Company LOGO Technical Barriers Facing Philippine Exporters Case

Company LOGO Technical Barriers Facing Philippine Exporters Case Study of Electronics and Garments Exports John Lawrence Avila University of Asia and the Pacific, Philippines

From coconuts to chips Marine Products - 1% Construction Materials - 0. 49% Home Furnishings - 1% Motor Vehicles and Parts - 1. 74% Food - 2. 9% Giftwares - 0. 45% Wearables - 0. 16% Organic Products - 0. 18% Machinery and Transport - 4. 4% Mineral Products - 2. 1% Garments and Textiles - 6% Others - 13% Forest Products - 10% Others - 2% Other Manufactured Products – 10% Garments - 7% Agro-Based 49% ELECTRONICS - 3% ELECTRONICS 66% Mineral Products -18% 1976 2005

TOP 5 EXPORTS 2005 1. ELECTRONICS 2. GARMENTS % TO TOTAL RP EXPORTS 66 % 6% 3. Agro-Based & Processed Food 6% 4. Machinery & Transport 4% 5. Forest/Mineral 6. Products 7. 6. Others 16% Source: BETP/DTI 2%

Most Exports from EPZs

EPZ Exports by Product, 1995 -2004 (%)

Exports grew at average 17%, 1995 -2005 Electronics exports stood at around USD 27. 3 billion in 2005.

Over 60% goes to East Asian region EUROPE - 19% US$ 5. 1 Billion CHINA - 13% US$ 3. 5 Billion USA 13% JAPAN - 18% US$ 4. 8 Billion US$ 3. 3 Billion OTHER ASIA - 37% US$ 10. 6 Billion Hongkong- US$ 2. 8 B Singapore - US$ 2. 1 B Malaysia - US$ 2. 1 B Taiwan - US$ 1. 4 B Korea - US$ 1. 0 B Others - US$ 1. 2 B Source: Bureau of Export Trade Promotion, DTI

CLASSIFICATION OF THE ELECTRONICS INDUSTRY PHILIPPINE ELECTRONICS INDUSTRY COMPONENTS AND DEVICES ELECTRONIC DATA PROCESSING (SEMICONDUCTOR) Pentium III, DSPs, Integrated Circuits, Transistors, Diodes, Resistors, Coils, Capacitors, Transformers, Lead Frames, PCB Personal Computers, Hard Disk Drives, Floppy & Zip Drives, CD ROM, Motherboards, Software Development, Data Encoding and Conversion, Systems Integration Customization CONSUMER ELECTRONICS TELECOMMUNICATIONS TV Sets, Electronic Games, Radio Cassette Players, Karaoke Machines, Radio Cassette, Recorder Telephones, Pagers, VHF, UHF Radios, Cellular Phones, Scanners, Satellite Receivers OFFICE EQUIPMENT COMMUNICATIONS AND RADAR Photocopy Machines and Parts, Electronic Calculators CONTROL & INSTRUMENTATION PCB Assembly for Instrumentation Equipment Pagers, CCTV, Radar Detectors, Marine and Land Mobile Radios, CB Transceivers MEDICAL AND INDUSTRIAL Spiro Analyzers, Smoke Detectors AUTOMOTIVE ELECTRONICS Electronics Brake Systems (EBS), RC Systems, Car Radios, Wiring Harness Source: Masterplan for Philippine Electronics Industry 1998

Exports are mostly parts and components SMS – 74% COMPONENTS AND DEVICES - 74. 03% EMS – 26% COMPUTER REL. PROD. /EDP – 20. 17% CONSUMER ELECTRONICS – 2. 07% AUTOMOTIVE ELECTRONICS – 1. 45% COMMUNICATIONS AND RADAR – 0. 98% OFFICE EQUIPMENT – 0. 70% TELECOMMUNICATIONS – 0. 59% CONTROL & INSTRUMENTATION – 0. 06% MEDICAL AND INDUSTRIAL – 0. 03% EMS 26% Source: Masterplan for Philippine Electronics Industry 1998 SMS 74%

Industry Standards ISO 9000 Certified, member of International Electrotechnical Commission (IEC) Observes best known methods in manufacturing (JIT, TQM, 5 S, QPIC) Capabilities Range from IC Packaging, PCB Assembly, Full Product Assembly Lead in ASEAN Electronics Forum and ACCI Electronics committee Promotes harmonization of safety and EMC standards in ASEAN Participates in MRAs for Electrical and Electronic products testing and certification SEIPI

Exports are mostly intra-industry trade 883 Firms Malaysia Others Singapore 2% 2% 8% Taiwan 4% NATIONALITY: 72% Foreign 28% Filipino Philippines 28% Europe 7% US 9% Korea 10% DOMINATED BY MNCs Sources: Philippine Board of Investments (BOI) & Philippine Economic Zone Authority (PEZA) Japan 30%

Declining share of Garments Exports

Garments Exports ASEAN: USD 19 m CHINA: USD 4. 4 m JAPAN: USD 58 m KOREA: USD 3. 7 m EAST ASIA: USD 104 m United States: USD 1, 737 m

Industry profile • Predominantly Filipino-owned SMEs • Import-dependent, sourcing over 80% of their textile requirement (polyester fiber, cotton, rayon, and acrylic) from abroad • Extensive sub-contracting practice stemming from relations fostered by MFA regime (particularly for US market) • Philippine firms part of triangle manufacturing

Standards issues for garments • Subject more to fashion trends and less on government regulations • Standards a function of sub-contracting arrangements and branding • Conformity assessment costs usually assumed by buyer • Social and labor standards imposed on those seeking access to US markets • ROO and licensing issues more prominent

Manufactures subject to NTBs Origin requirements Furniture, footwear, woven fabrics, wood products, glass fibers, broadcast receivers, gear boxes, car batteries, radiators Labeling requirements Car parts, cream products, herbal soap, hats and headgear, footwear Prior authorization requirements Telephonic parts, gloves and mittens

Manufactures subject to NTBs Licensing requirements Electrical circuits, semi-conductors, transmission and other car parts, footgear, handbags, leather coats, tableware and kitchenware, ornamental articles, cement, ceramics, cream products, perfumes, detergents, make-up preparations Standards requirements Electrical wiring harness, transmission, broadcast receivers, car batteries, radiators, tableware and kitchenware, ornamental articles, cement, ceramics, cream products, perfumes, detergents, make-up preparations Testing, inspection and quarantine requirements Electrical wiring harness, make up preparations, perfumes, powders, hair products Quota restrictions Gears

Summary • Standards not a serious trade impediment • Impact on standards is a function of buyer-driven model, i. e. specification of inputs is determined by foreign buyers • Garments and electronics part of global production network • AFTA is not a natural export destination for Philippine garments and electronics