Philippine Business Magazine: Volume 14 No. 2 - Agenda

Doing Business with Japan

With the JPEPA still facing an uncertain future, what is the state of
RP-Japan economic relations?

By Michael B. Mundo

When President Gloria Macapagal-Arroyo visits Japan in May, the Japan-Philippines Economic Partnership Agreement she signed on 9 September 2006 in Helsinki with then-Japanese Prime Minister Junichiro Koizumi will still be unratified by the Philippine Senate pending questions centered on the zero tariff provisions for imports of Japanese waste materials.

The government is eager to see the JPEPA ratified as it could immediately open up the Japanese agricultural market for the Philippines, as well as boost trade and business opportunities related to human resource development, financial services, information technology, energy and environment, science and technology, and transportation and infrastructure between the two countries.

Moreover, upon the JPEPA’s ratification, almost 95% of Philippine exports will enjoy zero duties, and tariffs on industrial goods will be removed within a decade. Formal arrangements for the entry of more Philippine nurses and caregivers into Japan are expected to be worked out, and Philippine service providers will no longer have to contend with discriminatory treatment in the Japanese market.

Japan on the Mend

As much as 98% of the Philippines’ pineapple exports go to Japan

According to the Japan External Trade Organization, the Japanese economy has been on a steady growth path since 2002, after falling into a recession in the 1990s. In 2006, Japan was expected to have achieved its longest postwar economic expansion despite its aging population. Economic growth was attributed to corporate sector restructuring, as well as to investments in research and development and in other strategic areas.

Former Prime Minister Koizumi succeeded in bringing down the ratio of bad loans, implementing postal and regulatory reforms, proposing a sustainable social security system, transferring revenues to local governments, and making the cost of broadband widely accessible. His structural reforms improved Japan’s business conditions and markets, as well as public spending.

Koizumi’s successor, Prime Minister Shinzo Abe has already visited the Philippines twice, first in December 2006 and second in January this year. Prime Minister Abe remains committed to reforming the Japanese economy, focusing on innovation as the source of growth and productivity improvements. He is also expected to work for closer economic cooperation with and pursue investment opportunities in high-growth East Asian economies.

This is why in the Philippines, the Japanese are looking into the following areas: IT and IT-enabled services, electronics, automotive, mining, and health and wellness.

Trade and Investments

Japan is the Philippines’ second-largest trading partner next to the United States. In 2006, there was a turnaround in the country’s trade with Japan, from a deficit of US$865 million in 2005 to a surplus of US$760 million. This is because the country’s exports to Japan expanded 7.7% to US$7.76 billion from US$7.21 billion, while imports from Japan contracted 13.2% to US$7 billion from US$8.07 billion.

Major Philippine exports to Japan include fruits, vegetables, garments, fishery and marine products, automotive parts, garments, semiconductors, electrical parts, furniture, wood products, and services, particularly healthcare professionals and entertainers. Meanwhile, top Philippine imports from Japan include electronic data processing equipment, semiconductors, chemicals, auto parts, industrial machinery and equipment, iron and steel, and consumer electronics.

In the first quarter of 2007, the Board of Investments and the Philippine Economic Zone Authority approved foreign direct investments from Japan amounting to P6.8 billion. At this rate, FDIs from Japan this year could top last year’s total. In 2006, the BOI, PEZA, Clark Development Corporation, and the Subic Bay Development Authority approved P20.07 billion in FDIs from Japan. However, it remains to be seen whether this year’s figure can top the P27.54 billion posted in 2005.

In 2006, net Japanese FDIs to the Philippines shrunk to US$54.60 million from US$60.64 million in 2005. However, according to the Bangko Sentral, the figure for January this year jumped to US$9.16 million from US$8.13 million a year ago. Meanwhile, net foreign portfolio investments from Japan to the Philippines improved to US$20.15 million in 2006 from minus US$2.68 million in 2005.

In 2005, 144 companies with Japanese equity were among the Philippines’ top 1,000 corporations. Close to 85% were in manufacturing. Others belonged to the financial, transport and communication, wholesale and retail trade, and construction sectors. A few of them were also into mining, real estate, and utilities.

In the same year, the Board of Investments registered Japanese equity in a glass container project of San Miguel Yamamura Asia Corporation, a naptha cracker project of JG Summit Petrochemical Corporation, a float glass project of Asahi Glass Philippines, the manufacture and assembly of motor vehicles by Toyota Corporation, and the production of sintered iron ore by Philippine Sinter Corporation. Among the notable Japanese companies registered with the BOI and PEZA include Cebu Mitsumi, Coral Bay Nickel Corporation, Hitachi Computer Products (Asia Corp.), Matsushita Electric Philippines, Sharp Philippines, and Toshiba.

Japanese business leaders have been active in advocating legislation favorable to foreign businessmen through the Japan Chamber of Commerce in the Philippines, which is part of the Joint Foreign Chambers of Commerce in the Philippines.

Debt and Development Assistance

The Philippines’ outstanding foreign debt to Japan stood at US$11.5 billion in 2006, down from US$12.38 billion in 2005. The Japanese government, through the Japan Bank for International Cooperation, is also the largest source of official development assistance loans to the Philippines, some of them for infrastructure projects.

According to the National Economic and Development Authority, the JBIC provided 60% of the total ODA to the country in 2005, amounting to US$6.1 billion. In its role as a major source of ODA, Japan actively participated in the Philippine Development Forum held in March in Cebu City.

Migrant workers

Around 400,000 overseas Filipino workers are based in Japan. In January, OFW remittances from Japan reached US$38.59 million, and in 2006, OFW remittances rose 27.1% to US$453.40 million from US$356.66 million in 2005.

Should the JPEPA push through, Japan is expected to open its doors to Filipino nurses, caregivers, and nursing-care trainees. It is just unfortunate that deal is not yet in the bag.