With exports already down and the looming United States-China trade war threatening to hurt global trade, the National Economic and Development Authority (Neda) said the government should now intensify efforts to diversify the country’s export destinations.
Neda Undersecretary Rosemarie G. Edillon identified Russia, Malta, Poland, the United Arab Emirates, Italy, India, Belgium and Mexico as among the nontraditional markets where more marketing and visibility campaigns for Philippine products should be made.
“We want to diversify markets and, usually, cross-border investment is preceded by increased trade, both of which we need,” Edillon told the BusinessMirror. “We’d rather be strategic, focusing production resource on products for which we have competitive advantage.
Now, with global production networks, the high value-added part is in the design and after-sales service, not the production.”
On Wednesday the Philippine Statistics Authority (PSA) reported that the country’s merchandise export earnings contracted 1.8 percent to $4.66 billion in February 2018, from $4.74 billion in February 2017. Edillon said the country should be ready for the risks arising from trade tensions between the US and China, which can disrupt global trade.
Businesses in the Philippines, she noted, will largely benefit from timely and relevant information on export procedures and documentation, as well as on products that are currently in demand in the global market.
Exporters, Edillon added, can also take advantage of preferential schemes like the US Generalized System of Preferences (GSP), which covers about 18 percent of Philippine exports to the country—including nonalcoholic beverages, electrical machinery and equipment parts—or about $1.5 billion worth of exports in 2017.
She also said agricultural exports are seen to expand following the Senate ratification of the country’s free trade agreement with the European Free Trade Association States last month, as it covers 90 percent of tariff lines for agricultural products.
“For instance, existing exporters to the US and those planning to expand to the US market will be glad to know that the US GSP has been extended until December 31, 2020, following the signing of the US Consolidated Appropriations Act last month,” Edillon said.
Exporters disappointed
The Philippine Exporters Confederation Inc. (Philexport) President Sergio R. Ortiz-Luis Jr. said the sector is supposed to sustain the momentum it gained in the previous year, but it seems the opposite is happening.
“We are disappointed because we thought the growth will persist. We are thinking that under the [export development] plan, we will make about a 5-percent growth for the year,” Ortiz-Luis told the BusinessMirror. “However, we are cleaning that up. There are a lot of adjustments in the market, and we expect that the second quarter will be better.”
Ortiz-Luis explained there might be slowdown in the performance of exporters, as they adjust to the demand and competition in the market. “There has been a blip from the previous year—the growth was way beyond expected—so the manufacturers are probably adjusting,” he said. “There is lag time in keeping up with growth. We would like to think that toward the second quarter, the exports might pick up.”
They have a lot of catching up to do, however, after the country’s merchandise exports grew by 9.53 percent last year to hit $62.87 billion. Electronics exports contributed 52 percent of this number, after accelerating by 11 percent to $32.7 billion from $29.4 billion in 2016.
Ortiz-Luis also said exporters will have to find out ways to weather the impact of the looming trade war between China and the US. The trade barriers the two countries are setting up are easily seen as an obstruction for growth, but Ortiz-Luis said these could also be used by the exporters to their advantage.
Overall, he said work has to be done in the coming months for the country to hit its growth target for exports this year. “We are still hopeful that we will meet our target for the year at 5-percent to 6-percent growth,” he added.
PHL not picking sides
The Philippines is not picking sides in the looming trade war between China and the US, Presidential Spokesman Harry L. Roque Jr. said this in a news briefing in Hong Kong when asked to clarify the President’s position on the matter.
Roque also cited that the President also noted the need for Beijing to “defend the East.”
“It was an endorsement of China’s position that the world trading system should be governed by rules-based WTO [World Trade Organization] system,” he said.
Foreign Secretary Alan Peter S. Cayetano added that he is hoping that this trade tussle will be “short lived” and will not affect the Philippines too much. “In all kinds of war there are no winners.”
A research note from RHB Bank Berhad dated April 4 said the Philippines could be the most at risk country in Asean because of the trade war.
Deficit widens
The country’s import bill grew 18.6 percent to $7.72 billion in February 2018 from $6.51 billion in February 2017. With this the Philippines’s balance of trade in goods deficit widened to $3.06 billion in February 2018, nearly twice the $1.77-billion deficit in February 2017.
Still, Asian Development Bank Philippine Country Office Economist Aekapol Chongvilaivan said most of the country’s imports are machinery, which signified domestic-driven growth.
He added that this has already been factored into their growth forecasts for 2018 and 2019 and, despite external risk factors, exports are still expected to do well this year.
“[While] the country is running a trade deficit, it is not alarming, it is not a sign of overconsumption. It is not a sign of overspending of the country. It is a sign of a growing domestic demand,” Chongvilaivan said in a briefing.
With Bernadette D. Nicolas