____________________________________________________________________________________

To: Dr. George Manzano, International Economist, UA&P

From: André Dagum, Trade Consultant, PMA
Richard del Rosario, Trade Consultant, PMA
Re: Philippine Trade Diversification

I. Summary

This memo shows that there is a very good opportunity for the Philippines to
export revolvers and pistols (HS 930200) to Australia. This is keeping both with
indicators of Australian import trends of the said good and Philippines’ advantages
in location and firearms production. Furthermore, absence of trade barriers and lax
firearm regulation make Australia a very enticing market for Philippine firearms.
Further analysis of the Australian market also shows that the Philippines may
diversify into exports of ammunition and other munitions (930630).

A look into possible importable products for the Philippines shows that the
Philippines still has a rather unsaturated market for agricultural grain dryers (HS
841931). Given the fact that the Philippines produces much grain (rice and maize),
it neither imports much nor produces said product. The Philippines gets most of its
agricultural dryers from Taiwan but the Philippine’s rapidly growing market for
dryers necessitatethe opening of the market to new sellers. Research shows that
Malaysia has the greatest potential as a new source of agricultural dryers for the
Philippines.

II. Export Product

Table 1 shows that Australia is twelfth in the world as importers of revolvers

and pistols. Australia caught our attention since the Philippines is already exporting
these products to the top importers, the US and Thailand. While these are good
markets in themselves, Australia is very near the Philippines and yet its large
market has not yet been penetrated by Philippine products, thus this merits closer
investigation.

Table 1 List of importers for the selected product in 2007

Product: 930200 Revolvers and pistols, other than those of heading No 93.03 or 93.04
Sources: ITC calculations based on COMTRADE statistics.
*The world aggregation represents the sum of reporting and non reporting countries

Trade Indicators
Annua
Annua Annua
l Tariff
l l
Value Trade growt equival
growt growt
import balanc Quanti h in Share ent ad
Importe ed in Unit h in h in
e in ty Quant quanti in valorem
rs value value value
2007, 2007 import ity ty world applied
(USD/u betwe betwe
in USD in USD ed in Unit betwe import by the
nit) en en
thousa thousa 2007 en s, % country
2003- 2006-
nd nd 2003-
2007, 2007,
2007,
% %
%
 466,23 -172,96
'World 1,845 Tons 252,701 18 -7 24 100
3 4
'United
298,06 -254,83
States of 1,186 Tons 251,320 19 21 63.93
5 5
America
'Thailand 26,058 -25,607 104 Tons 250,558 52 47 80 5.59
'Spain 17,049 -16,525 21 Tons 811,857 27 -10 100 3.66
'Mexico 13,808 -13,407 55 Tons 251,055 44 28 142 2.96
'Canada 10,441 -2,185 42 Tons 248,595 39 34 32 2.24
'Italy 8,271 42,147 22 Tons 375,955 11 3 7 1.77
'Germany 7,678 95,436 25 Tons 307,120 2 0 7 1.65
'Pakistan 5,855 -5,855 23 Tons 254,565 225 159 1.26
'Guatema
5,154 -5,154 28 Tons 184,071 18 18 86 1.11
la
'Switzerla
4,730 -1,089 13 Tons 363,846 -2 -6 16 1.01
nd
'Poland 4,494 -2,099 16 Tons 280,875 0 2 256 0.96
'Australia 4,036 -3,803 16 Tons 252,250 1 34 0.87

Table 2 below shows the top exporters of revolvers and other pistols. It
shows that Australia’s imports of firearms have generally been on the rise. Take
note that the Philippines is currently not one of the trading partners of Australia for
this product. Table 2 also shows the major competitors of the Philippines for
firearms. The general trend for most of these countries is increasing exports to
Australia, but this is only indicative of the increase in Australian imports. Thus, the
prospects of Philippine trade is generally bright, in spite of competition.

Table 2. List of supplying markets for a product imported by Australia

Product: 930200 Revolvers and pistols, other than those of heading No 93.03 or
93.04
Sources: ITC calculations based on COMTRADE statistics.

Imported Imported Imported Imported Imported

Exporters
value in 2003 value in 2004 value in 2005 value in 2006 value in 2007
'World 3,695 3,308 2,390 3,001 4,036
'United States of America 506 1,348 837 497 1,042
'Germany 248 419 222 1,024 849
'Belgium 93 0 503 227 706
'Australia 0 250 7 19 671
'Italy 1,112 405 391 148 250
'Austria 1,529 518 297 893 222
'Hong Kong (SARC) 0 5 0 80 66
'Czech Republic 0 44 0 24 54
'Croatia 0 0 10 13 31
'World 3,695 3,308 2,390 3,001 4,036
 Table 3 below shows trade in firearms between the Philippines and Australia.
The table shows that Australia’s import of revolvers and other pistols has been
growing since 2003. Meanwhile, the Philippines exports of the same product have
been growing. Both trends indicate that trade between Australia and the Philippines
will be mutually beneficial. Potential trade in 2007 projected to approximately $
2,769,000.00 which is a large amount by any standard. Thus, whether there are
competitors or not, it is still wise to expandin that country. One other advantage
with trade with Australia is its open market characterized by the absence of tariff
barriers to Philippine exports. Absence of tariff barriers for firearms is also
indicative of the laxness of Australian firearms regulation, which means that there
are few barriers to Australian firearms ownership other than the need for licensing
and ban of certain “high powered” firearms.
 Table 3. Existing and potential trade between Philippines and Australia in 2007

Sources: ITC calculations based on COMTRADE statistics.

Australia's imports from Philippines's exports to Australia's imports from

Indicative potential trade
Philippines world world
Produ V V V V V V V V V V V V V V V
ct alu alu alu alu alu alu alu alu alu alu alu alu alu alu alu Poten Poten Poten Poten Poten
label e in e in e in e in e in e in e in e in e in e in e in e in e in e in e in tial in tial in tial in tial in tial in
200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 2003 2004 2005 2006 2007
3 4 5 6 7 3 4 5 6 7 3 4 5 6 7
Revolv
ers
and
pis-
tols,
oth-er
than 1,15 1,15 2,76 3,69 3,30 2,39 3,00 4,03
0 0 0 0 0 708 806 1,154 708 806 1,152 2,769
those 4 2 9 5 8 0 1 6
of
headin
g No
93.03
or
93.04
 A final word on the state of the Philippine firearms industry: While there are
some “large” firearms companies that employ capital-intensive production
techniques such as ARMSCOR and Floro Corporation, there are also many legal
manufacturers that produce firearms by hand. These manufacturers contrary to
expectation produce firearms that meet world standards of quality and safety of
use. It is also these cheaply made handcrafted firearms that supply much of the
demand for firearms in the domestic market, supplying mainly to security agencies.
Thus the Philippines is no stranger to firearms production and the learning curve
would not be as steep. It is also precisely through these labor intensive means of
production that constitute the Philippines’ comparative advantage of firearms
manufacture.1

II. Export diversification

Further diversification of other Philippine products in Australia can be done

through exports of ammunition, as well as other parts that are needed to create
ammunition. The advantage of diversifying into ammunition is that unlike firearms
which is only a one-time sale, ammunition fosters repeat sales which will be
healthier for exporters in the Philippines. Table 4 shows that Australian imports for
cartridges have generally been increasing (30% per annum if you refer to table 5).
The table also shows that there are no competitors close to Australia which bodes
well for the Philippines since lies closer to Australia than any of the potential
competitors (In other words, Philippine businessmen can gain from a reduced
transportation cost to Australia).

Table 4. List of supplying markets for a product imported by Australia

Product: 930630 Cartridges nes and parts thereof
Data supplied by COMTRADE
Exporters Imported Imported Imported Imported Imported
value in value in value in value in value in
2003 2004 2005 2006 2007
'World 13,563 14,094 22,481 39,933 29,680
'Area Nes 0 4,846 5,619 25,693 10,997
'Republic of Korea 860 918 57 1,875 6,454
'United States of America 2,683 3,305 3,058 4,511 4,030
'Switzerland 7 113 1,795 2,167 2,455
'United Arab Emirates 0 0 120 0 1,666
'Norway 9 0 1,044 383 1,070
'Germany 1,231 2,391 1,334 440 675
'United Kingdom 552 1,440 3,012 131 655
'India 20 0 33 10 362
'Canada 148 104 262 394 356

Table 5 shows the potential trade between Australia and the Philippines.
Despite the 5% tariff imposed by Australia on Philippine imports, they remain to be
a good partner for trade. Australia is a growing market, with import growth reaching

1
For an idea of the potential of Philippine hand manufacture of firearms, see: Sun Star Daily,
“Solon forsees export potential in local gun making industry,” Sun Star Daily . [home page
on-line] ; available from
http://www.sunstar.com.ph/static/ceb/2008/05/30/bus/solon.foresees.export.potential.in.local
.gun.making.industry.html; internet; accessed 19 January 2009.
30% since 2003. Also, the Philippines is poised to exploit the lack of competition in
the region, boasting a potential trade value $531,000.00.
Table 5. Existing and potential trade between Philippines and Australia in 2007
Sources: ITC calculations based on COMTRADE statistics.

Australia's imports from Philippines's exports to

Philippines's exports to Australia
world world
Equivalen Indicativ
Annual Annual Annual
t ad e
growth growth growth
Produ Value valorem Value Value
Product in in Share in Share potentia
ct in Share in tariff in in l trade,
Label value value in value in
Code 2007, Philippines applied 2007, 2007, USD
betwe betwe world betwe world
USD 's exports, by USD USD
en en import en export thousan
thousa % Australia thousa thousa d
2003- 2003- s, % 2003- s, %
nd to nd nd
2007, 2007, 2007,
Philippin
%, p.a. %, p.a. %, p.a.
es
Cartridges
'93063 nes and
0 0 5 29,680 30 3.77 531 -34 0.07 531
0 parts
thereof
III. Import product

Table 4 shows the top importers of Dryers for agricultural products. The
Philippines, a country with a large agricultural base ranks only 38th of the top 40
importers. This is certainly very ironic, thus we decided that the Philippines needs
to import more dryers. Importation of dryer technology will surely find a market in
the Philippines especially among the agribusiness as it will decrease storage losses
of grains and other foods.

Table 6. List of importers for the selected product

Product: 841931 Dryers for agricultural products
Sources: ITC calculations based on COMTRADE statistics.
*The world aggregation represents the sum of reporting and non reporting countries

Importers Imported Imported Imported Imported Imported

value in value in value in value in value in
2003 2004 2005 2006 2007
'World 169,821 231,344 205,398 273,404 335,372
'Ukraine 6,995 16,078 16,868 16,103 26,733
'Iran (Islamic Republic 927 2,976 1,041 70 26,685
of)
'Russian Federation 3,337 16,276 7,577 13,714 22,944
'Belarus 209 1,560 8,027 15,763 19,330
'China 22,871 11,437 13,689 8,335 15,645
'Canada 6,516 8,548 7,876 13,258 15,257
'Germany 9,219 7,916 2,304 6,447 14,382
'Austria 3,327 1,002 1,462 2,488 9,112
'Indonesia 2,582 7,633 7,543 7,525 9,080
'Romania 1,348 3,570 5,207 4,564 8,850
'Kazakhstan 1,006 915 1,581 942 7,898
'France 1,955 5,225 3,157 3,660 7,379
'New Zealand 321 790 2,647 1,206 6,640
'Hungary 3,526 3,422 7,998 7,366 6,428
'United States of 4,530 2,704 7,872 7,526 6,030
America
'Czech Republic 1,115 1,689 1,310 3,879 5,520
'Republic of Korea 1,687 2,238 1,112 4,248 5,487
'Poland 6,753 8,217 6,076 5,340 5,377
'United Kingdom 3,525 3,383 3,750 3,497 5,055
'Belgium 8,840 1,258 2,052 1,584 4,990
'Thailand 4,904 3,745 6,837 12,523 4,815
'Venezuela 3,541 19,431 4,927 2,036 4,475
'Singapore 812 2,854 3,532 3,883 3,854
'Mexico 2,932 5,258 3,129 3,376 3,716
'Spain 3,955 1,987 1,713 937 3,578
'Lithuania 1,577 2,237 5,197 3,337 3,567
'Serbia 3,367 2,567 3,477
'Greece 7,826 488 425 19,589 3,410
'Saudi Arabia 128 182 65 1,323 3,208
'Turkey 2,916 5,200 8,510 4,942 3,159
'Argentina 4,141 9,313 1,918 1,930 3,128
'Brazil 3,406 2,248 672 1,366 3,090
'Ireland 757 1,382 1,105 493 3,029
'Uruguay 613 1,502 1,174 257 2,820
'India 831 6,217 1,669 22,034 2,789
'Paraguay 1,337 2,001 1,218 1,611 2,772
'Croatia 1,535 1,254 1,612 1,616 2,514
'Chile 845 1,605 952 2,013 2,294
'Philippines 711 1,339 1,323 2,148 2,223
'Viet Nam 7,156 9,852 7,284 10,129 2,039

Table 5 below shows the top exporters of Dryers for agricultural products for
the Philippines. One can see that the leader exporter to the Philippines is Taiwan
which has a 29.5% share of the Philippine market. Malaysia caught our attention
because it is not represented well in the Philippine market even though it is a
growing exporter of dryers to the world and in fact, its production exceeds that of
Taiwan.
Table 7. List of supplying markets for the product imported by Philippines in 2007
Product: 841931 Dryers for agricultural products
Sources: ITC calculations based on COMTRADE statistics.

Exporters Trade Indicators Tariff

Impo Trade Share Import Quant Unit Import Import Import Rankin Share Total equiv
rted balance in ed ity value, ed ed ed g of of export alent
valu 2007 in Philippi quanti unit (USD/u growt growt growt partne partne growth ad
e USD nes's ty nit) h in h in h in r r in value valor
2007 thousa imports 2007 value quanti value countr countr of em
, nd ,% betwe ty betwe ies in ies in partner applie
USD en betwe en world world countrie d by
thou 2003- en 2006- export export s Philip
sand 2007, 2003- 2007, s s, % between pines
%, p.a. 2007, %, p.a. 2003-
%, p.a. 2007, %,
p.a.
'World 2,223 -2,223 100 727 Tons 3,058 32 13 3 100 21

'Chinese 656 -656 29.5 151 Tons 4,344 55 6 220 19 1 32

Taipei
'China 546 -546 24.6 261 Tons 2,092 41 36 96 9 2.9 29
'United 530 -530 23.8 157 Tons 3,376 17 -1 -45 3 11.2 16
States of
America
'Canada 210 -210 9.4 72 Tons 2,917 25 0.6 -2
'India 103 -103 4.6 39 Tons 2,641 -17 27 0.5 63
'Sweden 47 -47 2.1 4 Tons 11,750 34 11 2.8 45
'Japan 38 -38 1.7 5 Tons 7,600 6 8 90 26 0.5 0
'Singapore 27 -27 1.2 2 Tons 13,500 -46 -10 21 0.7 -3

'Malaysia 17 -17 0.8 1 Tons 17,000 -43 467 18 1 78

'Thailand 16 -16 0.7 8 Tons 2,000 7 30 0.2 3

 In figure 1, itshows countries that export dryers to the Philippines. While
there are many potential suppliers included here, most are too far away from the
Philippines and transportation costs would tend to be large. At the same time, the
chart shows that Malaysia has been achieving a level of unprecedented growth in
exports between 2003 to 2007 and in spite of this, Malaysia only has a negligible
share in the Philippine market of agricultural dryers. Given its geographical
proximity to the country, it will be able to bring its products to the Philippines at a
low transportation cost. Thus opening up the Philippine market to Malaysian
exporters will be a mutually beneficial deal for both countries as the Philippines will
be getting high quality dryers (as evidenced by the high export growth which would
not have been achieved had not Malaysia developed some kind of market
differentiation for its product) and low transportation cost by virtue of geographical
proximity. Thus, it is highly suggested that we open the Philippine market to
Malaysian dryers.

Figure 1. Prospects for diversification