trade and investments, markets and governments in apec

NOVEMbEr 2015

Trade and InvesTmenTs, markeTs and GovernmenTs In The asIa PacIfIc

OCCASIONAL PAPER QUArTErLY

8.4VOLUME

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The Asia Pacific is home to many of the world’s giant economies, largest exporters, and biggest investment sources and destination. Thus, it is a very important part of the planet spanning five of the planet’s seven continents.

The Philippines has been hosting many Asia Pacific Economic Cooperation (APEC) Ministerial and sectoral meetings that started early this year until October. Manila will then host the culminating activity, the APEC Summit on November 18-19, 2015. Presidents and Prime Ministers of the 21 member-economies from the US and Canada, down

ASEAN TRADEThe economic integration of the four newcomers to the ASEAN, namely Cambodia, Myanmar, Laos and Vietnam, showed quick pace of liberalization in trade and investments compared to the Philippines and other original members of the ASEAN

to Peru and Chile, from Russia and China, down to Malaysia and Australia, will be coming to Manila to discuss various aspects of trade and investments.

Has the Philippines maximized the opportunities of its membership in APEC? Very likely, the answer is No. What then are those opportunities that the Phil-ippines can optimize so that it can sustainably grow faster and hence, attract more trade and investments from many countries, and create more jobs locally?

Trade and InvesTmenTs, markeTs and GovernmenTs In The asIa PacIfIc

* The views and opinions expressed in this Paper are those of the author and do not necessarily reflect those of the Institute.C 2015 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.


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In a forum on “The Role of Exports and Foreign Direct Investments in Industrial Development” organized by the Albert del Rosario (ADR) Institute last July 15, 2015, convenor Dr. Epictetus Patalin-ghug of the UP College of Business Administration discussed the five striking resemblance among highly successful economies. These are (a) Open-ness to the global economy, (b) Macroeconomic stability, (c) High saving and investment, (d) Market allocation, and (e) Leadership and governance.

He also showed this summary of Philippine eco-nomic history.

It is an objective and correct assessment. And it is not unique to the Philippines or its neighbors in the ASEAN, but rather the general trend for many countries around the world. The economic integra-tion of the four newcomers to the ASEAN, namely Cambodia, Myanmar, Laos and Vietnam (CMLV) showed quick pace of liberalization in trade and investments compared to the Philippines and other original members of the ASEAN.

Let us review some basic trade and investments data of the APEC countries.

Global economic linkages

The two largest economies in the world, the US and China, also have the biggest foreign direct invest-ments (FDI) net inflow (inflows minus outflows). But notice the low volume of FDI inflows in the 3rd big-gest economy in the world, Japan. The level is almost similar to what the Philippines has attracted in 2013.

Within the ASEAN, Singapore is the clear favorite of foreign businessmen with these facts: (a) its net FDI inflows is equivalent to the combined values of its nine neighbors; (b) the Philippines got only 1/10 of what Singapore has attracted. Note also that socialist Vietnam is more business friendly with global capitalism than supposedly capitalist Philippine economy.

In portfolio investments like the stock markets, what Japan lacked in FDI, it compensated with huge amounts attracted here. Within the ASEAN, Vietnam was a net gainer while other big ASEAN countries experienced net outflows in 2013.

In terms of merchandise exports (X) as a share of their gross domestic product (GDP), Hong Kong and five ASEAN economies have huge ratio of 124 to

Table 1. Philippines major trade and investment policies

Source: Rafaelita Aldaba, “Twenty years after Philippine trade liberalization and industrialization: what has happened and where do we go from here,” PIDS Discussion Paper No. 2013-21, March 2013, Table 1.


C 2015 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

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422 percent of GDP. Their openness to global trade is a major explanation for their faster growth in the last few decades.

In non-merchandise, services exports like tourism receipts, Australia, New Zealand, Thailand, Cambodia and Laos were the frontrunners with double digit ratio of tourism spending as percent of exports revenue.

In personal remittances by their nationals who are working abroad, China, Mexico and the Philippines are the clear winners. These are countries with big population whose nationals have more easily adap-ted to foreign culture and business environments.

Those with huge foreign debts, China and Mexico are leaders too. No numbers were shown by the WB for the US but its public debt is around $16 trillion, although the bulk of it are from domestic sources and lenders. Japan has the same situation of very huge public debt, more than 200 percent of GDP, but the bulk of it is owed to domestic lenders like individual pensioners.

Within the ASEAN, Indonesia, Malaysia and Thailand are candidates for instability in the future if they do not reduce their levels of foreign debts. Singapore has a high gross debt/GDP ratio too but it is largely from domestic sources.

The numbers above on FDI net inflow in 2013 should help further prod Philippine legislators, aspiring legislators, and top policy makers in the Executive branch to consider once again, the need to amend the Constitution and remove restrictions and prohibitions on foreign investment in many sectors and sub-sectors of the Philippine economy. Such Constitutional restrictions are of course, not the only factor why FDIs in the country is low compared to many of its neighbors, but it is among the most important considerations.

FDI stocks and new inflows

In terms of FDI inward stock over the past two decades, the US got the biggest amount with $5.41 trillion, followed by Hong Kong with $1.55 trillion, China with $1.08 trillion and Singapore with $0.91 trillion.

In the ASEAN in particular, if the amount received by the 9 other ASEAN countries are combined, they will not be enough to match what Singapore got. And what the Philippines got so far is only 1/16 of what Singapore has attracted in 2014, and only ¼ of Indonesia’s and 1/3 of Thailand’s.

There was significant expansion in FDI inward stock in many APEC member-economies. In particular, the expansion from 1994 to 2014 (two decades) were as follows:

Table 2. International linkages of APEC economies with the world, 2013(In $ Billion except percent)

Source: World Bank, World Development Indicators (WDI) 2015.* Not APEC members, but ASEAN members


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NOVEMbEr 2015

As a share of GDP though, the runaway leaders are Hong Kong and Singapore, followed by Chile, Thailand, Vietnam and Malaysia. The first three countries are also known for their unilateral trade liberalization policies.

In terms of net inflows for the last three years, the US, Russia, Japan, Taiwan, Hong Kong and South Korea experienced negative net inflows. China and Australia were able to sustain positive net inflows.

Within the ASEAN, there is one interesting news that while the FDIs attracted by Philippines remain low compared to what its neighbors get, there has been a 3x increase from 2012 to 2014, from $2B to $6B in just two years. The outflow though was $7B. Notice also the consistent net outflows experienced by Malaysia.

* Americas: Peru 18x, Mexico and Chile 10x, US 7x, Canada 6x.* North Asia: China 15x, S. Korea 12x, Japan 9x, HK 7x, Taiwan 5x.* South East Asia: Vietnam 23x, Singapore 17x, Indonesia 16x, Thailand 13x, Philippines 11x, Malaysia 6x.

The high expansion in Vietnam, Myanmar and Cambodia is mainly due to their low base in 1994. Australia, New Zealand and PNG did not experience significant FDI expansion.

Russia and Brunei are the “outliers” with 114x and 103x expansion, respectively, mainly because they have very low base in 1994. Russia has emerged from partial disintegration where a number of central Asian economies (Georgia, Kazakhstan, Tajiki-stan,…) separated from the former USSR. APEC was formed in 1989 but Russia, along with Vietnam and Peru, joined it only in 1998.

Table 3. FDI inward stock in APEC member economies

Source: UNCTAD, World Investment Report (WIR) 2015, http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx


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Tax competition in the ASEAN

Among the major factors that sour the appetite of foreign and local investors in the Philippines is that within the ASEAN, it has the highest corporate

Table 4. FDI net inflows, 2012-2014, in billion US dollars

Source: UNCTAD* Not APEC members

Table 5. Comparative tax rates in the ASEAN

Source: http://www.alasoplascpas.com/publication-taxupdate-specialissue2.php

income tax (CIT), the highest withholding tax for resident aliens, and the highest VAT. It also has the second highest personal income tax rate in the region. This was mentioned during the ADR Institute forum last July, and it is indeed a valid concern.

Notice Vietnam’s aggressive tax cut in CIT, coupled with further liberalization in their economy to attract more investors, local and multinationals. It is a good formula to broaden the tax base and possibly realize even bigger tax revenues.

FDI sources in the Philippines

Until 2010, the bulk of it came from the US, followed by Japan, Hong Kong and UK. By 2011-2013 though, FDIs from the US have significantly dropped while investments from a tiny economy in


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be the big investors in the world. Investors go to economies that allow them to make sufficient re-turns while keeping the security of their investments.

the Caribbean, British Virgin Island surged. There was a net outflow of Investments from the Nether-lands, Thailand and Singapore.

Trade and investments generally come together. Thus, export powerhouse economies also tend to

Table 6. Philippines Net FDI flows by country of origin, in million US dollars

Source: Bangko Sentral ng Pilipinas


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APEC Trade

Let us now survey the numbers for APEC countries’ foreign trade. Of the top 25 exporting and import-ing countries in the planet in 2013, 13 of them were APEC members.

The Philippines however, is not able to optimize its APEC partnership where freer trade among mem-ber-economies is an important goal. Major APEC countries are huge consumers, importing hundreds of billions of dollars yearly and the country’s export-ers were able to sell only $57 billion in 2013. Trade and investments are closely linked. Very often, the major foreign investors in an economy are also the major buyers of its exports, major sources of imports, and major sources of foreign visitors and tourists.

Table 7. Top 25 Merchandise Exporters and Importers in 2013, in US$ Billion(in red are APEC economies)

Source: WTO, International Trade Statistics (ITS) 2014, Annex tables A6 (exports) and A7 (imports).


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and Canada have big economic mass too, but their high distance from the Philippines affects the level of trade.

In terms of products traded, electronic manufactures dominate as usual, followed by other manufactures, mineral fuels and machinery, transport equipment.

Philippine trade with APEC

The Philippines’ trade with APEC partners constituted 81 percent of its total trade with the world. This is con-sistent with the Gravity model of trade, where countries that are more proximate to each other and have high economic mass (GDP size) tend to trade more with each other.

Among APEC countries, the Philippines’ top three trade partners are Japan, China and the US. Australia, Russia

Table 8. Philippine trade with APEC countries, 2014, in US$ Millions

Source: Philippine Statistics Authority

Table 9. Major products traded by the Philippines with other APEC economies, 2014

Source: Philippine Statistics Authority


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Philippines, they are called government-owned and controlled corporations (GOCCs).

In the ASEAN, NTMs are relatively plentiful for the original ASEAN-5. In particular: SPS is more com-monly imposed in the Philippines and Indonesia; safeguards and anti-dumping in Thailand; anti-dumping and SPS in Malaysia and Singapore.

Late-comers in the ASEAN have the least NTMs, although Vietnam is more concerned with SPS while Laos is concerned with anti-dumping. But the numbers are small. Cambodia and Myanmar have almost negligible NTMs.

The World Bank’s Doing Business annual report has a section on International Trade. Global ranks of APEC countries are given in the 2015 Report. Notice the generally high global ranks of the five North and South American countries, while in East Asia, north and south, the range is far and wide. Thus, while Singapore and Hong Kong ranked 1st and 2nd out of 189 countries covered, China would rank 98th.

Among ASEAN countries, Cambodia, Laos, Myan-mar and Vietnam (CLMV) would rank low. It would take around three weeks for an exporter to finally move his containers out of CLMV, too long com-pared to less than one week in Singapore and around two weeks for exporters in Malaysia and Thailand.

Non-tariff barriers (NTBs) and trade bureaucracies Free trade is beautiful and beneficial to many people, directly or indirectly, because it gives more options, more freedom to choose from more sellers and suppliers. But some sectors still feel threatened by free trade, so they invented various NTBs or non-tariff measures (NTMs).

Protectionism via NTBs result in commodities that are otherwise cheap become expensive due to import tariff, other taxes, licensing cost and other bureaucracies, and products supply and choices decline. Protectionism breeds ill will and distrust among neighboring countries.

The average consumers will not be happy with higher prices and fewer choices for their consumer items; the same for producers and manufacturers who will not be happy with higher prices and fewer choices for their raw materials, intermediate inputs and capital goods.

The World Trade Organization (WTO) has identified eight imposes by different governments: (1) Sanitary and phytosanitary (SPS) measures, (2) technical bar-riers to trade (TBT), (3) anti-dumping, (4) countervail-ing duties, (5) safeguards, (6) special safeguards, (7) quantitative restrictions (QRs), and (8) state trading enterprises (STEs). STES are also known as state-owned/operated enterprises (SOEs), and in the

Table 10. Ease or Unease of International Trade, APEC Economies

Source: WB, Doing Business 2015 Report


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Image Credit: newfederalist.eu

Concluding notes

1. To have more trade and investments, govern-ments should learn to step back from too many regulations and taxation. The number of permits imposed by local governments and national govern-ment units like SEC and BIR rise through time. There are costs and lost time involved just complying with these permits and requirements, and they contribute to lower trade and investments.

2. Corporate income and other taxes in the Philip-pines in particular should be reduced in the face of rising tax competition among ASEAN countries. Congressional bills in both the House of Represen-tatives and the Senate cutting income taxes should be supported.

3. Non-tariff barriers (NTBs) like import licensing and SPS measures should be relaxed and reduced. More trade and investment means more material growth, more jobs for the people, less unemploy-ment and poverty. The Trade Facilitation Agreement (TFA) in the WTO signed in 2013 should help ad-dress this concern.

4. Global capitalism is about integration and compe-tition, complementation and substitution, happening simultaneously. Business risks will always be there. Companies and people need to keep their radar for adaptation and familiarization of those risks, while keeping the pace of innovation at regular or higher levels.

5. Markets in a competitive environment always re-sult in innovation and business creativity. Restricting the number of players and the degree of competition benefit only the favored or crony firms, but not the average consumers and startup businesses.

6. Governments should focus on their core and basic function – lay down fair rules for all players, be an impartial judge or referee in cases of disputes, protect private property ownership, enforce the rule of law and contracts between and among people. Foreign businessmen are concerned with the secu-rity of their investments, that threats of confiscation and political harassment are zero or kept to the minimum.


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Image Credit: forinvestors.orgC 2015 ADRiNSTITUTE for Strategic and International Studies. All rights reserved.

is an independent international and strategic research organization with the principal goal of addressing the issues affecting the Philippines and East Asia

Stratbase’s Albert Del Rosario Institute

9F 6780 Ayala Avenue, Makati CityPhilippines 1200V 8921751F 8921754www.stratbase.com.ph

ABOUTBienvenido S. Oplas, Jr. is the Founder and President of Minimal Government Thinkers,Inc., a free market think tank in Manila, and a Fellow of the South East Asia Network for Development (SEANET), a Kuala Lumpur-based regional center that advocates free trade, free mobility of people, and inclusive growth in the region, 2015-2016.

Mr. Oplas received his AB Economics undergraduate degree and Diploma in Development Economics (DipDE) from the University of the Philippines. He is the author of Health Choices and Responsibilities (2011) published by Central Books Supply (Manila), and Liberalism, Rule of Law and Civil Society (2014), published by the Friedrich Naumann Foundation for Freedom (FNF) Phil. Office.

8.4VOLUME