To cushion the impact of the recent slowdown in the US and Japanese economies, the Arroyo government is looking aggressively for new markets for the country's products.

At the present time, about 70 percent of merchandise exports consist of electronic products intended for the US and Japanese markets. With both economies languishing from a downturn in the IT sector, in part a hangover from the dotcom disaster of 2000, demands for computer paraphernalia - items that have fueled much of the Philippines recent export growth - are expected to recede at least for the time being.

This, and the anticipated effects of entry into the World Trade Organization (see below) has prompted the government to review its marketing strategies and give greater attention to opportunities in other markets than Japan and the USA. The government is now looking at the vibrant markets of the European Union, Australia, New Zealand and the Middle East for future growth potential.

Aside from the country's traditional exports, there are also plans afoot to offer the franchises of at least 20 Filipino companies in other countries. Among the local companies looking for expansion opportunities overseas are the fast-food giant Jollibee Corp., Josephine's and Max's Restaurants, and RTW brands Bench and Penshoppe.

The target markets of these leading Filipino firms, with strong emphasis on product branding, are the United States, France, the United Kingdom, Italy, Taiwan, Singapore, Indonesia, and China.

Jollibee Corporation, a Filipino corporation that outsells MacDonald's in the local market, already has 10 branches in the United States, and is looking for further growth in the USA and in Asia.

As Filipino companies look forward to establishing new ventures abroad, an even larger number of multinational corporations, including major retail chains have set up offices in the Philippines, which now offers expanded incentives that include tax holidays and opportunities for 100% foreign ownership.

Foreign Trade

The Philippines traded a total amount of US$61.701 billion with its foreign trading partners in the year 2001 - an 11.2 percent drop from US$69.465 billion registered in 2000. A comparison also shows that the 2001 figure is 6.2 percent lower than the US$65.779 billion recorded in 1999.

Philippine exports, which accounted for 42 percent of the gross national product (GNP) and which were estimated at US$75.386 billion, tumbled by 15.6 percent to US$32.148 billion in 2001 from US$38.078 billion in 2000 while imports fell 5.9 percent to US$29.550 billion from US$31.387 billion the previous year.

At the same time, the country's surplus with its trading partners plunged 61 percent to US$2.6 billion in 2001 from US$6.691 billion in 2001. The 2001 figure is also 40 percent lower than US$4.294 billion recorded in 1999.

The Philippine government is hoping that the export sector will post a 1.5 percent growth in 2002, with the expected recovery of the US economy. By March 2002, the country's monthly foreign trade was already registering a 4.4 percent growth.

Most of the country's exports come from the export processing zones and special economic zones, which operate under an export-incentives program. When these manufacturing areas were established in the 1970s, the Philippines began producing nontraditional products - those that are not classified as agricultural.

Today, the Philippine economy relies heavily on the electronics sector, which produces over fifty percent of the country's total exports. The past decade has seen robust growth of this sector, which blossomed from $3 billion in 1992 to $20 billion in 1998. According to the World Bank, the Philippines has the highest proportion of high-tech products to overall export ratio in the world.

Agricultural exports, accounting for 3.4 percent of the total outbound shipments, reached US$1.104 billion in 2001 while garments exports, accounting for 7.5 percent of all exports, amounted to US$2.4 billion. Top agricultural exports include coconut oil, fresh bananas, pineapple, sugar, shrimps, tuna, and seaweeds.

Other leading Philippine merchandise exports include ignition wiring looms and harnesses as well as other wiring sets used in vehicles, aircraft and ships; woodcraft and furniture; processed food and beverages; iron and steel; copper metal and copper concentrates; footwear and sporting goods; Christmas décor; handicraft; petroleum naphtha; iron ore agglomerates; transmission apparatus; activated carbon; gold; fine jewelry; tobacco; fertilizers; and other chemicals.

The country's imports, on the other hand, totaled US$29.550 billion in 2001. Electronics and components accounted for nearly 30 percent of the aggregate import receipts while office and EDP machines accounted for about 10 percent of all inbound shipments. Many import items are in the form of semi-finished products that are further processed and re-exported. Other leading Philippine import items include telecommunication equipment, mineral fuel and lubricants, industrial machinery and equipment, materials used for manufacture of electrical and electronic products, textile yarn, fabrics, made-up articles and related products, iron and steel, transport equipment, and plastic.

Aside from imports and exports, the remittances of overseas contract workers, estimated at $5-6 billion yearly, are a major source of foreign exchange.

Traditional Products

The Philippines is naturally rich in mineral resources such as gold, copper, iron, nickel, chromites, coal, cobalt and silver. As a tropical archipelago, it has thick forests and vast waters, which boast of high level of biodiversity.

While Filipinos consider rice as their main staple, they do not produce enough to supply the needs of the whole population. The Philippines imports rice from Thailand and other Asian countries. But it exports a range of other agricultural products such as coconut, sugarcane, tobacco, bananas, pineapples, mangoes, corn, and other fruits and vegetables to countries like Japan and the US. It also produces wood products, sugar, processed food, coffee, shrimps, prawn and other seafood. The Philippines is pressing hard for other countries such as Australia to provide greater market access to Filipino agricultural products.

In the 1990s, the discovery of offshore gas fields led to the production of natural gas and petroleum products. These, however, are not enough to make the Philippines self-sufficient energy-wise.

Trading Partners

As a former colony of the United States and in common with many Asian countries that are seeking to develop their economies through export growth, the Philippines is heavily dependent on conditions in the US economy although such dependence is slowly declining.

In 1949, 80 percent of the Philippine trade was with the United States. It supplied the US with agricultural products while it imported electronics and machinery in return. Japan became a major trading partner of the Philippines during the late 1960s. In the 1970s, Japan supplied the Philippines with electronic products while it bought marine and agricultural items.

By the 1990s, the Philippines had diversified its trading patterns and now conducts major trading activities with the United Kingdom, the Netherlands, Germany, South Korea, Taiwan, Hong Kong, Middle East, Australia, Singapore, Malaysia, Thailand and other South East Asian countries.

While there has been a steady growth in the level of trade between the Philippines and other South East Asian countries, the US and Japan remain the country's top trading partners.

The export slump in 2001 was largely blamed on the global economic slowdown, triggered by weakening demand for electronic products in the US and Japan. These two foreign markets took around 44 percent of Philippine exports in 2001.

Exports to the US which accounted for 27.9 percent of the aggregate export revenues, declined by 21 percent to US$$8.974 billion in 2001 from US$11.365 billion in 2000 while shipments to Japan, accounting for 15.7 percent of the total amount, fell 10 percent to US$5.055 billion from US$5.608 billion.

In 2001, the Netherlands accommodated some US$2.975 billion worth of Philippine shipments; Taiwan, US$2.126 billion; Singapore, US$2.302 billion; Hong Kong, US$1.579 billion; Korea, US$1.043 billion; Malaysia, US$1.112 billion; Germany, US$1323 billion; and China, US$790 million.

China, the United Kingdom and Thailand are the fastest growing markets for Philippine products. Meanwhile, top sources of Philippine imports are Japan, the United States, South Korea, Singapore, Taiwan, Hong Kong, Malaysia, China, Thailand and Indonesia.

Terms of Trade

The terms of trade index, a gauge on the country's trade performance, refers to the quantity of imports that can be purchased per unit of exports.

For the second straight year, Philippine exports outpaced those of imports resulting in 118.2 percent terms of trade index in the year 2000. This is lower than the 127.1 percent recorded in 1999 and a little higher than the 116.9 percent in 1998.

Also, a trading gain of P77.576 billion at constant prices from external trading was realized for 2000. This is higher than the P47.677 billion recorded in 1999 and the P43.052 billion in 1998.

Trading Centers

The country's main gateway is Metro Manila (also known as the National Capital Region), the site of the Ninoy Aquino International Airport (NAIA) and the Port of Manila. As the country's capital, it is the center of economic and political activity. Approximately 85 percent of Philippine foreign trade passes through the port of Manila.

Manila is well connected by land, sea and air to other major cities around the country. In the north, the main trading areas are Laoag City, Baguio City, the Clark Special Trade Zone and the Subic Freeport Zone, which is the Asian hub of Federal Express. In the south, the major cities are Cebu, Iloilo, Davao, Zamboanga, General Santos, and Cagayan de Oro. Cebu City is the site of the Mactan International Airport and the Cebu Export Processing Zone.

Meanwhile, the Ayala Avenue area in Makati City and the Ortigas Center near to Mandaluyong City (within the Metropolitan Manila Area) serve as the headquarters of most commercial banks and multinational corporations.

Trading Regulations

A local corporation seeking to engage in international trade must first secure the necessary licenses or registration certificates from the appropriate government agencies. This registration process starts with the Securities and Exchange Commission (SEC) for corporations & partnerships and with the Bureau of Trade Regulation & Consumer Protection (BTRCP) for single proprietorships. If the proposed project or activity qualifies for incentives, e.g., with the Board of Investments, the investor may file his or her application with the appropriate government agency.

A permit to engage in trading business must also be obtained from the Department of Trade and Industry. The company or entity is also required to obtain a license or permit from the municipality where it plans to operate.

The Philippine government reserves the right to impose price control on certain prime commodities.

At the present time, a company that is not wholly owned by Filipino nationals is prohibited from engaging in rural banking and mass media.



Click here to download the PDF Version of this Chapter.