ASEAN ECONOMICCOMMUNITY:
Advances and Challenges
for the Philippines
PRESENTED BY: GABRIEL L. LINGAN

Outline•

ASEAN FTA and AEC Introduction•

Broad Status of Philippine AEC Commitments•

Advances and Opportunities•

Challenges and Threats•

Final Thoughts

ASEAN FTA
 The ASEAN FTA is a trade bloc agreement of theAssociation of Southeast Asian Nations (ASEAN)
supporting local manufacturing in all ASEAN
countries.

 The Philippines is among those founding membersof the ASEAN (together with Indonesia, Malaysia,
Singapore, Thailand and Brunei).

ASEAN Economic
Community (AEC)
 In 2015, ASEAN Economic Community (AEC) wasestablished.

 The AEC envisioned to establish the ASEAN as (i) asingle ASEAN market; (ii) a highly competitive
economic region; (iii) foster an equitable economic
development and (iv) fully integrated into the world
economy.

Part 1. Broad status of ourcommitments
Free flow

StatusNotes

Goodsadvanced

EO 850 (Dec.’09) 0% tariff in ’10, range:0-5%; rice, sugar >5% tariff; 2010 ASEAN
share: 22% (exports); 28% (imports)

Investmentcommenced

4 IPAs: investment promotion & facilitationremaining foreign equity restrictions due toConstitutional limitations

Skilledlaborcommenced

RA 8981 allows foreigners subject to foreign
reciprocity provisions
Accounting: bilateral negotiationscommenced; PRC & DOLE facilitate MRA
implementation, DOLE positive list

Servicesbehind

Ph has lowest level of commitment in ASEAN
Many sectors unbound under Modes 3 & 4
Foreign equity restrictions due toConstitutional limitations

Foreign Equity Restrictions
LIST ASector

No foreign	  equity	  Up to 20% 	  Mass Media except recording; Practice of all professions;
Retail trade enterprises with paid-up capital < US$2,500,000 	  Private radio communications network 	  Up to 25% 	  Private recruitment; Contracts for construction & repair of
locally-funded public works & defense-related structures	  Advertising	  Up to 30%	  Up to 40%	  Exploration, development and utilization of natural resources;
Land ownership; Operation &management of public utilities;
Ownership/establishment & administration of educational
institutions; Culture, production, milling, processing, trading
excepting retailing, of rice & corn; Contracts for supply ofmaterials, goods & commodities to GOCCs or municipal
corporations; BOT requiring public utilities franchise;
Operation of deep sea commercial fishing vessels 	  Part 2. Advances and Opportunities
The Philippines is one of the fastest growing economies in the region.
Average Real GDP Growth Rate(2010-2015)
7
6.2

6

5.8

6.0

5.7

5.7

54

3.5

3
2
10
Indonesia

Malaysia

Philippines

Singapore

Source: www.asean.org, Asian Development Bank (ADB)

Thailand

Viet Nam

The Philippines is the 5th largest economy in theASEAN.
GDP in ASEAN (Current Prices, In US$ Million)
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0200920102011
IndonesiaMalaysia
Philippines
Source: www.asean.org, Asian Development Bank (ADB)

2012
Singapore

2013
Thailand2014
Viet Nam

Per capita GDP is ranked 6th in theASEAN
GDP per capita (current prices, US $)60,00050,00040,00030,00020,00010,000
2009

2010

2011

2012

Brunei DarussalamIndonesia

Malaysia

Philippines

Singapore

Thailand

Viet Nam
Source: www.asean.org

2013

2014

Since 2008, there is a growing trend
in FDIs in the region
Net Inflows of FDIs (Level and % Share)

Source: www.asean.org,

High competitiveness products
Product GroupSub-Group

Mineralscopper ores & copper

Raw materials

fuel wood, wood charcoal

Cereal, etc

Unmanufactured tobacco & vegetable textile
fibersLabor-intensive

Knitted men’s, boys clothing; knitted women,girl clothing; other textile apparel

Capital-intensive

tulle, lace, embroidery

Machineryelectric distribution equipment; radio
broadcast receiver; transistors, valves

Chemicals

alcohol, phenol

Emerging champions or potentiallycompetitive products
Product GroupSub-group

Animalproducts

milk & cream

Cereals, etc

tobacco manufactured
cereal preparations*, edible prod.*

Machineryelectric power machinery, parts; electric machinery
apparatus; parts for tractors & motor vehicles
ship, boat, float structures* cycles, motorcycles; aircraft,associated equipment; medical instruments; arms/ammunitions

Labor-intensive

glass

Chemicals

metal salts, inorganic acidsoap, cleaners, polish, etc

ForestPulp & paper*

Capitalintensive

furskins, tanned, dressedManufacturing Renaissance
Average	  Growth	  Rate	  of	  Philippine	  Manufacturing	  (in	  %)	  Opportunities for Filipino firms
to expand• Labor mobility• Market access• Transport & logistics, trade facilitation,

product standardization & conformance:
lower transaction costs• Improved administrative processes(customs, mutual recognitionarrangements)

 Easier/less costly movement goods

Opportunities for Filipino firms
to expand• Investment liberalizationq Can own 100% of companies in other ASEANcountriesq Should be treated equally as local companies/peopleq Should be able to own 70% (maybe more) ofservices companiesq Access to capital markets, repatriation of profits &dividendsq Likely to be many non-ASEAN companies looking forentry

Opportunities for the Filipinopeople
 Employment creation
 Higher & faster growth Larger FDI flows
 Improved competitiveness & productivity throughefficient resource allocation, scale economies &fragmented production
 Larger market access, lower input costs, lower
transaction costs, lower trade related costs &easier trade operations
 Investors: stronger investment rights
 Better standard of living

Part 3. Challenges and Threats
Competition from new foreign entrants to the market
 Bigger with more financial capability Better technical products/service systems
 May get support from home countries
 More experience competing already

Products at risk
Product Group

Sub-group

Forest productsveneers, plywood

Tropical
agriculturesugars, molasses, honey; cocoa; natural rubber

Animal productsfish(fresh, chilled, frozen); animal, vegetablefats, oils, nesLabor-intensive

pottery; furniture, cushions, etc; trunks,
suitcases, bags; clothing accessories, fabric;
footwear; baby carriage, toys, games; gold,silverware jewellery,

TradeExportASEAN Export and Import of Goods(Share to Total)

Others(2.7)
Viet(11.5)

Others(3.4)

Indo(13.6)

Viet(11.8)
Malay(18.1)

Thai(17.6)

ImportIndo(14.4)
Malay(16.9)

Thai(18.4)

SG(31.7)

Phil(4.8)
SG(29.6)

Phil(5.5)

The Investing Across Sectors indicators

19OECD FDIRegulatory
Restrictiveness
Index

20

Manufacturing Value-added

Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam

MVA percapita(2005 $)

Manufactured
Exports percapita (current$)

451.3
1,717.0353.4
9,700.0
1,168.4
235.6

438.8
6,201.9495.6
32,285.9
2,998.6
1,128.9

Source:Industrial Development Report, UN Industrial Development Organization(UNIDO)

Tourism
ASEAN Tourist Arrivals (In 000)

30000
25000
20000
15000
10000
50000201120122013

Indonesia

Malaysia

Philippines

Thailand

Vietnam

Others2014
SingaporeCongestion Everywhere!
Top 20 Countries with the Worst
Traffic
1. Kenya

11.Brazil

2. Egypt

12. Russia

3. Bangladesh

13. India

4. Bolivia

14. Japan

5. Nigeria

15. Ecuador

6. Jordan

16. Turkey

7. Iran

17. Indonesia

8. South Africa

18. Malaysia

9. Philippines

19. Argentina

10. Thailand

20. Israel

Inadequate Infrastructure
Philippines	  Global	  Compe>>veness	  Ranking	  Selected	  Indicators	  From	  Global	  Compe>>veness	  Report	  	  InfrastructurInstitutions	  e	  Macroeconomic
Environment	  2010	  104	  125	  68	  2011	  105	  117	  54	  2012	  98	  94	  36	  2013	  96	  79	  40	  2014	  91	  67	  26	  2015	  90	  77	  24	  Source:	  World	  Economic	  Forum	  (WEF),	  various	  years	  Inadequate Infrastructure
Global	  Infrastructure	  Compe>>veness	  Ranking	  Selected	  Asian	  Countries	  2011	  2012	  2013	  2014	  2015	  Cambodia	  107	  104	  101	  107	  101	  Indonesia	  76	  78	  61	  56	  62	  Lao PDR	  NA	  NA	  84	  94	  98	  Malaysia	  26	  32	  29	  25	  24	  Philippines	  105	  98	  96	  91	  90	  Thailand	  42	  46	  47	  48	  44	  Vietnam	  90	  95	  82	  81	  76	  	  Source:	  World	  Economic	  Forum	  (WEF),	  various	  years	  Inadequate Infrastructure	  Philippine	  Global	  Infrastructure	  Compe>>veness	  Ranking	  	  vs	  ASEAN	  	  (2015-­‐2016)	  	  Cambodia	  Indonesia	  Malaysia	  Myanmar	  Philippines	  Thailand	  Source:	  WEF	  Vietnam	  Overall
Ranking	  Qualityof Infra	  101	  62	  24	  134	  90	  44	  76	  102	  81	  16	  135	  106	  71	  99	  Quality
Qualit Quality ofofy ofAir
Railroad
Ports	   Transport	  s	  94	  100	  83	  100	  80	  43	  82	  66	  15	  13	  16	  21	  136	  96	  123	  132	  97	  84	  103	  98	  51	  78	  52	  38	  93	  48	  76	  75	  QualityofRoads	  High cost of doing businessPoor Quality of Power
SupplyCompara>ve	  Quality	  of	  Electricity	  Supply	  Based	  on	  Global	  Compe>>veness	  Survey	  (Ranking)	  	  20072008	  20092010	  20112012	  20132014	  20152016	  Cambodia	  117	  112	  105	  110	  108	  Indonesia	  92	  97	  93	  84	  86	  Malaysia	  31	  40	  35	  39	  36	  Philippines	  82	  101	  98	  87	  89	  Thailand	  43	  42	  44	  58	  56	  Vietnam	  104	  98	  112	  88	  87	  Source:	  WEF	  High Cost of Power
Compara>ve	  Electricity	  Prices	  (In	  US	  cents/kwh)	  Selected	  ASEAN	  Source:	  Cited	  by	  Prof.	  Waldo	  del	  Mundo	  in	  his	  presentaAon	  enAtled	  “CompeAAon	  and	  	  	  	  	  Security	  in	  the	  Philippine	  Electricity	  Market	  during	  the	  EPDP	  Conference	  2016	  Poor quality of ICT services
Asia-­‐Paciﬁc	  Average	  Internet	  Speed	  (mpbs)	  8

7.4

76

4.3

54

3.7

3.2

3

2.8

2.3

2.2

2
10

Thailand

Malaysia

2011

China

2012

Viet Nam Philippines

2013

India

2014

Indonesia

2015	  Source:	  Akamai	  Q12011-­‐2015)	  as	  cited	  by	  Mirandilla-­‐Santos	  (2016)	  during	  the	  	  Broadband	  Policy	  Brief	  during	  the	  Arangkada	  Philippines	  5. Final Thoughts Much still needs to be done for the Philippines tocatch up with its counterparts in the ASEAN andmaximize the gains of regional economic
integration.

 The country’s ability to attract a critical mass ofinvestments is particularly important in achieving
sustainable economic growth over the long term.

 Notwithstanding some gains, the Philippines
performed very poorly in some areas of economic
competitiveness, especially in infrastructure andthe cost of doing business.

5. Final Thoughts
 There is a need to strengthen institutional andregulatory environment to provide better services ina liberalized economy

 Existing industries must move up the value
chain in order to take full advantage ofregional integrationq Industry upgrading & restructuring:
move up the value chain