Business

'Save act'

May 22, 2010 | 12:00am

MANILA, Philippines - Our garments export players are very optimistic that the ‘Save Act’ will finally be passed in the United States. Our trade officials have been working on this for some time, and a delegation even discussed it lengthily with former US President George Bush in Washington in the past. It looked destined for rough sailing, and even the American Chamber of Commerce doubted if it could get off the ground, but thanks to the efforts of some of our government officials led by Department of Trace & Industry (DTI) Sec. Peter Favila, USec Elmer Hernandez and Ms. Maritess Agoncillo, to name a few, they were able to overcome the objections of the US Chamber of Commerce and the Textile Federation of the US and got the US Congress, and eventually the US Senate to file the bill.

The Philippine garment export industry (as differentiated from the local textile industry) lobbied hard for this. The Save Act is seen to revive not only the ailing US textile industry but the local garment export industry as well which is a cost-driven industry, so any savings realized in operations would go a long way. To put this in perspective, the Philippines is currently being charged anywhe™nts. Under the Save Act, all fabrics that are manufactured in the US but assembled in the Philippines will be tariff-free when it re-enters the US as finished products. However, yarn spun in the US but formed in the Philippines will be charged 50 percent of the tariff when it goes back to the US.

The garment exporters stand to save on the average about 17 percent on the tariff, but of course, cost of textile from the US is higher compared to, say, China or Hong Kong. Factor in the higher freight costs and you will come out to net savings of 6-7 percent over our neighbors. For a cost-driven industry, this is good news, especially when you’re coming from a negative 10 to 15 percent in terms of cost. This should indeed make the Philippines competitive again in garment export.

Actually, the Philippines was late again in joining the fray. So what else is new? While our neighbors were enjoying low or zero tariffs and quota-free entry in the US market, our garment export industry at home was struggling with numerous problems. We got our data from George Siy, a major player in the industry who very kindly shared with us a lot of inputs. The industry hit a high of $2.9 million in export, and languished at a low of a little over $1 million before it stabilized at $1.5 million. They’ve been struggling with “irrational tariff structures” (George’s words), rampant smuggling, and one of the highest costs of doing business in these parts.

The complaint about the illogical tariff structures is nothing new. Our local plastic manufacturers have been howling about this unfair practice: the manufacturers are charged tariff for raw materials they import to manufacture the plastic products, while the finished plastic products from other countries are allowed entry into the country with less or no tariff. How can they possibly compete? George echoes the very same sentiments about the garments industry. As to the extremely high cost of electricity in the country, he says “they have not been following benchmarks, they have not given any data as regards the benchmarks, and I hope they are not going to benchmark the new contract prices based on crisis level prices now. There is a very bad practice of entering contractual relationships and freezing the prices during crisis periods and it is very bad for the country. We should price it based on equilibrium, yung normal na presyo, and we should make it easy to produce and to sell that electricity because until recently, it has been very hard for producers to sell that electricity.”

As a businessman myself, I cannot agree more with his sentiments. Yes, when the dollar was high, and oil prices were very high, they used these as their excuse for raising electricity costs. Now that both the dollar and oil price are down, and in fact the peso has revalued higher, why is our electricity cost going up?

Add to their list of woes the very expensive port operations we have in the country, notwithstanding the poor facilities and low wages.

Anyway, we hope the bill gets passed, and George and company feel that it has a good chance of getting passed because the good elections we just had keeps us in the good graces of the Americans for now, and the most senior US congressmen and senators who are now the committee heads were, at one time or another, worked or visited the Philippines before the war. They count about 80 of these senior legislators who are in the US-Philippine caucus friendly to the Philippines. Counting also on the goodwill that the Aquino family has built with the American Congress, we may pull this through.

Actually, the garments export industry had a lucky break with Thailand and China, two of their biggest competitors, which allowed them to sail through a difficult time. Thailand ran into serious political problems, while China struggled with problems brought about by their very strong economy. They had to eliminate their export subsidies, increased their wages and workers’ benefits, and even had to shorten their work hours. Their economy was doing so well that their own people were not interested in minimum wage jobs and were getting into small entrepreneurial ventures instead. Before this time, the average minimum wage, according to George, was the equivalent of P3,000/month in the coastal provinces, while our own college graduates were already getting P10,000/month as start-up salaries. Now, their minimum wage is between P13-14,000/month, much higher than ours. And since their currency revaluation, our own rates have become competitive.

The people are earning well and living better, so even if other countries like the US are not buying their goods, they can depend on their own local consumers to prop up their economy.

With the Save Act in place, many producers in China want to expand their operations to the Philippines. According to the garment exporters, this alone could mean work for some 50,000 or more Filipinos, added investments in the hundreds of millions (US$), and more factories being set up in the country. Already, China is hiring more garment workers and Chinese producers have been coming back for this expected expansion.

The garment industry is considered a high employment industry. Though the outsourcing industry may be a lot bigger, the garment exporters point out that this industry cannot hire the marginalized members of our society like farmers’ wives and unschooled children for instance. It is also a high valued added industry, as George pointed out because in electronics for instance, they are able to retain maybe $1 out of every $10 because most of the components used here are imported. In contrast, the garment exporter could retain $1 out of every $3. Many of our garments exporters who down-sized or temporarily stopped operations have re-hired workers and are back in business. They have also found new markets in Japan and Europe. The garments export industry is alive and well, and the Save Act could spur it to greater heights.