Reform pace faulted by WTO

THE PHILIPPINES has been told to hasten reforms related to investment restrictions and complex business licensing, the World Trade Organization (WTO) said in report, with slow action seen to have kept the economy operating “below potential.”

WTO Director-General Pascal Lamy, however, noted that the country had made “important” improvements.

“Since its previous trade policy review in 2005, the Philippines has undertaken important reforms to facilitate trade and improve the business environment such as automating customs procedures, moving towards the implementation of a national single window and streamlining the registration of business names,” Mr. Lamy told BusinessWorld.

The WTO’s 126-page report, released ahead of a policy review meeting in Geneva today, called attention to generally the same concerns raised in the last appraisal. The new review covers the last few years of the Arroyo administration and roughly two years so far under President Benigno S. C. Aquino III.

It notes that the Philippines levied just a 6.4% average tariff on imports in 2011, significantly under the 25.7% it promised to the WTO and also a few points below the 7.4% recorded in 2004. The economy, however, grew by just 4.9% from 2005 to 2011, a performance dubbed by the report as “below potential due to the slow pace of reform.”

The document, prepared by the WTO Secretariat, will be the basis of “discussant’s” statements at the review meeting today and on Thursday, under an exercise which will not yield any sanctions but nevertheless is meant to encourage governments to follow WTO disciplines more closely.

Members of a Philippine delegation, which has submitted its own report beforehand, will speak at the meeting, as will representatives from member states who may want to ask questions or raise issues.

“As is often the case, there is a mixture of good news and a to-do list for the years to come,” Mr. Lamy said in an e-mail.

“[S]uccess in attracting significant FDI (foreign direct investment) inflows has been limited by factors such as lack of adequate infrastructure, FDI restrictions, and increased competition for FDI from neighboring economies.”

The Philippines will thus need “improved productivity to compete with low-cost [neighbors], the report states, noting that “it is also hoped that the government’s recently launched public-private partnerships initiative will encourage investment in major infrastructure projects.”

Foreign participation in government procurement “remains restricted”, the report notes, pointing to provisions in the Constitution that “provides for a strong preference to procure domestically.” It also claims there appears to be “no concrete plans to reduce very extensive FDI restrictions contained in law.”

Mr. Lamy said the Philippines could consider signing on to a procurement convention to help the reform process along.

“Many would like to see the Philippines join the WTO Government Procurement Agreement, a plurilateral agreement to which it is not yet party,” he said.

“The decision to join this agreement lies within the Philippines. What the WTO can do is help any member who wishes to join in to prepare itself and learn more about the implications of such move.”

The Philippine government’s report, meanwhile, states it is policy to “welcome productive investments from [foreigners]” along with upholding the implementation of constitutional limits via a routinely issued Foreign Investment Negative List (FINL).

Sought for comment, Trade Undersecretary Cristino L. Panlilio said, “Right now [the FINL] is acceptable to foreign investors. Generally, we have not really had anybody who is really against it.”

As for the Philippines’ interest in signing on to a deal to liberalize procurement, Mr. Panlilio said he was unsure of the need for such considering he “has not heard of any complaints” from investors.

The WTO report went on to seek improvements in other areas such as import licensing, which “remains complex” amid various laws on quotas and excise taxes.

It further advised the Philippines to diversify its trade mix as the country right now relies “heavily” on manufactured products for exports. It also called for more “binding” of tariffs on imports to a certain level to lend more predictability.

The Philippine government report states that the country will not budge on its agriculture tariffs and will further use already low duties on manufactured merchandise as leverage to evade deeper tariff cuts in the future under the stalled Doha trade deal negotiations.  –JESSICA ANNE D. HERMOSA, Sub-Editor, Businessworld