A Brief History of the Modern Philippines Trade Relations (Part 2 of 2)

Did you ever notice that "when it rains, it pours"? During the 1990s, the country was confined to a series of significant problems after the failed military uprising. Nationwide blackouts cast millions into darkness and increased production costs. The millennial eruption of Mount Pinatubo displaced thousands of families. A weaker world price of Philippine exports added to the country's misery. Turning a bad situation worse was the slowing down of the country's major trading partners stifled export growth. When Saddam Hussein decided to invade Kuwait, the prices of petroleum surged. As a mitigation to the deficit in electricity, several firms import generators kicked imports to 17 percent, creating a $4 billion trade deficit. The primary government policy is to reduce the depletion of foreign reserves.

Several factors have caused the poor trade performance of the country for decades since the 1950s. Due to the deteriorating trade balance, only 55 percent of the country's volume of imports could afford it in the early 1980s. Moreover, the government's fixed exchange rate regime overvalued the peso. The BSP was forced to devalue the currency in the 1930s from P2 to P28 to a dollar in May 1990. Unfortunately, these adjustments did not stimulate exports or reduce imports enough to reduce the vast imbalance.

The trade and industrial policies of the country favor import substitution industries at the expense of export industries. Biases in these trade policies were reduced when in the 1970s, the government allowed the opening of the export processing zone in Mariveles, Bataan, which was succeeded by another export-processing area in Baguio City and Mactan, Cebu. In the early 1980s, nontraditional exports grew at a rate twice the total exports, from 8.3 percent in 1970 to 61.7 percent in 1985. During the same period, the value of traditional exports fell while nontraditional exports grew.

The nontraditional export continues to increase at $5.4 billion, comprising 75 percent of the total, such as garments, electronic equipment, and electrical equipment, $1.3 billion and $1.5 billion, respectively. However, both contained high import content, and the domestic value added was not more than 20 percent of the electronics export value. Prawns and shrimps' exports were proliferating, earning US307 million in 1988.

Many experts advised the reduction or elimination of import control and tariff protection> However, the import substitution industry opposed the deduction believing that it is difficult to compete in tariff or import controls were reduced. Eventually, the Philippine government decided to reduce within five- to six years to about one-third and reduce restrictions on some 3,000 items. Almost two-thirds were already enacted before the political and economic crisis erupted following the August 1983 assassination of former Senator Aquino.

In accord with IMF in 1986, the Aquino administration decided to liberalize import controls on 1,232 products. The objective was realized and extended until 1988. Trade liberalization increased through the reduction of quantitative rules. Though a struggle existed in the cabinet about trade liberalization, President Aquino finally signed the EO 413 in 1990. The EO simplified the tariff structure to four. However, several influential business groups persuaded the president to delay the implementation of the tariff reform for six months.