Japan’s gamble on the Philippines

By Rey Gamboa (The Philippine Star), May 5, 2016

Japan imports bananas from the Philippines at seasonal tariff rates of 8.5 to 18.5 percent with no quotas, something our local growers had learned to lived with comfortably since the two countries signed a bilateral trade agreement in 2006 in Helsinki.

Recently, however, the Japanese government reportedly allowed its importers to trade bananas without tariffs from countries like Vietnam, Indonesia, Mozambique and Costa Rica, although with a pooled quota of 1,000 tons a year. Still, this had resulted in a significant drop in our banana exports to levels even lower than 2005.

With the development, our trade officials are talking about returning to the negotiating table tomorrow with a resolve to ask for reduced or no tariffs on bananas.

But the issue of bananas is just one in a series of negotiations that define the Philippine-Japan Economic Partnership Agreement (PJEPA), the second bilateral trade treaty the Philippines entered after the Parity Right Agreement of 1946 with the United States.

For years, since the bilateral agreement took effect in 2008 after refinements were approved, there had been gains coming to light—even if at a slow pace.

Exports rising

When PJEPA was signed a decade ago, one of the goals was to increase Philippine exports to Japan by 15 to 20 percent, a respectable hike from the average 10 percent growth of the past.

In 2014, the Philippines was able to export around $13.9 billion worth of products to Japan, while imports were at $5.3 billion, resulting in a trade surplus of $8.5 billion. The trade surplus in 2009 was at $1 billion only. Electronic products and woodcrafts and furniture were the biggest items shipped to Japan.

While our exported items still comprise a small share in the Japanese market, electronic products in particular, are expected to grow significantly especially with the expected further modernization of the electronic assembly industry in the Philippines.

There is also scope for improved trade in more products should the Philippines be able to extract better terms, not just for bananas and pineapples, but also for garments and textiles, food products, chemicals, motor vehicle parts and minerals.

When PJEPA was enforced, only 80 percent of Philippine exports were getting zero tariff rates. This has been increased to 84 percent this year, and more are up for zero duty in the coming years.

Increased investments

In terms of foreign investments, Japan continues to be a primary source, perhaps even eclipsing the United States. And this trend is expected to continue with the Chinese economy slowing down, and with the internal problems that Thailand is currently wrestling with.

Toyota and Mitsubishi, for example, have announced their intention to join the Comprehensive Auto Resurgence Program by expanding their manufacturing facilities in the Philippines. This represents significant inflow of investments to the Philippines.

Recently, the country welcomed an investment mission from Japan that included a number of small and medium-sized manufacturing facilities. The Japanese were particularly impressed with the way the Philippine Economic Zone Authority has been facilitating the setting up of businesses in the country.

More than this, Japan has expressed interest in joining infrastructure projects that will facilitate business mobility. One of those being eyed is a railway project worth about $2.4 billion.

The accumulated investment from Japan to the Philippines to date already stands at P460 billion, higher than the roughly P300 billion from the United States, the Japan External Trade Organization recently said.

This is on top of the official development assistance by Japan to the Philippines, as well as the technical exchanges and cooperation agreements inked between the two country resulting from PJEPA.

Overseas jobs

Perhaps the area that has surprised most is in terms of overseas employment. PJEPA had promised the opening up of jobs in Japan, particularly for qualified Filipino nurses and certified care workers to take care of Japan’s maturing population.

This was met with a lot of criticism during the ratification of the bilateral treaty, with critical groups talking about the potential abuse of our professionals in Japan as well as the possibility of failures in view of the strict requirements for job placement.

At that time, the Japanese health care market was projected to increase in value to $75 trillion by 2010, with the demand for labor seen to rise to 7.5 million. Clearly, the opportunity was there despite the stringent employment requirements.

Japan requires a year language preparation for Philippine registered nurses and caretakers as a prerequisite to on-the-job training. While the salaries are attractive, critics have pointed out that those who make the grade are still given jobs below their qualifications.

Since 2009 when the program first started, the Department of Labor and Employment has reported an increasing number of applicants that have joined the rigid training. Over a thousand have already been deployed on three-year contracts.

Japan, under PJEPA, is also interested in hiring other professions subject to their language and on-the-job training requirements. Other areas open are for lawyers, accountants, taxation consultants and engineers.

Uncertainties

There are, of course, uncertainties that could change this bullish landscape. For one, there is the current case of the Philippines against China on the South China Sea. The threat of disrupting maritime security in one of the world’s growth hotspots is very real.

There is also the Philippines’ long history of failure to keep its economic progress on a steady upward course. While we have been on our longest growth run so far, there is no guarantee this will keep up given the Philippines’ history of regulatory flip-flops.

Or worse, the outcome of the 2016 presidential elections could become a major stumbling block for a continued harmonious relationship between Japan and the Philippines. Therefore, regardless of the long and strategic relationship of Manila and Tokyo, this could well go up in smoke in an instant.