Trade Negotiation Agenda: AEC [+ APEC, Europe Strategy] Building a Single Production Base Dr. Ceferino Rodolfo Assistant Secretary Department of Trade

Trade Negotiation Agenda: AEC [+ APEC, Europe Strategy] Building a Single Production Base Dr. Ceferino Rodolfo Assistant Secretary Department of Trade and Industry TECHNOLOGY & INNOVATION EXPO & ENTREPRENEURSHIP CONFERENCE Cebu, June 2015

Objectives of the Interaction Provide trade-context to the Conference Validate level of awareness and knowledge about the AEC Introduce other trade-related initiatives

Outline PH Trade Policy 4C for AEC: PH Game Plan Other Opportunities: EU GSP+

Diagnostic Questions By 2015: 1.Will ASEAN be like the EU? For instance, will ASEAN be like a customs union? Will ASEAN have a single currency? will there be an ASEAN Parliament? an ASEAN Commission? 2.Will Indonesian coffee producers be able to enter PH duty-free? 3.Will a Malaysian doctor be able to practice medicine in PH w/o taking licensure exam?

International Trade Negotiations Advocacy & Communications One Voice One Network One Team Industry Competitiveness INTEGRATED INDUSTRY & TRADE STRATEGY

Philippines as a Trading Nation: Top Markets (2013) Non-FTA Partners FTA Partners Source of basic data: Philippine Statistics Authority (PSA)

ASEAN and Its Partners 7 ATIGA ACFTA (CHINA) AKFTA (KOREA) AJCEP (JAPAN) AIFTA (INDIA) AANZFTA (AUS-NZL) Entry Into Force (EIF) 2005 Market Size (MS) 1.97B Economy Size (ES) US$ 10.6T Total Trade (TT) US$ 319B EIF 2007 MS 647M ES US$ 3.5T TT US$ 131B EIF 2008 MS 726 M ES US$ 8.3T TT US$ 262B EIF 2010 MS 1.81B ES US$ 4.3T TT US$ 76B EIF 2010 MS 625M ES US$ 4.0T TT US$ 79B

PH Trade Negotiation Agenda WTO Implementation and monitoring of current obligations Attend to relevant trade disputes/cases (either as complainant, respondent or third party) Contribute to the discussions on the DDA and abide by the consensus; monitor and implement the Bali Package APEC Maximize capacity building through economic and technical cooperation Agenda for 2015 hosting mainstream SMEs in Regional Economic Integration ASEAN Work towards the substantial compliance of ASEAN Economic Community (AEC) 2015 commitments Implement and review existing ASEAN+1 FTAs Negotiate the Regional Comprehensive Economic Partnership (RCEP) Bilateral Maximize current bilateral arrangements while actively pursuing new partnerships (whether through FTAs or bilateral consultation mechanisms) with strategic partners

Overview PH & the ASEAN

Source of data: World Economic Outlook October 2013 Database, International Monetary Fund TradeMap, International Trade Center ASEAN Economy has great potential Ten member states at varying levels of economic development Population of 608 million people Combined income (GDP) of US$ 2.3 trillion Total trade with the world of US$ 2.4 trillion Total intra-ASEAN trade of US$ 322 billion Track record of attracting investments

Average GDP growth rate of 5.0 % in 2014 and 5.4 % in 2015 Higher than projections for global growth of 3.7 % in 2014 and 3.9 % in 2015 US$ 322 billion intra-ASEAN trade and growing ASEAN is one of the fastest growing regions in the world

1. The Philippines is now in a strong position for AEC. The economy is in a break-out mode. Slides from Dr. Ciel Habito, former NEDA DG

Where Are We Now ? PiTiK Test on the Economy The Essential Yardsticks (P-T-K): Price Stability (Presyo) Jobs (Trabaho) Incomes (Kita)

The Economy In 2013-2014 Good News on All 3 Counts Prices: More stable; inflation averaged only 3.0% in 2013 (Sept 2014: 4.4%) Jobs: Unemployment rate falls to 6.7%; 1.36 million net new jobs created Incomes/Output: Among fastest GDP growth (7.2% in 2013) in SE Asia and Asia

Signs of a Breakout Then (2004-2009) & Now (2010-14) Source: PSA 1 st Half 2014: 1.36 million

2010-13> 10.6 2013> 11.7 Annual Investment Growth We Have Bounced Back Gross Domestic Capital Formation Average Annual Growth Rate (%), 2004-2009 Source: ADB, PSA

Philippine Trade with ASEAN Partners With Thailand Top imports: Motor vehicles, electronics, petroleum and chemicals Top exports: Motor vehicle parts, electronics & electricals, and minerals With Singapore Top imports: Electronics, machinery and petroleum Top exports: Electronics & electricals, machinery, and petroleum With Malaysia Top imports: Electronics, petroleum and chemicals Top exports: Electronics, coconut oil, petroleum

Trade in ASEAN/AEC Features Largely intra-industry in nature (trade in products within the same industries, e.g. electronics, vehicles, chemicals) Trade relationships are increasingly complementary rather than competitive; trade protection can be self-penalizing Opportunities lie in regional and global production networks or value chains

Philippine Trade Deficit with ASEAN 20122011201020092008 PH Trade Deficit with ASEAN (4,307) (5,601) (3,947) (5,124) (7,543) - Without oil (2,051) (3,622) (791) (3,404) (4,645) - Without oil & rice (1,716) (3,265) 594 (2,465) (3,010) - Without oil, rice & petrochemicals (1,095)(2,658) 1,102 (2,219) (2,705) - Without oil, rice, petrochemicals & automotives (554)(2,105) 1,808 (1,638) (2,291) In US$ Million Source: NSO (processed by BITR)

20 Slide No. 20 Shift in country- sourcing for Passenger Cars - maybe trade diversion?

Comply with Commitments Enhance Competitiveness Intensify Communications Promote Collaboration PH Game Plan - 4Cs for AEC

Compliance

Based on three communities 2003: ASEAN Leaders resolved to establish an ASEAN Community by 2020 2007: ASEAN Community target advanced to 2015 Economic Political- Security Socio- Cultural The vision of an ASEAN Community Three communities

The ASEAN Community Blueprints (2007 2015) The ASEAN Community Blueprints (2007 2015)

25 Illustrative Commitments (1) On Free Flow of Goods Eliminate Tariffs on all products, except... (2010) Implement National Single Window (2008); creation of ASEAN Single Window (2015) Free Flow of Services Schedule at least 70% foreign equity participation for all services sectors (2015) On Financial Services: substantially remove restriction for Insurance, Banking & Capital Markets (subject to negotiated pre-agreed flexibilities)

26 Illustrative Commitments (2) Free Flow of Investments Organize two inbound and outbound investment missions Organize seminar on investment protection and settlement of disputes Free Flow of Capital Greater harmonization in capital market standards Allow greater capital mobility, guided by the following principles: ensuring capital account liberalisation consistent with member countries national agenda and readiness of the economy

27 Illustrative Commitments (3) Free Flow of Skilled Labor Facilitate issuance of visas and employment passes for ASEAN professionals and skilled labor who are engaged in cross-border trade or investment related activities (according to prevailing regulations of the receiving country) Develop core competencies (concordance of skills and qualifications) for job/occupational skills required in all services sectors by 2015

AEC Scorecard Phase I-III (2008-13) ASEAN Member State Implemented Not Implemented Ahead OngoingTotal* Implementation Rate** Brunei 29748187143486.8% Cambodia 29056177243584.6% Indonesia 28958187243784.1% Laos 28757167443484.2% Malaysia 30744206944088.1% Myanmar 29451177243485.9% PH 30247197143987.2% Singapore 30438196943089.5% Thailand 30743206943988.4% Vietnam 30741167343788.7% Source: ASEAN Secretariat

439 total number of measures 234 total priority measures 30 measures are either not delivered or on- going 15 measures can be implemented with only national-level action, 15 measures require regional collaboration Where are we now

15 measures require individual-country implementation = 7 measures on trade in services liberalization (AFAS) = 4 measures on customs and trade facilitation = 2 measures on air transport (MAAS) = 2 measures on protocols and agreements not ratified Strategy: Focus on national measures

15 measures may only be considered implemented if all the ten ASEAN members are able to implement = 10 measures on customs and trade facilitation (incl. NSW/ASW) = 2 measures on standards and conformance = 2 measures on investment facilitation = 1 measure on energy cooperation Strategy: Cooperate in regional initiatives

32 As of 2010, all duties have been eliminated on agricultural and industrial products Except for: live swine, live chicken, meat of swine, meat of chicken, manioc (cassava) and sweet potatoes, maize, rice and sugar Duties maintained at 5% beyond 2015 for (1) Live swine; (2) Live chicken; (3) Meat of swine; (4) Meat of chicken, turkeys, ducks, geese and guinea fowls; (5) Manioc (cassava) and sweet potatoes; and (6) Maize. Rice duty at 40% until 2014; 35% by 2015 Sugar Duty: 18% (2013) ; 10% in 2014; 5% in 2015 Trade in Goods

Free flow of skilled labor exams MovementofSkilledLabor ASEAN 1. 2. 3. 4. 5. 6. 7. Mutual Recognition Engineering Services Nursing Services Architectural Services Surveyors Medical Practitioners Dental Practitioners Accountancy Services Tourism Arrangementsfor: Professionals would still need in other countries. to take qualifying

Bilateral actions to ensure access for Filipino exporters Address unfair trade practices by exporters from other Asean countries Ensure Neighbors Compliance !

Competitiveness

PH is well-positioned to take advantage of the AEC Government Programs are in-place; implementation is being fast-tracked Competitiveness Focus of AEC Gameplan is Competitiveness

Ease of Doing Business -Global Competitiveness Index (WEF): PH ranks 52 nd (2014), 33 notch improvement since 2010 Industry Development Program -PPP-based Industry Roadmaps (21 completed; 5 on-going; others to be crafted) -Comprehensive National Industrial Strategy, will include agriculture and services -Manufacturing Resurgence Program (Php6.4B, 10 agencies) MSME Development National and local-level convergence to assist MSMEs Competitiveness

Support for MSMEs SME Roving Academy Shared Service Facilities Product Development and Design Services Export Pathways Program RIPPLES Trade Fairs and Exhibitions Industry Clusters (NICCEP)

c Industry Development Strategies Sustain growth in existing revenue streams (IT-BPO, semicon electronics, infrastructure) Pursue SME countryside growth (coffee, cocoa, processed food, coco coir, etc.) Develop new revenue streams (clinical services, animation, software and game development, etc) Recapture sectors (apparel, footwear, travel goods, auto & parts, electronic manufacturing) Revisit backbone sectors(copper downstream, chemicals, iron and steel, etc)

Industry Roadmaps Completed 2012 (13): automotive, autoparts, biodiesel, cement, ceramic tiles, chemicals, copper and copper products, furniture, mass housing, motorcycle, petrochemicals, rubber products, tool and die 2013 (8): manufacturing, electonics, IT-BPM, electric vehicle, iron and steel, metalcasting, plastics, paper On-going: (5): bamboo, coco coir, air cargo logistics, aerospace, natural health products

NICCEP Industry Clusters NICCEP covers priority industries in the country chosen after a series of consultations. Luzon - Milkfish, Dairy, Coffee, Bamboo, Tourism, ICT, Health & Wellness and Wearables & Homestyles Visayas - Gifts, Decors & Housewares, Tourism, ICT, and Health & Wellness Mindanao - Banana, Mango, Coconut, Seaweeds, Wood, Mining, Tourism, ICT, Rubber, Poultry, Tuna, Oil Palm, and Cacao

With the AEC, PH businesses can... invest in other ASEAN countries attract investments from other ASEAN firms; or global firms that are targeting the ASEAN market directly export to other ASEAN countries indirectly export by being part of the regional value chain tap the growing domestic market & leverage economies of scale to be more competitive in ASEAN

Communication

Doing Business in Free Trade Areas (DBFTA) Nationwide advocacy program since 2010 - 480 sessions - 52,490 participants - 15,204 participating companies Sectors Covered Goods: Food including coffee and bangus; furniture, jewelry, metalworking, packaging and paints, among others Services: Cold chain, chemical engineering, creative industries (design), dermatology, education services, franchising, guidance counselling, ICT, logistics, optometry, printing, software development, among others

Success Story: Big Glory Bay Salmon Started with tuna in 2003; and expanded to salmon in 2009 Imports raw king salmon from New Zealand (AANZFTA) Exports smoked salmon to: Japan (PJEPA) Thailand & Singapore (AFTA) South Korea (AKFTA) Australia (AANZFTA) Hong Kong (possible AHKFTA) US Possible expansion in 2015 to include other seafood

Collaboration

Active Collaboration at all levels Country-to-Country Collaboration Public Private Collaboration (including Academe) Inter-agency coordination (e.g. thru CAEC) Collaboration across PH Regions

PHL-Indonesia Collaboration Market access for PHL producers and service providers (e.g. opening of Bitung Port; exclude PHL from flour import quota regulation) Jointly developing key sectors for greater global market presence: Coordination of supply chain gaps (and securing raw materials) for PH industrial users - copper; carrageenan Investment cooperation for industrial development (e.g. palm oil, shipbuilding, geothermal, steel, cacao & chocolate production, BIMP-EAGA projects)

Example of SME Integration in the Global Value Chain: Coffee Convergence Program: from beans to cup to cafes DA: coffee seeds & varieties DTI: Shared Service Facilities for coffee cooperatives DOST: equipment fabrication / packaging TESDA: Barista training DPWH: farm-to-market roads Local Government: infrastructure & cross-cutting support (e.g. promo) Major market for PH coffee beans: Singapore, Malaysia, Indonesia, China, Japan, Korea, and US. But specialty coffee for local cafes is a viable option.

Convergence for Coffee

Example: Engineered Bamboo Convergence Programs DA bamboo plantations DTI / DOST Shared Service Facilities & technology for manufacturing and processing engineered bamboo planks DPWH farm-to-market roads Local Government infrastructure & cross- cutting support (e.g. promo); initially spur demand through government procurement mechanisms Markets for articles of bamboo (basketwork/ furniture): US, Japan, EU, Australia, Singapore, Brunei, Malaysia Collaboration across Regions e.g. CAR and Central Visayas

Example: FabLab in XXX (leveraging technology for SME growth) BFB 3.2 3D Printer (Desktop 3D Printer) Roland Versa CAMM VS-640 (Print & Cut Machine)

Arduino Micro-controllers at the Fablab

Laser cutting machine & pre-fab housing

Upcycling plastic materials

Program Convergence DTI - NICCEP & SSF DOLE - Integrated Livelihood Program DOST - SET-UP DSWD / DOT / DPWH - ONE STEP TESDA DA LGUs

Institutional mechanisms to promote collaboration Inter-agency Committee on the ASEAN Economic Community (CAEC) Private Sector ASEAN Business Advisory Council (ABAC), business chambers, Labor, academe and Civil Society organizations Synergies with Industry Development Council (IDC), Export Development Council (EDC), National Competitiveness Council (NCC), MSME Development Council (MSMED Council) --- and their local counterparts e.g. Regional & Provincial Development Councils

59 Preferential Trading Area Lower trade barriers among members Free Trade Area All trade barriers in Goods & Services removed among members but each retain own barriers with the Rest of the World (ROW) Customs Union Free trade among members and adopt common external trade policies Common Market Customs union status plus free movement of labor & capital Economic Union Common market status plus harmonization of fiscal & monetary policies

60 Economic Partnership Agreement (EPA) Conventional areas of goods and services; plus other areas such as investments, government procurement, competition, intellectual property, etc. AEC is an FTA-plus arrangement Free Trade Area -All trade barriers in Goods & Services removed among members but each retain own barriers with ROW Free Trade Area -All trade barriers in Goods & Services removed among members but each retain own barriers with ROW

Other Trade Policy initiatives: APEC Hosting, EU GSP+ Other Trade Policy initiatives: APEC Hosting, EU GSP+

AEC is just one of the Market Access initiatives of PH Govt. 1) Europe EU EU GSP+ application Scoping negotiations EFTA Joint Declaration of intention to forge close cooperation Formal negotiations 2) Asia RCEP negotiations PJEPA General Review AEC - ensure market access 3) US through TPP Bilateral technical consultations with the existing members -------------------------------------- Bilateral cooperation

What is the DTI priority during PH APEC hosting? In closing, we cannot overstate the importance of getting SME support for further global trade liberalization. SMEs are the most in opposing trade because they cannot feel the positive effects of FTAs owing to rules and processes that are too cumbersome for small businesses. SMEs must feel they can benefit from FTAs. Thus, it is incumbent for us in APEC to provide a platform for SMEs to benefit more from FTAs. Sec. Gregory L. Domingo, APEC Ministerial Meeting, 8 Nov 2014, Beijing

MSME Agenda Needs of the Micro & Small may be different from the Medium-sized firms Global Value Chains most relevant for the Medium-sized firms Micro and Small as direct exporters MSMEs front and center of APEC Agenda MSMEs account for more than 90% of total establishments in APEC region Not a by-the-way in the regional integration, but should be the focus

Ministers Responsible for Trade APEC Action Agenda for Global SMEs (including artisanal) 1.Simplify and streamline ROO procedures and documentary requirements 2.Timely and accurate information on tariffs, trade procedures and requirements (APEC TR) 3.Widen base of Authorized Economic Operators (AEO) and trusted trader programs (TTP) to include SMEs 4.Widen options on financing for SMEs 5.Expand SME internationalization through ICT and e- commerce 6.Strengthen institutional support for SMEs. Adopt a common goal by November 2015.

EU GSP+ Offers zero duties to products from countries which implement 27 international conventions on human rights, labour rights and sustainable development Comparison of tariff lines between General GSP and GSP+ GSP Instrument TOTALAgriFishTextilesOthers General GSP6,2098662931,1253,925 -Zero duty2,44238102,403 -Non-zero duty3,7678282921,1251,522 GSP+ (zero duty) 6,2749182931,1253,938

GSP+ presents unique opportunity GSP+ will eliminate duties on 61% of PH products eligible under the General GSP PH can grab market share from GSP- graduated/non-GSP+ eligible countries Malaysia already graduated from GSP; China, Indonesia, Thailand and Vietnam are not eligible for GSP+.

GSP+ potential benefits GSP+ could increase PH exports to EU by 611.8 M, representing around 11.96% expansion over 2012 Philippine exports to the EU worth 5,114 M Product sectors with the highest projected increases: animal or vegetable fats and oils (231.2 M) prepared foodstuffs (151.2 M) textiles and garments (79.7 M) footwear, headwear, umbrellas (28.5 M) chemical products (17.1 M). The projected increase in exports could translate to 267,587 additional jobs in both the agriculture and manufacturing sector

Maximizing EU GSP+ Benefits 1.Maximize utilization by current exporters 2. Capture Investment-driven trade opportunities Investors from countries whose products are currently facing definitive anti-dumping duties in the EU Investors from ASEAN (GSP graduates: Thailand and Malaysia; and non GSP+ eligible: Vietnam and Indonesia)

Example of Products facing definitive EU anti- dumping duties ProductTariff Rates MFNAnti- Dumping (China) GSP+ Bikes (complete) 14%48.5%0% Solar Panels2.7%44.7%0% Chamois Leather 2.5%58.9%0%

Summary

Comply with Commitments Enhance Competitiveness the most important issue, w/ or w/o AEC Intensify Communications Promote Collaboration 4Cs for AEC: PH Gameplan

PH is well-positioned in the ASEAN No surprises in January 2016 ASEAN is the most dynamic sub-region in the most dynamic region (Asia) in the World PH is among the fastest growing countries in the ASEAN. PH, Indonesia and Vietnam already account for more than 60% of ASEANs population. PH has youngest workforce with 23.3 y.o. median age, second to Lao PDR Consistent upward trajectory of PH in terms of score and global competitiveness ranking

Trade Negotiation Agenda: AEC [+ APEC, Europe Strategy] Building a Single Production Base Dr. Ceferino Rodolfo Assistant Secretary Department of Trade and Industry TECHNOLOGY & INNOVATION EXPO & ENTREPRENEURSHIP CONFERENCE Cebu, June 2015

Documents

Trade Negotiation Agenda: AEC [+ APEC, Europe Strategy] Building a Single Production Base Dr. Ceferino Rodolfo Assistant Secretary Department of Trade