Widening trade gap alarms BOI

Published December 27, 2019, 12:00 AM

by manilabulletin_admin

By Bernie Cahiles-Magkilat

Board of Investments, an attached agency of the Department of Trade and Industry, said the government will not hesitate to impose trade remedies against trading partners as it raised alarm over the country’s widening trade deficit where neighboring countries China, South Korea, Indonesia, Thailand and Taipei account for more than 90 percent.

BOI Executive Director Corazon Halili-Dichosa said at the recent Annual Public Policy Conference (APPC) organized by state think tank Philippine Institute for Development Studies that while the Philippines “will not go to protectionist measures it will not also hesitate to impose trade remedies when necessary.”

She mentioned that the government has already imposed trade remedies on cement. “Any imports coming from Vietnam, which is a heavy source of cement in the Philippines, will now be imposed additional tariffs. We will also be doing this for other products in the coming months,” the BoI official disclosed.

Among the Philippines trading partners, Dichosa stressed that China is the “bulk contributor” of the trade deficit, which accounts for 32.41 percent, followed by South Korea, Indonesia, Thailand, and Taipei. Combined, Dichosa said these neighboring countries account for more than 90 percent of the Philippines’ trade deficit.

As more imported products flow into the domestic market, Dichosa revealed the country’s trade deficit has grown an average 76.54 percent over the past five years.

“From 2014 to 2018, our trade deficit has been growing. It is already around $127.93 billion. What is alarming is that trade deficit has been increasing in the last year, 2018, and has ballooned to negative $47 billion,” Dichosa said.

In terms of products, the country’s top sources of deficit are automotive, petrochemicals, coal, and steel. These products are considered as major imports since the Philippines cannot produce them.

Dichosa said the Philippines imports a lot of steel bars because local manufacturers are just starting to expand to cope with the demand of the government’s Build, Build, Build program.

The country also imports coal from Indonesia because the local coal supply of Semirara Coal has a low-heating value which some power plants cannot use.

Another big source of the country’s ballooning trade deficit is the huge influx of imported cars. Dichosa said the automotive sector has not grown to a certain point where it can supply the local demand.

“It would have been better if these autos were manufactured in the Philippines because that would have contributed to the economy,” she commented.

Another source of trade deficit noted by Dichosa is the fact that the Philippines compete for the same products with its neighboring countries. “The markets that we trade in are the same set of countries that we compete with.
For all the ASEAN members, our major markets would be the EU, US, China, and Japan,” she explained.

One of the strategies identified to lower the trade deficit is “by exporting more or importing less.” However, Dichosa noted that this can only be done if the Philippines has good supply chains.

The implementation of a “robust industrialization policy” is also a way to address this issue.

She also mentioned taking advantage of the different free trade agreements (FTAs) of the Philippines to help lower the trade deficit.

According to Dichosa the country has an expansive market access and huge network of FTAs. “We have the ASEAN and the Regional Plus One with Japan. We have bilateral FTAs with Switzerland, Norway, Lichtenstein, and Iceland. We have a regional FTA with Australia, China, Korea, India, and New Zealand. We enjoy GSP [generalized system of preferences] plus status with the EU, which means that export products that fall under more than 6,000 tariff lines enjoy tariff reduction in the EU market. We also enjoy benefits from the US, Russia, and Canada GSP,” Dichosa said.

The DTI and BoI are also undertaking industry development initiatives to complement these strategies.

One is creating enabling business environment for investors by encouraging them to access BOI’s services and to work closely with the agency.

Said agencies are also intensifying industry promotion strategies, particularly in Taiwan, as many Taiwanese companies are looking for areas to relocate their factories. According to Dichosa, the Philippines was able to entice medium to large companies from Taiwan to set up businesses in areas like Batangas.

DTI and BOI are also working with the World Bank to strengthen development programs. “We are trying to match small and medium enterprises (SMEs) with multinational companies and doing reverse trade fairs, so that we can tailor-fit the requirements of the MNEs [multinational enterprises] with the capability-building efforts that we do for SMEs. We have done this with the automotive sector,” Dichosa shared.