20th
Year Anniversary
Vol. XV No. 4
he idea of an Asia-Europe Meeting or ASEM may have been born in part as Europe's reaction to the Asia-Pacific Economic Cooperation (APEC) and the possibility of being left out of the booming East Asia region. It may also have been born
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July - August 1997
ISSN 0115-9097
that such a regime facilitates—the maintenance of peace and stability regionally and internationally.
EDITOR'S NOTES
Like APEC, the eventual growth of ASEM into an important forum and catalyst for change and reform in the member-countries will significantly
No man is an island…what affects one will invariably affect another—even across continents—in this age of globalization and open trading. Thus, having been a witness to East Asia’s growth in the past years, Europe’s response has been to acknowledge the fact that it is not enough to stand in the sideline as an observer. It has to initiate if it wants to help shape the direction and extent of that effect. Thus was born the idea of an Asia-Europe Meeting (ASEM). In the main article of this DRN issue, PIDS President, Dr. Ponciano S. Intal, Jr., talks about the nature and prospects of the ASEM and how the concept and its attendant benefits may help Europe address its own widening dilemma and, in the end, strive to bridge the gap that regional organizations —directly or indirectly— promote. Meanwhile, as a continuation of the May-June 1997 issue of the DRN which featured an article based on Dr. Josef Yap’s study on the macroeconomic impact of tariff reduc-
Addressing the European Union's (EU) Widening Dilemma the APEC Way* in part as a means of engaging Europe in East Asia's growth, thereby tempering the United States' relations with East Asia. But fundamentally, ASEM embodies the desire of both sides to deepen Asia-Europe partnership in order to highlight the maturation of centuries-old relationships between the two regions. In addition, ASEM signifies Europe and East Asia's shared global concerns and goals which basically boils down to the development of an open international trading regime and—largely through robust growth ———————— *Remarks given during the Seminar on Europe, East Asia, APEC and ASEM at the Free University of Belgium, Brussels, Belgium, May 23, 1997.
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Ponciano S. Intal, Jr. depend, among others, on the interest of the leaders, the patience and investment in time of senior government officials, and the continuing interest, and the perseverance and contribution of academics and businessmen. The sharing of ideas among participants in seminars such as this is a modest but very welcome initiative. After all, East Asians need to understand and appreciate Europe's concerns, constraints and prospects as much as Europeans need to understand and appreciate
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WHAT'S INSIDE 2 4 5 10 11
Restructuring Tariffs: Toward a More Competitive Philippines The Case of the Garments Industry The Textile Industry: In a Bad Shape PIDS Calendar of Seminars July-October 1997 Staff Outreach Activities
DEVELOPMENT RESEARCH NEWS
H
ow is the trade liberalization program of the government helping the country?
In a study entitled "Assessment of Tariff Reform in the 1990s" which was presented during a Pulo n g Saliksikan last May 15,1997, PIDS Research Fellow, Dr. Rosario G. Manasan showed that the 1990 tariff reforms have achieved considerable progress in simplifying tariffs and fostering international competitiveness.
July - August 1997
2
Restructuring Tariffs: Toward a More Competitive
Philippines
the government are, to date, accelerated. The government pledged to withdraw import restrictions with the exception of rice through RA 8178 efPresent Scenario fective July 10, 1996 as a commitment In adherence to a more open in- to the World Trade Organization ternational trade environment, unilat- (WTO). The Philippine Individual Aceral as well as multilateral efforts of tion Plan (IAP) under the Asia-Pacific Economic Cooperation (APEC) proposes a 5 percent tariff rate on all imTariff-Only Effective Protection Rate ports with the exception of Based on Price Comparisons by Input-Output (I-O) Sector, Year 2000 agriculture while the Bogor Declaration's goal is I-O I-O Sector (Agriculture) (%) free trade in 2020. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 21 22 23 24
Palay Corn Vegetables Roots and tubers Banana Pineapple Mango Citrus fruits Fruits and nuts excluding coconuts Coconut Sugarcane Tobacco Abaca Other fiber crops Coffee Cacao Rubber Other agricultural products, n.e.c. Hog Cattle and other livestock Hen’s egg Other poultry and poultry products Agricultural services
52.96 28.85 14.07 -1.72 -0.52 -0.20 20.75 11.06 -0.09 -0.45 2.52 38.41 2.46 -0.43 24.45 8.60 14.48
Thus, the Tariff Reform Program (TRP)-III was undertaken to move closer towards a uniform level of protection across all sectors by reducing the level and spread of tariff rates. The thrust is to move to a two-group tariff rate schedule—3 percent on raw materials and intermediate goods; and 10 percent on finished products—in year 2003, and to a uniform tariff rate of 5 percent in year 2004.
Related Literature As shown in various trade literature, tariffs and quotas result in market
distortions as consumer and producer prices are altered thereby leading to inefficiencies in resource allocation. On the other hand, lowering of tariffs and lifting of quantitative restrictions (QRs) allow access to quality inputs and superior technology, thus encouraging improved allocative and technical efficiency as well as greater domestic competition of cheaper goods through a more rational market structure. Medalla et al. (1995) provides compelling evidence that the Philippine trade liberalization experience in the 1980s has indeed made positive effects on market structure, efficiency, competitiveness and resource allocation. In particular, the domestic resource cost to shadow exchange rate (DRC/SER) ratio of the manufacturing sector as a whole declined during the period 1983-1988, indicating an improvement in competitiveness. The DRC/SER ratio represents the average opportunity cost of using domestic resources in producing tradable goods. A declining DRC/SER ratio indicates improvement of comparative cost advantage. Furthermore, the number of relatively inefficient industries declined after the trade reform which implies that there was an improvement in the resource allocation toward the more efficient sectors of the economy.
DEVELOPMENT RESEARCH NEWS
EO 470 reduced the number of commodities with high tariffs and increased the number of those with low tariffs. Some 6 percent of the total number of commodity lines were levied with 10 to 30 percent duty rates while 30 percent were levied with duty rates of less than 10 percent (Tan 1994). Ironically, EO 8 levied tariff rates twice as high on products scheduled for liberalization mandated under EO 470. This resulted in some 167 commodity lines being subjected to duty rates between 60 to 100 percent in 1992, the number of which was gradually reduced within a 5year period.
July - August 1997
Tariff-Only Effective Protection Rate Based on Price Comparisons by I-O Sector, Year 2000
Tariff Reform in the 1990s Executive Order (EO) 470 or TRP-II was issued in 1991. Executive Order 8 came out in 1992.
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I-O 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61
I-O Sector (Food Processing) Slaughtering and meat packing Meat and meat processing Milk processing Butter and cheese manufacturing Ice cream, sherbets and other flavored ices Other dairy products Canning and preserving of fruits and vegetables Fish canning Fish drying, smoking and manufacturing of other seafood products Production of crude coconut oil, copra, cake and meal Other crude vegetable oil excluding coconut oil, fish and other marine products Manufacture of refined coconut and vegetable oil Rice and corn milling Flour, cassava and other grains milling Manufacture of bakery products excluding noodles Noodles manufacturing Sugar milling and refining Manufacture of cocoa, chocolate and sugar confectionery Manufacture of desiccated coconut Manufacture of ice excluding dry ice Coffee roasting and processing Manufacture of animal feeds Manufacture of starch and starch products Manufacture of flavouring extracts, mayonnaise and food coloring products Miscellaneous food products
Thus, the impact of EO 470, 62 as countered by EO 8, made little difference (Tan 1994). The momentum for a more uniform protection f EO 227 issued on March 4, structure was sustained but primary 1995 which calls for changes in tariff agriculture and exportables were still penalized relative to manufactures rates applicable to cement; f EO 264 issued on July 22, and importables. 1995 which affected 4,142 harmonized Recently, TRP-III directed further system (HS) lines in the manufacturreduction of the Philippine tariff struc- ing sector; f EO 288 issued on January 1, ture as embodied in the following EOs: 1996 which directs tariff reduction on f EO189 issued in January nonsensitive components of the agri1994 which provides tariff reduction cultural sector; and f EO 313 issued in April 1996 on capital equipment and machinery; f EO 204 issued on September which provides for the tariffication of 30, 1994 which mandates tariff reduc- the QRs on sensitive agricultural prodtion in textiles, garments and neces- ucts and paved the way for the elimination of these QRs. sary chemical inputs;
(%) 37.82 55.44 -0.10 10.80 9.65 9.56 10.02 3.36 8.93 3.83 2.57 50.28 8.82 23.33 14.70 68.76 16.29 -0.38 135.71 32.29 4.91 -0.95 -1.01
Results of the Study Manasan confirmed that the implementation of trade policy reforms had been rapid in the 1990s. Results suggest that simplification of the existing tariffs has been progressively achieved. The five-group tariff rate structure clustered around 10 to 50 percent was simplified into three groups clustered around 3 to 20 percent. Moreover, the number of imported commodities slapped with tariffs will be reduced from 6,197 in 1990 to 5,725 in year 2000 in order to stream-
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DEVELOPMENT RESEARCH NEWS
he high output growth of the Philippine garments industry surpassed the growth of the entire manufacturing sector between 1972-1980 primarily due to the strong pull of the export demand which grew at an average rate of 30 percent per year.
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Issues With the gradual dismantling of quotas under the new General Agreement on Tariffs and Trade/World Trade Organization (GATT/WTO), however, new exporters threaten the survival of the local garments industry and its exports to the United States (U.S.) and the European Community where some 80 percent of total garment exports are being marketed.
July - August 1997
4
The Case of the
Garments Industry Major Contributions to the Economy As shown in Table 1, the garments industry employed almost 173,000 workers or 18.3 percent of the total employment of the whole manufacturing sector in 1991. From a mere 1 percent in 1972, the industry rapidly increased its gross valued added (GVA) share to the entire manufacturing sector to almost 6.5 percent in 1991.
Table 1 Share of the Garments Industry Censal Year Employment 1972
GVA Share to Manufacturing (P million, 1985 prices) % Equivalent
19,009
576
1.01
1975
32,912
913
1.10
1978
75,749
2,469
2.48
1983
75,259
2,790
2.78
1988
142,160
6,371
5.81
1991
172,874
8,807
6.42
This condition is further aggravated as the total factor productivity (TFP) of the industry remains negative.
Competitiveness In figures gathered in the summer of 1995, the Philippines was shown to be number four in a comparative listing of major apparel exporters to the U.S. insofar as hourly labor cost is concerned (Table 2). Countries like Bangladesh and the People's Republic of China were shown to have lower hourly labor costs. When the international market is eventually freed from quota restrictions under the new GATT/WTO as mentioned earlier, then these countries, especially the People's Republic of China, will likely pose as major threats to the country's garments industry. It is to be noted that the Philippine hourly labor cost is more than double that of China.
Table 2 Top Apparel Suppliers to the U.S., Summer 1995 Ranking
There is also a downtrend in output growth as exports experienced a slowdown beginning in the first half of the 1990s. In fact, big garment firms are either closing down or downsizing their manpower.
The garments industry also gained its position as the second top earner of foreign exchange next to the semiconductor sector. From 5.7 percent in 1970-1974, the share of garments exports to the total output jumped to almost 70 percent of total industry output in 1985-1987.
Country
Hourly Cost of Labor (US$)
1
Bangladesh
0.20
2
People’s Republic of China
0.25
3
Indonesia
0.33
4
Philippines
0.72
5
Honduras
1.22
Moreover, the local garments industry is heavily dependent on imported fabrics for its raw materials, accounting for almost 70 percent of the total cost of production.
DEVELOPMENT RESEARCH NEWS
5
July - August 1997
Table 3 Productivity Results from 1983 to 1993 Subindustry
Average TFP
Average TP Average TE Coefficient Coefficient
Men’s and boy’s garments manufacturing
-4.59
-5.45
0.85
Women’s, girls’ and babies’ garments manufacturing
-2.95
-3.91
0.96
Ready-made clothing manufacturing, n.e.c.
-0.37
-1.32
0.94
Embroidery establishments
-2.87
-3.45
0.57
Manufacture of hats, gloves, handkerchiefs, neckware (except knitted and paper), and apparel belts regardless of material
-5.00
-5.83
0.82
Productivity Results from 1983 to 1993 As seen in Table 3, the average total factor productivity (TFP) for a number of subindustries within the garments industry had been negative from 1983 to 1993. The deterioration of TFP has been due to the negative
contribution of technical progress (TP) since firms had failed to acquire new technology. For example, it is common to find 15 to 20 year-old sewing machine models still being used. Negative TP coefficients may also be due to the poor skills development of workers as a result of fast employment turnovers.
The Textile Industry: In A Bad Shape he second half of the 1960s saw the textile industry surpassing the growth of the garments industry and the whole manufacturing sector. However, since then and for the last 20 years, the industry has performed below par. Productivity declined considerably from 4 percent in the period 1956-1970 to 0.6 percent in 1981-1992.
tire manufacturing sector started to decelerate in the 1970s, reaching an average all-time low of 3.91 percent in 1991 as shown in Table 1. Average GVA improved to 14.5 percent in 1986-1990 but dropped to 5.3 percent in 19911995.
The annual real growth of gross value added1 (GVA) vis-à-vis the en-
In a paper presented during a Pulong Saliksikan last May 29, 1997,
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Issues at Hand What brought about this decline?
In terms of technical efficiency1 (TE), Table 3 shows that subindustries in the garments industry which contributed a substantial share to the total industry output were technically efficient. Average TE coefficients range from 0.82 to 0.96 from 1983 to 1993. Only embroidery establishments had a low average TE coefficient of 0.57.
———————— 1 Technical efficiency is defined as the maximum potential output feasible under current technology. A technical efficiency coefficient of 1.0 means that actual output equals potential output. A subindustry with a TE coefficient of 1.0 or close to 1.0 can therefore be considered as technically efficient.
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Dr. Caesar B. Cororaton, PIDS Research Fellow, identified five major factors behind the textile industry’s poor performance. First is due to the smuggling of textiles. About 25 percent of the total domestic market for textiles is supplied by smuggled fabrics due to the high tariffs and quantitative restrictions (QRs) imposed on imported fabrics. Second is the reluctance to scrap outdated machineries and old technologies. ———————— 1 GVA is the difference between the value of goods produced and the cost of materials and supplies used.
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DEVELOPMENT RESEARCH NEWS
The Textile Industry ... from Page 5
Table 2 enumerates the type and number of machineries still in use in the textile industry in 1991. Third is the high cost of raw materials and energy.
July - August 1997
6
The same uncompetitive cost structure is found in the production of fabrics in the Philippines. It takes the Philippines US$1.20 to produce 1 kilogram of fabric, a cost lower than that in Japan but higher than those in India, Korea and the U.S. The fourth factor is the very weak link with the garments industry. The garments industry, a major
Table 1 Share of the Textile Industry Censal Year Employment GVA share to Manufacturing (P million, 1985 prices) % Equivalent 1972
60,870
4,185
7.31
1975
72,487
5,308
6.39
1978
177,181
10,605
10.67
1983
85,585
5,856
5.82
1988
89,485
4,977
4.53
1991
84,297
5,361
3.91
Table 2 Installed and Operated Machinery, 1991 Type
Total Number Installed Units Operational Units
Old technology 1. Ring spindles 2. Shuttle looms
1,500,000
1,100,000
48,000
48,000
New technology 1. O-E rotors 2. Shuttleless looms
19,000
17,600
1,614
1,614
It costs the Philippines US$3.65 to produce a kilogram of yarn. This figure is higher than the cost in the U.S. (US$3.36), Korea (US$3.07), and India (US$2.81). The energy cost in the Philippines is likewise high. In fact, it is as expensive as that of Japan. Financial cost is also relatively higher in the Philippines than in Korea, Japan and the U.S.
export earner, is supposed to be the major buyer of locally-made textiles. However, it does not buy most of its fabrics from the local textile industry. The fifth and final factor is the presence of unprofitable integrated mills. Specialized spinning mills have
higher net profit after tax compared to fully-integrated mills which perform all 3 major stages of textile manufacturing, namely, spinning, weaving and finishing. At present, 46 out of the total 81 major firms in the textile industry operate on spinning mills while only 19 firms operate on fully integrated mills.
TFP Growth in the Textile Industry A leading economist, Paul Krugman, said that the right path towards economic development is through technological change. Technological change in turn is computed as the change in total factor productivity (TFP) which can be positive (growth), negative (decline) or zero. The change in TFP can be further decomposed into technical efficiency (TE) and technical progress (TP). Technical efficiency is described as the maximum potential output feasible under current technology (Kalirajan and Tse 1989) and includes management style, organizational setup, benefits and incentives, plant and production operation, and others. As such, output improvements can be realized without having to invest on new equipment. Technical progress, on the other hand, is the industry’s best practice frontier or standard. It includes research and development (R&D) or the acquisition, diffusion, adaptation and generation of new—particularly foreign—technology. In the textile industry, the manufacture of carpets and rugs is shown in Table 3 to have exhibited the highest TE coefficient ratio, followed closely by finishing mills. Table 3 also shows the 3 other subindustries with
DEVELOPMENT RESEARCH NEWS
7
July - August 1997
Table 3 Subindustries with Above-Average Technical Efficiencies Textile Subindustries
Output TE TP Contribution1 Coefficient2 Coefficient (%)
Fiber and filament mills Hosiery, underwear and outwear knitting mills Finishing mills Manufacture of carpets and rugs Manufacture of articles made of native materials Total Contribution
23.85 9.91
0.87 0.87
5.26 -3.62
2.07 1.42 0.87
0.94 0.95 0.86
-16.03 10.33 -2.26
38.12
1
1993 value of output of the textile industry
2
Average Technical Efficiency from 1983 to 1993
TE coefficients above the industry mean average of 0.85. It should be noted that these subindustries contribute about 38 percent of the textile industry’s total output.
Policy Implications Cororaton's study likewise shows that a number of subindustries,
namely spinning mills, integrated textile mills, weaving mills, fabric knitting mills, manufacture of nets and industrial bags, and others which contribute a major share to the total output of the textile industry (a large 61.88 percent) are technically inefficient (Table 4). This implies that total output of the industry can still be improved by increasing technical efficiency or addressing the organiza-
Table 4 Subindustries with Below-Average Technical Efficiencies Textile Subindustries
Output TE TP Contribution Coefficient Coefficient (%)
Spinning mills Integrated Textile mills Weaving mills Fabric knitting mills Manufacture of textile industrial bags Manufacture of cordage, rope and twine Spinning, weaving, texturizing and finishing textiles Manufacture of made-up textile goods for house furnishings Manufacture of lace, narrow fabrics and small wares in narrow fabric textile mills Manufacture of nets, excluding mosquito nets Hand weaving Total Contribution
22.69 14.55 6.70 4.99 4.55 2.55 1.37
0.82 0.77 0.76 0.83 0.78 0.85 0.79
-3.42 -0.66 -5.61 -3.49 -6.12 -5.55 -2.88
0.89
0.82
-1.72
0.70
0.78
-2.52
0.54
0.77
-5.47
0.52 61.88
0.78
-3.16
tional setup of technically inefficient subindustries through better technical management, industrial engineering, planning and control, among others, without having to buy new equipment. For instance, the inefficient spinning and integrated textile mills which contribute a substantial 22.69 and 14.55 percent to the total output of the textile industry should have an organizational restructure, and adapt existing machinery and equipment to present working conditions. On the other hand, subindustries with above-average TE coefficients but with negative TP coefficients as seen in Table 3 must invest on new technology to improve their respective outputs. Despite their high TE coefficients and comparative advantage, finishing mills, the manufacture of hosiery, underwear and outwear knits should upgrade their equipment and adopt new technology. This should be accompanied by skills development of their manpower resources.
Recommendations One strategy which the country may pursue is to attract foreign investors for small to medium investments or joint ventures that may bring in new techniques and technology. Such investments should be focused where the Philippines has a competitive edge such as the finishing and dyeing stage which makes use of the skills and creativity of Filipino workers. The government should provide investment incentives and improve existing training facilities. The government should also review the tariff structure on imported = Page 11
DEVELOPMENT RESEARCH NEWS
EU Widening Dilemma ... from Page 1
East Asia's concerns, constraints and prospects. It is through mutual understanding that creative innovations are born to cement partnerships and contribute to world development and peace. The individual action plans that APEC member-economies submitted in November 1996 for the Manila Action Plan for APEC should be heartwarming to Europe. The tariff reductions on a Most-Favored-Nation (MFN) basis are all on track toward the Bogor goal of a free and open trade in the APEC region. Many of the initiatives and undertakings in the trade and investment facilitation area, like in the tariff area, are supportive of and even go beyond or deepen further the World Trade Organization (WTO) initiatives. Because these are nondiscriminatory in nature, APEC undertakings allow Europe access to the liberalizing East Asia market. Europe need not worry too much about bindings because the APEC undertakings reflect positive assessment of benefit-cost calculations of each APEC member-economy where reforms have delivered significant social returns. Thus, it is unlikely that drastic policy reversals would happen. Despite the lack of bindings, European multinationals have, in a way, already voted with their purses and have become more aggressive in investing in East Asia in recent years. For example, the value of European foreign direct investment (FDI), on approval basis, in the ASEAN-4 countries (Indonesia, Malaysia, Philippines and Thailand) during 1991-1994 exceeded American investments in the four countries during the same period.
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Nevertheless, there are a number of sensitive issues in APEC, especially regarding agriculture, which can derail the liberalization process in the region. The issue of agricultural trade liberalization would severely test the APEC member-economies' resolve to undertake "concerted unilateral" trade liberalization on an MFN basis. Given the agriculture issue, the prospects for a nondiscriminatory free trade regime in the APEC region are much greater if the European Union (EU) is positively engaged in the process. This
July - August 1997
Eastern European countries (CEEC), including Russia. The second challenge is important because the EU is a political as much as an economic entity. It is basically a mechanism to prevent another debilitating war. Moreover, the "soul" of Europe encompasses CEEC and Russia, if not Siberia. Given the current bias for customs and economic unions, the EU widening and deepening entails large
ASEM signifies Europe and East Asia's shared global concerns and goals... means that in dealing with difficult areas like agriculture (where free-rider concerns are keenest), multilateral trade agreements under the WTO would be critical. Just as APEC needs a positivelyengaged Europe in order to help push the process toward the eventual attainment of the Bogor goal of free and open trade and investment in the APEC region, Europe may need the support of and learn from East Asia and APEC in its efforts to address critical challenges facing the EU now and in the near future. Today is an exciting period for Europe, especially for Brussels. To some extent, the EU is at the crossroads once again. To my mind, there are two key challenges that the EU faces today, namely: f how to facilitate internal restructuring of each EU membereconomy at the same time that EU integration is being deepened; and f how to supportively and creatively accommodate Central and
risks of an inward-looking EU. Or—in the scenario of a flexible European Union with a federalist core and membership of "ins and outs" (Antola 1997)—EU widening to CEEC is at best selective. Thus, the current "hub-andspoke" system with CEEC continues. In addition, Russia is not effectively accommodated and engaged, thereby undermining the apparent peace, security and development objectives that
EDITOR'S NOTES from Page 1
tion, we have three related articles on tariffs in this issue: (1) an assessment of the tariff reform in the 1990s, (2) the garments industry, and (3) the textile industry. In the first article (page 2), Manasan noted that the implementation of the new tariff structure under the Tariff Reform Program (TRP) has promoted international competitiveness, among other things. The other two articles on pages 4 and 5 give a brief description of the effects of the TRP on the two industries. Finally, on pages 10-11, we continue with the PIDS calendar of seminars and staff outreach activities.
DEVELOPMENT RESEARCH NEWS
9
Europe may need the support of and learn from East Asia and APEC in its efforts to address critical challenges facing the EU.
July - August 1997
Vol. XV No. 4
July - August 1997
Editorial Board support the EU widening program. This may lead to a situation where a defensive nationalism flourishes in Russia and may thus create uncertainty within the region. In order to resolve the current dilemma, the European Union might like to explore the possibility of adopting the APEC model of liberalization, facilitation, and economic and technical cooperation. That is, to effectively engage and support Central and Eastern Europe and Russia in a mutuallyreinforcing process of internal reforms, increased economic integration and robust growth done in an open and nondiscriminatory way. In short, the APEC model would allow for a deeper economic integration within the EU, anchored on compelling political reasons while, at the same time, would allow the EU to open up a more inclusive and comprehensive cooperative process with Central and Eastern Europe and Russia. An APEC-style Europe may thus be called "EEC" or European Economic Cooperation, not European Economic Community. Together with internal reforms to increase the flexibility of EU's labor market and minimize the distortions caused by the Common Agricultural Policy (including the "Dutch disease" effects on significant beneficiary countries like Greece), EU widening based on the APEC model will encourage a more cost-efficient restructuring and relocation of industries, thereby increasing EU's competitiveness while at the same time generating and sustain-
ing a robust economic growth in Central and Eastern Europe and Russia. The differences in wage rates among "European Economic Cooperation" members, together with a comparatively higher level of education in Europe, will allow for an East Asian style of industrial restructuring in Europe. This style is sometimes referred to as the "flying geese" which helped fuel the economic boom in East Asia. The final ingredient toward an East Asian style of restructuring and growth in the EU, Central and Eastern Europe, and Russia is the significant rise in the saving rate. Hence, there is a need for greater fiscal prudence in the EEC area. Of course, it is presumed here that political will and stability exist in the region. With APEC, and an APEC-style European Economic Cooperation, multilateral discussions in the WTO may likely change for the better. Henceforth, WTO becomes an instrument for "locking in" domesticallygenerated reforms encouraged by "liberalization-cum-facilitation clubs" like APEC and EEC. In addition, WTO may help push the "concerted unilateral" liberalization process in APEC and EEC countries by taking on—in a facilitative manner—difficult and sensitive areas like agriculture which can derail the liberalization process in APEC and EEC. With bi-regional understanding and agreement that may be forged under the aegis of the ASEM—a forum that will facilitate and improve eco-
Dr. Ponciano S. Intal, Jr. President Dr. Mario B. Lamberte Vice-President Ms. Jennifer P.T. Liguton Director for Research Information Mr. Mario C. Feranil Director for Project Services and Development Ms. Andrea S. Agcaoili Director for Operations and Finance Atty. Roque A. Sorioso Legal Consultant
Staff Jennifer P.T. Liguton Editor-in-Chief Genna J. Estrabon Issue Editor Corazon P. Desuasido, Barbara B. Fabian, Edwin S. Martin and Liza P. Sonico Contributing Editors Valentina V. Tolentino and Rossana P. Cleofas Exchange Delia S.Romero, Galicano A. Godes, Necita Z. Aquino and Federico D. Ulzame Circulation and Subscription Jane C. Alcantara Lay-out and Design
nomic and trade relationships among European and East Asian countries— as well as joint technical analyses of the challenges facing the world and the regional economies, EU and APEC can pave the way toward the successful launching and implementation of new rounds of negotiations under the WTO in the near future. DRN
DEVELOPMENT RESEARCH NEWS
July - August 1997
10
PIDS Calendar of Seminars July-October 1997 July 14 APEC Philippine Study Center Network Steering Committee Meeting Lead Coordinator: Myrna S. Austria 22 Seminar-Briefing on the DIRP before the Congressional Planning and Budget Office Presentor: Celia M. Reyes 30 Simulation Results of the MIMAP Project Presentors: PIDS-MIMAP Researchers
August 8 Preliminary results of the assessment study on Taxation and Decentralization/Financial Policies/Macroeconomic Framework/ BOP Accounts Presentors: Rosario G. Manasan/Ma. Melanie R.S. Milo/Josef T. Yap/Diwa Guinigundo 11 Preliminary results of the assessment study on Environment/Agriculture/Agrarian Reform Presentors: Marian S. delos Angeles/Cristina C. David/Maribeth Bravo 12 Preliminary results of the assessment study on Housing/Health/Poverty Presentors: Gilberto M. Llanto/Alejandro N. Herrin/Celia M. Reyes
22 Preliminary results of the assessment study on Productivity/Industrial Policies/Labor/ International Environment and Developments Presentors: Caesar B. Cororaton/Myrna S. Austria/Gonzalo M. Jurado/ Ponciano S. Intal, Jr.
September 3 Preliminary results of the assessment study on Public Expenditures/Infrastructure/ Trade and Industry Presentors: Rosario G. Manasan/Ramonette B. Serafica/Erlinda M. Medalla 4 Technical Seminar on a Survey of Key Enterprises in Manufacturing (SKEM) Sponsors: PIDS-NSO-SRTC 5 Roundtable Discussion on the Recent Peso Depreciation: Cause and Effect Sponsors: PIDS-PES 9 Preliminary results of the assessment study on Productivity Trends: Sectoral Basis/Legal and Judicial Environment and Peace and Order Situation Presentors: Jesus Felipe/Raphael P.M. Lotilla 16 Technical Workshop on the 5% Uniform Tariff: Micro and Other Studies Sponsors: PIDS-Tariff Commission
17 Integrative Framework: Assessment of the Economy Project (Preliminary Results) Presentor: Josef T. Yap 23-25 Symposium in Honor of Dr. Gerardo Sicat and Dr. Jose Encarnacion (In celebration of PIDS' 20th founding year anniversary)
October Second round of presentation of the preliminary results of the assessment study on: 23 Labor/Agriculture Presentors: Gonzalo M. Jurado/ Cristina C. David 24 Infrastructure/Financial Issues Presentors: Ramonette B. Serafica/ Ma. Melanie R.S. Milo 27 Productivity/Industrial Policies/International Developments Presentors: Caesar B. Cororaton/Myrna S. Austria/Ponciano S. Intal, Jr./ Erlinda M. Medalla 29 Social Issues/Agrarian Reform Presentors: Celia M. Reyes/Maribeth Bravo/ Alejandro N. Herrin/Gilberto M. Llanto
DEVELOPMENT RESEARCH NEWS
11
Staff Outreach Activities
July - August 1997
f
Wrote the paper entitled "Employment Planning, Generation and Facilitation: Implementation at Ground Level, forthcoming in Philippine Labor Review, Institute for Labor Studies, Department of Labor and Employment, 2nd Semester, 1997.
f
Wrote a book review on Current Issues in Economic Development: An Asian Perspective, Asian Development Bank, New York, 1996, forthcoming in the maiden issue of the Journal of Public Policy, Center for Integration Development Studies, University of the Philippines, September 1997.
f
Served as consultant at the Bureau of Local Employment, Institute for Labor Studies (BLE-ILS), Department of Labor and Employment, January-March 1997.
January-June 1997 The Staff Outreach Activities features activities of the senior research and management staff of the Institute which are beyond their core tasks but which nevertheless contribute to the fulfillment of the PIDS' mission, vision and goal of helping in the overall development of the country's economy.
Dr. Cristina C. David
sponsored by DANIDA/ICLARM/IFPRI, Denmark, June 2-5; and
(Research Fellow) f
Wrote a Review of the Program of the Commission on Agricultural Modernization, together with Dr. Ponciano Intal, Jr., which became the basis for the work program of the Commission in 1997.
l Global Water Partnership/Technical
Advisory Committee Meeting in the ASEAN Region, Asian Development Bank, Mandaluyong City, June 10-11. f
f
Participated in the following fora: l Annual Bank Conference on Develop-
ment Economics sponsored by the World Bank, Washington, D.C., April 30-May 1;
Dr. Gonzalo M. Jurado (Visiting Senior Research Fellow) f
l Workshop on "Political Economy of
Rural Development Strategies" sponsored by the World Bank, Washington, D.C., May 5-6; l International Consultation on "Fisher-
ies Policy Research in Developing Countries: Issues, Priorities and Needs"
The Textile Industry ... from Page 7 cotton—which comprises about 90 percent of the yarn material requirement of the textile industry—and other imported fabrics. Likewise, a review of quantitative restrictions (QRs) is necessary. Finally, a strong linkage between the textile and garments industries should be developed. DRN
Member of the Editorial Board of the Australian Journal of Agricultural and Resource Economics, 1996 to the present.
Lectured on employment policy and planning in the Workshop on Philippine Employment Policy Framework and Regional Employment Planning, Department of Labor and Employment, Subic, Zambales, January 23-25; Davao City, February 1416; Puerto Princesa, Palawan, February 28-March 2; and Kalibo, Aklan, March 14-16.
Ms. Melanie S. Milo (Research Associate) Participated in the following fora: l Microfinance forum on "Best Practices
in the World: Focus on Reach and Sustainability" sponsored by TSPI and the Asian Institute of Management, Makati City, January 18. l Microfinance workshop on "Breaking
Barriers in Microfinance" sponsored by the Microfinance Coalition for Standards, PICC, June 20-21. DRN
DEVELOPMENT RESEARCH NEWS is a bi-monthly publication of the PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES (PIDS). It highlights the findings and recommendations of PIDS research projects and important policy issues discussed during PIDS seminars. PIDS is a nonstock, nonprofit government research institution engaged in long-term, policy-oriented research. This publication is part of the Institute's program to disseminate information to promote the use of research findings. The views and opinions expressed here are those of the authors and do not necessarily reflect those of the Institute. Inquiries regarding any of the studies contained in this publication, or any of the PIDS papers, as well as suggestions or comments are welcome. Please address all correspondence and inquiries to: Research Information Staff Philippine Institute for Development Studies Room 304, NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, 1229 Makati City, Philippines Telephone numbers 892-4059 and 893-5705, Telefax numbers (632) 893-9589 and 816-1091 E-mail address: publications@pidsnet.pids.gov.ph Re-entered as second class mail at the Makati Central Post Office on April 27, 1987. Annual subscription rates are: P150.00 for local subscribers; and US$20.00 for foreign subscribers. All rates are inclusive of mailing and handling costs. Prices may change without prior notice.
DEVELOPMENT RESEARCH NEWS
Restructuring Tariffs ... from Page 3
line customs administration and minimize ways of evasion. The data also indicate that tariff reform measures helped in fostering international competitiveness as shown in the following. First, a significant cut in the overall nominal tariff rates from 33.3 percent in 1990 to 19.5 percent in 2000 was noted. The reduction in the average nominal tariff rates came in two stages: 19 percent from 1990 to 1995; and another cut of more than 25 percent from 1996 to 2000. Second, the overall average implicit tariff
Garments Industry ... from Page 5
Recommendations Policies such as premiums for countryside garment enterprises should be boosted to facilitate regional dispersal of enterprises that create employment in the rural areas. Short-term credit facilities for export and international trade financing program should also be continued by the government. Review of the current tariff and tax structure of the garments industry under the liberalization program of the government is necessary since the industry is now being penalized by negative effective protection rates (EPRs). Bureaucratic processes that cause delays in the importation of raw materials should be done away. This is critical in view of the fact that a large 70 to 75 percent of the fabric requirement of the local garments industry is
12
rate based on price comparisons was substantially trimmed down from 28.6 to 16.8 percent from 1990 to 2000. Third, a hefty reduction in the overall average effective protection rate (EPR) based on price comparisons declined from 29.4 to 18.0 percent in 2000. And fourth, overall average price comparison EPRs corrected for redundancy declined from 29.4 percent in 1994 to 16.7 percent in 2000. Conversely, there is no clear indication that the trade reform program of the 1990s will result in a more uniform and even pattern of protection across sectors. In fact, variation in the levels of protection tends to rise from 1990 to 2000. A closer scrutiny reveals that there are still a few newly-deregu-
imported. Bureaucratic red tape causes tremendous delays of about 120 to 145 days as against the normal 60-day turnaround time. Since fashion cycle changes every 6 to 10 months, such delays render the industry uncompetitive in the international market. Meanwhile, the textile industry should be developed as a support industry to provide raw materials that can be competitive in terms of price and quality. In this case, local manufacturers will not be limited to importing raw materials from foreign suppliers on consignment basis. Such arrangement allows foreign suppliers to dictate the price of garments and therefore reduces local input to mere labor, otherwise known as "cut-make-andtrim." In this regard, the government should also improve the training facilities of vocational schools as well as the infrastructure.
July - August 1997
lated sensitive items and related products in the agriculture and food processing subgroups with uneven and sticky patterns of protection. One example is the 7 input-output (I-O) sectors with average price-comparison EPRs higher than 20 percent in 2000 while the remaining 18 I-O sectors cluster in the 0 to 10 percent tariff range. The more notable development, however, is the switch-over in the relative protection in favor of the agriculture subgroup as compared to manufacturing from 1995 to 2000. This is a sharp contrast to the period 1990-1994 and the previous decades when agriculture was even penalized relative to manufacturing. DRN
Industry's Strategy Efficiency and productivity are the key areas that need improvement in the local garments industry in order to face the challenges brought about by the dismantling of the quota system on a worldwide scale under the new GATT/WTO. Aggressive adoption of new technology and development of labor skills in the workplace are likewise highly advised. The garments industry has largely engaged in labor-intensive practice through excessive use of relatively self-trained workers rather than purposive training. This setup may be acceptable in the short run but will prove uncompetitive in the long run. Labor productivity and efficiency will also be enhanced if properly trained workers are given longer tenure and permanent status. DRN