‘Asean integration is happening now’

The idea of a regional economic integration taking place in the latter part of 2015 evokes fears of imported products flooding the local market and killing local industries. Such apprehension, though, is unfounded.

Dr. Cielito Habito, former director-general of the National Economic and Development Authority, says economic integration has slowly arrived in the Philippines, with no product made from a single country and bits and pieces coming from several nations and assembled in another country.

“Your iPhone is not just made in China, it is Made in the World,” says Habito. The economist also does not see a gush of foreign-made products into the Philippines as some have feared.

“No tsunami of goods will happen in 2016,” he said. “The integration is not just coming in 2016, it is almost already here,” says Habito.

The Philippines, by and large, is ready for the economic integration with the rest of the Asssociation of Southeast Asian Nations. Habito says the country’s economy had passed the yardstick test.

“Our economy has passed, what I would call, the PiTik Test—the price stability or presyo, jobs or trabaho and income or kita,”Habito said.

Habito, a fellow in the Ateneo de Manila University Eagle Watch, says the Philippines scored on two out of the three categories in the test—income and prices. But the government failed to create the amount of jobs the economy needs to supports a growing working force.

“The prices are more stable. Inflation slowed down to an average of 2.8 percent although, as of August, our inflation settled at 4.4 percent,” says Habito. “In terms of income, Philippines was among the fastest in the region, ranked second with an average growth of 7.2 percent.”

The Philippines ranked third in Asia in terms of income growth and second in the Southeast Asia—a sign of progress and stability.

The former Neda chief cited three indicators that showed the Philippines has indeed woken up from its long slumber.

“Average GDP between 2010 and 2013 was 6.4 percent compared with the 2004-2009 period where it hovered about 4.9 percent,” he says. Habito also said the growth was seen in the most important areas of the economy—manufacturing, fixed investments, investment in durable equipment, private construction and exports.

Manufacturing improved 8.1 percent on the average from 2010 to 2013 from just 3 percent in 2004 to 2009.

Fixed investments rose by an average of 10.6 percent between 2012 and 2013 from 1.8 percent in 2004 to 2009.

Durable equipment, which contracted 1.8 percent in the 2004-2009 period, has surged at an average increase of 14.4 percent between 2010 and 2013.

Private construction also expanded from 4.3 percent in 2004-2009 to 11.7 percent in the last three years.

Exports registered a respectable performance of 5.8 percent, but not as fast as the other indicators during the 2010-2013 from 3.5 percent between 2004 and 2009.

Habito says the benefits of the integration are far greater than the feared consequences from 2016 onward.

“The overall benefits of the Asean outweigh the costs,” he says. “In my opinion, the integration is pushing us to finally do the right things,” he said.

Changing trade patterns

The Philippines, according to the Asean secretariat score card, has already completed 87 percent of the preparations for the integration. These include the eventual lowering of tariff rates to zero percent since 2010 in preparation for the single customs unit.

“I believe, no drastic changes will happen in January 1, 2016,” Habito says. “December 2015 is not a day of reckoning but a target deadline for 100 percent compliance.”

Some companies dread the integration will slowly kill the local brands and industries.

“But, I believe, it will be more of intra-industry trade where products are traded within the same industries,” says Habito.

The trade patterns all over the world have changed drastically over the years due to increasing demand of goods and service.

“Today there is a value chain across boundaries,” he says.

Habito noted that with over 600 million consumers in Southeast Asia, there is a lot of room for business to grow.

“Economies of scale, lowers costs and stronger cohesion are just few of the benefits of the integration,” he says.

Habito says the integration has finally pushed the government to create and implement policies that will support the macroeconomic fundamentals.

He cited four notable changes in the government policy that have led in good results and recognition from worldwide organizations. These are bringing down trade and investment barriers, opening skies, improving trade facilitation and adopting a strong competition policy.

Habito, however, warned of stumbling blocks on the road to integration, among them the vulnerability to chain disruption and differential gains or benefits and inequitable growth.

Habito says the small-medium enterprises have a big role to play in supporting the supply chain.

“Shun the kanya-kanya attitude, embrace clustering and cooperation. That’s what they should do,” he says.

Game plan

Habito said the government has taken steps to prepare for integration and accomplished its homework in the drawing board. He cited seven roadmaps being prepared by the government to help the Philippine industries adapt to the integration.

These are Clustering Initiatives & Shared Service Facilities (Department of Trade and Industry), Industry Road Maps (Board of Investments), Doing Business in FTAs Forums (Department of Trade and Industry), Inclusive Finance Program (Bangko Sentral ng Pilipinas), Competition Law (House of Representatives), Halal Industries (Bangsamoro, Department of Trade and Industry) and Trade Facilitation for SMEs (Bureau of Customs).

Habito suggested four means that can catapult the Philippines to success when the country becomes 100-percent compliant to the requirements of the integration.

First, find strategic positioning in cross-border value chains/production networks. Then, shift business model to inclusive value chains (a la Jolibee, Nestle) versus vertical integration, as deliberate contribution to inclusive growth.

“Remember how Jollibee tapped the local onion farmers for their onion needs and Nestlé sourcing their coffee beans in the South? That can be a key to success in this integration,” he says.

Habito said the third and fourth steps were teamup, cluster and unite to gain larger market opportunities and pursue the trip bottom line of People, Planet and Profit to help make inclusive growth and sustainable development a reality.

“Asean integration is not they or sila, it is we or tayo,” he says.

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