More foreign businessmen are coming to the Philippines despite the lingering trade tension between the world’s two largest economies—the US and China.
The Board of Investments reported that it approved P609 billion worth of new investment commitments in the first eight months of 2019, up by 126 percent from just P269.3 billion a year ago.
Data from the BOI show that domestic investments climbed 61.2 percent in the eight-month period to P404.5 billion from P251 billion in the same period last year while foreign investment pledges surged more than 10 times to P204.5 billion from P18.3 billion.
Singapore was the top source of foreign investment commitments with P170 billion followed by the Netherlands with P9.2 billion, Thailand with P8.6 billion, Japan with P6 billion and the United States with P2.4 billion.
Meanwhile, merchandise exports grew for the fourth straight month, narrowing the trade deficit as imports continued to move in the negative territory.
The Philippine Statistics Authority said exports grew 3.5 percent in July on the back of higher revenues from agro-based products, forest products and electronics. The Philippines registered the third-highest exports growth among selected Asian economies, following Thailand and Vietnam.
“Philippine exports remained resilient during the second quarter of 2019 despite the continuing external challenges such trade tensions between the US and China, the bleak outlook in Europe, and the uncertainty of the future of Brexit,” said Economic Planning Secretary Ernesto Pernia.
US-China trade war
The public and the private sectors have different perceptions about the ongoing trade spat between the world’s two biggest economies.
The Trade Department sees the squabble as an opportunity to gain more investors as US companies exit China and creating an opening for the Philippines to push for a bilateral free trade agreement with the US.
“We look forward to a more calm trading relationship between the US and China. Hopefully, they come up with a deal that will provide certainty, that’s the bottom line there, and that it doesn’t worsen.
The bigger picture here is the economic slowdown of the two giant trading countries. And because this is a global value chain, every country, nation, state will be affected eventually. But we can say at least in the Philippines, the impact to us, has in fact, not been that severe, for now,” said Trade Secretary Ramon Lopez.
The department believes that at the current degree of the US-China trade war, the repercussion is marginal and one reason is that the Philippines is not an export-oriented economy compared to most of its peers in Southeast Asia.
If the trade war escalates and persists in the medium to long- term, this could pose adverse effects on the Philippine economy such as a slowdown in GDP growth, an increase in unemployment and inflation and moderation in trade growth and investment growth.
“We see growing export to both the US and then to the China market from the Philippines. That means the products we export were not subjected to the tariffs being applied by the two countries.
And you know, China has opened a market for Philippine products so we are seeing growth. On record, I think, we are growing on an average of 10 percent, year-on-year, on our export to China. We are not adversely affected,” Lopez said.
He said that Philippine exports to the US are also growing by about 9 percent as the country “still enjoys the GSP [Generalized System of Preferences] privilege”.
“We can say that in both countries involved in the trade war, we have an independent relationship. We export to China and we export to the US. So far the markets have been open,” said Lopez.
The Philippines will continue to benefit from the US GSP program until 2021, after US President Donald Trump approved in March 2018 the Philippines’ subscription to the trade program. The program covers 5,057 products or tariff lines or roughly 47.7 percent of the 10,600 total US tariff lines.
“When it comes to China, investments have been pouring in. China’s investments have expanded amid the US-China trade friction. Chinese foreign trade investments climbed to $198.7 million from $28.8 million in 2017. BOI-approved investments from Chinese firms went up to P48.7 billion from P576 million in 2017. We are now in a better place in terms of exports. From a level of $83 million in 2015, exports shot up to $476 million in 2018. If this is not clearly growth, I’m not sure how to call it,” Lopez said.
Many companies from China, Hong Kong and Taiwan are coming to the Philippines. Foreign direct investments from these countries reached $95 million in the first five months of 2019.
Lopez said the United Kingdom’s decision to leave the European Union created some confusion in terms of how trading with the UK would look like post-Brexit.
“On the part of the Philippines, our top priority has always been to ensure continuity and the least possible disruption in our trade with the UK. There is still a lot of uncertainty on the final scenario under which the UK will leave the EU. While talks are still ongoing, the most ideal would be for the UK to leave EU in the most orderly fashion, preferably with a clearly defined deal in place to minimize disruptions,” he said.
“The impact of Brexit to the Philippines would largely depend on the exit deal that the UK will be able to negotiate with the EU. Furthermore, the possible implications of Brexit are, to some extent, defined by our current economic relations with the EU under the GSP+,” he said.
Brexit may have an impact on certain sectors that currently benefit from duty-free access under GSP+. Among the EU member states, the UK ranked as the fourth biggest market for Philippine exports in 2018 and the third top EU destination for Philippine GSP exports in 2018.
Given this, the Philippines secured the UK’s commitment to establish its own GSP scheme which will largely mirror the current EU GSP scheme. This means that after Brexit, Philippine exporters will continue to enjoy the same level of preferences that they currently enjoy in the UK market under the EU GSP+ scheme.
To ease the post-Brexit transition, the UK scheme will also adopt the same rules of origin and documentary requirements to claim the GSP preference.
“We are in constant dialog with EU counterparts on our continued enjoyment of GSP+ preferences. As a GSP+ beneficiary, the country committed to engage the EU, through a binding undertaking, in a continuous dialog regarding the country’s implementation of 27 international conventions,” Lopez said.
Net inflows of foreign direct investments from the EU reached $339.2 million in 2018. FDI net flows from the UK amounted to $43.2 million.
Among EU member states, the UK was the second largest source of approved investments (next to the Netherlands) in the Philippines in 2018. Investments from the UK accounted for $73 million and were largely in real estate, administrative and support services, manufacturing, accommodation and food service activities and ICT.
The Trade Department and the UK Embassy in Manila convened the inaugural PH-UK Economic Dialogue in March this year.
“We envision this to be a continuous and regular platform for a more focused discussion of trade, investment and economic cooperation with the UK. Apart from Brexit, the discussion also covered trade and investment promotion, economic reforms, development of the MSME [micro-small and medium enterprises] sector, sustainable and inclusive infrastructure, digital economy, banking and financial services, and social development in education and health.,” Lopez said.
Lopez revealed that the UK also signified its intent to improve relations with the Philippines and ASEAN in general after Brexit.
“It is understandable, however, that UK’s focus is currently on negotiating its final withdrawal agreement with the EU and negotiating continuity agreements with partners with which the EU has FTAs to ensure continuity post-Brexit,” he said.