The Services Sector in the Philippines

ASEAN-Australia

NO-

Working

Papers

2

1984

.......

T h e

...."i

S._rvice

Glgria.

.School University

ASEAN-Australia Kuala

...

S .s e."¢ t o r Philippines..

i n

t he

M.. Azroyo

of Economics. of

the

Philippines

Joint Research Project Lumpur and Canberra

Introduction

The objective with emphasis contains and the pattern between

of this paper is to study the traded services on the analysis of government intervention.

in

the Philippines The introduction

the definition of services as they are measured in Philippine data, major sources of data used in the analysis.

Section I examines the of trade in services.

Section 2 contains information on the links the Philippine domestic economic structure and trade in services.

Section 3 gives details of the regulation and protection of traded services which are presented and analysed in terms of government policies, levels of protection, and economic implications.

Finally some prospects for policy cooperation in traded services are suggested.

For

this

study

two

types

of

classification

of

services

are

used,

that

of

the national income accounts and that of the balance of payments accounts.

The balance of payments accounts define the traded services sector as composed of the following current non-merchandise trade transactions: freight and insurance, other transportation, travel, investment income, government, and other services.

The national income accounts define services as transportation, communication government services, educational restaurants.

and storage, services,

trade, finance, health services,

real estate, and hotels and

Data from both primary and secondary sources were used in this paper.

The main sources of statistical data are the International Monetary Fund (IMF), the Central Bank of the Philippines, the 1978 Interindustry Accounts of the Philippines, and the National Census and Statistics OffiCe (NCSO).

In addition, Authority

industry-specific (PTA), the Philippine

statistics Airlines

come from (PAL) Annual

the Philippine Tourism Report for 1980, and the

Insurance Commission Annual Report for 1980.

Data for analysing government intervention in traded services are provided by laws, decrees, regulations, and other official documents, as well as through interviews with senior ranking officers from the government agencies.

Finally, the paper draws on existing materials in discussing trends in specialisation among services, supply conditions in the service industries and economic implications of protectionism in these industries.

are

Some data

data gaps

are difficult to obtain regarding the pattern

and inconsistent.

For of trade in services

example, there and levels of

protection.

There are no detailed files of foreign exchange receipts and disbursements for 1960.

Balance of payments statistics by direction of trade for each component of traded services have been available only since 1978 and therefore preclude any long-run analysis of bilateral patterns of trade in services.

Except for the' PTA, no government agency keeps account of the level of subsidies granted to and the amount of taxes collected to protect a particular industry under its supervision.

There is evidence of some unreliability in particular balance of payments data, such on which Central Bank balance of payments data differ estimates of the Ministry of Tourism.

Some data published differ from the International Monetary Fund Statistics. gaps

will

be

explained

as

they

are

encountered

in

the

as travel receipts, drastically from by the Central Bank These statistical

analysis.

Contents

1

Pattern

of

trade

in

Composition Intra-ASEAN

services,

and changing shares and

1960-1980 shares growth

1 5

Philippine-Australian bilateral Measures of specialisation and country and industry 2

Links

between

trade

in

the

Supply

of

of

services

services linkages of demand

structure

and

sector

1.2

traded

.

for

Intra-ASEAN

14 14 15 20

regulation

and

protection 24

policies of

Economic

on

supply

or

demand

side

24

protection

26

implications

31

policy

cooperation

in

traded 35

prospects

Philippine-Australian Strategies for References

economic

the

intervention: services

Levels

Prospects services

10

conditions

Government

4

5 by

12

size

Proportion Input-output Determinants

Government of traded

links dependency

services

Relative

3

domestic

I

reducing

35 prospects distortions

35 36 37

Tables

1

Balance

of

payments,

services

account,

1973-80

2

2

Balance

of

payments,

services

account,

1973-78

3

3

Composition payments,

of the selected

4

Direction

of

5

Invisible accoilnt

6

Current other

8

Specialisation and 1980

11

services

trade,

of

from

1980

6

on.current 1980

the

7

Philippines

to 8

Philippines-Australia, and

,dependence

in

1980 services,

9 1960 11

Philippine origin,

gross 1980-81

Estimates sector,

1978

of

Value-added 1978

domestic

product

by

industrial 12

industry

size

within

the

services 13

and

proportion

of

services

traded, 15

1978

aggregated

13

Services

14

Structure

15

Labour

16

Measures

of

•17

Approved February

foreign 1970 to

as of

interindustry intermediate demand

intensity

Breakdown and final

balance

4

of the Philippines ASEAN countries,

account:

12

18

accounts,

invisible payments ASEAN countries, 1980

Services

10

Philippine

receipts from other

7

9

services years

by

productivity

30

transactions inputs,

for

in

16

1978

services,

industry,

table

17

1978

19

1978 selected

investment September

of imported services services, 1978

by 1981 into

22 services industry,

23 2 1 33

intermediate 34

1

ComposÂŁt_on

Patte-rn

and

Services international

has

receipts

from

of

trade

changing

in

1960-1980

services,

shares

substantially trade over services

increased last two

the

amounted

to

US$69

million,

or

10.7

cent of all to 29.4 per were US$183

receipts cent in million,

and services, the greater deficit in

increasing to 25.4 per cent in 1980.

Because increase in the share of service receipts, the trade balance has shown a relative decline.

1960,

the

million, it had

deficit

or 165 declined

from goods 1980. 2 Total or 23.3 per

its share in Philippine decades.

In 1960, total

in

the

services

per cent of to only 13.6

all per

per

and services.

I This share rose payments for services in 1960 Cent of all payments for goods

trade service cent of

balance receipts service

was

of the In

US$114

but, receipts.

by

1980,

Tables I to 3 show the composition of Philippine trade in services over two decades.

There are gaps between balance of payments data published in the Philippines and those published by the International Monetary Fund (IMF).

There are two major reasons for the differences between them.

First, the IMF balance of payments Bank of the IMF balance trade data, reports

accounts are based on accruals, while the Central Philippines records actual cash flows.

Secondly, the of payments data are based on the f.o.b, values Of while Central Bank data derive mostly from bank

which

Despite some broad services.

generally

record

these data trends in The residual

labour income, income, and it two decades.

the

c.i.f,

gaps, however, the composition item termed

property income, has dominated the

and export

it is possible of Philippine 'other services' other goods, of services

According to Central Bank invisible receipts on current services' (Table 3).

A large

data, account proportion

is personal incomes.

seamen's Central

income, Raw data

mainly •from

the

consultancy fees made up only I per receipts on current account in 1980. greatest growth among servide exports, all service receipts from 4 per cent 1980.

IAII basic data for 1960 Economic and Development (NEDA, 1980, p. 500).

come from Authority,

2All

come

basic

Balance

of

data

for

Payments

1980

Statistics

from

values. to discern trade in includes services over the

in 1980, 51 per cent of was made up of 'other of this (21 per cent) and

contract Bank indicate

the

International iIMF,

workers' that

cent of all invisible Travel has shown the increasing its share in in 1960 to 14 per cent in

the Republic of the Philippines, 1980 Philippine Statistical

Yearbook

and past

1981,

p.

Monetary 427).

National Yearbook

Fund,

198i

,liner

1..i:l_lanne

of jLa.p=_,

_=,---vJOeSasxxm_,

1973-80

1973 Its,

Goods ard services.

(_Rmi11"inn,

1974

_

Ja :--,.--.;_.----*-_)

1975

1976

Ra

pa

R

P

R

P

2059

1854

2933

3335

2611

3633

R

2937

1977 P

R

P

4123

3562

4495

Freight and _=nce

16 141 (.2)" (27)

20 (2)

270 (37)

19 (2)

267 (34)

27 (3)

277 (28)

Other tr_s_Etatlon

25 (4)

9 (2)...

39 (5)

14 (2)

56 (6)

25 (3)

58 (6)

13 (.3)

48 (6)

14 (2)

90 (10)

22 (3)

80 (9)

Travel

65 (10).

Investramfc

Other

incx:me

sezv_

All services

55 (8)

150 (29)

142 (17)

187 (26)

140 (16)

243 (31)

110 (12)

1978 R

P

3889 " 5044

1980

R

P

4779

6263 365 (24)

77 (4)

436 (22)

31 (3)

56 (5)

63 (5)

45 (3)

73 .(6)

55 (4)

132 (9)

82 (5)

148 (7)

25 (3)

124 (11)

30 (3)

168 (13)

41 (3)

184 (13)

58 (4)

246 (14)

329 (34)

119 (11)-

394 (34)

145 (11)

468 (37)

164 .(12)

563 (37)

52 (7)

298 (33)

62 (8)

356 (38)

f:_ (7)

324 (30)

53 (5)

326 (25)

83 (6)

300 (22)

71 (5)

160 (24)

162 (31)

314 (38)

184 (26)

294 (33)

165 (21)

302 (32)

246 (25)

388 (36)

297 (26)

551.

(42)

277 (22)

.592 (43)

322 (21)

721 (100)

896 (100)

784 (100)

933 (100)

7950

73 (5)

260 (32)

823 (100)

6044

328 (26)

40 (8)

515 (100)

P

66 (5)

336 (51)

657 (100)

R

80 " 305 (7) (27)

977 (100)

1090 (100)

1142 (100)

1301 (100)

aR = receipts, P = pm_nts.

Suu_e:

1979

International Mnnetary Fund, T_l.-n,_e of Payments Statistics, Volume 32, Yearbx_,

Part 3, 1981, p. 427.

1270 (100)

1368 (100)

1511 (100)

240 (13) 358 (20)

81 (4).

803 (40) 93 (5)

771 454 (43) (22) 1774 (100)

2015 (100)

,lllm0rl_2 nalaru-,__ of _,

_

Iten

Ra

_,

'1973-'/8 _

pa

R

1973

..

Gcx:x_ and services . .

. .

FzP__gbt_cl _--u_-,=<_ce ...... ...,.

.......

Other l:z'__

Invest:m_

Jnc:uue

Other services

_

Souzue:. Na_ • ..

,,

.':

..

1974

2235

• :.

. ;

•

1975 P

P

3170

441

i93.:(30)

23 (3)

324 (37)

23 (3)

323 (34)

30 (5)

11 (2)

47 (6)

18 (2)

67 (7)

30 (3)

77 (12)

15 (2)

58 (7)

17 (2)

110 (12)

65 (10)

179 (28)

171 (20)

225 (26)

185 (29)

47 (7)

157 (19)

262 (41)

193 (30)

377 (45)

639 (100)

638 (100)

20 _ (3)

:.....

.

.

833 (100) "

Authority • ..

......:

:.

, .

., •

.

......,

R

3476

1978

R

P

R

4664

4161

5248

P

3244

4371

94 (9)

356 (27)

80 (7)

310(22)

67 (8)

36 (3)

63 (6)

73 (5)

56 (5)

93 (7)

27 (3)

93 (11)

29 (3)

145 (13)

35 (3)

209 (19,)

52 (4)

170 (19)

296 (31)

127 (15)

381 (34)

140 (13)

460 (34)

198.

(18)

538 (38)

62 (7)

181 (2O)

76 (8)

204 (23)

80 (7)

189 (17)

62 (5)

207 (19)

87 (6)

22t (25)

357 (39)

200 (21)

348 (40)

284 (25)

454 (42)

347 (26)

344 (31)

315 (23)

867 (100)

908 (100)

952 (100)

870 (100)

1130 (100)

1085 (100)

1333 (100)

1094 (100)

1395 (100)

• .

1980 Rd.lippine .

_..

..

Statistical •

.

....

311 (3)

1977 P

320(28)

(t'_)A), ...

)

1976

R

4010

]_onu,ic. arid _ ,

_fmrgm'_'a_m_ J.DjLJm._ --

3526 ...

....

'I_].

co

2510

mi11im,

y_rfcx_,

p. 501.

,mam_ 3: n-mr,n_1-1m ..

.

._.

of the e_v.Laes

a,.vJuu;_,

•

.c:'.

..

li_larr_ " "

..

1960 Item

all ]_,----.;-.., :...._-

ml_:_:_s

.

--

1965

(_) •

.:..

Frei_-_and

insuranoe

pa

R

._.

....._..'.....

1970

1975

• Ra

,,._

...

P

R

P

N_ R

data P

1980 IMF data R P

CB data R P

R

I_F a_ta P

34

I

7

4

22

6

31

5

27

11

27

3

34

3_

_traz]slx_

-

4

-

3

3

5

7

3

6

3

5

10

5

7

Travel

4

3

9

22

37

7

12

3

10

3

16

5

14

4

Investm_,t knom_

9

44

6

20

4

35

19

31

16

31

15

42

14

40

GovezTsmr_

32

4

22

3

26

4

20

8

33

8

12

6

20

5

Other

49

14

58

25

19

22

39

2t

33

2t

51

30

43

22

100

100

100

100

• 100

100

100

100

100

100

100

100

100

100..

services

All :.... services .

aR=_, Su_=_: .........

P = pa_.

For 1960, 1965, 1970 and 1975: NB3A, 1980 Phill"_line Statistical Y_, :_l_P. 500-1.

For 1975 and 1980::= 1981 palance of PaMaentsStat4stics YearZxx_, p. 427. For 1980: Central Bank of:.the Pb4.l.._ppines 'Invisible:.l_eoeJgts, Jam_azy - _, 1980 arid 1981', and 'Invisible [yi__, Jarmary Ix)Deee.-her, 1980 arid 1981' (_), •.

•

...

....-

IMF,

Intra-ASEAN Table

4

United

shares shows

the

States

in 1980, accounting

and

growth

direction

dominates

while for

Tables

that

that only

5

of

Philippine

trade,

with ASEAN 1.6 per cent.

and

6

trade

in

accounting was

summarise

the

services.

for

relatively

58.2

The

per

cent

insignificant,

structure

of

Philippine

services trade with other ASEAN nations.

A substantial portion of Philippine service exports to Singapore, Malaysia and Indonesia is made up of the residual item 'other services'.

Although there is no official disaggregation of this residual, preliminary Central Bank data indicate that the bulk of these 'other services' consist of the operating expenses of branch offices located in the Philippines.

Personal income represents the largest service export to Thailand and also makes up a large component of invisible receipts from the other three ASEAN countries.

Finance from ot_er is followed deficit tourist

is

the

largest

service

ASEAN countries, by travel, since

with centre

Singapore, for many

Philippine-Australian

import

coming mainly the Philippines

possibly Filipinos.

bilateral

because

of

the

Philippines

from

Singapore. has a large

it

is

a

_his travel

business

and

links

Table 7 shows the services trade account between the Philippines and Australia for i980.

Philippine trade in services with Australia constitutes only a small amount of its total world trade in services, andabout one-fourth of the value of its trade in services considerable Australia.

with other surplus

Australian 'other services

ASEAN its

government

services' trade

representthe account with

data indicate that operating expenses. largest implemented

in

Services by

the

86

per Travel

payments Philippines

countries. balance

of

expenditures largest Australia. cent and to

The Philippines services trade

and

the

receipts in Unofficial

residual

Bank,

item

the Philippine Central Bank

of 'other services' 'other services' make Australia.

Central

has a with

are up

for the

Under regulatiions Australiail/has one

of the highest allowances for foreign exchange purchases for travel.

Thus, travel to Australia is relatively less restricted despite the Philippines general policy to restrict travel.

However, the foreign exchange allowances for educational expenses of students and maintenance of dependents in Australia are less than those for the United States but the same as for Europe, Japan

and

New

zealand.

AS_%N.

Item

Aust_cal "_

United

SS_Ses

Other.

Japan

axmtries

'l_al z

_e_ture Services Freicjl¢ Othertrar,

,:T,d JzBuzarv_ s'p:)ztaticm

Travel _

1.002

(0.3)

4.282

(1.2)

76.806

(21.7)

22.026

(!-7)

7.554

(0.6)

1106.990

(82.8)

60.552

3.1-39

(2-0)

1.232

(0.8)

103.526

(65.2)

16.046

(10.1)

34.857

(22.0)

158.80

(100)

12.936

(4.3)

.T/0

(0.3)

196.709

(66.0)

23.140

(7.8)

64.415

(21.6)

297.97

(100)

5.734

(1.4)

3.051

(0.7)

295.065

(69.3)

11.581

(3.7)

110;189

(25.9)

425.62

(100)

(0.04)

538.132

(47.3)

31.413

(2.8)

550.768

(48_4}_

1138.31

(100)

268.4B

(100)

17.526

(1.5)

.471

0.1.79

(0.05)

272.231_

(76.8)

354.50

(100)

(4.5)

140.018

(10.5)

1337.14

(100)

o_ .... ,K.J-1

62.363

268.480 (1.6)

sin=,.=: omtr_ Barkof the:.m4_ L=.sa-_s.

17.360

(0.4)

2317.228

(58.2)

142.911

(3.6)

1440.958

( 100.0_ (36.2)

"39_.82

(100)

TElSLE 5

Invisible account

receipts ÂŁz_m other

percentages '1

in

of _

the Philippines countries, 1980

on current (US$ million,

parentheses)

,i

Item

Indonesia

Malaysia

Singapore

Thailand

I. Government expenditures 2.

3.

Services Prem. on

1.951

(79.6)

0.006

(0.6)

0.793

(82.8)

1.002 15.768

(4.7) (74.4)

0.197

(49.6)

non-

mdse insurancea Personal income

0.001 0.549

0.009 0.108

0.195 3.100

0.113

Management ,consu-ltant Commissions Construction

0.07,3 0.279

0.205

0.001 1.131

0.048 -

and fees

activity Subscriptions Communication,

0.042 0.005

-

0.156 0.004

stamp, Other

0.026 0.976

0.471

0.003 11.178

0.314

(1.5)

0.058

(14.6)

postage services

Freight and insurance

0.003 0.033

0.062

(2.5)

-

portation

0.401

(16.3)

0.054

(5.6)

1.531

(7.2)

0.047

(11.8)

5.

Travel

0.038

(1.6)

0.105

(11.0)

0.424

(2.0)

0.095

(23.9)

6.

Interest

2.148

(10.1)

-

4.

Other

Total

trans-

income

Rece.ipts

-

-

2.452

(1.00)

Comt_sition Re-export of consigned materials

of

-

'other

0.958

(100)

services'

21.187

(100)

0.397

(percentage)

3.6

1.0

-

91.3

38.3

86.1

-

1.0

1.0

8.2

Other

8.7

4.1

59.7

5.7

'JL__IL

100

100

100

100

Operating expenses Surrender

aPremiums Source:

91.3 of

on

AFXDS

non-merchandise

Central

Bank

of

the

insurance.

Philippines.

7

(100)

_R

6

Current

_--vlsible

lSalmments from

the l_nilil_mJmms t=)ot_tmc _

....

,_:_,

1980 (gS$

•.;1_;,,,: t_=emmgesi,. t=_ms) Item

znemes_

Malaysia

1. C<mrexmment e_P.rcliD.tres

Stng-aZx_

_S_:_ 1=_¢1

All AS_S

0.00127

(.01)

0.1822 (27.9)

2.18244

(8.8)

O.168

0.0026

0.0092

0.0t0

0.073 0.128

0.0058 0.1738

0.48295 1.68957

0.005 0.568

0.429 (29.9) 0.0010 (0.1)

1.13807 (4.6)

1.137 (10.9)

4. Other transport

0.012

(0.8) 0.0060 (0.9)

2.69745 (10.8)

8.188 (78.7) 10.903 (29.2)

5. _

0.388 (27.0) 0.4641 (71.1)

3.72744 (15.0)

0.492

2. Sezvic_s BE_son_ ino_me

0.369

(25.7)

0.001 0.583

(5.6)

3.317

(8.9)

2.705

(7.2)

_a.nd oonsultantf_es Other services

3. n_/_Z _d inmzzance

6. Profits,earninos, 4Livider¢_ 0.237 7. Interestpmjmsnts _m_-_l

(16.5) -

1.435

-

0.19431

(100) 0.653

Scx=t:e: Csmtral Bank of the 1_11i.-ol:).t,",_.

14.939 (100)

24.8796

(0.8) (60.0)

(4.7)

0.008

(100) 10.408

5.072 (13.6)

0.431

(1.1)

(0.1) 14.947 (40.0) (100) 37.376

(100)

T_SLE

7

_ices percentages i

|

ac_t : Phi_p_ines-Australia, in parentheses )

Receipts .......

,

1. Government 2.

(US$

millioa,

|

Ite_ m m_

1980

.. , ,,.

..

Payments

,

expenditures

Services

4.281

(38.5)

0.001

(0.02)

5.013

(45.0)

2.541

(40.8)

Premium on non-mdse insurance Premium on non'mdse reinsurance Claims On nOn-mdse reinsurance Personal income Management and consultant fees Commissions

0 •867 0. 045 I.274

0 •013 0.012 0. 022 0. 282 0. 247 0.127

Cons_ctlon C_tmication

o. 109 O. 003

0.220 0.00 i

activity

•ra ficyouts

-

0.010

Adveftlsing Subscriptions

-

0. 046 0.023

Film rentals Royalties other services Adjustments Cancellation and refund Rebates, discounts and penalties

2;715 -

(24.4)

0.013

(0.I)

1.219

4. Other transportation

0.724

(6.5 )

0. 046

5. Travel

1.101

(9.9)

1.950

3. Freight

and insurance

0. 037 0. 006 1.404 (22.5) 0.036 0. 049 0.006 (19.6) (0.7 ) (31.3)

6. Profits, earnings, dividends

-

0•304

(4 •9 )

7. Interest

-

0. 167

(2.7 )

6.228

(100)

@_.al

11.132 ,,

Source=

Central

Bank

,

of the Philippines.

9

(100)

•Measures Table

of 8

specialisation

shows

the

and

dependency

measures

of

by

•country

and

sp_cialisatlon

in

industry services,

(meaning the ratio of receipts to disbursements of particular services) for the years 1960 and i980.

In 1960 the Philippines speciaii_'_ed in personal and other services.

There are no other detailed data on invisible receipts and disbursements for 1960, but the available literature shows that personal income receipts became prominent during the latter half of the 1960s when large numbers Kalimantan. recruited

of

Filipino loggers went to work in •logging camps in At the same time, many construction workers were to work in Vietnam, Thailand, and Guam as the war in

Vietnam e_caiated. are leaving• for

At present, Middle East

the

14). while the largest construction, data from show that between 1975 a

professional

share, workers force.

or

since the is only

In

1980

a

group of workers going the Overseas Employment and 1981 one out of every

technical

national one out

the

large numbers of and Africa (Abella,

of

worker.

average every

Philippines

still

This

period

is

is

a

relatively

and Philippine

specialised

in

had become tourism became tax incentives

considered

the

7-

overseas was for Development Board four workers was

for professionals twenty in the

other services, but travel services important.

Between 1974 and 1980 industry eligible for a variety of concessions. tourism.

This

professionals 1979, pp.

peak

high

technical labour

personal

and

increasingly a priority and customs in

Philippine

In 1960 the Philippines was still very dependent in the transportation field.

Virtually all of its needs were imported.

But by 1980 this dependency • was relatively less important compared with equity finance, freight and insurance.

In terms of concentration of services traded, the Philippines has therefore been most dependent on finance imports and personal services exports. partner

in

The United services

exports of services reflected in each States also provided (Central

Bank

of

States trade.

has In

been 1980

the most important about 61 per cent

went to the United States. component of the services over 55 per cent of all

the

Philippines

data).

10

This account. imports

trading of all

pattern was The United of services

'IllSB'R8

.'._F,rdali,--,;

:nn _

_

J.O.l_.v._O_Sr

|

_

lcJ]o

_ce..'l._cs/L__ 1980

1960

"_.._ exLmn_._ures) 1960

.15181

.07143

.044

.269

trai_p_.a_._

.55330

,00000

.082

.031

.50000

• 117

.040

_

_

cU._

.03380

Interest T-_a.1

1980

_

.arid _

3.01°_3 Profits,

_ *n _ (exc.l.,__ _

.41396 _c_re

) ) -

.34805

.041

) ) -

.272

)

.07407

)

.313

.390

)

) & o:msultancy fees

Othersezvi_s Miscellaneous

) ........... )

)

2.52335 ) )

.369

) ) .24187 ) ............ 1.30769 )

.074

.269

2

Links

between

the trade

and

Relative

size

Table

9

of

shows

the

the

the Philippine services sector producer 166-9).

T_BLE

9

of

services

relative

Philippine (constant

1.

size

of

the

different

National accounts quantitatively

domestic

output

gross domestic 1972 prices)

Industry

structure

sector

economy. has been

gross

domestic economic in services

Levels 1980

since

product

(million

by

major

indicate the most 1950

(NEDA,

industrial

pesos) 1981

sectors

1981,

origin,

Per cent 1980

in

that the important pp.

1980-81

distribution 1981

Agriculture, fishery and forestry

23720

24578

25.6

25.6

2.

industrial

33471

35057

36.1

36.4

3.

Services

35503

36554

38.3

38.0

3937 890

4066 974

12224

12731

4306

4002

ship of dwellings Government services Hotels and restaurants

2815 4769 1440

2962 4998 1500

Other

5122

5321

92694

96189

sector sector

Transport and Communication Wholesale and trade

storage retail

Banks, nonbanks insurance Real estate and

private

and owner-

services

Gross domestic product at market prices

Source:

NEDA, pp. 46

Philippine and 75-81.

Economic

Indicators,

12

Vol.

100

X,

No.

100

6

(June

1982),

Table 10 compares industry size within the services sector as it appears in the census of establishments and in the interindustry tables.

3 All measures of the values of the services sector as shown in the interindustry accounts and the census of establishments indicate that wholesale and retail trade is

the

most

10

TJJBLE

important

Estimates

Service

component

of

Industry

of

size

the

within

domestic

the

services

servioes

Gross output (interindustry tables)

industry

sector.

sector,

1978

(US$

Receipts (census of establishments)

•••• •

Land

transport

operation

1077

(8.7)

308

(0.8)

360 203

(2.9) (1.6)

747 105

(4.5) (0.6)

302 192

(2°4) (1.6)

3 228

( - ) (1.4)

Storage and warehousing Wholesale and retail trade Batiks, nonbanks and insurance

10 4385 1223

(0.1) (35.5) (9.9)

3 10282 2432

( - ) (61.3) (14.5)

•Real estate and ownership of dwellings Government services Educational services Medical and health services Hotels and restaurants •

996 1222 247 370 747

(8.1) (9.9) (2.0) (3.0) (6°0)

1187 28 154 176 63i

(7.1) (0.2) (0.9) (1.0) (3.8)

1029

(8.3)

478

(2.8)

water transport operation Air transport services services incidental to Communication services

Other

private

•

transport

services

Total

12363

_ce:

NEDA, 1978 XnterindustryAccounts Census and Statistics Office,

(100)

of 1978

16762

(100)

the Philippines; NEDA, Census of Establishments.

National

S

It

is

not

the years aggregate

possible • shown them

to in into

distinguish the one

whole•sale

and

table because • the sector.

But the

retail

trade

for

published accounts 1974 interindustry

accounts provided some information about the proportions involved.

The accounts indicated that for that year 5i per cent of value-added in trade was in wholesale trade, 55 per cent of final •output in: retaii trade, and 64 per cent of gr0ss output in wholesale_ trade. " MUch of the final demand for traded services is export

demand.

3For details sectors, • See

of estimation 'of NEDA (1974, 1978).

gross

output

13

and

receipts

for

the

services

Proportion Table ;: ...

of

, ..,

11

services

shows •

gross .

.,

Philippines . •.

,

in

:

traded value-added

1978

and

.....

the

in

traded

proportion

services . .

,

exported

-

for about

the one-

sixth.

Among the traded services classified according to the national accounts categories, trade and transportation dominate, accounting for nearly half of the . . total While wholesale and .,. ... : :. , .

• • retail trade is the largest item •• in • , _ "_:'.',._i ,,,'" ' " its exports make up only one-seventh wholes_!e and' retail trade.

the

',,

of

traded ' ....... the

servzces value-added

'

account, of the

Hotels and restaurants also constitute a significant 14 per cent of exported traded services (Table 11, col.

2).

Exports make up most of the value-added of that sector, total dollar receipts amounting to US$220 million in 1978.

'Other services' accounts in Table

for less •than 2 it accounts

explanation for in the components

this of

Government

one-fifth for 31

Data services

in

services

Table traded

of. total service cent of exports

discrepancy can be found the two 'other services'

component of financial These services, however, services are traded to

of

per

11

are

not

and health are traded tourists.

of course directly.

traded

in t_e items.

at

services in the

represent Services

all.

The

traded

merely the can also

proport±on be traded

inputs in other as intermediate

linkages

This section analyses Philippine input-output analysis and the I-0 major sectors (Table

the

linkages of the services sector.

(I,O) table for 1978" was used for table's 63 sectors were condensed into 12).

•

:..,

,.

1978 I-0 tablesshow that the,: total. industries amounted to US$12,363 million US$7,691 million, or 62 per cent, went to or

38 Of

per the

The this •six

, ",..,,

The service which

difference

is also insignificant. same sense that retail

indirectly when they are embodied as intermediate industries.

Table 12 shows that services used inputs amounted to about US$4.7 billion in 1978.

Input-output

exports iwhereas in 1978.

The

US$4,672 by various

million, sectors.

cent, was used 62 per cen _ of

to final investment per cent

demand, private consumption, and exports accounted for and 12 per cent respeCtively.

33

14

as intermediate total output

government per cent,

4For compositio n of other services in the interindustry accounts, see NEDA, National Census Central Bank of the Philippines data.

of the ,-output . -. . in 1978, out of final demand and that

inputs went

expenditures i2 per cent,

balance of payments and Statistics Office,

, 5

and and

T_T._

11

Value-added

and

of

pzolx_ztion

sezvioes

19.78

traded,

i

Gross Service

Transportation Communicat/on Wholesale and Banks,

value-added (USSm) (1)

industry

and

storage

retail

nonbanks

and

trade

Exports (US Sin) (2)

(1 )

1184 157 3583

358 20 524

3 •3 7 •8 6.8

(2)

insurance

1026

16

64. I

Real estate and ownership of dwellings Government services Educational services Medical _nd health services Hotels and restaurants

8 !4 1184 151 259 299

82 17 12 220

9 •9 8.9 21.6 1.4

Other Total

738 9395

287 1536

2.6 6.1

private

•

Source:

services i

i

Irl

1982

NEDA, Output

Table intermediate

Table

Statistical

Yearbook,

pp.

182-9;

NEDA,

1978

Input-

(mimeographed).

12 shows inputs

are

that the services

largestusers themselves.

In

of 1978

services the value

as of

services used by the services sector and the manufacturing sector amounted to US$2,355 million and US$1,795 million respectively.

The proportion of services as intermediate inputs is broken down by industry in Table i3.

Traded services are the most important service inputs for the manufacturing sector.

The US$12,363 form of subsidies,

cost of producing million represents compensation to other value-added

on the Philippine US$3,840 million US$3,080 million US$759 million subsidies, and

Determinants

of

the

service industries' the whole range of employees, indirect and other industrial

output of inputs in the taxes net of inputs.

Based

I-O table for 1978, the services sector spent for produced goods and services.

They also paid in the form of compensation to employees, and to government in the form of indirect taxes net of realised U S$8;524 million as other value-added.

demand

There is an inverse relationship between and the quantity demanded, and a direct income and demand.

A linear regression final demand as the dependent variable,

15

the price of services relationship between analysis was made with and national income and

• m_']l_12

I(]'/8 _

itd--,p_ritvlk,,.d..¢y" _

sec-CDv

(IOE_I_11-im,

1

2

3

4

5

505.3

7.1

3927.2

12.5

4.2

2.1

13.8

1075.4

74.3

-

616.8

i34.8

5191.1

934.2

147.6

4. O:m.sLt_tg_

5.5

1,6

10.4

19.1

5. L_ ] i4-_,=_

2.7

4.2

79.0

182.1

58.5

1314.5

1..=_grJculbLTe, and f_ _h.ing

3. ,ttEszfac¢_ L,-cj

6. Services

aJ; ._.u_-=_"

6

J_::_S)

_ta].

_

'Zbt-,_ 1

102.8

4559.1

3121.1

7680.2

3.0

1168.6

-491.5

677.1

1060.1

8084.6

9819.8

17904.4

1.3

106.7

144.6

2809.7

2954.3

3.5

28.2

212.2

329.8

155.1

1794.7

202.2

79.8

2354.9

4672.2

7690.9

12363.1

220.0

12077.8

1245.8

261.1

3839.7

18958.9

23105.1

42064.0

Va]_

e_,:]

6366.0

457.1

5826.0

1708.0

224.0

8524.0

23105.1

Total

:JTCX¢

7680.5

67"1.1

17903.8

2953.8

495.1

12363.7

42064.0

Som._:

_

£c_estz_

2. PLgfing & c__

m

_

1978 Znt:_'.L_.tslz3r _

Table.

4134.9

13 S,.v._ees as tnt-,,zm_lt_+. _lt_, From serv.ice

F-'

_b sect:or

1 ._jricult_re

197B 2 Mining

(T31_mrSlllm) 3 M_ufact:mdng

4 Om,,stnr'timL

5 T_-_1_H _

6 Services

ALl. sectors

TranspcnT_tion

58.1

24.9

419.0

57.1

12.7

485.6

1057.4

(3uuu_ica.t_Qrs sb0_ge

5.6

0.8

19.2

6.1

2.0

89.5

123.2

81.0

18.8

1025.4

69.2

36.1

185.3

1415.8

F_.cJe___

6.8

2.5

73.6

10.4

9.0

969.5

1091.8

Real. estat_

8.4

0.4

51.2

1.2

4.5

_")_. 1

287.8

eclucsP._3on _

beaJth

Bo__ls ant resPml_cP,..s l:ri_.vabe seer.ices Service

Bov.._:

:tvtxCs

6.2

2.2

33.4

2.8

1.4

42.5

88.5

2.9

2.3

21.2

5.3

2.5

82.9

117.1

13.1

6.6

151.7

50.1

11.6

257.5

490.6

182.1

58.5

1794.7

202.2

79.8

2354.9

1978 Interindust:ry 'I_-ansac-t.%o_Tab]e.

4672.2

relative

prices

as

independen_o_var_ables.

Value-added

has

been

selected to reflect demand rather than total output since there is no time series for total output h_y sector in the Philippine system of national accounts, and since; conceptually the value of total inputs, which is value-added, is equal to the value of the total output for each industry or sector.

-_ Demand services in in the for

for 1972

services prices,

was and

therefore national

1972 pesos.

Relative prices were implicit price index for services national income.

The regression

series

regression

t-values. prices to D

The demand

=

reflected

the

+

.44317Y

(56.87373)

where

The

that The

D

=

demand

Y

=

national

income

P

=

relative

prices

figures

under

A study of its largest demand for

largest itself, depend

for

the

signs

equation as follows: -

value-added in also tabulated the ratio of price index for the time

with

significant

relating

income

and

.3802.17798P

(-2.05299)

R2

=

.99727

_2

=

.99672

services

regression

the

structure component services is

coefficients

services is for intermediate services.

Intermediate demand makes up more than for finance and insurance, communication transportation.

On the other hand, constitutes the bulk of the demand for real For important

are

t-values.

of demand for services is intermediate demand therefore a derived

consumer of intermediate so much of the demand on the final demand for

and restaurants. income to be an

by was

represented by to the implicit coefficients

expected

estimated linear for services is

6219.36719

proxied income

these services, determinant.

18

we

also (Table demand.

the services services

may

shows 14).

The sector also

half

the total demand and storage, and consumption demand estate and for hotels can

expect

personal

([._m)

(q_)

(u_m)

(q_)

(r.n_)

1057.4

52.0

402.4

i9.8

71.4

3.5

145.0

123.2

58.5

58.9

28.0

7.6

3.6

-

-

1415.8

32.3

1785.7

40.7

133.4

•3.0

525.9

12.0

1091.8

87.7

123.3

9.9

13.8

1.1

-

_

287.8

28.5

623.6

61.7

18.3

1.8

-

ecb_t3cc',al health_ sezvices

88.5

4.7

526.4

28.2

1222.3

65.5

Hot-_l_ arc1 zes'cmmants

117.1

13.8

412.4

48.7

97.7

Other lz:J.v-Cb_ services

_0.6

41,6

377.8

32.0

4672.4

36,6

4310.5

33.7

0__

(q_)

Cr.r_m)_-

_"(t)

(_)

(q_)

(rj_)

(t)

356.4

17.5

2032.6

100

_i_

21.0

10.0

210.7

100

--

523.7

11.9

4384.5

100

16.0

1.3

1244.9

100

-

•z.,_, 81.4

8.0

1011.1

100

-

-

,,').(,? 29.2

1.6

1866.4

100

11.5

-

- [_"

220.1

26.0

847.3

100

23.7

2.0

-

- _

287.3

24.4

1179.4

100

1588.2

12.4

670.9

1535.1

12.0

12777.0

100

7.1 _

and

es_be

_z,.l

i-i LO

_,

'J]Otal

8ou=.,..=.* 1978 _

_cxx:_nd:sof the Pb'il-i-r_..-._.

5.3

Supply

conditions

Few studies exist services sector.

on The

the supply government

several tourist enterprises, Philippines.

Foreign ownership and banking.

Most

of

the

large

that

15

shows

the

are labour-intensive. service industries rank twelfth out of thirteen not labour-intensive labour/capital ratio, sixth, then,

seventh, only trade

statistics, sector.

and and

concentration International

and

in the tourism,

their

main

establishments 0ffice (NCSO) in and around

of formal Labour Office

service (ILO),

existence of a large, low-income, which is spread throughout the calculation, over 60 per cent of found in the unorganised sector.

extent

to

which

the

Service

industries

In terms of the labour/output ratio, the first, second, sixth, seventh, ninth, and industries.

Only trade and finance are using this criterion. _n terms of the service industries rank first, third,

eighth publÂąc

however,

Philippine airline,

largest bank in insurance,

establishments

however, calls attention to the unorganised services sub-sector country.

5 According to the ILO total service employment can be Table

of the national

around Manila.

Large Census and Statistics workers.

It is also

the biggest found.

The

is

and the evident

is

service

offices are located in and are defined by the National as those having ten or more Manila employment

conditions owns the

do

out of services not

eleven. are

represent

Using this labour-intensive. the

criterion, These

unorganised

service

The ILO gives some indication about productivity trends in services.

Its findings indicate that the value-added per worker in the services sector relative to the rest of the economy fell from I_74 in 1960 to 1.23 in 1971; for commerce the decline was from 1.94 to 1.15.

Table 16 establishments. especially in finance, where of scale als0 large amounts enterprises.

5Details labour

of force

indicates that productivity is higher in the larger This is a safe generalisation to make, the service industries such as transportation and _ : we can expect economies of scale.

These economies lead to naturalâ&#x20AC;˘ entry barriers arising from the of capital invested in the major service

adjustments survey

by

to

the

the

ILO

figures are

in

explained

20

the â&#x20AC;˘Bureau in

ILO

of

Census

(1974,

pp.

and

Statistics

39i-6).

By contrast, easy entryinto the unorganised sub-sector gives it the function of what the ILO calls a 'buffer zone' for low-income employment because of the lack of productive and desirable jobs elsewhere.

However, the ILO adds that the trade and services sectors have been unable to absorb labour at such a high rate levels.

If

the

without,

ILO

of total service sector, we can 'buffer.... zone'.

is

a

substantial

.correct

employment deduce the .The 1978

in

fall

its

can size census

estimate

in

average

that

be- classified of employment figure showed

productivity

over in in

the the that

60

per

cent

unorganised unorganised 2,031,34_8

were employed in the organised services sector.

This must, therefore, represent no more than 40 per cent of total service employment.

Employment in the unorganised 'buffer zone' must the_. have numbered at least 3 million in 1978.

21

15 T._h-.,- 4,,h:._,] r ]_ itxlmtmlr,

1978a (.-xa_

in _)

/c i.taz zatio

.Agr_t:uz_

_

.foz'estzy

F_ÂŁes _

Electricity,

_

9"dsa'lcl. water

(large)

216,676

323

(5)

366

(5)

(large)

48,318

503

(4)

548

(2)

(a.l.1) (large)

48,062

86

(10) 92

(10)

(_)

28,835

(all) (large) Y'_'__

(]az'ge) (small)

Translxctaticn,ommmicati_ and st:Drage

Private sazvices

sP..rv'ices Wholesale and retail

126,662

34

(13)

16 (11)

160 (8) 432

(4)

208

(9)

250

(6)

1,615,185 243,180

65 (11) 749 (3)

(_11) (Large)

262,682

175 (7)

(]az'ge) (small)

312,583 193,446

273 (6) 1155 (2)

234 (7)

53,666

1930 (1)

513 (3)

(_.z'_) trade

ratio

(_11) (large)

_'_, inst.==.ce, real estate aid businessservices (all) (]a_r_)

1,012,008

98

(9) 1817 (1)

196,963

53

(12) 209

aCensos data <b not ;emit this ty_ of analysisby hours w_ked. bCut.lcx_c:is meam.ced by 1:belz:Cal zecP_ipts zel:x:K'tecl..inthe 1978 Osmsusof Establ_Wmmmts.

So_,..=:

NEDA, 1978 Cemm.lsof Eb--V_l-,l't=hmmttS.

22

(8)

â&#x20AC;˘

16

of.

Measures

"

I

product£vtty

in

se£ected

serv£ces

im

Service

Value-added ('000 pesos)

Large

Employment (No.)

Productivity • (pesos)

transportation,

communication

and

storage

Small transp0rtation oommunication and

4,098,018

167,953

24,400

330,564

94,729

3,490

4,428,582

262,682

16,859

,

storage

Sub-£otal

Large

private

services

3,303,665

312,583

10,569

Small

private

services

610,315

193,446

3,155

3,913,980

506,029

7,735

Sub-total

aAverage

value-added

per

employee.

Sotlrce:

NEDA,

Preliminary

Report,

1978

23

Census

of

Establishments.

a

3

Government

intervention:

protection

Government The

policies

Philippine

intended include barriers, government.

on

of

supply

or

government

has

to regulate and border restrictions, barriers These

type

to s

regulation

traded

demand

side

enacted

a

protect traded regulatory

investment of protection

and

services

number

of

services. barriers,

measures

Such factor

flows, and are •examined

measures market

restrictions below.

on

Border restrictions.

The government has passed several regulations to control the flow of service imports into the Philippines.

Presidential Decree (PD) 806 (1975), for example, provides that vessels .•registered in the Philippines and owned or • controlled or chartered by Filipinos must have shares at least equal (40 per cent of all cargo trade) with vessels of another country in the carriage of international cargo between the Philippines and that other country.

The Maritime Industry Authority (MARINA) must also approve all acquisitions of foreign vessels through importation or chartering.

•Filipinos services, except

are in

also the

not case

allowed to of reinsurance

import any contracts,

insurance and then

only with the approval of the Office of the Insurance Commissioner (OIC).

Government policies dictate that firms must first reinsure locally; only when the risk 'cannot be absorbed' (i.e., the risk is too large) is reinsurance abroad allowed.

An

alien

coming

to

pre-arranged

consultancy

enter the Philippines as a non-immigrant only by the •prospective employer with the Commissioner establishing that no person can be found in willing and competent to perform the service.

Regulatory

barriers.

service imports exchange.

The prior approval existing foreign cover traded exchange require

The

Central

Bank

employment

may

on

contrOls

petition filed of Immigration, the Philippines

the

flow

of

through regulation of the sale of foreign sale of foreign exchange is not permitted without by the Central Bank unless already covered by exchange regulations or policies, some of which services.

All transactions involving foreign Central Bank approval.

Among existing foreign exchange regulations are limitations on the amount of foreign exchange allowed for travel.

For nonbusiness travel, each individual who is at least 12 years old is allowed to purchase US$I,000 or US$600 depending on destination.

Those under 12 are allowed half these amounts.

Foreign travel is also subject to travel tax.

It amounts to US$170 or $100, depending on the category of the ticket bought.

can

Imported services be considered as

are tariff

subject to equivalents.

24

discriminatory taxes which The statutory tax rate

•

on the sources and The

gross income is generally

35 per first

per

non-resident cent of

gross

cent for corporations, is reinsurance premia,

The second preferential Factor

of 30

is 15

interest per cent

market

but there which is

on foreign tax.

barriers

and

aliens income

loans,

other

are not

which

investment

from for

Philippine individuals

two exceptions. subject to tax. is

subject

to

inGentiveso

a

Among

the measures for protection in the Philippines are tax exemptions for so-called 'pioneer' and 'preferred areas'.

Most of the various incentive laws that have been enacted to grant subsidies to these Code (PD

areas 1789)

have of

been 1981.

consolidated The Code

in the extends

Omnibus Investments a deduction from

taxable income for an amount equal to 50 per cent of the total export fees of exporters of services registered with the Board of Investments (BOI).

Other incentives are given to investors in areas included in the Investment Priorities Plan which the B0I s_bmits the only trading consultancy

to the President of the Philippines each service industries included in the 1981 and service exports, which include services.

Export

traders

as enterprises one or more

are

defined

engaged in the export producers.

in

the

sale of Service

Omnibus

addition

to

the

above

incentives,

incentives which individual pieces those granted to

have been granted of legislation. overseas shipping

grant

exemption

income

tax

to

land improvements, and deduction reinvested.

Barriers Philippines permitted enterprise licensing

tax from

bought defined

from as

professional currency or musical recordings

there

are

or in

tax

shippers

who

invest

their

shipping investments, and provide tax credits on the interest on payments of real estate taxes on

concessions taxable

on income

imported of

capital profits

equipment, which are

to

investment flows.

There is a general rule regarding ownership.

Foreign investments for up to 30 per cent of the outstanding capital without BOI permission.

Beyond this, and of foreign firms, BOI permission is required.

Among the most protected the insurance industry which companies since December

Code

to particular services through Among the more important are and tourism.

These decrees

overseas

net income above 10 per cent in several incentives, including foreign loans, exemption from

Investments

export products exporters are

enterprises engaged in rendering technical, other services which are paid for in foreign exporting television and motion pictures and made or produced in the Philippines.

In

year.

However, Plan were export the export of

in of for

the are the the

services in terms of ownership is has been closed to foreign insurance 1946.

(Foreign firms that had been

operating before 1946 were allowed insurance companies can enter the joint ventures in which Filipino cent of the equity.

25

to continue.)

Today, insurance industry only nationals hold at least

foreign through 70 per

Transportation ownership. cent foreign

is

As a public ownership.

Restrictions

on

another

industry

utility

it

government.

may

protected not

Governments

have

are

in

more

major

well as major suppliers of certain services. example, government agencies bought 13 per output and 21 per cent of the final output of in•the Philippines.

The Philippine Airlines, Nat ionai• Bank, which is the largest commercial tourist establishments are all state-owned.

terms

than

of

40

per

purchasers

as

In 1978, for cent of the gross servicesproduced the Philippine bank, and several

In transportation, there is a requirement that the government give preference to domestic carriers.

Thus, where state agencies procure or export cargoes using government funds, they must utilise Philippine flag Vessels.

Except in certain instances, beneficiaries of government loans and guarantees must also utilise the services of Philippine flag • vessels whenever the transportation In

is

government

respect the consultants. however, specifies assisted projects policies, in the

paid

for

from

the

proceeds

foreign-assisted

provisions Unless

of the otherwise

of

projects, loan

their the

agreement stipulated

loans. policy

regarding in the

is

to

foreign agreement,

National Budget Circular No. 346 of 21 April 1981 the policies on the staffing•requirements of foreignprojects, which also essentially apply to public sector which are not foreign-assisted.

According to these the services of foreign consultants are to be used only absence of local consultants with similar background and

expertise salary exemption.

of

Levels

of

and they their

may not be paid local equivalents

more

than except

120 per with

cent of ministerial

the

protection

Insurance.

Foreign firms operating since before December 1946 must, under Section 191 of the Insurance Code, deposit with the Insurance Commissioner total securities with a market value of at least as much as the minimum paid-up capital required of domestic insurance companies.

At least 50 per cent of this deposit must consist of evidence of debt of the Philippine government.

The tax rates which apply to domestic corporations •• also apply to foreign insurance companies operating in the Philippines.

Any profit remitted by a reSident foreign corporation to its mother company is subject to a 15 per cent tax rate.

The

OIC

allows

reinsurance

be absorbed locally.

While we•l_ as• domestic reinsurers

pay these

only

reinsurance are not

of foreign reinsurers 40 per be retained by their Ceding invested in assets acceptable reinsurance companies income received from

abroad

premiums subject to

cent of companies to the

a tax assets

rate or

26

when

their in OIC.

of from

the of tax,

risk

cannot

foreign in the

as case

gross premiums must the Philippines and Foreign non-resident

35 per other

cent on sources

the gross of income

in the Philippines. dividends received

An from

similar privilege tax agreement with

exception domestic

is extended the relevant

is a tax rate corporations, to the foreign

of

15 per provided

Philippines country.

under

cent that a

on a

double

Transportation.

The large deficit on shipping indicated in the balance of payments accounts has led the government to promote local shipping services.

One of the latest steps taken was the approval in 1981 of the purchase of 99 ships worth US$139.5 million.

A policy Shipping Filipinos

survey on

0f

Philippine

or i_ the_construction paymen_ , of income tax invest the net income purchase, exempts of the Customs National

law

demonstrates

overseas transportation.

Act of 1955 (RA 1407 as engaged exclusively in

the

protectionist

The

Philippine Overseas amended

by PD 806) states that the overseas shipping business

of ocean-going until ... .

9 September . ,. . above I0 per

vessels are exempt from â&#x20AC;˘ 1985, . provided that cent in the construction,

the they

or improvement of vessels and equipment.

PD 215 (1973) the importation of ocean-going vessels from the payment I0 per cent customs duty prescribed by the Tariff and Code and the 7 per cent compensating tax provided in the Internal Revenue Code.

PD 806 also provides that

Philippine flag vessels and national shipping lines shall have at least equal shares as vessels of another country in the carriage of international cargo between the Philippines and that other country (amle'nded shipping

with by

a reasonable PDs 917 and and airline

share of cross-trades.

PD 1466) grants preference to industries with respect

transportation of government-financed passengers including any corporation enjoying tax exemptions, incentives from the government.

PD 1540 (1978) withholding tax for rental of foreign-owned vessels to Filipinos from 35 per cent to 4.5 per cent.

Liner

The Philippines Conferences.

issued (MARINA)

in to

January reserve

has ratified Accordingly, 1982 at

ordering least 80

the UNCTAD Executive the Maritime per cent of

and import liner cargo not covered of the Philippines andthat of the cargo reserved to be .._, shared equally ... two countries.

MARINA Memorandum July

.

EO

1982

to

implement

Many problems 769.

For example,

in the scope of the security.

This is the Philippines is Philippine exports consignees, own or third practice Philippine

usually flag

implemented shipping

the

the

in the equipment

40-40-20 convention for always loaded on American often faced with a choice and promoting Philippine

oniy cn companies

import with

27

and property, subsidies, or reduced the under charter

of

Conduct (EO) 769

Industry Philippine

for was

Authority export

convention.

encountered military

from developing carriers.

Thus

(1976) local to the

by PD 1466 for flag carriers bilateral partner, with the by the flag carriers of the Order No. 3 was issued in

40-40-20

have been American

Code Order

894 the

implementation of is not included

reasons of national liners.

Moreover, between promoting shipping.

Export

countries, the UNCTAD

often prefer convention

'cargo, insufficient

frequently return

their. is in

leaving cargo to

make the

the route

trip Commercially at all.

This

vessels,

giving

still

There are Philippine-American

viable. results in

more

only

business

eight route,

an

Often they apparent to

Philippine which

third

flag

handmaiden tourism facilities.

1982) 1979

of tourism development The Second

includes and 1981,

incentives Authority). cent of accounts.

As

the explicit industry,

land there

the

policy. are open Tourism

not to ply Philippine

carriers.

vessels constitutes

Philippine shipping trade.

Four are owned by and are docked in the Philippines every eleven four are owned by the Maritime Company of the dock less frequently.

Apart from overseas shipping

prefer lack of

trading the bulk

the of

Galleon Shipping, days.

The other Philippines, and

protection policy

on

given the transportation

Most of for the Investment

the priority opeÂŁ1ation Priorities

of

and water transportation facilities. was an increase of US$i.2 million

Philippine is the regions for transport Plan (1979in

Between the tax

availed of by the transport sector (Philippine Tourism The tourism-related incentives make Up about 4 per all government subsidies as reported in the national

an

added

incentive

to

the

tourism

industry,

the

country

adopted an Open Skies policy in the mid-1970s.

Government protection of the aviation industry is in the form of ownership of the country's major airline, Philippine Airlines (PAL).

Between 1964 and 1978 the government retained only a 24 per cent interest in PAL through the Government Service Insurance System (GSIS).

In 1979, the stockholders approved an increase in the authorlsed capital stock of the company from 250 million pesos (US$33.88 million) to I billion pesos (US$0.13 billion), with issued stock of 500 million pesos ($US67.77 million) of which the GSIS

now

owns

Apart

from

445.7

million

government

pesos

(PAL,

stockholding,

1980). there

is

almost

no

protection in the civil aviation industry except that the local civil aviation industry enjoys the preferential rights given also to shipping

by PDs 894 and 1466 (see above).

An airline seeking entry into the Philippines must simply be a designated airline of a country friendly to the Philippines.

The frequency of operation by any airline is determined solely by theCivil Aeronautics Board.

The tax rates Charged to PAL and other international carriers are the same.

However, PD 895 authorises the Civil Aeronautics rentals, and charges them on PAL.

Administration on foreign

to airlines

impose whose

retaliatory countries

fees, impose

Travel.

Travel has experienced the highest growth among service exports owing to government promotion, which in many instances has amounted to protectionism.

The present tourism program may be traced to 11 May 1973, when the Ministry of Tourism (then called Authority issued

the to

Department of Tourism) (PTA) were established. provide a basis for the

28

and the Philippine Several decrees implementation of

Tourism have been the tourism

promotion policy.

Among (1974) which provides the local investors registered

(a)

a 50 the

(b)

(c)

deduction per cent year

from net of total

in

which

the carry-over deduction from tax

credits

payments

on

(g)

tax

credit

deduction profit in the

The restaurants,

imported

are

taxes

of

tariffs

capital

equivalent earned

loss

withheld

equivalent

and

these is PD to foreign

535 and

to for

claimed;

payment of real and buildingF

payment

on

income exchange

of

net operating income; on

reduced

of the would imported, domestic

of taxable

loans;

(e)

(f)

incentives

granted

exemption from land improvements

important incentives PTA_

taxable foreign

foreign

(d)

due

the most following with the

on

estate

as

a

interest

taxes

compensating

on

taxes

equipment; to

100

per

cent

of

the

value

compensating tax, and customs duty that have been paid had the equipment been 50 per cent thereof in favour of the manufacturer; from of a same

taxable

tourism year.

income enterprise

tourism industries covered tourist transportation,

incentives are in the form of government disbursements.

Import aocount for the great bulk of years to 1982, they accounted U8543.5 million concessions Authority )â&#x20AC;˘

of

the

which

by and

undistributed is reinvested

PD tour

535 are operators.

hotels, The

taxes waived rather than actual duties waived on transportation total taxes waived.

In the nine for 66.3 per cent of the total granted (Philippine Tourism

The travel tax is the source of PTA's tourism development projects.

A sum of US$170 to US$I00, depending on the category of the ticket, is imposed on (a) all citizens of the Philippines_ (b) permanent resident aliens; and (c) nonimmigrant aliens who have stayed in the Philippines for more than one year and are leaving the country.

Travel tax collections increased from US$12 million in 1978 to over US$22 million in 1980

(Philippines

Tourism

Authority).

29

Finance.

Financial

services rendered money capital.

has

services by

financial

The Central Bank has directed that foreign

exchange costs Loans denominated cent

of

the

of

Under

the

bank the the are

is permitted approval of Philippines, not allowed

Bank been

permission. instituted

exempt In

Banking empowered establish

in

exports

the

the account are

taxes

government (0BUs) in

the

services

of

seven, and foreign

Bank

on

of

the

all projects. exceed 2 per

World

337)

the

and

foreign

1948,

a

the loans

foreign

the 0BUs

to 50 per incentive

on

Philippine the country

deposits.

establishment of The Central

Offshore Bank is

by international foreign currencies.

Central Bank are subject

banks

collects to a tax

to Upon

a fee of of 5 per

promoted.

services, very little

which are government

composed of consulting serviceS, industrial research and planning programs (UNIDO, 1972).

equivalent which the

system has may deposit

any authorised business within

allowed the Philippines. in

deposit anyone

We have seen that personal income single source of invisible receipts on the Philippines.

Nevertheless, manpower

least

PD 1789, paid for receive

currency whereby

interest

applications dealing only

services. largest for

the

in a

enterprises currency deduction

cent of total is claimed.

remunerations

essentially promotion.

assistance technological services, and

engaged in and registered from taxable

are governed by Revenue Code of 1977, on the income received

compensation, of such income.

of

(RA

with in

on

to operate, annually.

Under which are Investments

consultants Internal of taxes

the

for not

interest

Act

currencies not engaged

Consultancy services, receive usually engineering economic training

secured should

rates

Instead, a foreign the Philippines

paying

an OBU US$20,000

Consnltancy represents current

to be dollars

Banking

to approve agencies

authorising at least cent.

and

include

to transact business in the Philippines with the Central Bank.

Of the 32 commercial banks in four are branches of foreign banks.

Filipinos to maintain bank accounts abroad without Central

from 1977 Units

here

borrowing sectors to be used only to finance

Furthermore, cent tax.

General

acceptable foreign bank.

Non-residents are

limited loans

lending

Bank.

15 per

to

intermediaries

the loans in American

prevailing

Asian DeveloPment is subject to a

referred

or

export Taxes

on

30

in

design and services, consultancy in

consultancy with the income of

fees the

Section 22(b) which provides by non-resident emoluments,

manpower They are

during income

the of

of the for the aliens

equal

to

services Board of an amount year in foreign

National collection as wages, 30

per

cent

Consultants

and

other

aliens

employed

in

the

regional

or

area headquarters of multinational companies, subject to only a 15 per cent tax on gross income Philippines.

In the case of foreign consultants institutions whose projects are foreign-assisted,

•however, are earned in the in government the •rules for

taxation

follow

agreement.

Economic

implications

the

provisions

Balance of payments.

Philippines chronic import-substituting investment defeating•. exemption of imports,

incentives•,• Among the on imp,orts, the foreign

One

example

foreign

is

an

the

are

shipping

exported

Another

payments . ... .

1981 the million. example

attempt tosolve the problem by promoting services through

dissipated

industry.

services

on MARINA

is

the

foreign approved

tourism

by

In

amounting

with, not all of this represents because portions of the foreign to be retained abroad for working

and • _. interest , ...

Moreover, in worth US$139.5

loan

these incentives seem at times most frequently offered incentives Since some services require large exchange savings or proceeds from

substitution an,d equipment.

industry

To begin exchange allowed

the

•While there•• is balance of _payments and export-oriented

p.ro.m.otlon, or import i mp0_ted materials

shipping

of

the

1980

to

selfare tax amounts export•

the

uos.t

overseas

U85129

an inflow exchange capital,

of

million.

of foreign earnings are amortisation

loans, and contingencies. the importation of 99 ships

industry.

The

tax

exemptions

on imports contribute to the foreign exchange outflows of firms granted incentives.

The outflow increased from over US$I million in 1974 to almost US$21 million in 1981, and was US$14 million in 1982 (Philippines receipts lessen

Tourism the balance

Authority). of payments

Moreover, problem

black market.

•Many tourists would dollars in the black marke t rather than authorised foreign exchange dealers. unrecorded million recorded would

in by

have

represented

Employment. protectionist Australian such the

by the Central 1978, judging the Ministry

One Bureau

Another when the Philippines,

cent

of

that

tourism of the

convert • their Central Bank or expenditures

amounted between of the year's

to US$146 receipts Bank, This GNP.

of the arguments against dismantling an existing measure is its impact on employme.nt.

The of Industry Economics points out, however, that

an argument service sector

(Australia, opportunities• distribution

prefer to with the Tourist

Bank might have, by the discrepancy of Tourism and those 0.6. per

• not all because

neglects which

the important are connected

job-creating •with trade

effects liberalisation.

1980).

Trade llberalisation provides in the distribution of imported products and maintenance of capital-embodying new adverse

structure the

impact

of

protectionism

of protectionism tariff concession

31

on

employment and in the technology.

employment

emphasises, as it and compensating

in

does

occurs in tax

the on

imported capital any compensating towards capital

equipment. subsidy intensity.

Protection

This structure of the use of labour,

on

increases

the

costs

of

protection results

in

without a bias

production

in

the

industries using the protected services.

It results not only higher consumer prices but also in lower levels of production employment in the industries using the service inputs째 Capital

flows.

flows into all foreign banks and

Table

17

shows

the Philippines. capital in the other financial

areas among foreign aggregate foreign

the

structure

Services Philippines. institutions

investors. investment

make

of up

In are

They between

equity

in and

capital

about a quarter of the services sector, the most preferred

accounted 1970 and

for 15 1981.

per

cent

of

The popularity of _anks as an investment for foreign capital is a direct consequence of the lifting of policies protecting Philippine ownership of banks.

This was mainly because of the increased capitalisation program of the Central Bank, which required capital equity

domestic commercial of 100 million pesos, infusion.

The massive liberalisation had been inflow of

of

inflow of capital the protection of

the protectionist foreign capital.

protective

policies

transportation flow of capital Economic

banks either

to

into the ownership

policies Thus, we

towards

the

and consultancy services into these areas.

growth.

Many

services

put up through

a minimum mergers or

banking sector upon indicates that it

that were can deduce ownership

preventing that the of

probably

are

paid-in foreign

insurance,

inhibit

in

the

the highly the

free

nature

of

infrastructure, such as banking, communications, transportation, etc.

These infrastructure services must be given priority in the push towards economic growth.

Therefore, in a developing economy where these services are not yet adequately produced locally, imports will be necessary.

MoreoVer, technology, another requirement for economic growth, can be transferred to the developing country through trade in services. _ Thus we can infer that premature services may It produced one-fourth billion. demand services support

protectionism undermine economic

has for

been shown intermediate of the total This intermediate

for services. amounting the economy's

to

in infrastructure growth.

and

earlier that the amount use was US$4.67 billion intermediate requirements demand was 38 per cent

Table about output.

18 shows that US$16@ million

32

technology

of services in 1978, or of US$18.96 of the total

in 1978, imported were necessary

to

The potential

structure of of an economy.

aimed at benefitS manufacturing against important

17

promoting that segment sector. the to

can alsoaffect protectionism

industrialilsation. of the Services This results in

.,,

unorganised economic

&pproved Se_t,,er

protectionism Philippine

services growth.

foreign 1981

investment

â&#x20AC;˘, Industry

the growth services is

It therefore .. mainly .,.... .. sector linkedwith the effective discrimination

sector

by

in

industr]r,

which

is

21Fehruar]r

Amount_ (US Sm)

potentially

1970

Banks and other financial Mining Commerce Business services Personal services Recreational services Other services Pubiic utilities Agriculture, fisheries Construction Others

institutions

and

forestry

Total

Source:

Central

Bank

of

the

Philippines.

33

,

942.97

51.78

277.28 299.94 104.11 60.65 18.64 0.09 0.01

15.22 16.47 5.72 3.33 1.02 -

49.03 40.78 27.02 0.73

2.70 2.24 1.48 0.04

1821.25

30

Distribution (,t) ........

Manufacturing

to

100.00

. ^

,

TABLE

18

B_eakdownof 197S (US$

imported million)

Service

services

into

(I)

(2)

Intermediate demand

Transportation

_''_:'

Communication

and

Total demand

in_rmediateand

(3) Imports

f4-_l

(4) (3)-(2)

services,

(5) (I)x(4)

1057.4

1943

90.0

.046

48.6

123.2

202

8.7

.043

5.3

Trade

1415.8

4385

Finance

1091.8

1223

22.1

.018

19.7

287.8

996

15.0

.0!5

4.3

88.5

1840

26.7

.015

1.3

117.1

747

100.2

.134

15.7

490.6

i029

150.5

.146

71.6

st0rage

Real

estate

Government, education Hotels

and

health

-

-

and

restaurants Others

Total

imported

services

for

intermediate

Total

imported

services

for

final

Total

imported

services

Source:

-

1978

Interindustry

use

166.5

use

246.7 413.2

Accounts

of

34

the

Philippines.

4

Prospects

Z.ntra-KSEAH

for

within

ASEAN

extends

such traded services and technology.

Despite with the other ASEAN

insignificant United States. therefore be relations with which

cooperat£on

in

traded

services

prospects

Cooperation encompassing tourism, services

policy

will

a

broad

compared with developed countries, Policy cooperation in traded geared towards increasing the other ASEAN nations, especially

mutually

Some

over

benefit

progress

has

the

Philippines

been

spectrum,

as transportation, this, the Philippines countries is

achieved

finance, trade in relatively

particularly the services • should Philippines trade in those services

and

the

in

traded

cooperation.

For example, in the field of tourism, have agreed on a common• travel document •instead of each of the ASEAN countries fo•r group tours of Intra-ASEAN fares have been introduced to encourage the region.

region. service

governments visas to enter 5-10 persons. travel within

On overseas shipping, a meeting of ASEAN Economic Ministers in 1977 decided to organise an ad hoc working group to devise measures to solve problems in regional shipping.

The Federation of ASEAN Shipowners' Association also assigned its national units to undertake investigation• of such problems, with .•the• Philippines stuaying joint shipping services for intra-ASEAN trade.

Another meeting of representatives of governments, shippers, and commodity organisations in 1977 urged effective cooperation of shipping bodies on a regional basis.

The Philippine Insurance Commission is actively involved in promoting regional cooperation in insurance.

In October 1980, it hosted the Sixth Meeting of the ASEAN Insurance Commissioners which advanced •the cause of ASEAN harmonisation of insurance laws and unified forms of insurance statistics.

Philippine-Australian Efficiency Australia interests operate

is and of in

competitive Prospects

prospects the the

prime consideration Philippines in traded

developing terms of

nations efficiently

such run

in cooperation services.

It

is

between in the

as the Philippines and internationally

to

enterprises. for

policy

agreements signed between early as 1960, the two relating to the waiver of

cooperation

can

the Philippines countries entered passport visa fees

be

deduced

from

and Australia. into an agreement for non-immigrants.

As

In 1971, they signed an air transport agreement in Manila.

There have bean development assistance programs for Zamboanga del Sur and Samar, two of the most troubled areas in the Philippines.

A

35

'

trade agreement was signed in Manila in 1975 and, in 1979, the two countries signed a convention for the avoidan.ce of double taxation and the prevention of fiscal evasion of income taxes.

Between

ASEAN

and

Australia,

the

Development

Import

Finance

Facility governments origin for

(1980) is intended 'to reduce of importing capital goods and use in developing countries'.

the cost services of The character

to ASEAN Australian of trade

relations merchandise

between trade,

particularly their mutual

in nonwelfare.

Strategies

for

ASEAN and also shows

reducing

The ASEAN emphasis meaningful cooperation â&#x20AC;˘states provides ample in traded services. timetables, bilateral approach

may

be

Australia, respect for

distortions on

friendship, good understanding, and among members and with other friendly room for strategies to reduce distortions For such purposes, adjustments to existing negotiations, and the industry-by-industry

adopted

within

the

framework

of

previous

agreements.

On

the

part

of

the

Philippines,

there

is

great

leeway

for

such strategies to diminish existing distortions.

Under a Constitutional provision, the President of the Philippines may enter into any international agreement as the national welfare and interest may require without the concurrence of the National Assembly (Sec. 16, Art. XIV).

He may also issue decrees, orders, or instructions which form part of the law of the land whenever in his judgement adequately on any action (Amendment

the National Assembly fails matter that in his judgement 6, 16 October, 1976).

However, in assessing economic considerations not to be disregarded. on these matters will

prospects for such as defence It

not

is to greatly

36

be hoped impede

policy and

or is unable to act requires immediate

cooperation, foreign policy

that misunderstandings cooperation.

nonare

References

Abella,

M.I. (1979), EXpOrt of Labour and Manpower Studies,

Australia

ILO

IMF

NEDA

(1980),

Bureau Service Publishing

(1974), Development, Manila.

International National

(1974),

Republic

Economics,

and

Monetary washington, the

Manpower,

Research Canberra.

Labour Economic

of

and

Features

Report

Fund, D.C,

5,

National

Statistics

(1980),

Philippine

Statistical

Yearbook,

Manila.

(1981),

Philippine

statist:ical

Yearbook,

Manila.

(1980),

Philippine

(1972), Manual on New York.

United the

Airlines, Nations Use

of

39th

Industrial Consultants

37

Annual

Report,

Development in

Developinq

of

the

Australian

of

Payments

Economic

Accounts Methods

Office,

of

Sharin_ in Authority,

Balance ....

Inter,industr_ Sources and

Census Manila.

Institute

Office, Development

Philippines,

Authority, Framework,

(1978), National Establishments,

UNIDO

Industry

Sector, Service,

(1981), International S tat_stlcs Yearbook,

Development Philippines: Manila.

PAL

of

Australian Government

Filipino Manila.

of

and

of the AnalTsis,

Census

Manila.

Organisation, Countries,

of

Other

publications

of

the

ASEAN-Australia

ASEAN-Australla

No.

No.

No.

I

2

3

Christopher C. Findlay_ and the ASEAN-Australia

4

Ow

Chin

Hal

Hock

No.

NO.

No.

No.

No.

5

6

7

8

9

10

and

on

Yah,

The

relations

Australian

direct

manufacturing,

Stuart Macdonald and munications in ASEAN Clem Tisdell, national trade

aviation $A5.00 Services $A3.50

development with

of

Australia,

investment

$A3.50

Thomas Mandeville, and Australia, 1984.

Trade

$A3.50

Glassburner, economic

in

inter$A3.50

supply

to $A5.00

technology:

ASEAN $A5.00

Simon Bell, Trade between Southeast Asia, 1984.

and

Telecom-

Tourism r the environment, and public economics, 1984.

Mingsarn Santikarn, and Australia, 1984.

in

1984.

Peter J. Rimmer, Consultancy services: Southeast Asia from Australia, 1984.

policy

Project:

$A3.50

Hill,

Bruce

Research

Papers

Australian civil dispute, 1983.

LimChong

a _erspective

Philippine No.

Econami¢

Ken Tucker, Greg Seow and Mark Sundberg, in ASEAN-Australian trade, 1983.

ASEAN: 1984.

No.

Joint

northwest

ASEAN's

Australia

and $A3.50

'other

performance

four':

since

economic

1970,

1984.

$A3.50