5 Reasons Why ASEAN Integration Alone Will Not Rescue Philippine Manufacturing `

Elpidio V. Peria
12 March 2014
Philippine Institute of Development Studies (PIDS) Director Josef Yap made a presentation recently before UP Economics students exploring the prospects of the Philippine manufacturing sector when the integration of the ASEAN comes into full effect in 2015. He believes this will lead to greater investments in the sector thus enabling its renaissance.
His belief may be misplaced due to the following :
1) The influx of investment flows per se is no guarantee the Philippine manufacturing sector will expand as a result

Dr. Joseph Yap falls into the trap of confirmation bias since he believes that once investment flows come in, this will be good for the Philippine manufacturing sector. He should have qualified this assertion since the upgrading of the manufacturing sector will not only depend on the flow of investments into it. While recent 2013 NSCB data indicate that the bulk of investments made are going to the manufacturing sector, it must be asked whether these investments relate to the expansion or upgrading of existing manufacturing capabilities. It may happen that the investments may relate to the expansion of the marketing aspects or even capacity, but if these have no relation to expanding manufacturing capabilities, then such kind of expansion will not lead to a transformation of the Philippine manufacturing sector.

2) The manufacturing export base lacks forward-backward linkages for it to expand to more productive activities

PIDS economist Rafaelita M. Aldaba (PIDS Policy Notes, January 2013) identifies the lack of linkages (supply-, forward- and backward-linkages) of the Philippine export sector as the reason why the manufacturing export base has been weak. This is confirmed by Joseph Anthony Lim in a paper (The Impact of the Global Financial and Economic Turmoil in the Philippines : National Responses and Recommendations to Address the Crisis, TWN Global Economy Series No. 23) where he asserts that the Philippines does not have a strong industrial policy of establishing forward and backward linkages with the processing of its export products thus its export sector is not doing as well compared to its Asian neighbors.

3) Liberalization without a clearly articulated industrial policy will further stunt the manufacturing sector

Danni Rodrik, Hausmann and Sabel (2007) argue that industrial policy is key towards organizing economic activities towards identified societal goals, like getting a commanding lead in sectors where the Philippines has a long-term advantage. But if one examines the Philippine Development Plan 2011-2016 of this government which identifies tourism, business process outsourcing, electronics, mining, housing, agribusiness/forest-based industries, logistics, shipbuilding, infrastructure and other high-potential industries (homestyle products, wearables, motor vehicle parts and components, garments, construction-related materials) as its focus areas, given that it tries to do too many things at the same time, it is obvious there is really no such thing as an industrial policy articulated in the country’s primary economic development blueprint.

4) The Philippine manufacturing sector’s main problem is its lack of innovation focus

Caesar B. Cororaton, another PIDS fellow, found out from way back in his paper (Research and Development and Technology in the Philippines, 2003) that there has been an under-investment in R&D in the private manufacturing sector and this was affirmed by Prof. Epictetus Patalinghug of UP’s Technology Management Center who mentioned that the limited evidence on Philippine manufacturing consistently points to a failure in policy and in practice for Philippine industries which did not seriously consider the technology factor in achieving long-run competitive advantage. This only shows the lack of innovation focus in the manufacturing sector and this problem will not be addressed if the Philippines goes along with a no-holds barred liberalization that will be fostered by the ASEAN integration.

5) Establishing safety nets as a consequence of ASEAN integration is bad economic policy, and this shows we have never learned from our recent past.

Safety nets are palliative measures and do not generate economic activities that do the economy substantial good in the long-run. In the experiences that the country has had in these so-called safety net measures, from the time the Philippines ratified the WTO Agreement, to the efforts at agriculture and fisheries modernization, given the continuing poverty of the sectors (farmers, fisherfolks, urban poor) those safety net measures were supposed to protect, should be enough indictment of this kind of policy measure as a response to ASEAN integration.


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