WHAT is to blame for the tempered exports performance last year? For the government, it is the trade conflict between the United States and China. For exporters, it is the uncertainties brought about by the proposed rationalization of incentives.
Trade Secretary Ramon M. Lopez said the collapse of the multilateral trading system heavily impacted the import bill of Philippine products. He argued this was most evident in the export receipts of electronic products and semiconductors—the country’s top exports.
“On the market side, since the Philippines, as well as 10 other Asian economies, suffered from an export decline in December, it is quite apparent that the downward trend in exports was brought about by softening global demand induced by global growth slowdown, as well as increased uncertainty, amid escalating US-China trade tensions,” Lopez said in a text message to reporters.
“Electronics supply chain in the region was adversely affected, as lower orders from one country can lead to lower orders in other supplier countries. Electronics sector, which used to average over 5-percent growth, has now settled at 2.8-percent growth,” he added.
Data from the Philippine Statistics Authority (PSA) showed export receipts of electronic products last year expanded 2.8 percent to $37.56 billion, from $36.53 billion in 2017.
However, Semiconductor and Electronics Industries in the Philippines Foundation Inc. President Danilo C. Lachica offered a different view. Semiconductor exports, he said, slowed down because investors did not expand operations and opted to hold on to their capital, as they await the government’s final policy on corporate tax and incentives.
He explained the virtual trade war has little to no impact on export figures, and pointed out demand for semiconductors is always at a high.
“The US-China trade war has minimal impact on our industry, which is driven by global demand. Biggest concern are uncertainties due to [the] rationalization [of tax incentives],” Lachica told the BusinessMirror.
Lachica earlier said the Philippines lost over $1 billion in investments due to the government’s move to restructure the menu of incentives provided to firms locating in economic zones.
The government is pushing for the passage of the Tax Reform for Attracting Better and High-Quality Opportunities bill, or the Trabaho bill. It will lower corporate income tax to 20 percent in 2029 from 30 percent on one hand, and will rationalize incentives on the other.
Lachica warned that if the Trabaho bill is approved, it could lead to not only poorer export performance and investment losses, but also to an exodus from the Philippines of existing investors.
“Worst case is departure of companies for countries with [a] more conducive investment climate, like Vietnam, Thailand, Malaysia and Indonesia. I don’t see this happening this year, but this may happen in subsequent years,” he warned.
On the other hand, Lopez said sugar imports must be freed up to improve export receipts of processed food.
Processed food and beverage exports declined 14.6 percent last year, PSA data reported, to $738.06 million from $864.36 million in 2017. This slowdown could have been prevented only if imported sugar—a main input in processed food and relatively cheaper than local produce—was allowed to enter freely the Philippine market.
“Processed food exports are still affected by high cost and supply issues in sugar inputs. Sugar cost in the country must therefore be competitive to improve our capabilities to export more processed food,” the trade chief said.
Overall, Philippine exports in 2018 fell 1.8 percent to $67.48 billion from $68.71 billion in 2017.
Image credits: Nonie Reyes