Table of Contents Hide
- Hair raising
- Japan: top market
- Artificials, used clothes
- Pampanga, Christmas
- Perfumes, balls
- Yearly imports
- Birth control, cards
- Imported water
- Reviewing factors
- Tariff system
- HS codes
- Determined by volume
- Agreeing with math
- Yanking growth
- Entry regulation
- Laws, laws
- Income size
- Just open up
- Advantageous for growth
- Hopes, HHI
By Jasper Emmanuel Y. Arcalas, Samuel Raphael Medenilla, Cai U. Ordinario & Elijah Felice Rosales
FILIPINOS have exported smiles—literally. Data crunched by the BusinessMirror reveals that the Philippines has been exporting artificial teeth and other goods that allow the country to bite into markets traditionally dominated by food and semiconductors.
The country’s export bill of artificial teeth, for one, increased annually or had a compounded annual growth rate (CAGR) of 27.21 percent from 2008 to 2018.
Last year, over 2.2 million pieces of artificial teeth, valued at $13.344 million, made their way to the world, including Germany and Japan. This figure was the highest volume exported in history by the Philippines.
Topping the list of quirky goods flowing out of the country are wigs, false eyelashes, false eyebrows made from human hair and synthetic materials, and even human hair prepared for making wigs.
On the other hand, topping the list of unusual goods flowing inside the country is condom as there’s no local manufacturer for the product despite the Philippines being a rubber-producing nation.
Imports of reproductive health products, including condoms and pills, were constantly expanding at an annual growth rate of 22.20 percent.
PHILIPPINE Exporters Confederation Inc. (Philexport) President Sergio R. Ortiz-Luis Jr. said the country has long been a trader of quirky products, such as wigs and artificial teeth. In the 1990s Manila was a strong exporter of wigs, almost entirely produced in Bicol, he recalled.
Back then, wig makers from Bicol were active members of Philexport, Ortiz-Luis said, adding that some of these members even took turns in heading the regional chapter of the group.
“I know that we are doing it before [exporting quirky products], especially the wigs,” he said. “As early as the 1990s, we [were already] a strong trader of wigs.”
Total exports of the product group last year reached $65.437 million, or 167 percent over the $24.494 million recorded in 2017, data crunched by the BusinessMirror showed. Export of these goods grew at an average of 15.07 percent annually from 2008 to 2018.
Japan: top market
Data from the Philippine Statistics Authority (PSA) showed that Japan was the country’s top market both for human hair and false hair products. It is also the Philippines’s top market for needle exports.
The export of needles, catheters, cannulae and the like had an annual average growth rate of 23.95 percent in the past decade.
However, value of exports in 2018 fell by 6.58 percent to $52.432 million from $56.123 million in the previous year.
Japan accounted for 95.7 percent and 54.3 percent of the country’s export bill for human hair and false hair and needles, respectively.
According to Ortiz-Luis, while some wig manufacturers in the region continue to operate, most of them shut down shops over the years.
This is the risk exporters have to face, he said, when their products are outside the mainstream pie of Philippine exports—that is, non-electronics, nonagricultural. There is a high possibility business could eventually lose market, and consequently shut down.
“That [exporting nontraditional products] is good if we can look for it [market]. Perhaps, it is a question of market—markets that are so small the government overlook them [because] there is not much prospect in those markets. Exporters really try to infiltrate the mainstream markets, so the marketing will not be too difficult,” he added.
Artificials, used clothes
The value of artificial teeth exports rose by 120 percent year-on-year from $6.064 million in 2017, with Liechtenstein as the country’s top market at $6.709 million.
Data from the PSA showed that Liechtenstein was the top destination of the country’s artificial teeth as it accounted for 50.3 percent of the total export receipt.
Outbound shipments to the European nation last year reached $6.709 million and 1.254 million pieces.
For “worn clothing and other worn articles,” however, Pakistan is the country’s biggest market. Total shipments last year reached $10.651 million or about 28.5 million kilograms.
Pakistan is the top importer of our exports of worn clothing at $2.027 million followed by Hong Kong ($1.435 million) and India ($1.312 million).
AND who would have thought that Pampanga, the country’s Christmas capital, is also considered as one of the world’s top sources of Christmas lights for the Christian celebration?
The Observatory of Economic Complexity (OEC) reported that the Philippines is the fourth top exporter of Christmas lights in the world in 2017 at $16.1 million.
The country is behind the Netherlands ($39.9 million), Cambodia ($41 million) and China ($1.12 billion), the OEC website shows.
The OEC is an open source platform created by Massachusetts Institute of Technology Media Lab which tracks and visualizes world merchandise trade.
In 2018, the Philippines exported 7.8 million kilograms (3.195 million in 2017) of Christmas lights valued at $38.661 million ($14.678 million in 2017).
Pampanga accounts for 47.9 percent of the total Christmas lights shipments with export value in 2018 reaching $18.507 million.
The United States cornered the country’s exports of Christmas lights with a 99.7-percent market share at $38.559 million in 2018, PSA data showed.
It’s not just the lights that the Philippines is exporting, but also other “articles for Christmas festivities,” which include balls and other decors for Christmas tree.
Last year, the country exported $12.304 million worth of Christmas decors with the US still as the top destination for the product at a 73.1-percent market share.
The Philippines also exports anti-perspirant products, including deodorants and perfumes, to the world.
Shipments of these items reached $45.288 million last year, down by nearly 30 percent from $64.616 million in 2017.
The top markets for Philippine deodorant products are: Belgium ($10.89 million), United States ($5.02 million), United Arab Emirates (UAE) ($4.99 million) and Australia ($4.712 million).
Malaysia is the country’s top destination for perfumes at $1.578 million followed by UAE ($382,565) and Sri Lanka ($213,733).
Notably, the Philippines is also the third top exporter of lawn-tennis balls in the world with annual shipments amounting to $30 million, which is about 24 million pieces.
According to a news report, tennis balls used by athletes like Andy Murray and Roger Federer in Wimbledon tourneys are from the Philippines.
Around 97.3 percent of our lawn-tennis balls exports came from Bataan, where the Dunlop Slazenger factory, which supplies Wimbledown, is located.
IN terms of imports, the quirky products BusinessMirror identified that entered the country and made it to our local markets is led by human and animal blood, including antiserum, and vaccines both for human and animals. Imports of these goods are valued at $260.338 million.
More than half of the imports came from vaccines for human use ($160.935 million) followed by animal vaccines ($78.912 million).
The Philippines also imports sanitary towels, tampons, and diapers. From 2008 to 2018, the imports of these goods grew at an annual rate of 15.70 percent. Last year, the Philippines purchased $206.185 million worth of these sanitary products.
Imports of baby diapers and similar sanitary products ($171.216 million) accounted for 83 percent of the total imports while sanitary towels and tampons accounted for the remaining value at $34.968 million.
China was the top source for both types of sanitary products, with an aggregated value of $130.397 million followed by Thailand at $33.789 million.
The Philippines also purchases a significant amount of dental products, such as floss, toothbrushes and even toothpicks, from abroad.
The aggregated import bill of these items reached $33.307 million last year, 71.11 percent over $19.465 million recorded in 2017.
Last year, the country imported 20.407 million pieces of toothbrush.
Surprisingly, one of the Filipinos’ weapons against the pesky mosquitoes are being imported: mosquito coil.
Imports of anti-mosquito products, including coils and mats, reached $25.171 million last year with Indonesia as the top supplier with a 52.2-percent share ($13.132 million).
Imports of katol, or mosquito coils, alone reached $13.132 million last year.
Birth control, cards
Last year, the Philippines purchased $13.717 million worth of condoms and pills.
Condom imports alone last year reached 49.886 million pieces (from 63.338 million pieces in 2017), valued at $5.157 million.
The country is importing all its condom requirements. In fact, in 2017, the Philippine Rubber Research Institute (PRRI) pronounced it was on the hunt for investors who can manufacture other rubber-based materials, such as condoms.
PRRI noted that the Philippines is “a viable and healthy market” for condom manufacturers due to its growing population.
Thailand supplied 37.8 percent of our condom purchases last year at $1.951 million, which was about 6.825 million pieces.
Another import that starts with C are cards; playing cards, in fact. Shipments of playing cards to the Philippines grew at an average rate of 16.5 percent over the past decade with last year’s import bill reaching $16.07 million.
That is about 11.312 million packs of cards entering the local market with Japan supplying over 64 percent of it (7.253 million packs).
One of the imports the BusinessMirror noted was seawater, which some economists interviewed described to be “surprising.”
The Philippines imports seawater despite its vast water resources. Last year the country imported $12.205 million worth of seawater or around 296.541 million kilograms.
The imports were presumably used by the food and beverage sector (F&B) for its salt requirement as seawater is classified under salt products.
Australia was the country’s top seawater supplier at $10.677 million.
It’s not just seawater that we are purchasing abroad but also mineral and aerated water.
Imports of these products last year rose to an all-year high of $11.667 million.
The Philippines bought 44.582 million liters of mineral and aerated water last year.
Indonesia was the country’s top supplier at $9.167 million followed by France at $1.459 million.
Majority of motorcycle helmets are also imported, with imports reaching an all-time high as well last year at $10.698 million, which was about 2.430 million pieces.
Around 68.4 percent of the country’s helmets purchase abroad came from China ($7.318 million and 1.793 million pieces).
Former Tariff Commissioner George Manzano told the BusinessMirror the growth and development of these unusual exports could be affected by three things—base effects; the level of development of markets; and the retail demand for these products since they are mostly finished goods.
In terms of base effects, Manzano said these exports could grow 200 percent but still have a value of P3 from P1. In contrast, major exports could reach P2.2 billion from P2 billion which only represents a growth of 10 percent. He added that because of this, many growth rates in terms of the value of the products were volatile.
Manzano said another factor is the level of development of the countries of destination of these products. Very few of these products are exported to developing countries in Asia like Pakistan or parts of Africa.
In some cases, Manzano said, the presence of Free Trade Agreements (FTAs) would come into play. One such FTA is the Philippines-Japan Economic Partnership Agreement (PJEPA), which allows trade between both countries to flow freely, without any tariffs.
“A good number of these exports are directed to developed markets, not to Africa [or] Pakistan. [These] are being exported to US, Japan, Germany, and the Netherlands. Many of these countries [have FTAs with the Philippines such as the] Japan FTA [but] US and EU [Eurpean Union] do not have FTAs. To a [certain] extent, FTAs could have been instrumental [in unusual exports],” Manzano said.
HAVING a preferential tariff system such as the Generalized System of Preferences (GSP) allows greater trade to happen between the Philippines and other countries, particularly the United States and the European Union.
Manzano said tariffs play a role in exports for the Philippines because it “makes other countries less competitive.”
Through a GSP or an FTA, products enjoy minimal or even zero tariff, making these goods cheaper at the export destination.
The only danger is that GSP terms, for example, are extended with conditions making them temporary. The country nearly lost its GSP+ from EU, which were tied to meeting 27 international core conventions covering labor rights, human rights, good governance, and environmental concerns.
Fortunately, the Philippines kept its GSP+ from the EU while its GSP from the US was recently extended for three years. The GSP+ with the EU covers 6,000 tariff lines while the US covers 5,057 products or 48 percent of US tariff lines.
“[In the] US, GSP beneficiary gives a zero percent or reduced tariffs,” Manzano said. “So our products in the US market are in competition with other non-GSP products [making them more competitive].”
Research by the BusinessMirror showed that the tariffs imposed on the identified “quirky” products range from zero to no more than 15 percent.
Majority of the imports that come from countries that have free trade agreements (FTA) with the Philippines enter the local market tariff-free.
“The tariffs play a role in trade. [They] could make a country less competitive compared to other countries,” Manzano explained.
“For example, countries with FTA with us have an advantage because they export at zero tariff. And when the tariff is zero across all countries, then it all boils down to costing: who produces and exports cheaper?” he added.
The country’s tariffs and goods classification are enclosed in the so-called tariff book, which serves as a cornerstone in the Philippines engagement in international trade.
Manzano, a former tariff commissioner, explains that the book is important so that the Philippines would have “concordance with other countries” in terms of trade.
The country’s tariff book has 98 chapters, covering items from live animals to condoms and artificial teeth.
MAJORITY of these goods are classified through the Harmonized System (HS) codes, which is being overseen by the World Customs Organization.
Goods are given a set of digits to represent them in the international trade from 2 digits up to 10 digits. From the first digit until the six-digit classification, countries have the same classification.
The eight-digit and 10-digit classification are optional but are finer disaggregation of commodities.
“It is what you call classification. Every product has to have a number,” Manzano said. “What is common among all countries is the six-digit classification.”
The Philippines has an eight-digit classification as a result of the Asean Trade in Goods Agreement while its 10-digit classification is born out of its national policy.
The tariff book, particularly the classification of goods, was the result of international trade, Manzano said.
“It’s meant to facilitate international transaction—to describe items easily. It’s hard to describe a product through words due to the language barrier—everyone understands numbers,” he said.
“It is also important you have a standard on products in case a trade dispute arises. You might be disputing over different products if you’re describing it through words. So, in disputes [people] can easily understand each other when…talking about the same numbers or HS codes,” he added.
Determined by volume
MANZANO said countries could create new tariff lines if its government deems an item to have its very own specification.
“Every year there is a new product. Ten years ago or more, we did not have an MP3 player,” he explained. “The volume determines if a good warrants its own entry in the book.”
In many instances, Manzano said, these products are final goods that no longer need further processing, such as tennis balls. This means that these goods are intended for retail consumption unlike semiconductors which are considered intermediate goods.
This now affects the price elasticity of these goods. Price elasticity measures how responsive goods are to price. If goods are elastic, this means any change in price will significantly affect demand for a product but if these goods are inelastic, their demand only changes slightly if there are price movements.
“Most of these are consumer items. It’s final demand which means people who buy these go to retailers and not to factories unlike semicon [which fills] intermediate demand. [These are] assembled to produce another product,” Manzano said.
“In this case, [these products] will have to be sensitive to the personal consumption expenditures of the importing countries and these are small products. I’m not sure, [maybe they are] elastic [which means] it is not easy to sell them,” he added.
Agreeing with math
Meanwhile, another reason that would increase or decrease trade would be the decision of MNCs. Manzano said the presence of MNCs in certain countries affect the import and export of these locations. Their decision to locate to certain countries is dependent on factors such as labor and power costs.
When they have decided on their locations, they can choose to turn this location into a regional hub. If a country is not chosen as a regional hub, the chances of receiving imports of products is greater given that the MNC is not located there. This is reflected in the labeling or instructions of use of certain products which are translated into several languages.
This is common for products such as needles and catheters. Manzano said the presence of MNCs in economic zones is another factor why the country exports these products rather than a natural endowment of the country. The decision to locate in these economic zones could be dependent on the incentives and other perks these firms receive from the government.
Incentives, Manzano said, give the Philippines an edge over its competition in the region. This allowed them to see and agree with “the math” of producing certain goods here. But this is not an assurance that the country is already winning over its neighbors when it comes to attracting investments. “The math” in the country may be favorable for one firm but not for another.
TO date, Manzano said the country is still behind its Southeast Asian neighbors.
In fact it has already been left behind by Vietnam whose foreign investments, and corollarily, its exports, are robust.
But in general, having a multinational in the country is good for exports, at least for these kinds of products, given that they are more familiar with the regulations and specifics of the markets they are exporting to or selling to. In the case of needles, a Japanese firm located in Cavite is the one exporting mainly to the Japanese market.
In terms of imports, Manzano said given the kind of goods being imported and the import sources, and the trade of these unusual products does not reflect any supposed shift in the United States’ trade, given that its exports to China and the Philippines both increased.
In some cases, Manzano said, imports of certain products were a result of the government’s policies and regulations as well as the decision of certain multinational corporations to distribute their products in the region.
For example, the enactment of the Responsible Parenthood and Reproductive Health (RPRH) Law in 2012 has facilitated greater imports of contraceptives.
Under the law, the government is tasked to provide condoms in health centers nationwide for free. The increase in the importation of condoms reflects government purchases as well as highlights the fact that the Philippines does not have any industry that manufactures these products locally and in large quantities.
In terms of vaccines, the government has regular programs on vaccines for various diseases such as measles and dengue. The government, through the public school system and various health centers, provides free vaccination to school children.
However, Manzano said, at some point, the purchase of these vaccines would tend to taper off as only members of the younger population will be the ones in need of vaccines. The rest of the population would only require some form of maintenance.
Manzano said government regulation is also the reason the country has been importing a lot of playing cards. In the 2009, the government opened gambling to foreign investors through the National Economic and Development Authority’s (Neda) revision of the Regular Foreign Investment Negative List (RFINL).
This decision has allowed the construction of various casinos particularly in the Philippine Amusement and Gaming Corporation’s (Pagcor) Entertainment City in Manila. It has also recently allowed the entry of Play Free Online Games, which use playing cards for live games that can be viewed online.
Further, the passage of the Motorcycle Helmet Act of 2009 required all motorcycle riders to wear protective helmets for their safety. This, Manzano said, caused an increase in the use or motorcycle helmets nationwide.
Apart from the passage of the law, Manzano said practical reasons such as having a cheaper and faster mode of transportation can account for the increase in motorcycle helmet importation.
MEANWHILE, the presence of MNCs could explain the increase in imports of diapers; anti-mosquito products such as coils and pads; and toilet paper. It is possible that the foreign firms who manufacture these products are now located abroad and merely export their goods to the Philippines.
Manzano said the absence or lack of mosquito coil and mat manufacturing firms may have increased the imports of these products. He added that the Dengue scare may have also prompted more households to purchase these items.
The former tariff commissioner said diaper imports could also be increasing because of the increase in incomes of Filipinos and the convenience it offers families. Back in the day, cloth was used by babies but as diaper prices have declined and more family incomes rise, the demand for these products also increased over time.
Further, the need for two income sources in running households have increased the demand for products that make life convenient and manageable, including baby and adult diapers.
“These are all consumer products that are branded decisions by multinationals. [These are also] income elastic [since] per capita income increases [can allow families to] start buying these products. [They are paying for] convenience,” Manzano said.
In terms of the imports of mineral and aerated water, Manzano said the explanation may also be similar with diapers, given that mineral water and aerated water are price-elastic and the purchase of which would usually indicate a rise in income.
The only product that could not be explained by the economist from the University of Asia and the Pacific (UA&P) was seawater. It was simply a “surprise” for the former Tariff Commissioner that something as abundant as seawater is being imported by the Philippines, an archipelago that boasts of over 7,100 islands.
Just open up
Economist Ramon L. Clarete of the University of the Philippines (UP) thinks the government has to develop local industries first before seeking to expand its export portfolio.
One of the steps the government can take, he said, is to remove restrictions on foreign investments to allow multinationals and offshore firms to pour in capital in the Philippines.
“I am for freer trade. All those who are against it are just actually ruining the economy because it limits the possibilities that can be unfolded for investors and potential businesses in the country, and jobs also,” Clarete explained in a sitdown with the BusinessMirror.
He argued foreign businesses will not only secure buyers for Philippine exports, but will also bring in the necessary technology to manufacture unusual products.
“[We must] open the country to foreign investors. [Through this], we ease the financing and access to technology, and access to foreign materials that we do not have here will be eased, too. Domestic firms need not worry because foreign businesses will need a supply chain locally. Local investors will be involved in the process,” Clarete claimed.
Further, he stressed the importance of export processing zones and free port areas, which provide locators fiscal and nonfiscal incentives for their investment activities.
These incentives, however, are at risk of being lifted under the proposed Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill. The measure seeks to cut corporate income tax to 20 percent by 2029 from 30 percent, but will overhaul incentives provided to firms operating in economic zones in exchange.
Economic zone firms strongly oppose the Trabaho bill, as it will force them to relinquish incentives they deem crucial for staying here, such as the 5 percent tax on gross income paid in lieu of all local and national taxes.
“There will be no import duties, no value added tax [because] you are emulating a free trade country in special economic zones. If that particular product requires an imported material or a technology that is imported, maybe they are there because of the economic zones,” Clarete said.
The UP economist added some provinces specialize in the production of certain exports because it is part of their competitive advantage.
Advantageous for growth
Take Pampanga as an example.
According to PSA data, Pampanga accounted for nearly half of the country’s total exports of Christmas decors and lights last year, with a sum value of $24.55 million.
“We have known Pampanga to have the skills in building Christmas lanterns, and in the process of building those lanterns, they have also built the Christmas lights and decors. Compared to other provinces, they have a concentration of those skills. They may have concentration of skills that give them the comparative advantage,” Clarete said.
“Any location will have a comparative advantage in making a product better than others because the endowment of skills is specific to them,” he added.
Unless local industries are developed, Clarete argued the Philippines will have a hard time keeping its exports of nontraditional products at significant volumes. He said the government should ensure the country maintains its competitive advantage on those commodities, or else markets will be lost in the way.
“What the government can do is to make sure that the policies are supportive of private sector coordination, and trade would be important [in that aspect],” he said.
Meanwhile, whether imported products could pave the way for sunrise industries, Manzano said, it would be difficult, considering that most of these unusual products are being imported out of policy. If the policy changes, firms that invested in their production could suffer losses.
However, Manzano said one product that has the potential to become a sunrise industry is the manufacture of motorcycle helmets. While this was borne out of government regulation, it is undeniably a need given the rise in motorcycle purchases due to congestion.
One thing is definite as of now—exports are diversifying. Manzano said based on the Herfindahl-Hirschmann index (HHI), which measures market concentration, the Philippines has already diversified its products.
He said the index, which can range from zero to 10,000, shows that the Philippines already increased its products from the initial story of having only two to four products, which include sugar and coconut.
“Over the years, we have been diversifying. In the early days, we only had four main products, sugar and copra; maybe banana [is included]. But then we have diversified into manufactured products and now we have service exports from BPOs,” Manzano said.
For Ortiz-Luis, the government must iron out FTAs first before venturing into exporting other nontraditional products.
He said trade deals secure exporters of market, and that they are most likely for the long run provided the near permanent contract under FTAs. Trade deals, he added, ensure the market is checked and assessed first if it is a viable landing spot for the country’s exports, both mainstream and quirky.
“I think we have to look at the prospect [first because] if the market is too small, it might not be worth it,” Ortiz-Luis said.
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