(Last of two parts. Read part 1)

CLARK FREEPORT--The scrapping of the only tax that the Philippine government has imposed on businesses at the Clark and Subic free ports may allow firms to cope with the impact of the global financial crisis, says Precy Aguilar, manager of the garments firm Peninsula Fashion International Corp. here.

The tax runs to only 5 percent of the gross income earned by firms. Most locators in the Clark and Subic free ports enjoy duty-free importation of capital goods and raw materials.

The Clark Development Corp. and the Subic Bay Metropolitan Authority, both state firms that are managing the free ports developed from former American bases, cannot grant that exemption unilaterally.

They would have to ask Congress to amend the base conversion laws (Republic Act No. 7227 for Subic and RA 9400 for Clark) to get that single tax burden out, officials say.

Benigno Ricafort, CDC president, says 2 percent of the 5-percent tax goes to local governments around Clark and Subic.

"There's utility in where it goes," he says.

But Hikomitsu Noji, president of the Yokohama Tires Philippines in Clark, and Rashedul Chowdury, vice president for operations of the D-J Aerospace in Subic, both disagree with the proposal to remove the tax.

"We are coming here [to] get some money and pay for tax[es] [so] Filipino [workers would] be happy. This is company responsibility, especially for us," Noji says.

Chowdury says: "Businessmen would always like incentives, but for distribution of wealth, money should go to ? people who are suffering right now."

Reductions in lease rental and import-export documentation charges, as well as cheaper and efficient power and water supplies may also help, says Aguilar.

She says these incentives could enhance the competitiveness of companies in Clark and Subic.

SBMA Administrator Arman Arreza says that on the heels of the 1997 Asian financial crisis, all that locators sought was a reduction in lease rental.

Mark Pressley, general manager of the Smart Shirts in Clark, says the government could help if it would work to declare a "Quiz," or qualified industrial zone, within Clark.

"This could become a hub for garments manufacturing, and I know that [Philippine authorities] are going to invest some money into lobbying for this with the US government, and they've been sending people over to the US right now and that, for Clark, would be a fantastic boost because, currently, we pay 21-percent duty into the United States," Pressley says.

"If we have the Quiz in Clark, we can bring all the best locators, all the best garments makers here, and they will pay duty-free into the US which will be a huge bonus because China, Vietnam and other countries want to get that. That would be a big bonus for Philippine manufacturers if we could get that," he says.

"A little bit of work with some of the new incentives or extending existing incentives would really be a big benefit," he adds.

In the end, the efficiency in production and delivery, as well as product quality, will provide the big competitive edge in difficult times, officials of Clark and Subic firms say.

The labor front is quiet, at best sharing the management's aim of saving jobs, says Aguilar, who is also president of the 15 garment manufacturing managers in Clark.

Clark and Subic have employed a combined 148,314 workers?more than double the Filipino work force hired by the US military until it closed Clark in 1991 and Subic in 1992.

The crisis stands to defeat the very purpose of the conversion of the American bases, which is to help Central Luzon residents get back on their feet after the closure of the military facilities and on the heels of Mt. Pinatubo's 1991 eruptions.

Noji and Jeff Lin, president of the Subic Bay Development and Management Corp., are hopeful that foreign companies would weather it out, having survived the 1997 financial crisis.

"If we are competitive, we can survive," says Tomohiro Yoneko, Yokohama vice president and treasurer.

Arreza expects the impact of the crisis to be less for Subic because its investment base now is diversified from low-cost manufacturing in the first 10 years of the free port to heavy industries in recent years.

More capital goods, than consumer items such as garments, are being produced in Subic now, he says.

Subic, he says, will not compete solely on the basis of low-cost industries.

"It is very difficult for the Philippines to be successful in that because our objective is to improve the living conditions of workers. When you seek [low-cost industries], you reduce wages and benefits ? We want jobs that are value-added because our workers are highly trained," he says.

"We worry for projects that are focused on international tourists. When air fares increase, the arrivals will be affected, and those projects will be hit. We don't see any major impact for other industrial projects that have been approved or have secured their financing.

"If ever, some in the pipeline may be delayed because of credit tightening," says Arreza, citing the difficulty of raising equity now that the market is down.

Projects by investors from the Middle East appear to be on track, and some are in fact proceeding to scout for business process outsourcing sites, he says.

SBMA's placement program for displaced workers is in place, helping already those sizing down or closing shop like courier giant FedEx.

The crisis can create a deep impact if it drags on for a year or two, Arreza says.

The SBMA and the CDC are not rushing to prepare an emergency plan. In SBMA's case, it is focused on enhancing the competitiveness of the zone.

"It's a good opportunity for us to focus on internal improvements," says Arreza.

Among these are the upgrade of ports and roads and reducing red tape.

The quality of the work force is a big factor that encourages investors to locate their businesses in the Philippines.

"When it comes back?and it will come back?we will be in a better position to take advantage of it," Arreza says.

Ricafort, a former member of the Asia-Pacific Economic Cooperation advisory council, says: "When the big guys get sick, we cannot help but get sick also."

But preparations have been put in place, he adds.

"We also anticipated this, and when we began in August, we instituted a plan?the after sales service operations. We look at operations of our locators and analyze who our locators are," Ricafort says.

"They will, of course, be affected because [the financial crisis] is global and their products are mostly destined to developed countries [or those most prone to the turbulence]."

The CDC's after sales service has reviewed the lease contracts of firms and is helping those hard up through quality and efficiency upgrades.

On coping, Ricafort says: "I am positive, 100 percent sure, this is being addressed. The big boys are there, and not only the US but Europe is in the same boat. I'm certain they would not let this go like this. They would have to do something drastic that would cascade to our benefit also."