PH-Japan achieves near-balanced trade relationships

Published May 14, 2021, 3:14 PM

by Bernie Cahiles-Magkilat

Philippines and Japan have achieved near-balanced trade relationships and are expected to further improve under the new tax and incentives regime of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

Masataka Fujita, ASEAN-Japan Center Secretary-General, cited the trade relationship in his opening remarks at the webinar conducted by the Department of Trade and Industry/Board of Investments on the CREATE Act and the Strategic Investment Priorities Plan (SIPP).

“Annual trade statistics from the Japanese Ministry of Finance show that Japan exports to the Philippines totaled 940 billion yen and imports to Japan from the Philippines were 990 billion yen in 2020. This shows that Japan and the Philippines have a near-balanced trade relationship,” noted Fujita.

Along with other ongoing reforms, he cited the Philippines’ CREATE Act to improve market and investors’ trust. CREATE rationalizes the country’s incentives to investors and lowers the corporate income tax, making the country’s corporate taxes competitive with neighboring countries.

For his part, Japanese Ambassador to the Philippines Kazuhiko Koshikawa, in his message, said that the Philippines still has a big potential for economic growth and highlighted the fact that before the pandemic, the country has had a long and continuous economic growth.

“Japan is among the strongest supporters of the Philippine government initiatives in addressing the pandemic. I am confident that the Philippines will be back on a stronger trajectory in the post-COVID-19 era as I believe there’s still plenty of room for Japanese companies to do business here,” he pointed out.

JETRO Manila Investment and EPA Advisor Tomohiro Ando echoed the Japanese Ambassador’s statement on his presentation on the General Business/Economic Situation of the Philippines. He said that the country’s GDP growth rate dropped in 2020 but Philippine exports have shown recovery on a monthly basis. He also noted some of the country’s advantages.

“The Philippines has a favorable level of labor cost compared to its neighbors. Production cost is also lower. The continuous growth of the working population on the other hand provides rich and abundant human resources. Though supply chain development remains as one of the areas for improvement, suppliers for electronics and other export-oriented industries such as metal and plastic parts have increased over the years,” he said.

D uring the webinar. Trade Undersecretary and BOI Managing Head Ceferino Rodolfo highlighted that the CREATE Act removed the restriction in providing incentives to foreign companies to attract more foreign direct investments (FDIs) as multinationals are not only going to target the domestic market but also boost the country’s export market.

Under CREATE, even 100 percent of Japanese-owned companies may register with the BOI and sell primarily to our large and fast-growing domestic market, without even needing to export even a single product.

The major impact of the reduction in CIT from 30 percent to 25 percent for big firms and for Small and Medium Enterprises (SMEs) to 20 percent as very significant as it will open up cash flows and attract more investments to support the efforts of businesses to rebuild after the pandemic. CREATE Act also provides flexibility to the government to grant fiscal and non-fiscal incentives to activities that are deemed strategic.

Rodolfo also elaborated that in the Philippines, intellectual property right (IPR) is protected as the country. The is among the very few countries that have not been identified by the United States Trade Representative Office as IPR violator.

“We also respect investors’ commercial commitments. Even at the height of this pandemic, when our domestic need for medical-grade face masks was greatest, we did not restrict the exports of Yokoisada—the Japanese company that was producing excellent medical-grade N88 masks in our country. We did not even impose any export restrictions even on the most critical products that we needed domestically. We are an ideal site for export manufacturing. We also facilitated the skeletal and full operations of at least four companies that all play a critical role in the non-disruption of the global supply chain for essential industries,” Rodolfo added.

On the SIPP, Trade Undersecretary Rafaelita Aldaba explained this provision under the CREATE Act. The SIPP represents the country’s investment plan that contains the list of priority industries and investment promotion and facilitation activities for all Investment Promotion Agencies (IPAs). It will define the coverage of industry tiers and provide the conditions to qualify the activities.

Aldaba noted that fiscal and non-fiscal support would be provided for industries that create high-skilled jobs that can supply to domestic and global value chains, increase the sophistication of products and services that are produced domestically, expand domestic supply and reduce dependence on imports and attract significant foreign direct investments.