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FTAs and Philippine Business: Evidence from Transport, Food, and Electronics Firms

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  • Wignaraja, Ganeshan

    (Asian Development Bank Institute)

  • Lazaro, Dorothea

    (Asian Development Bank Institute)

  • DeGuzman, Genevieve

    (Asian Development Bank Institute)

Abstract

Within East Asia, the outward-oriented Philippine economy is a latecomer to using free trade agreements (FTAs) as a trade policy instrument and has relied heavily on the Association of Southeast Asian Nations (ASEAN) for regional liberalization. While negotiating FTAs has consumed scarce time and other resources, limited attention has been hitherto given to evaluating the impact of FTAs-particularly the 15-year-old ASEAN Free Trade Area (AFTA) agreement-on business activity in the Philippines. Using a survey of 155 manufactured goods exporters from three sectors (transport equipment, processed foods, and electronics), this study deals with three questions: (i) Do firms use AFTA and why?; (ii) What impedes firms from using AFTA and other FTAs?; and (iii) What can be done to improve FTA use at firm level in the future? The study finds that utilization of AFTA is higher than expected from existing studies and is set to double in the future. Econometric analysis suggests that firm age, domestic ownership, awareness of FTAs, and membership in the transport sector increase the probability of using AFTA. Surprisingly, among nonusers, a lack of information is the biggest barrier to FTA use. Other impediments to use include the availability of export processing zone incentive schemes, low most-favored-nation rates (particularly in electronics), delays in origin administration, rent-seeking behavior, and nontariff measures in partner country markets. Interestingly, the majority of firms do not think that multiple rules of origin in overlapping Asian FTAs add significantly to business costs. However, there is room for improvement in the system of AFTA rules of origin (e.g., lower value content and introduction of self-certification mechanisms). The examination of institutional support reveals an excess demand for a range of support services (e.g., information, technology-based, and small or medium enterprise extension services) that will enable firms to use FTAs more effectively in the future. The paper concludes by making the case for better mainstreaming of FTAs into Philippine national trade policy and for improving support services to firms.

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Bibliographic Info

Paper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 185.

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Length: 45 pages
Date of creation: 13 Jan 2010
Date of revision:
Handle: RePEc:ris:adbiwp:0185

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Keywords: philippines fta impact; philippines fta business; philippines economy ftas;

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References

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  1. Aldaba, Rafaelita M., 2008. "Globalization and the Need for Strategic Government-Industry Cooperation in the Philippine Automotive Industry," Discussion Papers DP 2008-21, Philippine Institute for Development Studies.
  2. Austria, Myrna S., 2006. "Enhancement and Deepening of the Competitiveness of the Philippine Electronics Industry Under a Bilateral Setting," Discussion Papers DP 2006-09, Philippine Institute for Development Studies.
  3. Myrna S. Austria, 2006. "Enhancement and Deepening of the Competitiveness of the Philippine Electronics Industry Under a Bilateral Setting," Trade Working Papers 22610, East Asian Bureau of Economic Research.
  4. Wignaraja, Ganeshan, 2008. "FDI and Innovation as Drivers of Export Behaviour: Firm-level Evidence from East Asia," MERIT Working Papers 061, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  5. Balisacan, Arsenio M. & Hill, Hal (ed.), 2003. "The Philippine Economy: Development, Policies, and Challenges," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195158984, October.
  6. Yasutake, Taeko, 2004. "Philippines-Japan Free Trade Agreement: Analyzing Its Potential Impact Using a Computable General Equilibrium Model," Discussion Papers DP 2004-40, Philippine Institute for Development Studies.
  7. Dorothea C. Lazaro & Erlinda M. Medalla, 2006. "Rules of Origin - Evolving Best Practices for RTAs/FTAs," Trade Working Papers 22006, East Asian Bureau of Economic Research.
  8. Cororaton, Caesar B. & Cockburn, John, 2007. "Trade reform and poverty--Lessons from the Philippines: A CGE-microsimulation analysis," Journal of Policy Modeling, Elsevier, Elsevier, vol. 29(1), pages 141-163.
  9. Masahiro Kawai & Ganeshan Wignaraja, 2009. "The Asian “Noodle Bowlâ€:Is It Serious for Business?," Working Papers id:1936, eSocialSciences.
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Cited by:
  1. Maureen Ane D. Rosellon & Josef T. Yap, 2010. "The Role of the Private Sector in Regional Economic Integration : a View from the Philippines," Governance Working Papers 23107, East Asian Bureau of Economic Research.
  2. Medalla, Erlinda M. & Rosellon, Maureen Ane D., 2012. "ASEAN+1 FTAs and the Global Supply Chain in East Asia: the Case of the Philippine Automotive and Electronics Sectors," Discussion Papers DP 2012-38, Philippine Institute for Development Studies.

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