The government is set to negotiate a key free trade and interconnectivity deal at the Association of Southeast Asian Nations (Asean) Summit in Cambodia this week.
The deal is expected to give a significant boost to the country’s manufacturing sector.
Transportation and Communication Secretary Mar Roxas II said he would lead the negotiations for an interconnectivity deal among the 10 member-countries of the Asean.
If approved, the deal will allow the tariff-free cross-border movement of raw materials from one country to another for assembly.
“For instance, we can import tax free raw materials from different countries and have it assembled into finished products here for reexport to the original country,” Roxas said in an interview. “This is just like moving products from one economic zone to another,” said Roxas, who is accompanying President Aquino to Cambodia.
These raw materials would be allowed to enter and leave the country without value-added taxes and import duties.
He said such a deal would allow the country to get more work for thousands of workers in the manufacturing sector.
Roxas said the priority would be to sign a deal between countries in the Brunei-Indonesia-Malaysia-Philippines East Asean Growth Area (BIMP-EAGA). He said similar deal with China was also in the works.
“Believe it or not, we are more productive compared to China,” Roxas said. While salaries in the Philippines and China may be at similar levels, the higher quality of work in the country means companies get more for every dollar they spend here.
One challenge for the country, he said, was the power rates, which are considered the highest in the Asean.
“Our advantage is in industries that use less power such as garments,” said Roxas. He also said that because of the country’s high quality of work, companies have been known to be willing to pay a premium.
One area in the Asean interconnectivity deal that remains unresolved is the issue on whether “prime movers” or trucks will be allowed to accompany their cargo when being shipped from one country to another.
The Philippines’ position, Roxas said, was to allow only container vans and chassis to enter the Philippines. The cargo would be brought to factories by Philippine-registered trucks.
Latest government data showed that the country’s manufacturing output, by value, grew by 2.6 percent in January, bouncing back from a decline of 6.2 percent in December.
In contrast, Malaysia’s factory output slowed to a growth of 0.2 percent in the same month after rising by 2.9 percent the month before. Thailand’s manufacturing output rose 3.7 percent, better than a 3.4 percent decline last December.