the MSCI Frontier Markets Index covering 26 economies expected to become dynamic, ranging from Argentina to Nigeria and Sri Lanka.
Economist Jim O’Neill put the term BRIC on the map when he was an economist at US investment bank Goldman Sachs. He has now identified a new group, called MINT, comprising Mexico, Indonesia, Nigeria and Turkey.
The Economist Intelligence Unit has let loose another animal, going by the name of CIVETS, for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
THE LIMITS OF LABELS
At ING IM bank, economist Maarten-Jan Bakkum said: “The thing with these fancy names is that they only last a few years.”
He also observed: “There is a de-leveraging process going on in the big emerging markets, and this is something the frontier markets do not have because they did not have these excessive capital inflows.”
He also noted that regulatory constraints were a problem in many new emerging economies and that “liquidity really is an issue, look at Kenya or Tanzania, there simply is not much that you can buy.”
He offered another perspective. “For me the big risk is China so I would distinguish between countries very sensitive to China, or less sensitive”
Coface economist Yves Zlotowski said that Mexico had been described as an emerging economy in the 1980s because it was able to borrow on international debt markets, and the description had been a financial concept as were the new acronyms.
For Zlotowski, the big emerging economies had not yet lost their emerging roar. “Yes, their exchange rates are attacked but without catastrophic consequences,” he said.
At Saxo Banque in Paris, analyst Christopher Dembik did not need an acronym to spot “among the leaders, Peru, Colombia and Indonesia” and two others exposed to a high level of political risk, “Turkey and Nigeria.”
But none of them has a huge population and explosive growth on the scale which put the BRICS in a class of their own.
“For example, Indonesia has had growth of about 5% in recent years,” far behind the growth rates of 10% or more which China achieved.
“But maybe this will lead to more sustainable growth,” Dembik said.
source: Businessworld
The big five, which recently helped the world through financial crisis but are now experiencing marked growing pains, are Brazil, Russia, India, China and South Africa, the BRICS.
On their heels come the MINT, PPICS and CIVETS: acronyms created by economists and investors to describe groups of countries of similar type which could lead the next wave of emerging energy.
Last week more signs of economic tensions became evident in China and Brazil, just as the French trade insurance group Coface produced its list of what it called “neo-emerging” economies: the PPICS.
This creature comprises Peru, the Philippines, Indonesia, Colombia, and Sri Lanka.
All of them have strong growth potential exceeding 4%, diversified economies, are not unduly dependent on exporting raw materials and have financial systems capable of supporting growth and of absorbing a degree of external shocks.
Coface came up with a second list of countries, making 10 in all, comprising Kenya, Tanzania, Zambia, Bangladesh and Ethiopia.
These countries also offer growth potential but carry higher intrinsic risks.
Coface said that analysis of which countries, albeit smaller than the big five, could take over as leading emerging economies was needed because the big five were losing their competitive edge and had not yet become competitive in producing high valued-added goods and services.
For nearly a year many emerging markets, and notably the BRICS, have been undermined notably by the winding down of easy-money policies in the United States, which has raised risk and caused large amounts of investment funding to flow out of emerging markets back to advanced economies.
In Russia, a sharp slowing of growth is now being exacerbated by the back-draft of the Ukraine crisis and an outflow of capital.
Brazil has just been downgraded by the Standard & Poor’s rating agency.
China is experiencing incidents in its credit system. At the beginning of March there was a payment default on some bonds, and the beginning of a minor run on a small bank, highlighting concerns about obscure parts of the banking system.
The monitoring of the landscape of emerging markets has been underway for many years. In 1988 a barometer called the MSCI Emerging Markets Index was launched to follow 10 countries, and today it tracks 21 economies.
The MSCI investment group has also created the MSCI Frontier Markets Index covering 26 economies expected to become dynamic, ranging from Argentina to Nigeria and Sri Lanka.
Economist Jim O’Neill put the term BRIC on the map when he was an economist at US investment bank Goldman Sachs. He has now identified a new group, called MINT, comprising Mexico, Indonesia, Nigeria and Turkey.
The Economist Intelligence Unit has let loose another animal, going by the name of CIVETS, for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
THE LIMITS OF LABELS
At ING IM bank, economist Maarten-Jan Bakkum said: “The thing with these fancy names is that they only last a few years.”
He also observed: “There is a de-leveraging process going on in the big emerging markets, and this is something the frontier markets do not have because they did not have these excessive capital inflows.”
He also noted that regulatory constraints were a problem in many new emerging economies and that “liquidity really is an issue, look at Kenya or Tanzania, there simply is not much that you can buy.”
He offered another perspective. “For me the big risk is China so I would distinguish between countries very sensitive to China, or less sensitive”
Coface economist Yves Zlotowski said that Mexico had been described as an emerging economy in the 1980s because it was able to borrow on international debt markets, and the description had been a financial concept as were the new acronyms.
For Zlotowski, the big emerging economies had not yet lost their emerging roar. “Yes, their exchange rates are attacked but without catastrophic consequences,” he said.
At Saxo Banque in Paris, analyst Christopher Dembik did not need an acronym to spot “among the leaders, Peru, Colombia and Indonesia” and two others exposed to a high level of political risk, “Turkey and Nigeria.”
But none of them has a huge population and explosive growth on the scale which put the BRICS in a class of their own.
“For example, Indonesia has had growth of about 5% in recent years,” far behind the growth rates of 10% or more which China achieved.
“But maybe this will lead to more sustainable growth,” Dembik said.
source: Businessworld
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