A Brief History on the Modern Philippines Trade Relations (Part 1 of 2)

After almost 50 years of the American brand of colonization, the US granted the Philippines its independence on July 4, 1946, immediately after the war. If the Philippines remained a colony after the war, the Americans would need considerable money to reconstruct the country. However, they are free from such a massive responsibility if they are granted independence. Besides, they can still enjoy the privilege of exploiting the country's resources through the Parity rights. The Philippines, a predominantly agricultural country in 1946, was still closely tied to the US through trade relations. The top 10 exports were classified as primary agriculture, and mineral products shared 85 percent of the country's exports. Relatively the structure of export trade was constant.

However, the direction of trade with the US declined after independence was granted. In 1949 the Philippine trade with the US was 80 percent which gradually decreased in favor of Japan. Until 1970 both US and the Philippines shared approximately 40 percent each, slightly higher in favor of the US. By 1970, the US and Japan accounted for 60 percent of the total imports, with Philippine imports from Japan rising rapidly while the US share declining rapidly. After 1970 Philippines exports succeeded in opening new markets, but the oil crisis reconfigured the share and values of imports in the country. By 1988 the US trade accounts for 27 percent and Japan for 19 percent.

The reconstruction assistance after the war primarily consisted of hand—me—down surplus war materials that the Americans no longer needed. The Philippine government conceded to the onerous and prejudicial agreement designed to keep the economy closely tied to the US and protect the American business interest in the country. For one, the Manila government promised to maintain the overvalued peso against the dollar at P2: $1, which makes Philippine-made products expensive in the international market and American-made products cheap in the Philippine market. Moreover, the Philippines cannot impose a tariff on imported products from the US without the consent of the American president. There is no honor among thieves. By 1949 the situation was leading to an economic crisis. With imports significantly greater than exports and the economy kept barely afloat due to the inflow of dollar aid, the government initiated imports and foreign-exchange rate control until the early 1960s.

The control significantly reduced the importation of goods to 40 percent. The proportion of nonfactor imports to GNP declined during the 1950s at 10.6 percent, the same percentage as exports. By the late 1950s, the exchange control started to wane as the most available foreign exchange was allocated for required imports. In response, a tariff law was passed in 1957, culminating in 1962, phasing out the exchange and import controls. Consequently, imports and exports increased rapidly; by 1965, the import ratio to GNP surpassed 17 percent. In the early 1970s, another import acceleration occurred, raising the import to GNP ratio by 25 percent until the 1990s. Alarmingly, imports from the 1970s were increasingly sustained through external borrowings instead of export revenues.

After independence, the composition of imports shifted based on the country's industrial development and economic condition. About 37 percent of imports in 1949 were consumer goods which gradually declined to 20 percent during the exchange and import control period of the 1950s—during the late 1960s, imports of machinery and equipment increased, replacing the consumer goods that local industries could produce. The oil crisis in the 1970s reduced the importation of consumer and capital goods, but their relative proportions remained the same.

Over the past years since independence, the Philippines has found it challenging to generate enough export revenue to cover imports. In the span of forty years, 1950 to 1990, from President Magsaysay to Ramos, the trade balance was always negative except for two years., 1963 and 1973. After a significant peso devaluation, the country experienced a surplus in the current account, which later turned negative. Even in the late 1980s, excessive imports remain a problem. During the time of President Aquino, 1986 to 1989 current deficit increased tenfold from $202 million to $2.6 billion.