AEC 2015 and PH

New Industrial Policy

for More Competitive

Regional Economies

Rafaelita M. Aldaba

Department of Trade & Industry

Board of Investments

4 March 2016, La Union

Securing the Future of Industries

The Future of Philippine Industries

Outline

AEC 2015

Free flow of goods, investment, services, labor

Opportunities & Benefits vs. Threats & Challenges

New Industrial Policy & Industry Roadmaps

attain inclusive growth, create more & better jobs

manage the transition process & maximize gains

from AEC

Implications for Ilocos

The Future of Philippine Industries

ASEAN Trade In Goods Agreement: intra-ASEAN trade in goods

Tariffs, quantity restrictions & non-tariff barriers

Rules of Origin: only ASEAN products directly produced within the region will qualify for benefits of AFTA

Customs Modernization: National Single Window

26 government agencies: E-licenses, permits & certificates

Connected to NSW portal: submit applications & documents, verify status online, get decisions on transactions

Product Standards & Conformance Procedures: one standard, one test, accepted everywhere

National standards to international standards

Implement mutual recognition arrangements

Part 1: AEC Free Flow of Goods

The Future of Philippine Industries

ASEAN COMPREHENSIVE INVESTMENT AGREEMENT

Intra-ASEAN investment: liberalization, protection,

facilitation, promotion

Objectives

Enhance ASEAN competitiveness; single production

base

Attract FDI; intra-ASEAN investment

Actions

Extend non-discriminatory treatment

Reduce/eliminate restrictions to entry of investments

Reduce/eliminate restrictive investment measures &

other impediments including performance requirements

AEC Free Flow of Investment

The Future of Philippine Industries

Free Flow of Skilled Labor Greater mobility of qualified service professionals in

the region by accepting common standards of some

professionals

Mutual recognition arrangements (MRAs)

Medical practitioners

Dental practitioners

Accountancy services

Engineering services

Nursing services

Architectural services

Surveying qualifications

The Future of Philippine Industries

Free Flow of Services ASEAN AGREEMENT ON SERVICES (AFAS)

Barriers: market access (no. of services providers) & national

treatment (foreign equity restrictions)

Business, professional, construction, distribution, education,

environmental, healthcare, maritime, telecoms, tourism

Eliminate restrictions, promote efficiency & competitiveness

No restrictions on ASEAN services suppliers in providing

services & in establishing companies across national

borders

Priority Sectors 2008 2010 2013 2015

Air transport, E-ASEAN, healthcare, tourism 51% 70%

Logistics 49% 51% 70%

Others 49% 51% 70%

The Future of Philippine Industries

Market access opportunities for Filipino firms to expand: 600 million people

Investment liberalization, facilitation

Own 100% of companies in ASEAN; 70% services

Access to capital markets

Equal treatment as local companies

Labor mobility: visa, economic test Mutual Recognition Arrangements

Transport & logistics, trade facilitation & conformance: lower transaction costs

Improved administrative processes

Easier/less costly movement goods

Part 2. Potential Implications

Benefits & Opportunities

Challenges & Threats Intense competition

Bigger, more financial capability, better technical

products/service systems

May get support from home countries

How to manage short term adjustment costs? Winners: firms that gain from market expansion &

improved competitiveness, workers who get employed in

growing sectors, government to collect higher revenue,

consumers from wide variety of goods & services at lower

prices

Losers: inefficient, uncompetitive sectors

How to ensure SME survival chances? Lack of access to finance, technology, skilled labor, inability

to comply with standards

Weak linkages to high tech sectors

Penetrating export market a major challenge

Growth Challenges

Area Major Constraints

Regulation • Complex/costly business procedures

• Policy consistency, transparency, predictability

• 60-40% foreign equity rule, competition law

Infrastructure • High cost of power, domestic shipping

• Lack of ports, airports, road infrastructure

SME • Access to finance, technology, support for start-

ups, product standards, marketing, network links

HRD • Lack of skilled workers, limited standards &

certifications, quality of teachers

Innovation • Industry-academe linkages, R&D facilities

Supply/value

chain

• Weak linkages among manufacturing, agriculture,

& services

Manufacturing • Required Components: Materials, Skills, Energy,

Capital, Digital technology

Part 3: Strategic Industrial Policy • Goal: improving competitiveness & productivity

o Growth oriented action to upgrade industries, move up

the value chain, from low productivity to high productivity

sectors structural change

o Remove obstacles to growth Investments

o Deepen participation in regional production networks

• Role of Government: Coordination/facilitation

o Government not proximate cause of growth, but private

sector, investment & entrepreneurship

o Create proper environment for private sector

development

• GVC-focused industrial policy

o Define position in the GVC, how do we plug into

global/regional production networks

• Cluster-based industrial strategy to build strong & competitive

regional economies

Globalization, regional economic

integration, Global Value Chains V

alu

e A

dd

ed

12

Design

Purchasing

Production

Distribution

Marketing

Services

Pre Production Production Post Production

• Most goods are made in the world & countries compete on

economic roles within the value chain

• Strategy on how to position our industries: competiveness

• Industrial policy needed to upgrade industries

R&D

Fruit & Vegetables Value Chain

INPUTS

PRODUCTION FOR

EXPORT

PACKING & STORING

PROCESSING

DISTRIBUTION &

MARKETING

FRUIT & VEGETABLE FOR PROCESSED

FOOD; FOR FRESH CONSUMPTION

SEEDS, FERTILIZERS,

AGROCHEMICALS, FARM EQUIPMENT,

IRRIGATION EQUIPMENT

PACKING PLANTS, COOL STORAGE

UNITS

DRIED, FROZEN, PRESERVED, JUICES &

PULPS

SUPERMARKETS, FOOD SERVICES,

WHOLESALES & IMPORTERS, SMALL

RETAILERS

Manufacturing Roadmap

-Rebuild existing capacity, strengthen emerging industries maintain competitiveness of comparative advantage industries

-move to high tech activities;

-Participate as manufacturing hubs in regional & global production networks for auto, electronics,

machinery, garments, food

-Shift to high value added

activities, investments in upstream industries, move up value chain

Link & integrate industries, SMEs

& large firms, Innovation

ecosystem; R&D

Phase I

2014-2017

Phase II

2018-2021

Phase III 2022-

2025

Vision: globally competitive industries with strong

forward & backward linkages

To Make Manufacturing An Engine Of Growth

30% value added

Horizontal measures

Coordination mechanism

Vertical measures

• Close supply chain

gaps

• Expand domestic

market & exports

• HRD & skills trainings

• SME development

• Innovation & green

growth

• Promotion

• Power, smuggling,

logistics,

infrastructure

• Improve regulation,

reduce cost of

doing business

• Competitive

exchange rate

open trade regime, sustainable macro policies, sound tax policies & administration, efficient bureaucracy, secure property rights, institutions

Manufacturing: Strategic Actions

Sector Action

Copper Institutional mechanism to fully integrate industry

Furniture Supply hubs for raw & natural materials

Tool & die Access to raw materials, equipment, & software

Paper Fiber raw material base, develop massive tree

plantations, commercial agro forestry with virgin

wood pulp production

Iron &

steel

Full integration of industry upstream-mining,

reliable supply of iron ore & coal

① Close Supply/Value Chain Gaps

16

Most Binding Constraints to Upgrading Growing Processing

Cacao

Lack of postharvest facilities, lack of

quality of planting materials, supply

gap, lack of FMR, limited GAP

Lack of supply of beans &

cacao preparations, weak

linkage (bean & grinding)

Coconut

Limited access to quality planting

material, high input costs, old

technologies in harvesting

Low productivity, lack of

technology in processing

Durian

High input cost, inadequate post

harvest, poor harvesting, packaging

technology, handling; diseases

High cost of investment in

processing equipment

Mango

Limited access to planting

materials, limited number of

nursery operators, high cost of

inputs, absence of post harvest

facilities, poor implementation GAP

Insufficient supply of

mangoes, VHT facility

underutilized, lack of research

on high value added

processed products

Seaweed

High cost of inputs, lack of post

harvest facilities at the farmers’

level, absence of testing labs,

presence of diseases

Insufficient supply of dried

seaweeds

• Complex product, 30,000+ parts &, large multiplier effect

• Auto investments: foundation for broad-based industrial

growth

• CARS Program: jumpstart industry development to enable PH

to deepen its integration into global production networks

Basic Industries

Parts & Components Manufacturing

Vehicle Manufacturing

Auto Supporting Industries

3rd Tier Supplier

(Raw

Materials)

2nd & 1st Tier Supplier (Intermediate & semi-

finished)

Mining

Iron & Steel

Petrochemicals

Textile

Machinery & Equipment, Dies & Moulds, Metal Stamping, Die Casting,

Machining

Rubber

Chemicals

②Expand domestic marketexport platform

18

Type Sectors

Design, tool making, prototyping,

molding, die casting

Auto parts, Tool & Die

Chemical, Materials Engineering Chemical, Rubber,

Plastics

Supervisory, managerial, productivity Furniture

Foundry technology, Metallurgical,

Mechanical, Industrial, Metal casting

Metal casting

Die design, Tool & Die Engineering Tool & Die

Vocational trainings (TESDA) Iron & steel, Furniture

③ HRD & Skills Trainings

• Cooperation with TESDA, CHED, DOLE

• Investment in skills & education

• Labor policies to facilitate movement from low

productivity to high productivity jobs

19

④Other Strategic Actions

STRATEGIC ACTIONS

• SME Development: Finance access, compliance

with product standards, Clusters, Incubation, Shared

Services Facilities (Quality testing facilities, Fablabs)

• Innovation: Industry-academe linkages, R&D,

adoption of green processes, green products,

technology extension services esp. to SMEs; metrology,

standards testing, quality control; incubation;

information & communication

• Marketing & promotion: attract investments

• Horizontal issues: high cost of power &

domestic shipping, smuggling & streamline &

automate government procedures 20

Comprehensive National Industry

Strategy (CNIS) FRAMEWORK

Three important channels affecting industry growth: competition, innovation, productivity

Globally competitive industries, strong domestic & global linkages

Cluster-based industrial strategy to build strong & competitive regional economies

MANUFACTURING SERVICES

AGRICULTURE

FISHING,

FORESTRY

MINING

INTERNAL FACTORS: GOVERNMENT POLICIES &PROGRAMS,

INSTITUTIONS, INFRASTRUCTURE, MACRO STABILITY, RULE OF LAW,

PEACE & ORDER, POLITICAL CLIMATE

EXTERNAL FACTORS: GLOBALIZATION,

REGIONAL/BILATERAL/MULTILATERAL TRADING ARRANGEMENTS,

GLOBAL & REGIONAL PRODUCTION NETWORKS

Implementation Mechanism

Industry Development Council mechanism for discussion of industry strategies,

policies & programs coordination, monitoring of roadmap implementation

Technical Working Groups champions from BOI & industry, relevant

government agencies

Manufacturing Resurgence Program: enhance manufacturing competitiveness; budget P182.6B (‘13); P114B (‘14); P236B (‘15) Lead Implementing Agency: DTI

Participating Agencies: DOST, DOLE, DOLE-TESDA, CHED, DOE, DA, NPC, NEA, PCA

Industry Development

Council (IDC) IDC Secretariat

IDC Technical Committee DTI - Chairman

• DTI, NEDA, DA, DOF, OP; Private sectors representatives

IDC Executive Committee

DTI – Chairman • 11 representatives from government

• 7 representatives from private sector

• 1 representative of academe

• 1 representative of research institute/think tank

• 1 representative of labor

• 1 CSO representative

Ch

em

ica

ls,

pla

stic

s,

pe

troc

hem

ica

l

Eminent Persons

Group (EPG)

5 industry

leaders

Philippine Industry Development Council

Ele

ctro

nic

s

Ma

ss

ho

us

ing

IT-B

PM

Fu

rnitu

re

Ce

ram

ic tile

s

Bio

die

sel

Ae

ros

pac

e

Au

tom

otiv

e

Co

pp

er

Me

tal

ca

stin

g,

Ru

bb

er

Iron

& s

tee

l

Mo

torc

yc

le

Na

tura

l

he

alth

Re

tirem

en

t

To

ol &

die

Pa

pe

r

Part 4: Implications for Ilocos Roadmap Localization Industries for Development

Region Industry VI (Iloilo City) processed meat, processed shrimp

VII (Cebu City) seaweed, dried mangoes, furniture, IT-BPM

XI (Davao City) processed meat, seaweed, cacao

CAR (Baguio City) coffee, processed vegetables, aerospace

IV-A (Tagaytay City) auto, electronics, petrochemical, IT-BPM

III (Clark) bamboo, furniture, aerospace, processed meat

IX (Zamboanga) rubber, cacao, mangoes, coconut

IV-B (Puerto Princesa) seaweed, tablea, rubber, coco coir

V (Naga) metal casting, coco coir, healthcare

1 (La Union)

Transforming Regional Economies

Ilocos: poverty incidence declined, unemployment 8.5% (5.7%

national), underemployment 8.5%

Industrial Policy: productivity, high value agriculture GVCs, jobs

NCR

CAR

ILOCOS

CAGAYAN VALLEY

CENTRAL LUZON

CALABARZON

MIMAROPA BICOL

WESTERN VISAYAS

CENTRAL VISAYAS

EASTERN VISAYAS

ZAMBOANGA PENINSULA

NORTHERN MINDANAO

DAVAO REGION SOCCSKSARGEN

CARAGA ARMM

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

-5.00% 0.00% 5.00% 10.00% 15.00% 20.00%

Ma

nu

fac

turi

ng

as

% o

f G

RD

P

Upgrading Industries: Challenges

Agriculture (esp.

tobacco), livestock,

furniture, cottage,

ceramics, blacksmithing,

food processing

Agriculture (esp. tobacco),

fishery livestock raising,

furniture making, cottage,

pottery, woodcarving, cloth

weaving

Agro-industry (milkfish

cultivation and

processing, livestock

raising, fish paste

processing), bagoong and milkfish production,

Laoag International

Airport

San Fernando

International

Freeport

Agriculture (esp. grapes from

Bauang), basi making, basketry,

blanket weaving, pottery,

jewelry-making, blacksmithing

bamboocraft, rattancraft,

metalcraft, furniture making,

pottery, weaving

Industry Cluster Roadmap to

Transform Economy of Ilocos

Upgrade industries & move up the value chain STEP 1: What are the existing & future growth potentials of the industry in both domestic and export markets?

STEP 2: See if private sector is already in these industries; are there existing or nascent activities? if none, seek FDI

STEP 3: What are the obstacles preventing firms from upgrading quality of their products? new firms from coming in?

STEP 4: Take action to remove constraints

• Horizontal: protection of property rights, business & investment environment, industrial clusters, eco zones

• Vertical: tax incentives for a limited time, direct credits, access to raw materials & capital equipment

• Coordination mechanisms: Regional Development Council

We cannot leapfrog industrialization, we need to

upgrade & transform our industries.

Through a new industrial policy, we can make our

industries competitive and create an environment

conducive to private sector development.

This could lead to more investments, more & better

jobs, sustainable & inclusive growth.

For more information, visit our website

industry.gov.ph

THANK YOU!