ASEAN

The Association of Southeast Asian Nations (more commonly known as ASEAN) is an

intergovernmental organization aimed primarily at promoting economic growth and
regional stability among its members.

There are currently 10 member states: Indonesia, Malaysia, Philippines,

Singapore, Thailand, Brunei, Laos, Myanmar, Cambodia and Vietnam.

Why was it set up?

ASEAN was founded half a century ago in 1967 by the five Southeast Asian nations
of Indonesia, Malaysia, Philippines, Singapore and Thailand. This was during the
polarized atmosphere of the Cold War, and the alliance aimed to promote stability
in the region. Over time, the group expanded to include its current 10 members.

Regional cooperation was further extended with the creation of the ASEAN Plus
Three forum in 1997, which included China, South Korea and Japan. And then
the East Asia Summit, which began taking place in 2005 and has expanded to
include India, Australia, New Zealand, Russia and the United States.

What does it do now?

ASEAN aims to promote collaboration and cooperation among member states, as well
as to advance the interests of the region as a whole, including economic and
trade growth. It has negotiated a free trade agreement among member states and
with other countries such as China, as well as eased travel in the region for
citizens of member countries.

In 2015, it established the ASEAN Economic Community (AEC), a major milestone in

the organization’s regional economic integration agenda. The AEC envisions the
bloc as a single market with free flow of goods, services, investments and
skilled labour, and freer movement of capital across the region.

True to its original mission, the organization strives towards peace and
stability in the region: members have signed a treaty pledging not to develop
nuclear weapons, and most have agreed to a counter-terrorism pact, which includes
sharing intelligence and easing the extradition process of terror suspects.

How do members cooperate?

One of the organization’s aims is to promote technical and research cooperation

among its members. The ASEAN Outstanding Scientist and Technologist Award is
presented every three years to recognize nationally and internationally acclaimed
achievements in the field.

Areas of research include safeguarding the region’s environment and wildlife. The
association’s Center for Biodiversity was established to promote cooperation on
conservation and sustainability throughout the region and serves as secretariat
of ASEAN Heritage Parks, which oversees 37 protected sites.

In the field of education, the ASEAN University Network was founded in 1995 to
promote academic and youth cooperation between member states. As part of this
initiative, the University Games have been held every two years since 1981.

How important is the region economically?

If ASEAN were a country, it would be the seventh-largest economy in the world,

with a combined GDP of $2.6 trillion in 2014. By 2050 it's projected to rank as
the fourth-largest economy.

Home to more than 622 million people, the region has a larger population than the
European Union or North America. It also has the third-largest labour force in
the world, behind China and India.

ASEAN at 50: What does the future hold for the region?

The year 2017 sees the Association of Southeast Asian Nations (ASEAN) celebrate
its 50th anniversary. And there is indeed much to celebrate.
But just as importantly, the anniversary is also a moment to think about the
future of the region and what lies ahead. The World Economic Forum on ASEAN 2017
in Phnom Penh will be just such a moment for reflection.

The theme of the summit is Youth, Technology and Growth: Securing ASEAN’s
Demographic and Digital Dividends. Each of these ideas holds important questions
for the future of the region.

Economic growth is critical as the engine that drives rising incomes and
prosperity. ASEAN as a whole has a good record in recent years, growing by around
5% a year, and powering the creation of a giant middle class. At the start of
2016, the 10 economies of ASEAN were collectively the seventh largest economy in
the world. By the start of 2017, that rank had improved to sixth, and by 2020 it
will be fifth.

But, as impressive as this is, ASEAN could and should be growing much more
quickly. A realistic aspiration is to grow at 7%. The difference between 5% and
7% may seem small, but the impact would be felt deeply. At 5%, ASEAN doubles its
income every 15 years. At 7%, it doubles every 10 years.

Quality and quantity

To achieve 7%, the region must focus on many individual national issues, such as
infrastructure and education. But there is also an important regional dimension
too. The region would benefit significantly from pushing forward the
implementation of the ASEAN Economic Community (AEC). Much work remains before
the AEC fulfills its promise of being a genuine single market and integrated
production base. Without full realization of the AEC, local businesses will
struggle to reach scale and be globally competitive, and consumers will pay more
for products and services. China and India, with their giant domestic scale, will
continue to outperform.

Just as critical as the quantity of growth is the quality of growth. Sadly,

inequality is rising across many ASEAN nations. Not everyone is benefitting
equally. The World Economic Forum’s Inclusive Growth and Development Report 2017,
released in January this year, looks closely at the policy levers governments can
deploy to ensure more equitable outcomes. The answers go well beyond
redistribution through tax. Indeed, redistribution should really be a last
resort.

Youth is a second essential consideration for the region. The 630 million
citizens of ASEAN are still extremely young (though not universally – Singapore
and Thailand are already ageing). Having a young and growing population creates a
golden moment in a country’s economic development journey, promising a powerful
demographic dividend. As the working-age population grows in number, it will
boost the region’s spending, but also increase its savings and hence its capacity
to invest.

And yet, nothing is guaranteed, and the region’s demographic dividend is time-
limited: by 2025, most countries in ASEAN will see their populations start to
age. Governments and policy-makers must ensure they pursue the right policies
today to guarantee their demographic dividend is realized.
They must think deeply about education and how best to prepare workers for the
jobs of the future. They must identify areas of inter-generational tension, such
as the environment and the funding of pensions and healthcare. Growth today
cannot come at the expense of future generations. How should governments plan
long-term for sustainable finances and a sustainable environment?

The third part of our summit theme is technology. ASEAN came into being in 1967,
just two years before the internet was created. As such, the impressive rise of
ASEAN has coincided perfectly with the Third Industrial Revolution, driven by
computers and communications. But today, as ASEAN celebrates its 50th
anniversary, the world stands on the cusp of the Fourth Industrial Revolution,
driven by technologies such as artificial intelligence, machine learning,
autonomous vehicles, ubiquitous mobile internet, and accelerating progress in
genetics, materials science, and ultra-cheap automation.

The next 50 years

If ASEAN is to prosper for another 50 years, it must tackle difficult questions

about how to navigate the accelerating pace of technological change and digital
disruption. On the one hand, the Fourth Industrial Revolution could bring huge
benefit to the region, driving financial inclusion, access to affordable
healthcare, new forms of education, and the creation of new companies and service
sector jobs. ASEAN is today the fastest growing internet market in the world. A
recent report from Google and Temasek calculates that the region’s online
population is expanding by 124,000 new users every day – and will continue at
this pace for the next five years.

Equally, however, technology could cause many challenges. As robots become ever
cheaper, can manufacturing still be a route to job creation? How should the
region teach IT and technology skills and create a vibrant innovation ecosystem?
How can governments build the right enabling environment, and a connected
regional digital economy, that enables the Fourth Industrial Revolution to
thrive? Just as important is the issue of transparency. Digital technologies help
to expose corruption and wrong-doing, which could raise social frustration and
disruption. But these technologies also offer exciting possibilities for removing
bad behaviour.

With more than 750 leaders from business, government, academia and civil society,
the Forum’s summit in Cambodia will be a platform not only for debating these big
questions, but importantly for brainstorming solutions and helping people to take
action.

Trade, entrepreneurship and the future of ASEAN's economy

As the World Economic Forum comes to Ha Noi for this year’s ASEAN meeting, we’re
reminded of how far Viet Nam has come since the country first hosted the
gathering in 2010. Viet Nam experienced over 6% GDP growth last year, but it’s
not the only country in the region with a remarkable growth story.

Indonesia, Thailand, Myanmar, the Philippines and Cambodia – countries that all
followed in the footsteps of Viet Nam as first-time hosts of WEF’s annual Asian
regional meeting – along with others in the ASEAN bloc, are experiencing strong
growth too. The 10 member states are expected to generate GDP growth rates
between 3% and 8% over 2017-2021.

While the growth of these individual countries is impressive, the real success
story belongs to the region. ASEAN has long heeded the connectivity imperative,
and the benefits of regional cooperation and economic integration, through
initiatives such as the ASEAN Economic Community (AEC), are paying dividends.
ASEAN commands a combined GDP of about $2.4 trillion, and GDP per capita has
increased by 63.2% from 2007 to 2015. If it were a single country, it would be
among the top 10 economic powers in the world.

To further drive growth, ASEAN and its six strategic partners will come together
in November for the hotly anticipated signing of the Regional Comprehensive
Economic Partnership. This will create the world’s largest free-trade area,
representing nearly 30% of global GDP, and demonstrates ASEAN’s commitment to
removing barriers to trade and expanding market access both within the region and
with its partners.
With a population of over 600 million, ASEAN is the world’s third-largest market.
It also offers the third-largest labour force, behind China and India, and has
some 67 million households that are part of the “consuming class”, a figure that
could almost double to 125 million by 2025. Between 2007 and 2014, ASEAN trade
increased by a value of nearly $1 trillion. While nearly a quarter (24%) of trade
was within the region, this was followed by trade with China (14%), Europe (10%),
Japan (9%) and the United States (8%). During the same period, foreign direct
investment rose from $85 billion to $136 billion. As nations elsewhere redefine
their approach to international trade, one thing’s for sure: ASEAN is open for
global business.

Embracing the 4IR

While significant steps have been made to enhance the free flow of goods,
services, investments and people, new challenges lie ahead. The technological
advancements brought on by the Fourth Industrial Revolution (4IR) are placing new
demands on governments and businesses across the region. However, the 4IR also
presents great opportunity, if member states can respond to its challenges with
speed, flexibility and agility in order to make these new technologies part of
its success. Entrepreneurship could play a key role here. SMEs are the backbone
of local economies across ASEAN, and often the largest source of local employment
across all economic sectors. In countries such as Thailand and Viet Nam, for
example, they account for nearly 99% of all registered businesses and employ more
than 70% of the workforce. To unleash this potential, the region must ensure that
policy reflects the interests of SMEs, affording them the best environment for
growth.

E-commerce is a prime example of how 4IR technologies are disrupting traditional

sectors. While e-commerce remains relatively underdeveloped in ASEAN today,
accounting for less than 1% of total retail sales, this will soon change as
internet penetration spreads and the region’s consumer base continues to grow.
Given this potential, large local providers such as Lazada and Tokopedia are
competing for market share with global players. With SMEs poised to play such a
key role in the region’s success, it will be crucial for governments to ensure
the internet infrastructure they require is in place, so that entrepreneurs can
future-proof their businesses and actively participate in e-trade.

4IR technologies are also enabling logistics providers to take supply chains to
the next level in terms of speed and accessibility. This is contributing to the
rise of e-commerce, but also driving business more broadly across the region.
Drones are operating in warehouses, artificial intelligence is automating
processes and blockchain has the potential to transform decentralised supply-
chain functions. Logistics providers are also offering online freight forwarding
platforms that ease the process of doing business for SMEs, both within the
region and more globally. Unsurprisingly, global logistics hub Singapore is
leading the way in adoption of technologies into the supply chain, through its
Smart Logistics initiative.

Taking an agile approach

However, to truly ascend the global value chain, ASEAN needs to look beyond trade
facilitation and advancements in technology. In reality, the very 4IR
technologies that are driving growth are at the same time disrupting the region’s
traditional strengths in low-end manufacturing in the form of automation,
robotics and 3D printing.

Conclusion

Governments and businesses need agile approaches to upgrade education, R&D,

lifelong learning and skills development. This will create the necessary
conditions for ASEAN to better close income gaps, create employment, support
SMEs, expand the pool of knowledge workers and – ultimately – to rise in global
value chains. Therefore, preparing the capable and young workforce for new
realities must happen with close coordination between industry, governments and
civil society. These will complement the tremendous efforts leaders are already
making in supporting cross-border trade and enhancing mobility.

While there is much for the region to consider as it sets its sights on ascending
the global value chain, what is clear is that now is the time for ASEAN to shine.
The theme of this year's World Economic Forum summit, ASEAN 4.0: Entrepreneurship
and the Fourth Industrial Revolution, could not be a more timely one.

How to power a bright future for ASEAN

The ASEAN region is undergoing a phase of sustained economic growth and human
development, notwithstanding the current trade wars and currency fluctuation.
Urbanization and industrialization will lead to greater per capita material
consumption of all types, including energy.

The International Energy Agency (IEA) forecasts that primary energy demand in the
ASEAN region will increase by more than two thirds by 2040. As a consequence, the
region will face several simultaneous challenges relating to energy security,
investment, energy access and environmental sustainability. Success in addressing
these challenges will be more easily achieved if member states work together with
a shared vision and a long term roadmap.

The challenges
Energy security

The region is expected to consume significantly more oil and natural gas to meet
its growing energy demand, according to forecasts. With gradual depletion of
domestic reserves, this continuing dependence on fossil fuels raises energy
security concerns for the region. After many years of being a net exporter of
fossil fuels, ASEAN has steadily become a net importer of fossil fuels. This
import dependence will place an increasing fiscal burden on member states.

Investments

The electricity demand in the ASEAN region is projected to grow by 250% by 2040,
which is much faster than the increase in primary energy demand. Rising demand
for electricity will require significant expansion of power generation and
transmission infrastructure. In 2016, the IEA estimated that around $2.5 trillion
of investment would be needed to supply ASEAN’s projected energy needs between
then and 2040. About half of this is for the power sector, and the balance would
be shared between fuel supply and energy efficiency.

However, the amount of FDI into ASEAN’s energy sector has been relatively low
recently due to the paucity of attractive oil and gas prospects, the low level of
domestic prices for gas and electricity, and the diverse range of regulatory
obstacles.

Universal access

Human development requires not just more energy for each nation, but increased
availability and affordability for the entire population. Electricity is not just
a luxury, but a vital input to improved livelihoods, including standards of
living, health and education. However, at least 50 million people across ASEAN
lack access to electricity and an equivalent number receive a very unreliable
supply. As many as 200 million rely on traditional biomass for cooking, a
practice that is harmful to health and wasteful of labour, in the gathering of
the fuel.

Developing a shared vision

ASEAN member states are hugely diverse in many respects: physical geography; size
and population; scale and nature of energy resource endowment; size and structure
of the economy; per capita GDP; and political and economic systems. Of direct
relevance to the energy sector is the variability of governance arrangements for
industry and the energy sector, especially the role of the private sector and
market mechanisms. Likewise, the availability of relevant skills and of
investment capital is very uneven.

Notwithstanding the structural and economic diversity among ASEAN member states,
their respective challenges around energy transition can be best met through
increased regional cooperation. The benefits of increased regional integration
are evident by the fact that intra-ASEAN trade and capital flows are larger than
with any other external country or region. In terms of energy, regional
cooperation has been initiated through cross-border integration of power grids
and natural gas pipelines. These measures should be further strengthened to
connect large energy-generating sources with demand centres separated across
international borders.
Increased connectivity through physical infrastructure and energy trading will
address the concerns of energy security and environmental sustainability, by
diversifying the resource mix, helping replace coal with the region’s abundant
natural gas supply in power generation, and improving dispatch ability of
renewable energy sources. However, maximizing these gains will require multi-
lateral market-based mechanisms to trade energy across national borders. Skills
and capital are also available both within and outside South-East Asia, but the
key is to mobilize them. Given that ASEAN member states are at different stages
in their respective energy transition journey, developing a common vision can
help in the sharing of best practices in areas such as energy efficiency, faster
deployment of innovative technologies and solutions, and integration of renewable
energy sources.

The overarching task that will allow these complementarities to be realized is to

include fully the energy sector within the framework of the ASEAN Economic
Community. The legal, regulatory and technical barriers that not only result in
varying priorities among member states, but also actively constrain potential
energy collaboration, must be addressed. Developing a shared vision that
optimizes energy system performance in the region will need sustained political
will, a suitable investment environment and appropriate institutional frameworks
that support cross-border integration of physical infrastructure and energy
markets.

Understanding the Strategic Importance of Duterte’s Foreign Trips

President Rodrigo Duterte had gone on a total of 21 foreign trips, including all
ASEAN Member States, China, Japan, Peru, New Zealand, Saudi Arabia, Bahrain,
Qatar, Hong Kong, and Russia. He went on these trips in a span of one year,
effectively making him the most traveled president during his first year in
office.

Duterte’s visit to the said countries bears significance for a number of reasons.
His visit to Myanmar on 19-20 March 2017 marked the completion of his tour of all
Member States of ASEAN. He successfully visited the nine other Member States less
than a year into his presidency, a feat which his predecessors had not
accomplished. The round of visits to ASEAN is particularly significant given the
Association’s 50th founding anniversary and the Philippines’ chairmanship this
year. It also manifests the government’s resolve in engaging and cooperating with
its neighbors in matters of mutual interest.

Meanwhile, Duterte’s engagement with countries in Northeast Asia, Middle East,

and Russia is politically significant as the Philippines seeks to expand and
forge relations as a manifestation of an independent foreign policy. The
diversification of partnerships recognizes the growing interdependence among
states and contributes to the Philippines’ national interest and domestic agenda.
It will prove to be essential in facing domestic security concerns stemming from
the spread of illegal drugs and terrorist activities in the south, among others;
along with financial and societal reforms aimed at attracting foreign
investments, accessing new markets, curtailing unemployment, and boosting overall
economic development.

Chronicling Duterte’s foreign trips

In ASEAN, it has been both tradition and protocol that the first state visit of a
new Head of State is to a fellow ASEAN Member State. In the Philippines, this
tradition was carried out by every new administration since ASEAN’s establishment
in 1967.

Duterte’s debut on the international stage was at the 28th and 29th ASEAN Summits
in Vientiane, Laos on 6-8 September 2016. At the closing ceremony of the Summits,
Duterte accepted the Philippines’ chairmanship of ASEAN for 2017 and revealed the
theme, “Partnering for Change, Engaging the World,” which encapsulates the
importance of continued collective efforts by ASEAN Member States to create
positive change for the peoples of the region and to involve Dialogue Partners in
the stewardship of regional security, stability, and growth.

After Lao PDR, Duterte visited the following ASEAN Member States: Indonesia,
Vietnam, Brunei Darussalam, Cambodia, Singapore, Thailand, and Myanmar.
Highlighted during the visits were discussions of common issues and interests,
including addressing the threat of terrorism, strengthening maritime security
cooperation, combating transnational crimes, committing to a drug-free ASEAN
Community, and improving air and sea connectivity for enhanced trade and people-
to-people exchanges. On economic cooperation, the three countries recognized the
need to create an environment conducive to business in areas such as agriculture,
food processing and development of halal products, tourism services, and
expansion of Islamic banking. Meanwhile, technical cooperation was also in the
agenda in President Duterte’s visits to ASEAN Member States. Cambodia, in
particular, expressed its intent to seek opportunities for technology transfer of
rice seeds from the Philippines, while Thailand has sought Philippine cooperation
in the fields of science and technology, and agriculture, particularly swamp and
dairy buffalo production.

Duterte’s visits to China and Japan have resulted in cooperation on the

improvement of the Philippines’ lagging infrastructure by drawing pledges for
mass transportation systems, railways, dams, and ports. Japan, for its part, has
boosted support for maritime law enforcement by providing aircrafts, boats,
ships, and vessels to the Philippine Coast Guard (PCG) for search and rescue and
counter-terrorism operations. Similarly, Duterte’s visit to Russia explored means
to deepen cooperation on defense, military, technical, and investment cooperation
between the Philippines and Russia. Meanwhile, countries like New Zealand and
Saudi Arabia have expressed their willingness to cooperate on counter-terrorism.
Moreover, the visit to Saudi Arabia and Qatar focused on labor relations given
the presence of many Filipino Overseas Workers in these countries.

What’s at stake during diplomatic visits?

Diplomatic visits may come in the form of a state visit, official visit, or
working visit. Exchange of visits among state leaders are often little
understood, which lead people to overlook the value of a president’s foreign
travels. State visits accord the highest level of hospitality, honor, and
formality between leaders; thus reflecting the strength and vitality of a
bilateral relationship. It must therefore be viewed optimistically and regarded
as a vital part of foreign policy-making and diplomacy.

The rounds of discussions and negotiations are all aimed at ensuring the public’s
socio-economic welfare and safety, especially at a time when traditional and non-
traditional threats pose risks to states and their peoples. It is because a
country’s domestic agenda influences its foreign policy and vice versa. The
Philippines’ pressing political-security issues such as combatting transnational
crimes, including the spread of illegal drugs, are considered high priority in
the agenda of bilateral talks. Equally important, the expansion of bilateral
relations will contribute to the achievement of the administration’s 10-Point
Socioeconomic Agenda that prioritizes the acceleration of infrastructure,
development of rural and value chains, enhancement human capital through health
and education systems, promotion of science and technology, and improvement of
social protection programs, among others.

Diplomatic visits are about maintaining and strengthening existing relations, if

not about developing new relations between states. They provide leaders the
opportunity to pursue common and national interests by forging agreements,
attracting investors, expanding trade and investments, exchanging best practices,
and discussing pressing issues towards cultivating a better understanding of one
another. In Myanmar, for example, Duterte pledged USD 300,000 in humanitarian
assistance to Rakhine State, demonstrating the Philippines’ resolve to play an
active role in regional affairs by promoting harmony amongst the peoples of
ASEAN. Moreover, a highlight of Duterte’s foreign visits is his regular meetings
and dialogues with overseas Filipino communities to reach out to Filipinos
abroad, which is equally important in strengthening state-to-state relations.

Given the increasing regional security challenges, complex domestic concerns,

desire for economic growth, and need to fast-track regional integration, the
Philippines finds itself at a critical juncture of having to carefully calibrate
and balance its domestic and international interests through engagements with
other partner countries.
The President’s visit to ASEAN states has been essential in gaining support for
the country’s ASEAN Chairmanship and in pushing for a united stand on issues
affecting the region. As for his visit to other countries, it is a gesture of his
intent to diversify Philippine foreign relations in a changed strategic and
economic environment. It also reflects the country’s aim under the Duterte
administration of not being reliant on solely one partner or being too vulnerable
to another. These are all in view of pursuing an independent foreign policy
anchored on shared values of democracy, adherence to the rule of law, and
strengthening ties with neighbors and external partners. More importantly, the
visits gave the Philippines an opportunity to show its determination to partner
for change and engage the world towards achieving a more secure, stable, and
prosperous ASEAN Community.

STRENGTHEN AGRI, MANUFACTURING TO BUILD PH TRADE RESILIENCY – NEDA

MANILA – Building strategic relationships with key trading partners, addressing
issues in and boosting the competitiveness of agriculture and manufacturing
sectors must be prioritized for Philippine trade to withstand global challenges,
the National Economic and Development Authority said on Tuesday.

The Philippine Statistics Authority (PSA) reported that the country’s total trade
declined by 1.3 percent in July 2019 from July 2018. This is however an
improvement from the 5.2-percent drop registered in June 2019 as export sustained
its growth.

Merchandise exports grew by 3.5 percent, the fourth consecutive month of positive
growth, on the back of higher revenues from agro-based products, forest products,
and manufactures to include electronic products. The Philippines registered the
third highest exports growth among selected Asian economies, following Thailand
and Vietnam.

“Philippine exports remained resilient during the second quarter of 2019 despite
the continuing external challenges such trade tensions between the US and China,
the bleak outlook in Europe, and the uncertainty of the future of Brexit,” said
Socioeconomic Planning Secretary Ernesto M. Pernia.

On the other hand, merchandise imports declined by 4.2 percent in July 2019 due
to lower payments for raw materials & intermediate goods as well as mineral
fuels, lubricant and related materials.

Pernia said that the effects caused by the long-standing trade tensions between
the United States and China are beginning to show as global manufacturing
sentiment continued to falter with manufacturing purchasing manager indexes for
powerhouses like Japan, South Korea, Taiwan sustaining declines in July.

“The country’s manufacturing sector is expected to sustain its growth despite the
overall decline in global manufacturing. We are optimistic as we see a reduction
of global oil prices, the recent cuts in electricity rates, and the lower import
costs due to the appreciation of the peso,” said Pernia.

He added that sustaining this optimism may find relevance in the government’s
goal of attracting foreign investments in the country. The country’s resiliency
against its competitors in the region may attract locators seeking alternatives
to China, where goods are subject to increasing US tariffs.

Also, the timely conclusion of the negotiations of the Philippine-South Korea

Free Trade Agreement and the Regional Comprehensive Economic Partnership would
further expand trade and investment opportunities for the Philippines.

Moreover, Pernia also underscored the importance of addressing issues in the

Philippine agriculture sector.

“As the country continues to pursue programs that will pave the way for the
resurgence of the manufacturing sector, increasing the competitiveness of
agricultural producers, particularly rice farmers, should continue to be
prioritized,” said Pernia.

He added that long-term measures, especially the proper implementation and

distribution of the Rice Competitiveness Enhancement Fund (RCEF), would have a
huge impact on sustaining and expanding the rice sector.

“Greater scrutiny in regulating the distribution and the retailing of rice as the
decline in farm gate prices, however, have not been translated into substantially
lower retail prices of rice,” said Pernia.

NEDA: EASING INFLATION TO IMPROVE MANUFACTURING

An easing of inflationary pressures, especially on food following the recent

signing of the law that modernizes the rice industry in the country, bodes well
for overall manufacturing growth, the National Economic and Development Authority
said as manufacturing output figures for January 2019 were released.
The Philippine Statistic Authority (PSA), in its Monthly Integrated Survey of
Selected Industries (MISSI), reported that the Volume of Production Index (VoPI)
and the Value of Production Index (VaPI) for January 2019 declined by 4.1 percent
and 0.7 percent, respectively.

The declines in food, basic metals, non-metallic mineral products, chemical

products, tobacco, fabricated metals, and machinery (except electrical),
contributed to the low manufacturing output to start the year.

“Manufacturing growth outturn in January 2019 showed a moderate improvement

coming from December 2018. Nevertheless, with our recent progress in agricultural
policy, we can expect manufacturing to recover further. The decline in prices of
rice and agricultural commodities brought about by the appreciation of peso and
the increase in supply of rice imports will improve consumer outlook and prop-up
domestic demand,” Socioeconomic Planning Secretary Ernesto M. Pernia said.

He added that the recent passage of the Rice Industry Modernization Law is also
expected to lower the retail prices of rice, and thereby further stabilize
inflation. This may result in lowering the cost of inputs for the manufacturing
sector and provide opportunities for production expansion.

Meanwhile, Pernia said there are also other measures that need to be aggressively
pursued in order to attract new investments and reduce the cost of expanding
production capacity of existing firms

These measures include the full implementation of the Ease of Doing Business-
Efficient Government Service Delivery Act of 2018 to yield significant
improvements in the business and regulatory environment across all levels of
governance.

Also eyed by the economic team is the passage of the amendment to the Public
Service Act to encourage competition in the air, maritime and road transport, as
well as logistics services.

“The proposed amendment on the Foreign Investments Act of 1991 could be another
boost to the manufacturing sector. Considered as a priority bill, it is expected
to lower the employment threshold from 50 to 15 direct employees for foreigners
investing US$100,000 in SMEs,” Pernia said.

Furthermore, the proposed amendments to the Retail Trade Liberalization law, will
effectively reduce barriers to the entry of foreign investments by easing the
equity and capitalization requirements and will contribute to the manufacturing
sector covering small and medium-sized enterprises.

“These measures are vital considering that manufacturing is expected to be

dampened by less optimistic business and consumer outlook in the first quarter of
the year. Higher domestic oil prices, rising adjustment in electricity rates, and
weather disturbances are expected to exert upward price pressures on the cost of
inputs,” Pernia said.

NEDA: STRONG WHOLE-OF-GOV’T APPROACH NEEDED TO LIFT MANUFACTURING GROWTH

A strong whole-of-government approach is necessary to boost manufacturing growth

amid the sector’s sluggish performance, the National Economic and Development
Authority (NEDA) said.

Results of the Philippine Statistics Authority’s (PSA) Monthly Integrated Survey

of Selected Industries (MISSI) for the month of April showed that the Volume of
Production Index (VoPI) fell by 14.0 percent while the Value of Production Index
(VaPI) was down by 10.8 percent. This marks the sector’s fourth consecutive
month of decline in 2019.
“Notwithstanding, manufacturing output is expected to recover supported by
improved domestic demand in the coming months. Easing inflationary pressures,
accelerated government spending on infrastructure, and a more upbeat consumer
outlook also provide additional support given expectations of additional income
and availability of more jobs,” said Socioeconomic Planning Secretary Ernesto M.
Pernia.

“A strong whole-of-government—nay, whole-of-society—approach is needed to

accelerate the growth of manufacturing and boost its contribution to industry
growth. The needs of the food processing sector should be addressed as it
accounts for the largest share among all manufacturing sub-sectors. This points
to the critical importance of agriculture which, besides being the source of
food, is also the feeder sector to the food manufacturing sub-sector,” he added.

Secretary Pernia said there is a need to address the governance issues faced by
the agribusiness sector and its related industries.

“The government may need to revisit existing interventions to ensure that they
are designed to be responsive to the needs and actual behavior of farmers, fisher
folks and processors,” he said.

The delineation of responsibilities across various food safety regulatory

authorities should be clarified in order to improve the enforcement of
regulations.

“It must be ensured that all food products, both for domestic market consumption
and for export, are aligned with Good Agricultural Practices or Good
Manufacturing Practices,” said Pernia.

Moreover, Pernia stressed the need to encourage businesses to increase

production.

“Transacting with government must be simplified and made less expensive, as

mandated by RA No. 11032 or the Ease of Doing Business and Efficient Government
Service Delivery Act of 2018, ” he said.

In addition, the law calls for the standardization of requirements for business
registrations and permit issuances, and capacity-building to improve the
efficiency of LGUs in the processing of business applications.

EXPLAINER: How the tax reform law affects Filipino consumers

Payroll managers start adjusting their systems to reflect the new withholding tax
rates. Supermarkets, oil retailers, convenience stores, and even sidewalk vendors
begin updating their price lists.

Royd Agapito (not his real name), a 25-year-old market analyst for a research
firm, got what he wanted: higher take-home pay. But what he did not expect is a
higher monthly household bill that would offset the gains he would receive from
the newly-implemented Tax Reform for Acceleration and Inclusion (TRAIN) law.

The administration of President Rodrigo Duterte started 2018 by implementing

TRAIN, which reduced personal income taxes but increased those on cars, tobacco,
sugar-sweetened beverages, and fuel.

Payroll managers have started adjusting their systems to reflect the new
withholding tax rates. Supermarkets, oil retailers, convenience stores, and even
sidewalk vendors have begun updating their price lists.

A visit to Puregold supermarket on Monday, January 8, showed that a pack of

Marlboro Black 20s is more expensive now at P87.50, from last year's P68.

Agapito, who earns P30, 000 monthly, will save P3,438 a month because of the new
withholding tax rates. But he said he decided to stick to his old Toyota Vios
instead of upgrading to a new car, given the hike in auto excise tax, which
mainly hit mass market vehicles.
"I don't think TRAIN will provide significant impact to an average wage earner.
It is like the government is just giving us a new perspective to look at our
taxes. You have higher pay, but electricity, transport, grocery bills will also
be higher," Agapito said in an interview.

Manufacturing growth continues to slow down due to TRAIN

Higher input prices and job losses partly blamed on new or increased excise tax
rates on various goods under the Tax Reform for Acceleration and Inclusion
(TRAIN) law further slowed down manufacturing growth in February, the latest
Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) showed.

“Growth in the Philippine manufacturing economy lost further momentum in

February, according to the Nikkei PMI data, setting the sector on course for the
weakest quarter in the survey history,” IHS Markit principal economist Bernard Aw
said in a statement.

“Survey data suggested that the new excise taxes, implemented at the start of the
year, continued to have an adverse impact on demand. While growth in output and
new orders picked up from the lows in January, the rates of increase remained
well below historical averages. Export sales also weakened further,” Aw said.

Signed by President Duterte in December, Republic Act No. 10963 or the TRAIN law
starting Jan. 1 this year jacked up or slapped new excise taxes on various
products to compensate for the restructured personal income tax regime that
raised the tax-exempt cap to an annual salary of P250, 000.

“After seeing four months of job gains, staffing numbers fell in February at the
steepest pace in the survey history. The persistent lack of capacity pressure, as
indicated by declining backlogs, weighed on hiring,” Aw added.

“What’s concerning was the tighter squeeze on profit margins as inflationary

pressures built rapidly to survey-record rates. There were reports of layoffs as
part of efforts to reduce costs. Firms blame higher excise tax rates and
increased commodity prices for the sharp cost increase. A weaker peso also
worsened the impact of higher import costs,” Aw said.

TRAIN law a boon or bane to PHL’s sugar sector?

A SWATH of sugarcane waved to passengers of the Tarlac-Dagupan line of the

Philippine National Railways; that was more than a century ago. About 127 years
later—the train line opened in November 1892—passengers of a new type of TRAIN,
the Tax Reform for Acceleration and Inclusion law, are riding a bittersweet line.

For Assistant Finance Secretary Antonio Joselito G. Lambino II, the TRAIN’s
effect is sweeter rather than bitter.

Lambino told the BusinessMirror the government is supportive of the agriculture

sector, especially those who produce rice and sugar, among others.

“Essentially, that’s what we want to have: efficient local producers in the

agriculture sector, in agribusiness and in other parts of the agriculture value
chain,” Lambino, who is also spokesman of the Department of Finance (DOF), said
in an interview. “That’s the priority, whether it’s in sugar or in rice, in some
parts of the country rice can be produced very efficiently and we know that from
the research. So that’s what we really want to support.”

Lambino issued his response after reports pointed to the TRAIN law as forcing
businesses to rely on the importation of certain goods, especially sugar, for
their production, putting the future of local producers in peril.

Sugar-sweetened beverages
LAMBINO told the BusinessMirror the DOF has made sugar a priority.

“The challenge with sugar is that there are so many difficulties in getting to an
efficient market, so we’ve also made that a big priority, and I think [Budget]
Secretary [Benjamin E.] Diokno has even announced that recently,” he added.
“[Finance] Secretary [Carlos G.] Dominguez [III] also mentioned that the
efficiency of the sugar industry and market is also very important because a lot
of our food manufacturers need competitively priced sugar as an input.”

Reports said the new excise tax on sugar-sweetened beverages (SSBs) has pushed
food manufacturers to shift from procuring locally produced sugar and rely on
imports instead.

The TRAIN law, or Republic Act (RA) 10963, was signed into law by President
Duterte in December 2017. The law slashed personal income tax rates while
implementing offsetting measures, such as increasing fuel excise tax rates as
well as imposing an excise tax on SSBs, among others.

For imported goods, the Bureau of Customs (BOC) applies a value-added tax (VAT)
of 12 percent, while there is no tax on goods worth less than P10,000.

Under the TRAIN, a P6-per-liter excise tax is slapped on beverages using caloric
and noncaloric sweeteners and P12 per liter on beverages using high-fructose corn
syrup (HFCS). Milk and 3-in-1 coffee mixes are exempted from the SSB tax.

Under pressure

RENE E. OFRENEO told the BusinessMirror that any price adjustment in commodities,
like the increase in excise taxes under the TRAIN law, pushes producers or
manufactures to consider cheaper alternatives.

“You can analyze the price movement for various commodities as a result of the
TRAIN. It’s quite obvious for the sugar,” Ofreneo, former dean of the University
of the Philippines (UP) School of Labor and Industrial Relations (Solair), said.
“We now have a liberalized and globalized economy, so any price adjustments for
various commodities produced in the Philippines give producers and traders
signals on whether it’s cheaper to import [affecting local producers] or cheaper
to produce somewhere else [in the case of products meant for export]. I think the
DTI [Department of Trade and Industry] should attend to this.”

Early January, the Philippine Statistics Authority (PSA) reported that for the
third quarter of 2018, the country’s importation of sugar posted an increase of
54 percent year-on-year.

Sugar imported into the country rose to $154.37 million from $100.29 million,
while shipments increased to 343,190 metric tons from the 217,320 MT recorded
during the third quarter of 2017.

Government action

THE higher demand for sugar may be traced back to February 2017, when the Sugar
Regulatory Administration (SRA) issued Sugar Order 3 (SO 3), outlining the rules
on the importation and release of HFCS in the country.

The rules and regulations came after industry stakeholders called on the
government to act on the sinking prices of sugar due to unregulated imports of
HFCS, which saw a big spike in volume in recent years. The unimpeded importation
of HFCS drove sugar producers to lose some P10 billion in the process.

The SRA argued that SO 3 was an exercise of its regulatory power as stipulated
under the Sugarcane Industry Development Act of 2015, or RA 10659.

The regulation on the importation of HFCS signaled the start of the shift by
industrial users and beverage makers to using more sugar in their products.
“Consumption of cane sugar should approach 2.20 MMT in MY 2016/17 from 2.14 MMT
in the previous marketing year, as restrictions on the importation of HFCS are
implemented, and industrial consumers react to the drop in domestic prices,” the
United States Department of Agriculture’s Foreign Agricultural Service (USDA-FAS)
in Manila said in a Global Agricultural Information Network (GAIN) report two
years ago.

“Demand for sugar in market year 2017/18 is expected to further increase to 2.25
MMT on lower domestic sugar prices, an expanding food processing and beverage
manufacturing sector, and a growing population,” it added.

By the time the imports of HFCS were being regulated, the sugar industry was
already losing profit from below cost-to-produce prices of the locally produced
sweetener.

The situation worsened as the industry suffered a glut in supply, as local output
reached an all-time high of 2.5 million metric tons (MMT) of sugarcane.

To flush out some of the domestic supply, the SRA in March 2017 allowed the
exports of sugar to world markets or other countries aside from the United
States.

Data from the SRA showed that the Philippines exported 34,611 MT and 174,789 MT
of sugar in crop years 2016-2017 and 2017-2018, respectively, to world markets.

Arrival of TRAIN

JUST as things were looking brighter for the sugar industry, an unintended
challenge came in the form of the Duterte administration’s tax-reform initiative.

The TRAIN law imposed a higher tax on imported HFCS compared to locally produced
sugar, which was indeed beneficial to the local industry.

However, the difference in tax levied on the two sweeteners signaled one thing:
higher demand.

After coming from an all-time high output, the sugar industry ended crop year
2017 to 2018 with production volume of 2.083 million MT, which was below the
government’s and industry’s projections.

The decline in output was attributed to frequent rainfall that resulted in lower
sugar content of canes. The lack of farm laborers, particularly sugarcane cutters
and especially in the Visayas region, aggravated the situation.

As the TRAIN law took effect, the USDA FAS-Manila projected that the demand for
sugar would remain at about 2.25 MMT, which would mean that the country would
have a shortfall of about 150,000 MT based on their estimates.

“Demand for sugar in MY [2018-2019] is expected to remain at about 2.25 MMT,” the
GAIN report read. “Consumption of cane sugar remains strong despite high sugar
prices and increased taxes on sugar-sweetened beverages, as soft-drink
manufacturers increase the usage of cane sugar and shift away from high-fructose
corn syrup used.”

In fact, the GAIN report projected that the Philippines would need to import a
total of 500,000 MT from 2017 to 2019 to augment its local supply to meet the
demand of domestic users.

And true enough, the Philippines imported sugar of almost this same volume last
year.

Rates, decrease

THE Americans’ assessment jives with the view of DOF Chief Economist Gil S.
Beltran.
In his economic bulletin, Beltran explained that even before the implementation
of the TRAIN law, sugar prices have been decreasing on a year-on-year basis.

Beltran explained that sugar imports peaked during the second quarter of 2016
with nearly 400,000 MT, decreasing to around 110,000 MT for the same period in
2018. By that time, food manufacturers were already urging the SRA to approve
more imports, he added.

“Note that in the first semester of 2018, domestic prices surged to as high as
P2,790 per 50-kilogram bag, more than double that of the landed price of their
imported counterpart, at P1,300 per kg,” Beltran told the BusinessMirror. “It
should have occurred to [Mr.] Ofreneo that a spike in imports would be something
that was expected to occur anytime given the tightness in domestic supply, with
or without TRAIN. And supply is tight because domestic sugar cane production
dropped by 16.7 percent during the crop year 2018, at the same time that imports
were declining.”

Beltran emphasized that the new excise tax on SSBs is two-tiered, which gives
additional protection to domestic sugar producers.

“Another issue is why SRA did not allow sufficient sugar imports despite the
16.7-percent drop in domestic sugar production? Does SRA want consumers to cut
unhealthy consumption and stop the spread of diabetes? Does SRA want food and
beverage manufacturers who employ millions of workers to stop operating and throw
them all out of work?” Beltran said. “Unfortunately, [Mr.] Ofreneo conveniently
avoided these issues,” he added.

Sugar production

EMILIO BERNARDINO L. YULO, SRA board member, said one effect of the TRAIN law on
the sugarcane industry was the higher excise tax slapped on fuel products. This,
Yulo pointed out, led to a domino effect on the industry, increasing the costs of
production and retail prices.

“Sugarcane for that matter is driven by fuel from cultivation time until milling
stage. We are using trucks to bring canes to the mills, and all of these are
affected by petroleum products,” Yulo told the BusinessMirror. “Another main
component of our production is fertilizer, which also increases due to higher
fuel prices.”

He further explained that the industry was somehow caught off-guard by the
increase in sugar demand caused by the change in the sweetener used by beverage
makers.

“Hopefully we can increase production this year and cope up with the demand of
the industrial users,” Confederation of Sugar Producers Spokesman Raymond
Montinola told the BusinessMirror.

Montinola added it would be good if consultations can be held between sugar

producers and users to discuss supply and demand. This way, sugar planters would
be able to calibrate their planting intentions according to the demand of the
domestic market, he added.

Existing research

LAMBINO said that the DOF is looking to collate all existing academics on the
sugar industry in order to “unleash” efficiencies in the sugar market, as a lot
of food manufacturers rely on sugar as a key input for the production of their
goods.
“I think a lot of insight already exists; the DA has a lot of experience on this,
the SRA has been around for a while, there are a number of academics who have
already looked at the agricultural economy of sugar,” Lambino said. “And so
there’s existing materials, there’s existing research, we have to bring that
together to a policy proposal or a set of policy proposals.”

On January 28, it was reported that the Duterte administration’s economic team is
mulling over the removal of fees for importing sugar and to stop the SRA from
regulating shipments to further open up the Philippine market for the sweetener.

Socioeconomic Planning Secretary Ernesto M. Pernia has said liberalizing the

local sugar industry will bring down the cost of the sweetener, similar to what
the government intends to do with rice via the shift to tariffication.

Importers are charged around P200 per 50-kg bag of imported sugar.

The economic team enlisted the help of Ramon L. Clarete of the UP School of
Economics to conduct a study on the impact of liberalizing the sugar industry.

To note, the Confederation of Sugar Producers said that around 200,000 people
working in the sugar industry in Negros island alone could be displaced if the
government will allow the unregulated entry of imported sugar.

Consumers included

YULO explained that importation is part of the regulatory powers of the SRA.
“When prices shoot up, importation of sugar is one of the schemes being used to
protect consumers so that prices will trickle down,” he said. “But prices will
not go down if you will give the volume to biscuit makers, beverage makers and
manufacturers, etc.”

This was the case for the sugar industry in 2018.

The industry admitted that there was a tightening in local supply that led to
unabated hikes in the retail prices of sugar.

It was not only the consumers that felt the impact of the shortfall on local
output; industrial users also succumbed to a lack in supply.

Beverage makers snack and biscuit manufacturers, and even the sugar planters and
millers urged the government to allow the entry of imported sugar to arrest the
high prices of the sweetener and augment local supply.

Last year, the SRA allowed two batches of importation: a volume of 200,000 MT in
the first half and another 150,000 MT in the second half.

Industry stakeholders said some 130,000 MT of sugar were allowed to enter the
country, which were beyond the allocation of the government, bringing total
imported volume to almost 500,000 MT, the highest in recent years.

After all the lessons they learned from these series of events, Yulo said the
sugar industry would be able to determine this year the “actual” demand for
refined sugar by the domestic market, as the sector would have already adjusted
to the effects of TRAIN law.

Tax payments

EARLIER in the month, the DOF instructed the Bureau of Internal Revenue (BIR) to
closely check the tax payments made by beverage manufacturers in the country, as
a discrepancy of P10 billion was reported in the payment of taxes for SSBs as of
end-October 2018.

According to Finance Undersecretary Karl Kendrick T. Chua, the BIR has so far
collected only around P30 billion in excise taxes from SSBs as of October 2018,
as opposed to the programmed target of P40 billion.
Chua blamed SSB manufacturers for the shortfall, saying he suspects these
businesses might not be paying the correct taxes. He said companies that are
supposed to pay the P12 tax rate are only paying P6.

Data from the Department of Health (DOH) and the Food and Drug Administration
showed that as of October 2018, only one company has secured an FDA approval to
convert its sweetener from HFCS to sugar or other caloric or noncaloric
sweeteners: Coca-Cola FEMSA Philippines Inc.

Chua further emphasized that other companies using HFCS as beverage sweeteners
still have to apply for FDA approval. Such approval is a requirement before they
could shift to caloric or noncaloric sweeteners with the lower tax rate of P6 per
liter.

Operational target

BIR Deputy Commissioner Arnel S.D. Guballa said excise tax collections on SSBs
from large taxpayers amounted to P29.74 billion from January to October 2018,
while another P184.4 million was collected from other SSB taxpayers, for a total
of P29.92 billion.

Dominguez said the newly imposed SSB tax has significantly contributed to the
state coffers despite the shortfall of P10 billion, bringing in an additional
P100 million a day in revenues or about P3 billion a month.

The DOF set an operational target for the collection of SSB taxes at P100 million
a day.

In 2018, the BIR created its own task force to inventory sugar stocks and monitor
shipments of the commodity into the country, amid the increased demand for
refined sugar, in order to ensure that the correct taxes are paid on these
imports.

The task force was tasked to monitor not only importers, but millers, planters,
traders and dealers, as well as refined sugar.

The finance chief also ordered the BIR and Beltran to review the SRA’s current
policy of allowing farmers and planters’ associations that were awarded import
allocations to sell their rights to traders.

Dominguez said local sugar millers and planters who sell their importation rights
should also be taxed as they make a profit from such a privilege.

According to preliminary data gathered by the BIR, traders pay around P500 per
bag to local millers and planters who sell their rights.

Remaining confident

EARLIER in January, the DOF reported that revenue collections of the government’s
main collection agencies reached P41.9 billion in the nine months after TRAIN
took effect on January 1, 2018.

This means that the TRAIN law attained 94.7 percent of its programmed goal of
P44.3 billion for the first three quarters of 2018.

DTI: Tax reform law has minimal effect on costs of goods

Department of Trade and Industry (DTI) Secretary Ramon Lopez said on Friday that
the Tax Reform for Acceleration and Inclusion (Train) law would have minimal
effect on the prices of prime commodities.

“Pagdating sa presyo ng mga bilihin, yung pangkaraniwan, yung mga iba pa de lata,
gatas, tinapay, mga ganyan, sinasabi namin walang malaking epekto sa presyuhan
kasi nung kino-compute po natin yan ay maliit lang po, very minimal ang epekto,”
he said in an interview with Radyo Inquirer 990AM.
Trade and Industry Secretary Ramon Lopez GRIG C. MONTEGRANDE/Philippine Daily
Inquirer

Trade and Industry Secretary Ramon Lopez (File photo by GRIG C. MONTEGRANDE /
Philippine Daily Inquirer)

Department of Trade and Industry (DTI) Secretary Ramon Lopez said on Friday that
the Tax Reform for Acceleration and Inclusion (Train) law would have minimal
effect on the prices of prime commodities.

“Pagdating sa presyo ng mga bilihin, yung pangkaraniwan, yung mga iba pa de lata,
gatas, tinapay, mga ganyan, sinasabi namin walang malaking epekto sa presyuhan
kasi nung kino-compute po natin yan ay maliit lang po, very minimal ang epekto,”
he said in an interview with Radyo Inquirer 990AM.

Lopez said some manufactures may not even adjust the suggested retail prices of
their products even if prices of fuel products would increase.

“Yung porsyento naman ng pag increase ng presyo ng langis nasa seven to eight
percent lamang, at usually minu-multiply pa ‘yan, at maliit lamang kasi ang
portion ng paggamit ng fuel sa production cost ng mga produkto,” he said.

“So pag sinuma-total yan ang specific example natin ay yung presyo ng de lata
sardinas ay P14. Dun sa mga ganung halaga ang epekto niyang fuel increase na yan
ay singko sentimos lamang. So normally pag ganyan ‘di na ina-adjust ang SRP
niyan,” he added.

At this point, the DTI chief allayed public’s fear amid alleged misinformation
that prices of prime commodities would increase due to the Train law.

“Sa ating mga kababayan, huwag ho kayong mag-alala kasi malaking maitutulong nito
lalo na sa karamihan , mga around 90 percent ng ating mga manggagawa ay nagsu-
sweldo ng P21, 000 and below, so ito po malaking ganansiya dahil exempted na sa
tax, so yung take home pay nila maiuuwi na nila lahat at yung dating tina-tax na
around P6,000 to P7,000 maiuuwi na rin nila ngayon at ang mga presyo naman ng mga
pangunahing bilihin ay wala ho tayong inaasahang pagtaas dahil base po sa
computation ay hindi po talaga tataas, if ever singko sentimos lamang pero
normally ho yun ‘di na ginagalaw ng mga tindahan at mga manufacturer,” Lopez
said.

Lopez urged the public to inform the DTI through its hotline (751-3233) about
manufacturers and stores taking advantage of increasing prices of goods due to
the Train law.

“Basta ho may makita tayong mapagsamantala diyan, mayroon tayong DTI telepono,
papupuntahan po natin yun at pag explain-in po natin sila dahil wala silang
karapatang na mag-increase ng presyo, at ‘yung mga naririnig po natin, nanakot
lang ho siguro ‘yun,” he said. /kga

DTI: Effect of TRAIN on prices of prime commodities minimal

The Department of Trade and Industry (DTI) on Thursday allayed fears that higher
excise tax on fuel products due to the Tax Reform for Acceleration and Inclusion
(TRAIN) law would increase the prices of prime commodities.

"Dapat 'wag mangamba ang ating mamimili na magtataasan lahat," Trade Secretary
Ramon Lopez said in press conference in Taguig City. "There should be a minimal
if at all no change on suggested retail prices dahil napakaliit ng tama nito."

Based on DTI's estimates, Lopez said, the effect of the higher excise tax rates
on petroleum products to the total production costs of manufacturers is only 0.4
percent.

He said manufacturers spend less than 5 percent of the cost to transport their
products.
"Ang ko-computin mo is epekto ng excise tax sa fuel, epekto ng fuel sa total
production cost, sa total sale price ay napakaliit po 'yun," Lopez said.

As a result of the recently approved tax reform law Republic Act No. 10963,
diesel gets an excise tax of P2.50 per liter from zero while the excise tax on
gasoline rises to P7 from P4.35 in the first year of implementation.

The excise tax rates on diesel will go up to P6 per liter by 2020, and on
gasoline to P10.

With this the DTI expects the following adjustments on suggested retail prices of
some prime commodities this year:

 Canned sardines weighing 155 grams priced at P13.45 may increase by P0.04.
 Corned beef weighing 175 grams at P33.50 may increase by P0.07.
 Instant noodles at P7.30 may increase by P0.03.
 Loaf bread at P35 may increase by P0.14.
 Detergent soap at P20 may increase by P0.04.
 Meat loaf at P18.40 may increase by P0.04.
 Condensed milk at P54.50 may increase by P0.11.
 Evaporated milk at P38.15 may increase by P0.08.

"Very minimal lang... ang point lang po natin is I am sure some manufacturers may
even not adjust their SRPs and therefore 'yung mga groceries walang karapatang
mag increase ng kanilang mga presyo," Lopez said.

"Unang-una they nasa batas natin na they have to price their products within SRP.
It could be lower but not higher so 'yun titignan natin sa pag-momonitor kung
sumusunod pa sila," he added.

Lopez said prices of goods should not increase as there are still "old stocks" in
the market before the law took effect.

"We are leaning towards January 15 as the point na wala pang changes," he said as
some inventories may last from seven days to two weeks.

The Trade chief warned those who may engage in profiteering as the tax reform law
takes effect. He urged the public to report groceries and supermarkets who
increased the prices of their products unusually.

For complaints, consumers may call the DTI hotline at 751-3330 or visit its
website to report erring businesses.

Cases may be filed against erring establishments for violating the price law,
Lopez said.

"Right now, we have 70 monitoring in NCR and we asked in the provinces na mag-
increase sila ng mga monitoring team nila to ensure na walang magsamantala," he
added. —KBK, GMA News

TRAIN LAW EFFECT IN RICE FARMERS 2019

The increase is expected to escalate further to P4.50 and P9 in 2019, and P6 and
P10 in 2020, following the tax reform's subsequent implementation. Before the
implementation of the TRAIN law, data from PhilRice showed rice farmers' fuel
cost was at an average of P13,862 per ha.

Rice farmers’ income down 10% due to TRAIN law

The government’s rice research agency blamed the 10-percent drop in the income of
rice farmers, especially those dependent on motorized pumps for irrigation, on
higher fuel prices due to the administration’s tax package.
Since the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN)
law, the Philippine Rice Research Institute (PhilRice) said that fuel cost, which
accounts for 30 percent of a farmer’s total production cost, had risen by P2,014
per hectare (ha) due to higher petroleum prices.

Rice farmers’ income down 10% due to TRAIN law

The government’s rice research agency blamed the 10-percent drop in the income of
rice farmers, especially those dependent on motorized pumps for irrigation, on
higher fuel prices due to the administration’s tax package.

Since the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN)
law, the Philippine Rice Research Institute (PhilRice) said that fuel cost, which
accounts for 30 percent of a farmer’s total production cost, had risen by P2,014
per hectare (ha) due to higher petroleum prices.

“TRAIN increases the production cost of pump-dependent farmers by 50 centavos for

every kilogram (kg) of palay produced, which diminishes their income by 10
percent,” the agency said.

“[This] situation shows that TRAIN could either make our pump-dependent farmers
even less competitive due to increased production cost or deprive them of a
higher income,” it added.

For this year, rates for diesel and gasoline have risen by P2.50 and P7 a liter,
respectively. The increase is expected to escalate further to P4.50 and P9 in
2019, and P6 and P10 in 2020, following the tax reform’s subsequent
implementation.

Before the implementation of the TRAIN law, data from PhilRice showed rice
farmers’ fuel cost was at an average of P13,862 per ha. Now, it has reached P15,
876.

In turn, average prices of gasoline and diesel in major rice-producing provinces

in the country like Cagayan, Pangasinan, Isabela, Nueva Ecija and Iloilo have
shot up from P44 and P34 a liter in December 2017 to P48 and P39 in February this
year, data from the Department of Energy showed.

Farmers depend highly on fuel to operate their motorized pumps to irrigate lands
before they can proceed to planting.

To offset the losses incurred by rice farmers from higher fuel prices, PhilRice
said they must produce an additional yield of 105 kg per ha, but this feat comes
with additional cost.

How The Tax Reform For Acceleration And Inclusion Law Impacts Rice Farmers

 Farmers who depend on pumps for irrigation water suffer from the increased
fuel prices. Their fuel consumption accounts for some 30% of their total
production cost.
 TRAIN increases the production cost of pump-dependent farmers by 50 centavos
for every kilogram of palay produced, which diminishes their income by 10%.
 Mechanization does not significantly increase farm fuel cost.
 To cushion the ill effects of TRAIN on rice farming, pump-dependent farmers
have to continue using yield enhancing technologies, reduce harvest losses
through mechanization, and adopt water-saving technologies like Alternate
Wetting and Drying (AWD). Government programs that promote and/or provide
these technologies will be helpful.
 The government has to hasten the completion of projects on large-scale
irrigation systems as these will help farmer’s access cheaper and reliable
water.
 “Specific tax refers to the tax on the production, sale,

or consumption of a commodity in a country, which

is based on weight or volume capacity or any other

physical unit of measurement.”

TRAIN addresses several weaknesses of the current tax system by lowering and
simplifying personal income taxes, simplifying estate and donor's taxes,
expanding the value-added tax (VAT) base, adjusting oil and automobile excise
taxes, and introducing excise tax on sugar-sweetened beverages.