ASEAN-Australia
NO-
Working
Papers
2
1984
.......
T h e
...."i
S._rvice
Glgria.
.School University
ASEAN-Australia Kuala
...
S .s e."¢ t o r Philippines..
i n
t he
M.. Azroyo
of Economics. of
the
Philippines
Joint Research Project Lumpur and Canberra
Introduction
The objective with emphasis contains and the pattern between
of this paper is to study the traded services on the analysis of government intervention.
in
the Philippines The introduction
the definition of services as they are measured in Philippine data, major sources of data used in the analysis. Section I examines the of trade in services. Section 2 contains information on the links the Philippine domestic economic structure and trade in services.
Section 3 gives details of the regulation and protection of traded services which are presented and analysed in terms of government policies, levels of protection, and economic implications. Finally some prospects for policy cooperation in traded services are suggested. For
this
study
two
types
of
classification
of
services
are
used,
that
of
the national income accounts and that of the balance of payments accounts. The balance of payments accounts define the traded services sector as composed of the following current non-merchandise trade transactions: freight and insurance, other transportation, travel, investment income, government, and other services. The national income accounts define services as transportation, communication government services, educational restaurants.
and storage, services,
trade, finance, health services,
real estate, and hotels and
Data from both primary and secondary sources were used in this paper. The main sources of statistical data are the International Monetary Fund (IMF), the Central Bank of the Philippines, the 1978 Interindustry Accounts of the Philippines, and the National Census and Statistics OffiCe (NCSO). In addition, Authority
industry-specific (PTA), the Philippine
statistics Airlines
come from (PAL) Annual
the Philippine Tourism Report for 1980, and the
Insurance Commission Annual Report for 1980. Data for analysing government intervention in traded services are provided by laws, decrees, regulations, and other official documents, as well as through interviews with senior ranking officers from the government agencies. Finally, the paper draws on existing materials in discussing trends in specialisation among services, supply conditions in the service industries and economic implications of protectionism in these industries.
are
Some data
data gaps
are difficult to obtain regarding the pattern
and inconsistent. For of trade in services
example, there and levels of
protection. There are no detailed files of foreign exchange receipts and disbursements for 1960. Balance of payments statistics by direction of trade for each component of traded services have been available only since 1978 and therefore preclude any long-run analysis of bilateral patterns of trade in services. Except for the' PTA, no government agency keeps account of the level of subsidies granted to and the amount of taxes collected to protect a particular industry under its supervision. There is evidence of some unreliability in particular balance of payments data, such on which Central Bank balance of payments data differ estimates of the Ministry of Tourism. Some data published differ from the International Monetary Fund Statistics. gaps
will
be
explained
as
they
are
encountered
in
the
as travel receipts, drastically from by the Central Bank These statistical
analysis.
Contents
1
Pattern
of
trade
in
Composition Intra-ASEAN
services,
and changing shares and
1960-1980 shares growth
1 5
Philippine-Australian bilateral Measures of specialisation and country and industry 2
Links
between
trade
in
the
Supply
of
of
services
services linkages of demand
structure
and
sector
1.2
traded
.
for
Intra-ASEAN
14 14 15 20
regulation
and
protection 24
policies of
Economic
on
supply
or
demand
side
24
protection
26
implications
31
policy
cooperation
in
traded 35
prospects
Philippine-Australian Strategies for References
economic
the
intervention: services
Levels
Prospects services
10
conditions
Government
4
5 by
12
size
Proportion Input-output Determinants
Government of traded
links dependency
services
Relative
3
domestic
I
reducing
35 prospects distortions
35 36 37
Tables
1
Balance
of
payments,
services
account,
1973-80
2
2
Balance
of
payments,
services
account,
1973-78
3
3
Composition payments,
of the selected
4
Direction
of
5
Invisible accoilnt
6
Current other
8
Specialisation and 1980
11
services
trade,
of
from
1980
6
on.current 1980
the
7
Philippines
to 8
Philippines-Australia, and
,dependence
in
1980 services,
9 1960 11
Philippine origin,
gross 1980-81
Estimates sector,
1978
of
Value-added 1978
domestic
product
by
industrial 12
industry
size
within
the
services 13
and
proportion
of
services
traded, 15
1978
aggregated
13
Services
14
Structure
15
Labour
16
Measures
of
•17
Approved February
foreign 1970 to
as of
interindustry intermediate demand
intensity
Breakdown and final
balance
4
of the Philippines ASEAN countries,
account:
12
18
accounts,
invisible payments ASEAN countries, 1980
Services
10
Philippine
receipts from other
7
9
services years
by
productivity
30
transactions inputs,
for
in
16
1978
services,
industry,
table
17
1978
19
1978 selected
investment September
of imported services services, 1978
by 1981 into
22 services industry,
23 2 1 33
intermediate 34
1
ComposÂŁt_on
Patte-rn
and
Services international
has
receipts
from
of
trade
changing
in
1960-1980
services,
shares
substantially trade over services
increased last two
the
amounted
to
US$69
million,
or
10.7
cent of all to 29.4 per were US$183
receipts cent in million,
and services, the greater deficit in
increasing to 25.4 per cent in 1980. Because increase in the share of service receipts, the trade balance has shown a relative decline.
1960,
the
million, it had
deficit
or 165 declined
from goods 1980. 2 Total or 23.3 per
its share in Philippine decades. In 1960, total
in
the
services
per cent of to only 13.6
all per
per
and services. I This share rose payments for services in 1960 Cent of all payments for goods
trade service cent of
balance receipts service
was
of the In
US$114
but, receipts.
by
1980,
Tables I to 3 show the composition of Philippine trade in services over two decades. There are gaps between balance of payments data published in the Philippines and those published by the International Monetary Fund (IMF). There are two major reasons for the differences between them. First, the IMF balance of payments Bank of the IMF balance trade data, reports
accounts are based on accruals, while the Central Philippines records actual cash flows. Secondly, the of payments data are based on the f.o.b, values Of while Central Bank data derive mostly from bank
which
Despite some broad services.
generally
record
these data trends in The residual
labour income, income, and it two decades.
the
c.i.f,
gaps, however, the composition item termed
property income, has dominated the
and export
it is possible of Philippine 'other services' other goods, of services
According to Central Bank invisible receipts on current services' (Table 3). A large
data, account proportion
is personal incomes.
seamen's Central
income, Raw data
mainly •from
the
consultancy fees made up only I per receipts on current account in 1980. greatest growth among servide exports, all service receipts from 4 per cent 1980.
IAII basic data for 1960 Economic and Development (NEDA, 1980, p. 500).
come from Authority,
2All
come
basic
Balance
of
data
for
Payments
1980
Statistics
from
values. to discern trade in includes services over the
in 1980, 51 per cent of was made up of 'other of this (21 per cent) and
contract Bank indicate
the
International iIMF,
workers' that
cent of all invisible Travel has shown the increasing its share in in 1960 to 14 per cent in
the Republic of the Philippines, 1980 Philippine Statistical
Yearbook
and past
1981,
p.
Monetary 427).
National Yearbook
Fund,
198i
,liner
1..i:l_lanne
of jLa.p=_,
_=,---vJOeSasxxm_,
1973-80
1973 Its,
Goods ard services.
(_Rmi11"inn,
1974
_
Ja :--,.--.;_.----*-_)
1975
1976
Ra
pa
R
P
R
P
2059
1854
2933
3335
2611
3633
R
2937
1977 P
R
P
4123
3562
4495
Freight and _=nce
16 141 (.2)" (27)
20 (2)
270 (37)
19 (2)
267 (34)
27 (3)
277 (28)
Other tr_s_Etatlon
25 (4)
9 (2)...
39 (5)
14 (2)
56 (6)
25 (3)
58 (6)
13 (.3)
48 (6)
14 (2)
90 (10)
22 (3)
80 (9)
Travel
65 (10).
Investramfc
Other
incx:me
sezv_
All services
55 (8)
150 (29)
142 (17)
187 (26)
140 (16)
243 (31)
110 (12)
1978 R
P
3889 " 5044
1980
R
P
4779
6263 365 (24)
77 (4)
436 (22)
31 (3)
56 (5)
63 (5)
45 (3)
73 .(6)
55 (4)
132 (9)
82 (5)
148 (7)
25 (3)
124 (11)
30 (3)
168 (13)
41 (3)
184 (13)
58 (4)
246 (14)
329 (34)
119 (11)-
394 (34)
145 (11)
468 (37)
164 .(12)
563 (37)
52 (7)
298 (33)
62 (8)
356 (38)
f:_ (7)
324 (30)
53 (5)
326 (25)
83 (6)
300 (22)
71 (5)
160 (24)
162 (31)
314 (38)
184 (26)
294 (33)
165 (21)
302 (32)
246 (25)
388 (36)
297 (26)
551. (42)
277 (22)
.592 (43)
322 (21)
721 (100)
896 (100)
784 (100)
933 (100)
7950
73 (5)
260 (32)
823 (100)
6044
328 (26)
40 (8)
515 (100)
P
66 (5)
336 (51)
657 (100)
R
80 " 305 (7) (27)
977 (100)
1090 (100)
1142 (100)
1301 (100)
aR = receipts, P = pm_nts. Suu_e:
1979
International Mnnetary Fund, T_l.-n,_e of Payments Statistics, Volume 32, Yearbx_,
Part 3, 1981, p. 427.
1270 (100)
1368 (100)
1511 (100)
240 (13) 358 (20)
81 (4). 803 (40) 93 (5)
771 454 (43) (22) 1774 (100)
2015 (100)
,lllm0rl_2 nalaru-,__ of _,
_
Iten
Ra
_,
'1973-'/8 _
pa
R
1973
..
Gcx:x_ and services . .
. .
FzP__gbt_cl _--u_-,=<_ce ...... ...,.
.......
Other l:z'__
Invest:m_
Jnc:uue
Other services
_
Souzue:. Na_ • ..
,,
.':
..
1974
2235
• :.
. ;
•
1975 P
P
3170
441
i93.:(30)
23 (3)
324 (37)
23 (3)
323 (34)
30 (5)
11 (2)
47 (6)
18 (2)
67 (7)
30 (3)
77 (12)
15 (2)
58 (7)
17 (2)
110 (12)
65 (10)
179 (28)
171 (20)
225 (26)
185 (29)
47 (7)
157 (19)
262 (41)
193 (30)
377 (45)
639 (100)
638 (100)
20 _ (3)
:.....
.
.
833 (100) "
Authority • ..
......:
:.
, .
., •
.
......,
R
3476
1978
R
P
R
4664
4161
5248
P
3244
4371
94 (9)
356 (27)
80 (7)
310(22)
67 (8)
36 (3)
63 (6)
73 (5)
56 (5)
93 (7)
27 (3)
93 (11)
29 (3)
145 (13)
35 (3)
209 (19,)
52 (4)
170 (19)
296 (31)
127 (15)
381 (34)
140 (13)
460 (34)
198. (18)
538 (38)
62 (7)
181 (2O)
76 (8)
204 (23)
80 (7)
189 (17)
62 (5)
207 (19)
87 (6)
22t (25)
357 (39)
200 (21)
348 (40)
284 (25)
454 (42)
347 (26)
344 (31)
315 (23)
867 (100)
908 (100)
952 (100)
870 (100)
1130 (100)
1085 (100)
1333 (100)
1094 (100)
1395 (100)
• .
1980 Rd.lippine .
_..
..
Statistical •
.
....
311 (3)
1977 P
320(28)
(t'_)A), ...
)
1976
R
4010
]_onu,ic. arid _ ,
_fmrgm'_'a_m_ J.DjLJm._ --
3526 ...
....
'I_].
co
2510
mi11im,
y_rfcx_,
p. 501.
,mam_ 3: n-mr,n_1-1m ..
.
._.
of the e_v.Laes
a,.vJuu;_,
•
.c:'.
..
li_larr_ " "
..
1960 Item
all ]_,----.;-.., :...._-
ml_:_:_s
.
--
1965
(_) •
.:..
Frei_-_and
insuranoe
pa
R
._.
....._..'.....
1970
1975
• Ra
,,._
...
P
R
P
N_ R
data P
1980 IMF data R P
CB data R P
R
I_F a_ta P
34
I
7
4
22
6
31
5
27
11
27
3
34
3_
_traz]slx_
-
4
-
3
3
5
7
3
6
3
5
10
5
7
Travel
4
3
9
22
37
7
12
3
10
3
16
5
14
4
Investm_,t knom_
9
44
6
20
4
35
19
31
16
31
15
42
14
40
GovezTsmr_
32
4
22
3
26
4
20
8
33
8
12
6
20
5
Other
49
14
58
25
19
22
39
2t
33
2t
51
30
43
22
100
100
100
100
• 100
100
100
100
100
100
100
100
100
100..
services
All :.... services .
aR=_, Su_=_: .........
P = pa_. For 1960, 1965, 1970 and 1975: NB3A, 1980 Phill"_line Statistical Y_, :_l_P. 500-1. For 1975 and 1980::= 1981 palance of PaMaentsStat4stics YearZxx_, p. 427. For 1980: Central Bank of:.the Pb4.l.._ppines 'Invisible:.l_eoeJgts, Jam_azy - _, 1980 arid 1981', and 'Invisible [yi__, Jarmary Ix)Deee.-her, 1980 arid 1981' (_), •.
•
...
....-
IMF,
Intra-ASEAN Table
4
United
shares shows
the
States
in 1980, accounting
and
growth
direction
dominates
while for
Tables
that
that only
5
of
Philippine
trade,
with ASEAN 1.6 per cent.
and
6
trade
in
accounting was
summarise
the
services.
for
relatively
58.2
The
per
cent
insignificant,
structure
of
Philippine
services trade with other ASEAN nations. A substantial portion of Philippine service exports to Singapore, Malaysia and Indonesia is made up of the residual item 'other services'. Although there is no official disaggregation of this residual, preliminary Central Bank data indicate that the bulk of these 'other services' consist of the operating expenses of branch offices located in the Philippines. Personal income represents the largest service export to Thailand and also makes up a large component of invisible receipts from the other three ASEAN countries. Finance from ot_er is followed deficit tourist
is
the
largest
service
ASEAN countries, by travel, since
with centre
Singapore, for many
Philippine-Australian
import
coming mainly the Philippines
possibly Filipinos.
bilateral
because
of
the
Philippines
from
Singapore. has a large
it
is
a
_his travel
business
and
links
Table 7 shows the services trade account between the Philippines and Australia for i980. Philippine trade in services with Australia constitutes only a small amount of its total world trade in services, andabout one-fourth of the value of its trade in services considerable Australia.
with other surplus
Australian 'other services
ASEAN its
government
services' trade
representthe account with
data indicate that operating expenses. largest implemented
in
Services by
the
86
per Travel
payments Philippines
countries. balance
of
expenditures largest Australia. cent and to
The Philippines services trade
and
the
receipts in Unofficial
residual
Bank,
item
the Philippine Central Bank
of 'other services' 'other services' make Australia. Central
has a with
are up
for the
Under regulatiions Australiail/has one
of the highest allowances for foreign exchange purchases for travel. Thus, travel to Australia is relatively less restricted despite the Philippines general policy to restrict travel. However, the foreign exchange allowances for educational expenses of students and maintenance of dependents in Australia are less than those for the United States but the same as for Europe, Japan
and
New
zealand.
AS_%N.
Item
Aust_cal "_
United
SS_Ses
Other.
Japan
axmtries
'l_al z
_e_ture Services Freicjl¢ Othertrar,
,:T,d JzBuzarv_ s'p:)ztaticm
Travel _
1.002
(0.3)
4.282
(1.2)
76.806
(21.7)
22.026
(!-7)
7.554
(0.6)
1106.990
(82.8)
60.552
3.1-39
(2-0)
1.232
(0.8)
103.526
(65.2)
16.046
(10.1)
34.857
(22.0)
158.80
(100)
12.936
(4.3)
.T/0
(0.3)
196.709
(66.0)
23.140
(7.8)
64.415
(21.6)
297.97
(100)
5.734
(1.4)
3.051
(0.7)
295.065
(69.3)
11.581
(3.7)
110;189
(25.9)
425.62
(100)
(0.04)
538.132
(47.3)
31.413
(2.8)
550.768
(48_4}_
1138.31
(100)
268.4B
(100)
17.526
(1.5)
.471
0.1.79
(0.05)
272.231_
(76.8)
354.50
(100)
(4.5)
140.018
(10.5)
1337.14
(100)
o_ .... ,K.J-1
62.363
268.480 (1.6)
sin=,.=: omtr_ Barkof the:.m4_ L=.sa-_s.
17.360
(0.4)
2317.228
(58.2)
142.911
(3.6)
1440.958
( 100.0_ (36.2)
"39_.82
(100)
TElSLE 5
Invisible account
receipts ÂŁz_m other
percentages '1
in
of _
the Philippines countries, 1980
on current (US$ million,
parentheses)
,i
Item
Indonesia
Malaysia
Singapore
Thailand
I. Government expenditures 2.
3.
Services Prem. on
1.951
(79.6)
0.006
(0.6)
0.793
(82.8)
1.002 15.768
(4.7) (74.4)
0.197
(49.6)
non-
mdse insurancea Personal income
0.001 0.549
0.009 0.108
0.195 3.100
0.113
Management ,consu-ltant Commissions Construction
0.07,3 0.279
0.205
0.001 1.131
0.048 -
and fees
activity Subscriptions Communication,
0.042 0.005
-
0.156 0.004
stamp, Other
0.026 0.976
0.471
0.003 11.178
0.314
(1.5)
0.058
(14.6)
postage services
Freight and insurance
0.003 0.033
0.062
(2.5)
-
portation
0.401
(16.3)
0.054
(5.6)
1.531
(7.2)
0.047
(11.8)
5.
Travel
0.038
(1.6)
0.105
(11.0)
0.424
(2.0)
0.095
(23.9)
6.
Interest
2.148
(10.1)
-
4.
Other
Total
trans-
income
Rece.ipts
-
-
2.452
(1.00)
Comt_sition Re-export of consigned materials
of
-
'other
0.958
(100)
services'
21.187
(100)
0.397
(percentage)
3.6
1.0
-
91.3
38.3
86.1
-
1.0
1.0
8.2
Other
8.7
4.1
59.7
5.7
'JL__IL
100
100
100
100
Operating expenses Surrender
aPremiums Source:
91.3 of
on
AFXDS
non-merchandise
Central
Bank
of
the
insurance. Philippines.
7
(100)
_R
6
Current
_--vlsible
lSalmments from
the l_nilil_mJmms t=)ot_tmc _
....
,_:_,
1980 (gS$
•.;1_;,,,: t_=emmgesi,. t=_ms) Item
znemes_
Malaysia
1. C<mrexmment e_P.rcliD.tres
Stng-aZx_
_S_:_ 1=_¢1
All AS_S
0.00127
(.01)
0.1822 (27.9)
2.18244
(8.8)
O.168
0.0026
0.0092
0.0t0
0.073 0.128
0.0058 0.1738
0.48295 1.68957
0.005 0.568
0.429 (29.9) 0.0010 (0.1)
1.13807 (4.6)
1.137 (10.9)
4. Other transport
0.012
(0.8) 0.0060 (0.9)
2.69745 (10.8)
8.188 (78.7) 10.903 (29.2)
5. _
0.388 (27.0) 0.4641 (71.1)
3.72744 (15.0)
0.492
2. Sezvic_s BE_son_ ino_me
0.369
(25.7)
0.001 0.583
(5.6)
3.317
(8.9)
2.705
(7.2)
_a.nd oonsultantf_es Other services
3. n_/_Z _d inmzzance
6. Profits,earninos, 4Livider¢_ 0.237 7. Interestpmjmsnts _m_-_l
(16.5) -
1.435
-
0.19431
(100) 0.653
Scx=t:e: Csmtral Bank of the 1_11i.-ol:).t,",_.
14.939 (100)
24.8796
(0.8) (60.0)
(4.7)
0.008
(100) 10.408
5.072 (13.6)
0.431
(1.1)
(0.1) 14.947 (40.0) (100) 37.376
(100)
T_SLE
7
_ices percentages i
|
ac_t : Phi_p_ines-Australia, in parentheses )
Receipts .......
,
1. Government 2.
(US$
millioa,
|
Ite_ m m_
1980
.. , ,,.
..
Payments
,
expenditures
Services
4.281
(38.5)
0.001
(0.02)
5.013
(45.0)
2.541
(40.8)
Premium on non-mdse insurance Premium on non'mdse reinsurance Claims On nOn-mdse reinsurance Personal income Management and consultant fees Commissions
0 •867 0. 045 I.274
0 •013 0.012 0. 022 0. 282 0. 247 0.127
Cons_ctlon C_tmication
o. 109 O. 003
0.220 0.00 i
activity
•ra ficyouts
-
0.010
Adveftlsing Subscriptions
-
0. 046 0.023
Film rentals Royalties other services Adjustments Cancellation and refund Rebates, discounts and penalties
2;715 -
(24.4)
0.013
(0.I)
1.219
4. Other transportation
0.724
(6.5 )
0. 046
5. Travel
1.101
(9.9)
1.950
3. Freight
and insurance
0. 037 0. 006 1.404 (22.5) 0.036 0. 049 0.006 (19.6) (0.7 ) (31.3)
6. Profits, earnings, dividends
-
0•304
(4 •9 )
7. Interest
-
0. 167
(2.7 )
6.228
(100)
@_.al
11.132 ,,
Source=
Central
Bank
,
of the Philippines.
9
(100)
•Measures Table
of 8
specialisation
shows
the
and
dependency
measures
of
by
•country
and
sp_cialisatlon
in
industry services,
(meaning the ratio of receipts to disbursements of particular services) for the years 1960 and i980. In 1960 the Philippines speciaii_'_ed in personal and other services. There are no other detailed data on invisible receipts and disbursements for 1960, but the available literature shows that personal income receipts became prominent during the latter half of the 1960s when large numbers Kalimantan. recruited
of
Filipino loggers went to work in •logging camps in At the same time, many construction workers were to work in Vietnam, Thailand, and Guam as the war in
Vietnam e_caiated. are leaving• for
At present, Middle East
the
14). while the largest construction, data from show that between 1975 a
professional
share, workers force.
or
since the is only
In
1980
a
group of workers going the Overseas Employment and 1981 one out of every
technical
national one out
the
large numbers of and Africa (Abella,
of
worker.
average every
Philippines
still
This
period
is
is
a
relatively
and Philippine
specialised
in
had become tourism became tax incentives
considered
the
7-
overseas was for Development Board four workers was
for professionals twenty in the
other services, but travel services important. Between 1974 and 1980 industry eligible for a variety of concessions. tourism.
This
professionals 1979, pp.
peak
high
technical labour
personal
and
increasingly a priority and customs in
Philippine
In 1960 the Philippines was still very dependent in the transportation field. Virtually all of its needs were imported. But by 1980 this dependency • was relatively less important compared with equity finance, freight and insurance. In terms of concentration of services traded, the Philippines has therefore been most dependent on finance imports and personal services exports. partner
in
The United services
exports of services reflected in each States also provided (Central
Bank
of
States trade.
has In
been 1980
the most important about 61 per cent
went to the United States. component of the services over 55 per cent of all
the
Philippines
data).
10
This account. imports
trading of all
pattern was The United of services
'IllSB'R8
.'._F,rdali,--,;
:nn _
_
J.O.l_.v._O_Sr
|
_
lcJ]o
_ce..'l._cs/L__ 1980
1960
"_.._ exLmn_._ures) 1960
.15181
.07143
.044
.269
trai_p_.a_._
.55330
,00000
.082
.031
.50000
• 117
.040
_
_
cU._
.03380
Interest T-_a.1
1980
_
.arid _
3.01°_3 Profits,
_ *n _ (exc.l.,__ _
.41396 _c_re
) ) -
.34805
.041
) ) -
.272
)
.07407
)
.313
.390
)
) & o:msultancy fees
Othersezvi_s Miscellaneous
) ........... )
)
2.52335 ) )
.369
) ) .24187 ) ............ 1.30769 )
.074
.269
2
Links
between
the trade
and
Relative
size
Table
9
of
shows
the
the
the Philippine services sector producer 166-9). T_BLE
9
of
services
relative
Philippine (constant
1.
size
of
the
different
National accounts quantitatively
domestic
output
gross domestic 1972 prices)
Industry
structure
sector
economy. has been
gross
domestic economic in services
Levels 1980
since
product
(million
by
major
indicate the most 1950
(NEDA,
industrial
pesos) 1981
sectors
1981,
origin,
Per cent 1980
in
that the important pp.
1980-81
distribution 1981
Agriculture, fishery and forestry
23720
24578
25.6
25.6
2.
industrial
33471
35057
36.1
36.4
3.
Services
35503
36554
38.3
38.0
3937 890
4066 974
12224
12731
4306
4002
ship of dwellings Government services Hotels and restaurants
2815 4769 1440
2962 4998 1500
Other
5122
5321
92694
96189
sector sector
Transport and Communication Wholesale and trade
storage retail
Banks, nonbanks insurance Real estate and
private
and owner-
services
Gross domestic product at market prices
Source:
NEDA, pp. 46
Philippine and 75-81.
Economic
Indicators,
12
Vol.
100
X,
No.
100
6
(June
1982),
Table 10 compares industry size within the services sector as it appears in the census of establishments and in the interindustry tables. 3 All measures of the values of the services sector as shown in the interindustry accounts and the census of establishments indicate that wholesale and retail trade is
the
most
10
TJJBLE
important
Estimates
Service
component
of
Industry
of
size
the
within
domestic
the
services
servioes
Gross output (interindustry tables)
industry
sector.
sector,
1978
(US$
Receipts (census of establishments)
•••• •
Land
transport
operation
1077
(8.7)
308
(0.8)
360 203
(2.9) (1.6)
747 105
(4.5) (0.6)
302 192
(2°4) (1.6)
3 228
( - ) (1.4)
Storage and warehousing Wholesale and retail trade Batiks, nonbanks and insurance
10 4385 1223
(0.1) (35.5) (9.9)
3 10282 2432
( - ) (61.3) (14.5)
•Real estate and ownership of dwellings Government services Educational services Medical and health services Hotels and restaurants •
996 1222 247 370 747
(8.1) (9.9) (2.0) (3.0) (6°0)
1187 28 154 176 63i
(7.1) (0.2) (0.9) (1.0) (3.8)
1029
(8.3)
478
(2.8)
water transport operation Air transport services services incidental to Communication services
Other
private
•
transport
services
Total
12363
_ce:
NEDA, 1978 XnterindustryAccounts Census and Statistics Office,
(100)
of 1978
16762
(100)
the Philippines; NEDA, Census of Establishments.
National
S
It
is
not
the years aggregate
possible • shown them
to in into
distinguish the one
whole•sale
and
table because • the sector. But the
retail
trade
for
published accounts 1974 interindustry
accounts provided some information about the proportions involved. The accounts indicated that for that year 5i per cent of value-added in trade was in wholesale trade, 55 per cent of final •output in: retaii trade, and 64 per cent of gr0ss output in wholesale_ trade. " MUch of the final demand for traded services is export
demand.
3For details sectors, • See
of estimation 'of NEDA (1974, 1978).
gross
output
13
and
receipts
for
the
services
Proportion Table ;: ...
of
, ..,
11
services
shows •
gross .
.,
Philippines . •.
,
in
:
traded value-added
1978
and
.....
the
in
traded
proportion
services . .
,
exported
-
for about
the one-
sixth. Among the traded services classified according to the national accounts categories, trade and transportation dominate, accounting for nearly half of the . . total While wholesale and .,. ... : :. , . • • retail trade is the largest item •• in • , _ "_:'.',._i ,,,'" ' " its exports make up only one-seventh wholes_!e and' retail trade.
the
',,
of
traded ' ....... the
servzces value-added
'
account, of the
Hotels and restaurants also constitute a significant 14 per cent of exported traded services (Table 11, col. 2). Exports make up most of the value-added of that sector, total dollar receipts amounting to US$220 million in 1978. 'Other services' accounts in Table
for less •than 2 it accounts
explanation for in the components
this of
Government
one-fifth for 31
Data services
in
services
Table traded
of. total service cent of exports
discrepancy can be found the two 'other services'
component of financial These services, however, services are traded to
of
per
11
are
not
and health are traded tourists.
of course directly.
traded
in t_e items.
at
services in the
represent Services
all.
The
traded
merely the can also
proport±on be traded
inputs in other as intermediate
linkages
This section analyses Philippine input-output analysis and the I-0 major sectors (Table
the
linkages of the services sector. (I,O) table for 1978" was used for table's 63 sectors were condensed into 12).
•
:..,
,.
1978 I-0 tablesshow that the,: total. industries amounted to US$12,363 million US$7,691 million, or 62 per cent, went to or
38 Of
per the
The this •six
, ",..,,
The service which
difference
is also insignificant. same sense that retail
indirectly when they are embodied as intermediate industries. Table 12 shows that services used inputs amounted to about US$4.7 billion in 1978.
Input-output
exports iwhereas in 1978. The
US$4,672 by various
million, sectors.
cent, was used 62 per cen _ of
to final investment per cent
demand, private consumption, and exports accounted for and 12 per cent respeCtively.
33
14
as intermediate total output
government per cent,
4For compositio n of other services in the interindustry accounts, see NEDA, National Census Central Bank of the Philippines data.
of the ,-output . -. . in 1978, out of final demand and that
inputs went
expenditures i2 per cent,
balance of payments and Statistics Office,
, 5
and and
T_T._
11
Value-added
and
of
pzolx_ztion
sezvioes
19.78
traded,
i
Gross Service
Transportation Communicat/on Wholesale and Banks,
value-added (USSm) (1)
industry
and
storage
retail
nonbanks
and
trade
Exports (US Sin) (2)
(1 )
1184 157 3583
358 20 524
3 •3 7 •8 6.8
(2)
insurance
1026
16
64. I
Real estate and ownership of dwellings Government services Educational services Medical _nd health services Hotels and restaurants
8 !4 1184 151 259 299
82 17 12 220
9 •9 8.9 21.6 1.4
Other Total
738 9395
287 1536
2.6 6.1
private
•
Source:
services i
i
Irl
1982
NEDA, Output
Table intermediate
Table
Statistical
Yearbook,
pp.
182-9;
NEDA,
1978
Input-
(mimeographed).
12 shows inputs
are
that the services
largestusers themselves.
In
of 1978
services the value
as of
services used by the services sector and the manufacturing sector amounted to US$2,355 million and US$1,795 million respectively. The proportion of services as intermediate inputs is broken down by industry in Table i3. Traded services are the most important service inputs for the manufacturing sector. The US$12,363 form of subsidies,
cost of producing million represents compensation to other value-added
on the Philippine US$3,840 million US$3,080 million US$759 million subsidies, and
Determinants
of
the
service industries' the whole range of employees, indirect and other industrial
output of inputs in the taxes net of inputs. Based
I-O table for 1978, the services sector spent for produced goods and services. They also paid in the form of compensation to employees, and to government in the form of indirect taxes net of realised U S$8;524 million as other value-added.
demand
There is an inverse relationship between and the quantity demanded, and a direct income and demand. A linear regression final demand as the dependent variable,
15
the price of services relationship between analysis was made with and national income and
• m_']l_12
I(]'/8 _
itd--,p_ritvlk,,.d..¢y" _
sec-CDv
(IOE_I_11-im,
1
2
3
4
5
505.3
7.1
3927.2
12.5
4.2
2.1
13.8
1075.4
74.3
-
616.8
i34.8
5191.1
934.2
147.6
4. O:m.sLt_tg_
5.5
1,6
10.4
19.1
5. L_ ] i4-_,=_
2.7
4.2
79.0
182.1
58.5
1314.5
1..=_grJculbLTe, and f_ _h.ing
3. ,ttEszfac¢_ L,-cj
6. Services
aJ; ._.u_-=_"
6
J_::_S)
_ta].
_
'Zbt-,_ 1
102.8
4559.1
3121.1
7680.2
3.0
1168.6
-491.5
677.1
1060.1
8084.6
9819.8
17904.4
1.3
106.7
144.6
2809.7
2954.3
3.5
28.2
212.2
329.8
155.1
1794.7
202.2
79.8
2354.9
4672.2
7690.9
12363.1
220.0
12077.8
1245.8
261.1
3839.7
18958.9
23105.1
42064.0
Va]_
e_,:]
6366.0
457.1
5826.0
1708.0
224.0
8524.0
23105.1
Total
:JTCX¢
7680.5
67"1.1
17903.8
2953.8
495.1
12363.7
42064.0
Som._:
_
£c_estz_
2. PLgfing & c__
m
_
1978 Znt:_'.L_.tslz3r _
Table.
4134.9
13 S,.v._ees as tnt-,,zm_lt_+. _lt_, From serv.ice
F-'
_b sect:or
1 ._jricult_re
197B 2 Mining
(T31_mrSlllm) 3 M_ufact:mdng
4 Om,,stnr'timL
5 T_-_1_H _
6 Services
ALl. sectors
TranspcnT_tion
58.1
24.9
419.0
57.1
12.7
485.6
1057.4
(3uuu_ica.t_Qrs sb0_ge
5.6
0.8
19.2
6.1
2.0
89.5
123.2
81.0
18.8
1025.4
69.2
36.1
185.3
1415.8
F_.cJe___
6.8
2.5
73.6
10.4
9.0
969.5
1091.8
Real. estat_
8.4
0.4
51.2
1.2
4.5
_")_. 1
287.8
eclucsP._3on _
beaJth
Bo__ls ant resPml_cP,..s l:ri_.vabe seer.ices Service
Bov.._:
:tvtxCs
6.2
2.2
33.4
2.8
1.4
42.5
88.5
2.9
2.3
21.2
5.3
2.5
82.9
117.1
13.1
6.6
151.7
50.1
11.6
257.5
490.6
182.1
58.5
1794.7
202.2
79.8
2354.9
1978 Interindust:ry 'I_-ansac-t.%o_Tab]e.
4672.2
relative
prices
as
independen_o_var_ables.
Value-added
has
been
selected to reflect demand rather than total output since there is no time series for total output h_y sector in the Philippine system of national accounts, and since; conceptually the value of total inputs, which is value-added, is equal to the value of the total output for each industry or sector. -_ Demand services in in the for
for 1972
services prices,
was and
therefore national
1972 pesos. Relative prices were implicit price index for services national income. The regression
series
regression
t-values. prices to D
The demand
=
reflected
the
+
.44317Y
(56.87373)
where
The
that The
D
=
demand
Y
=
national
income
P
=
relative
prices
figures
under
A study of its largest demand for
largest itself, depend
for
the
signs
equation as follows: -
value-added in also tabulated the ratio of price index for the time
with
significant
relating
income
and
.3802.17798P
(-2.05299)
R2
=
.99727
_2
=
.99672
services
regression
the
structure component services is
coefficients
services is for intermediate services.
Intermediate demand makes up more than for finance and insurance, communication transportation. On the other hand, constitutes the bulk of the demand for real For important
are
t-values.
of demand for services is intermediate demand therefore a derived
consumer of intermediate so much of the demand on the final demand for
and restaurants. income to be an
by was
represented by to the implicit coefficients
expected
estimated linear for services is
6219.36719
proxied income
these services, determinant.
18
we
also (Table demand.
the services services
may
shows 14). The sector also
half
the total demand and storage, and consumption demand estate and for hotels can
expect
personal
([._m)
(q_)
(u_m)
(q_)
(r.n_)
1057.4
52.0
402.4
i9.8
71.4
3.5
145.0
123.2
58.5
58.9
28.0
7.6
3.6
-
-
1415.8
32.3
1785.7
40.7
133.4
•3.0
525.9
12.0
1091.8
87.7
123.3
9.9
13.8
1.1
-
_
287.8
28.5
623.6
61.7
18.3
1.8
-
ecb_t3cc',al health_ sezvices
88.5
4.7
526.4
28.2
1222.3
65.5
Hot-_l_ arc1 zes'cmmants
117.1
13.8
412.4
48.7
97.7
Other lz:J.v-Cb_ services
_0.6
41,6
377.8
32.0
4672.4
36,6
4310.5
33.7
0__
(q_)
Cr.r_m)_-
_"(t)
(_)
(q_)
(rj_)
(t)
356.4
17.5
2032.6
100
_i_
21.0
10.0
210.7
100
--
523.7
11.9
4384.5
100
16.0
1.3
1244.9
100
-
•z.,_, 81.4
8.0
1011.1
100
-
-
,,').(,? 29.2
1.6
1866.4
100
11.5
-
- [_"
220.1
26.0
847.3
100
23.7
2.0
-
- _
287.3
24.4
1179.4
100
1588.2
12.4
670.9
1535.1
12.0
12777.0
100
7.1 _
and
es_be
_z,.l
i-i LO
_,
'J]Otal
8ou=.,..=.* 1978 _
_cxx:_nd:sof the Pb'il-i-r_..-._.
5.3
Supply
conditions
Few studies exist services sector.
on The
the supply government
several tourist enterprises, Philippines. Foreign ownership and banking. Most
of
the
large
that
15
shows
the
are labour-intensive. service industries rank twelfth out of thirteen not labour-intensive labour/capital ratio, sixth, then,
seventh, only trade
statistics, sector.
and and
concentration International
and
in the tourism,
their
main
establishments 0ffice (NCSO) in and around
of formal Labour Office
service (ILO),
existence of a large, low-income, which is spread throughout the calculation, over 60 per cent of found in the unorganised sector.
extent
to
which
the
Service
industries
In terms of the labour/output ratio, the first, second, sixth, seventh, ninth, and industries. Only trade and finance are using this criterion. _n terms of the service industries rank first, third,
eighth publÂąc
however,
Philippine airline,
largest bank in insurance,
establishments
however, calls attention to the unorganised services sub-sector country. 5 According to the ILO total service employment can be Table
of the national
around Manila. Large Census and Statistics workers. It is also
the biggest found. The
is
and the evident
is
service
offices are located in and are defined by the National as those having ten or more Manila employment
conditions owns the
do
out of services not
eleven. are
represent
Using this labour-intensive. the
criterion, These
unorganised
service
The ILO gives some indication about productivity trends in services. Its findings indicate that the value-added per worker in the services sector relative to the rest of the economy fell from I_74 in 1960 to 1.23 in 1971; for commerce the decline was from 1.94 to 1.15.
Table 16 establishments. especially in finance, where of scale als0 large amounts enterprises.
5Details labour
of force
indicates that productivity is higher in the larger This is a safe generalisation to make, the service industries such as transportation and _ : we can expect economies of scale. These economies lead to naturalâ&#x20AC;˘ entry barriers arising from the of capital invested in the major service
adjustments survey
by
to
the
the
ILO
figures are
in
explained
20
the â&#x20AC;˘Bureau in
ILO
of
Census
(1974,
pp.
and
Statistics
39i-6).
By contrast, easy entryinto the unorganised sub-sector gives it the function of what the ILO calls a 'buffer zone' for low-income employment because of the lack of productive and desirable jobs elsewhere. However, the ILO adds that the trade and services sectors have been unable to absorb labour at such a high rate levels. If
the
without,
ILO
of total service sector, we can 'buffer.... zone'.
is
a
substantial
.correct
employment deduce the .The 1978
in
fall
its
can size census
estimate
in
average
that
be- classified of employment figure showed
productivity
over in in
the the that
60
per
cent
unorganised unorganised 2,031,34_8
were employed in the organised services sector. This must, therefore, represent no more than 40 per cent of total service employment. Employment in the unorganised 'buffer zone' must the_. have numbered at least 3 million in 1978.
21
15 T._h-.,- 4,,h:._,] r ]_ itxlmtmlr,
1978a (.-xa_
in _)
/c i.taz zatio
.Agr_t:uz_
_
.foz'estzy
F_ÂŁes _
Electricity,
_
9"dsa'lcl. water
(large)
216,676
323
(5)
366
(5)
(large)
48,318
503
(4)
548
(2)
(a.l.1) (large)
48,062
86
(10) 92
(10)
(_)
28,835
(all) (large) Y'_'__
(]az'ge) (small)
Translxctaticn,ommmicati_ and st:Drage
Private sazvices
sP..rv'ices Wholesale and retail
126,662
34
(13)
16 (11)
160 (8) 432
(4)
208
(9)
250
(6)
1,615,185 243,180
65 (11) 749 (3)
(_11) (Large)
262,682
175 (7)
(]az'ge) (small)
312,583 193,446
273 (6) 1155 (2)
234 (7)
53,666
1930 (1)
513 (3)
(_.z'_) trade
ratio
(_11) (large)
_'_, inst.==.ce, real estate aid businessservices (all) (]a_r_)
1,012,008
98
(9) 1817 (1)
196,963
53
(12) 209
aCensos data <b not ;emit this ty_ of analysisby hours w_ked. bCut.lcx_c:is meam.ced by 1:belz:Cal zecP_ipts zel:x:K'tecl..inthe 1978 Osmsusof Establ_Wmmmts. So_,..=:
NEDA, 1978 Cemm.lsof Eb--V_l-,l't=hmmttS.
22
(8)
â&#x20AC;˘
16
of.
Measures
"
I
product£vtty
in
se£ected
serv£ces
im
Service
Value-added ('000 pesos)
Large
Employment (No.)
Productivity • (pesos)
transportation,
communication
and
storage
Small transp0rtation oommunication and
4,098,018
167,953
24,400
330,564
94,729
3,490
4,428,582
262,682
16,859
,
storage
Sub-£otal
Large
private
services
3,303,665
312,583
10,569
Small
private
services
610,315
193,446
3,155
3,913,980
506,029
7,735
Sub-total
aAverage
value-added
per
employee.
Sotlrce:
NEDA,
Preliminary
Report,
1978
23
Census
of
Establishments.
a
3
Government
intervention:
protection
Government The
policies
Philippine
intended include barriers, government.
on
of
supply
or
government
has
to regulate and border restrictions, barriers These
type
to s
regulation
traded
demand
side
enacted
a
protect traded regulatory
investment of protection
and
services
number
of
services. barriers,
measures
Such factor
flows, and are •examined
measures market
restrictions below.
on
Border restrictions. The government has passed several regulations to control the flow of service imports into the Philippines. Presidential Decree (PD) 806 (1975), for example, provides that vessels .•registered in the Philippines and owned or • controlled or chartered by Filipinos must have shares at least equal (40 per cent of all cargo trade) with vessels of another country in the carriage of international cargo between the Philippines and that other country. The Maritime Industry Authority (MARINA) must also approve all acquisitions of foreign vessels through importation or chartering. •Filipinos services, except
are in
also the
not case
allowed to of reinsurance
import any contracts,
insurance and then
only with the approval of the Office of the Insurance Commissioner (OIC). Government policies dictate that firms must first reinsure locally; only when the risk 'cannot be absorbed' (i.e., the risk is too large) is reinsurance abroad allowed. An
alien
coming
to
pre-arranged
consultancy
enter the Philippines as a non-immigrant only by the •prospective employer with the Commissioner establishing that no person can be found in willing and competent to perform the service. Regulatory
barriers.
service imports exchange. The prior approval existing foreign cover traded exchange require
The
Central
Bank
employment
may
on
contrOls
petition filed of Immigration, the Philippines
the
flow
of
through regulation of the sale of foreign sale of foreign exchange is not permitted without by the Central Bank unless already covered by exchange regulations or policies, some of which services. All transactions involving foreign Central Bank approval.
Among existing foreign exchange regulations are limitations on the amount of foreign exchange allowed for travel. For nonbusiness travel, each individual who is at least 12 years old is allowed to purchase US$I,000 or US$600 depending on destination. Those under 12 are allowed half these amounts. Foreign travel is also subject to travel tax. It amounts to US$170 or $100, depending on the category of the ticket bought.
can
Imported services be considered as
are tariff
subject to equivalents.
24
discriminatory taxes which The statutory tax rate
•
on the sources and The
gross income is generally
35 per first
per
non-resident cent of
gross
cent for corporations, is reinsurance premia,
The second preferential Factor
of 30
is 15
interest per cent
market
but there which is
on foreign tax.
barriers
and
aliens income
loans,
other
are not
which
investment
from for
Philippine individuals
two exceptions. subject to tax. is
subject
to
inGentiveso
a
Among
the measures for protection in the Philippines are tax exemptions for so-called 'pioneer' and 'preferred areas'. Most of the various incentive laws that have been enacted to grant subsidies to these Code (PD
areas 1789)
have of
been 1981.
consolidated The Code
in the extends
Omnibus Investments a deduction from
taxable income for an amount equal to 50 per cent of the total export fees of exporters of services registered with the Board of Investments (BOI). Other incentives are given to investors in areas included in the Investment Priorities Plan which the B0I s_bmits the only trading consultancy
to the President of the Philippines each service industries included in the 1981 and service exports, which include services.
Export
traders
as enterprises one or more
are
defined
engaged in the export producers.
in
the
sale of Service
Omnibus
addition
to
the
above
incentives,
incentives which individual pieces those granted to
have been granted of legislation. overseas shipping
grant
exemption
income
tax
to
land improvements, and deduction reinvested.
Barriers Philippines permitted enterprise licensing
tax from
bought defined
from as
professional currency or musical recordings
there
are
or in
tax
shippers
who
invest
their
shipping investments, and provide tax credits on the interest on payments of real estate taxes on
concessions taxable
on income
imported of
capital profits
equipment, which are
to
investment flows. There is a general rule regarding ownership. Foreign investments for up to 30 per cent of the outstanding capital without BOI permission. Beyond this, and of foreign firms, BOI permission is required.
Among the most protected the insurance industry which companies since December
Code
to particular services through Among the more important are and tourism. These decrees
overseas
net income above 10 per cent in several incentives, including foreign loans, exemption from
Investments
export products exporters are
enterprises engaged in rendering technical, other services which are paid for in foreign exporting television and motion pictures and made or produced in the Philippines. In
year. However, Plan were export the export of
in of for
the are the the
services in terms of ownership is has been closed to foreign insurance 1946. (Foreign firms that had been
operating before 1946 were allowed insurance companies can enter the joint ventures in which Filipino cent of the equity.
25
to continue.) Today, insurance industry only nationals hold at least
foreign through 70 per
Transportation ownership. cent foreign
is
As a public ownership.
Restrictions
on
another
industry
utility
it
government.
may
protected not
Governments
have
are
in
more
major
well as major suppliers of certain services. example, government agencies bought 13 per output and 21 per cent of the final output of in•the Philippines. The Philippine Airlines, Nat ionai• Bank, which is the largest commercial tourist establishments are all state-owned.
terms
than
of
40
per
purchasers
as
In 1978, for cent of the gross servicesproduced the Philippine bank, and several
In transportation, there is a requirement that the government give preference to domestic carriers. Thus, where state agencies procure or export cargoes using government funds, they must utilise Philippine flag Vessels. Except in certain instances, beneficiaries of government loans and guarantees must also utilise the services of Philippine flag • vessels whenever the transportation In
is
government
respect the consultants. however, specifies assisted projects policies, in the
paid
for
from
the
proceeds
foreign-assisted
provisions Unless
of the otherwise
of
projects, loan
their the
agreement stipulated
loans. policy
regarding in the
is
to
foreign agreement,
National Budget Circular No. 346 of 21 April 1981 the policies on the staffing•requirements of foreignprojects, which also essentially apply to public sector which are not foreign-assisted. According to these the services of foreign consultants are to be used only absence of local consultants with similar background and
expertise salary exemption.
of
Levels
of
and they their
may not be paid local equivalents
more
than except
120 per with
cent of ministerial
the
protection
Insurance. Foreign firms operating since before December 1946 must, under Section 191 of the Insurance Code, deposit with the Insurance Commissioner total securities with a market value of at least as much as the minimum paid-up capital required of domestic insurance companies. At least 50 per cent of this deposit must consist of evidence of debt of the Philippine government. The tax rates which apply to domestic corporations •• also apply to foreign insurance companies operating in the Philippines. Any profit remitted by a reSident foreign corporation to its mother company is subject to a 15 per cent tax rate. The
OIC
allows
reinsurance
be absorbed locally. While we•l_ as• domestic reinsurers
pay these
only
reinsurance are not
of foreign reinsurers 40 per be retained by their Ceding invested in assets acceptable reinsurance companies income received from
abroad
premiums subject to
cent of companies to the
a tax assets
rate or
26
when
their in OIC.
of from
the of tax,
risk
cannot
foreign in the
as case
gross premiums must the Philippines and Foreign non-resident
35 per other
cent on sources
the gross of income
in the Philippines. dividends received
An from
similar privilege tax agreement with
exception domestic
is extended the relevant
is a tax rate corporations, to the foreign
of
15 per provided
Philippines country.
under
cent that a
on a
double
Transportation. The large deficit on shipping indicated in the balance of payments accounts has led the government to promote local shipping services. One of the latest steps taken was the approval in 1981 of the purchase of 99 ships worth US$139.5 million.
A policy Shipping Filipinos
survey on
0f
Philippine
or i_ the_construction paymen_ , of income tax invest the net income purchase, exempts of the Customs National
law
demonstrates
overseas transportation. Act of 1955 (RA 1407 as engaged exclusively in
the
protectionist
The
Philippine Overseas amended by PD 806) states that the overseas shipping business
of ocean-going until ... . 9 September . ,. . above I0 per
vessels are exempt from â&#x20AC;˘ 1985, . provided that cent in the construction,
the they
or improvement of vessels and equipment. PD 215 (1973) the importation of ocean-going vessels from the payment I0 per cent customs duty prescribed by the Tariff and Code and the 7 per cent compensating tax provided in the Internal Revenue Code. PD 806 also provides that
Philippine flag vessels and national shipping lines shall have at least equal shares as vessels of another country in the carriage of international cargo between the Philippines and that other country (amle'nded shipping
with by
a reasonable PDs 917 and and airline
share of cross-trades. PD 1466) grants preference to industries with respect
transportation of government-financed passengers including any corporation enjoying tax exemptions, incentives from the government. PD 1540 (1978) withholding tax for rental of foreign-owned vessels to Filipinos from 35 per cent to 4.5 per cent.
Liner
The Philippines Conferences.
issued (MARINA)
in to
January reserve
has ratified Accordingly, 1982 at
ordering least 80
the UNCTAD Executive the Maritime per cent of
and import liner cargo not covered of the Philippines andthat of the cargo reserved to be .._, shared equally ... two countries. MARINA Memorandum July
.
EO
1982
to
implement
Many problems 769. For example,
in the scope of the security. This is the Philippines is Philippine exports consignees, own or third practice Philippine
usually flag
implemented shipping
the
the
in the equipment
40-40-20 convention for always loaded on American often faced with a choice and promoting Philippine
oniy cn companies
import with
27
and property, subsidies, or reduced the under charter
of
Conduct (EO) 769
Industry Philippine
for was
Authority export
convention.
encountered military
from developing carriers. Thus
(1976) local to the
by PD 1466 for flag carriers bilateral partner, with the by the flag carriers of the Order No. 3 was issued in
40-40-20
have been American
Code Order
894 the
implementation of is not included
reasons of national liners. Moreover, between promoting shipping. Export
countries, the UNCTAD
often prefer convention
'cargo, insufficient
frequently return
their. is in
leaving cargo to
make the
the route
trip Commercially at all. This
vessels,
giving
still
There are Philippine-American
viable. results in
more
only
business
eight route,
an
Often they apparent to
Philippine which
third
flag
handmaiden tourism facilities. 1982) 1979
of tourism development The Second
includes and 1981,
incentives Authority). cent of accounts. As
the explicit industry,
land there
the
policy. are open Tourism
not to ply Philippine
carriers.
vessels constitutes
Philippine shipping trade. Four are owned by and are docked in the Philippines every eleven four are owned by the Maritime Company of the dock less frequently. Apart from overseas shipping
prefer lack of
trading the bulk
the of
Galleon Shipping, days. The other Philippines, and
protection policy
on
given the transportation
Most of for the Investment
the priority opeÂŁ1ation Priorities
of
and water transportation facilities. was an increase of US$i.2 million
Philippine is the regions for transport Plan (1979in
Between the tax
availed of by the transport sector (Philippine Tourism The tourism-related incentives make Up about 4 per all government subsidies as reported in the national
an
added
incentive
to
the
tourism
industry,
the
country
adopted an Open Skies policy in the mid-1970s. Government protection of the aviation industry is in the form of ownership of the country's major airline, Philippine Airlines (PAL). Between 1964 and 1978 the government retained only a 24 per cent interest in PAL through the Government Service Insurance System (GSIS). In 1979, the stockholders approved an increase in the authorlsed capital stock of the company from 250 million pesos (US$33.88 million) to I billion pesos (US$0.13 billion), with issued stock of 500 million pesos ($US67.77 million) of which the GSIS
now
owns
Apart
from
445.7
million
government
pesos
(PAL,
stockholding,
1980). there
is
almost
no
protection in the civil aviation industry except that the local civil aviation industry enjoys the preferential rights given also to shipping by PDs 894 and 1466 (see above). An airline seeking entry into the Philippines must simply be a designated airline of a country friendly to the Philippines. The frequency of operation by any airline is determined solely by theCivil Aeronautics Board. The tax rates Charged to PAL and other international carriers are the same. However, PD 895 authorises the Civil Aeronautics rentals, and charges them on PAL.
Administration on foreign
to airlines
impose whose
retaliatory countries
fees, impose
Travel. Travel has experienced the highest growth among service exports owing to government promotion, which in many instances has amounted to protectionism. The present tourism program may be traced to 11 May 1973, when the Ministry of Tourism (then called Authority issued
the to
Department of Tourism) (PTA) were established. provide a basis for the
28
and the Philippine Several decrees implementation of
Tourism have been the tourism
promotion policy. Among (1974) which provides the local investors registered
(a)
a 50 the
(b)
(c)
deduction per cent year
from net of total
in
which
the carry-over deduction from tax
credits
payments
on
(g)
tax
credit
deduction profit in the
The restaurants,
imported
are
taxes
of
tariffs
capital
equivalent earned
loss
withheld
equivalent
and
these is PD to foreign
535 and
to for
claimed;
payment of real and buildingF
payment
on
income exchange
of
net operating income; on
reduced
of the would imported, domestic
of taxable
loans;
(e)
(f)
incentives
granted
exemption from land improvements
important incentives PTA_
taxable foreign
foreign
(d)
due
the most following with the
on
estate
as
a
interest
taxes
compensating
on
taxes
equipment; to
100
per
cent
of
the
value
compensating tax, and customs duty that have been paid had the equipment been 50 per cent thereof in favour of the manufacturer; from of a same
taxable
tourism year.
income enterprise
tourism industries covered tourist transportation,
incentives are in the form of government disbursements. Import aocount for the great bulk of years to 1982, they accounted U8543.5 million concessions Authority )â&#x20AC;˘
of
the
which
by and
undistributed is reinvested
PD tour
535 are operators.
hotels, The
taxes waived rather than actual duties waived on transportation total taxes waived. In the nine for 66.3 per cent of the total granted (Philippine Tourism
The travel tax is the source of PTA's tourism development projects. A sum of US$170 to US$I00, depending on the category of the ticket, is imposed on (a) all citizens of the Philippines_ (b) permanent resident aliens; and (c) nonimmigrant aliens who have stayed in the Philippines for more than one year and are leaving the country. Travel tax collections increased from US$12 million in 1978 to over US$22 million in 1980
(Philippines
Tourism
Authority).
29
Finance.
Financial
services rendered money capital.
has
services by
financial
The Central Bank has directed that foreign
exchange costs Loans denominated cent
of
the
of
Under
the
bank the the are
is permitted approval of Philippines, not allowed
Bank been
permission. instituted
exempt In
Banking empowered establish
in
exports
the
the account are
taxes
government (0BUs) in
the
services
of
seven, and foreign
Bank
on
of
the
all projects. exceed 2 per
World
337)
the
and
foreign
1948,
a
the loans
foreign
the 0BUs
to 50 per incentive
on
Philippine the country
deposits.
establishment of The Central
Offshore Bank is
by international foreign currencies.
Central Bank are subject
banks
collects to a tax
to Upon
a fee of of 5 per
promoted.
services, very little
which are government
composed of consulting serviceS, industrial research and planning programs (UNIDO, 1972).
equivalent which the
system has may deposit
any authorised business within
allowed the Philippines. in
deposit anyone
We have seen that personal income single source of invisible receipts on the Philippines. Nevertheless, manpower
least
PD 1789, paid for receive
currency whereby
interest
applications dealing only
services. largest for
the
in a
enterprises currency deduction
cent of total is claimed.
remunerations
essentially promotion.
assistance technological services, and
engaged in and registered from taxable
are governed by Revenue Code of 1977, on the income received
compensation, of such income.
of
(RA
with in
on
to operate, annually.
Under which are Investments
consultants Internal of taxes
the
for not
interest
Act
currencies not engaged
Consultancy services, receive usually engineering economic training
secured should
rates
Instead, a foreign the Philippines
paying
an OBU US$20,000
Consnltancy represents current
to be dollars
Banking
to approve agencies
authorising at least cent.
and
include
to transact business in the Philippines with the Central Bank. Of the 32 commercial banks in four are branches of foreign banks. Filipinos to maintain bank accounts abroad without Central
from 1977 Units
here
borrowing sectors to be used only to finance
Furthermore, cent tax.
General
acceptable foreign bank. Non-residents are
limited loans
lending
Bank. 15 per
to
intermediaries
the loans in American
prevailing
Asian DeveloPment is subject to a
referred
or
export Taxes
on
30
in
design and services, consultancy in
consultancy with the income of
fees the
Section 22(b) which provides by non-resident emoluments,
manpower They are
during income
the of
of the for the aliens
equal
to
services Board of an amount year in foreign
National collection as wages, 30
per
cent
Consultants
and
other
aliens
employed
in
the
regional
or
area headquarters of multinational companies, subject to only a 15 per cent tax on gross income Philippines. In the case of foreign consultants institutions whose projects are foreign-assisted,
•however, are earned in the in government the •rules for
taxation
follow
agreement.
Economic
implications
the
provisions
Balance of payments. Philippines chronic import-substituting investment defeating•. exemption of imports,
incentives•,• Among the on imp,orts, the foreign
One
example
foreign
is
an
the
are
shipping
exported
Another
payments . ... . 1981 the million. example
attempt tosolve the problem by promoting services through
dissipated
industry.
services
on MARINA
is
the
foreign approved
tourism
by
In
amounting
with, not all of this represents because portions of the foreign to be retained abroad for working
and • _. interest , ... Moreover, in worth US$139.5
loan
these incentives seem at times most frequently offered incentives Since some services require large exchange savings or proceeds from
substitution an,d equipment.
industry
To begin exchange allowed
the
•While there•• is balance of _payments and export-oriented
p.ro.m.otlon, or import i mp0_ted materials
shipping
of
the
1980
to
selfare tax amounts export•
the
uos.t
overseas
U85129
an inflow exchange capital,
of
million.
of foreign earnings are amortisation
loans, and contingencies. the importation of 99 ships
industry.
The
tax
exemptions
on imports contribute to the foreign exchange outflows of firms granted incentives. The outflow increased from over US$I million in 1974 to almost US$21 million in 1981, and was US$14 million in 1982 (Philippines receipts lessen
Tourism the balance
Authority). of payments
Moreover, problem
black market. •Many tourists would dollars in the black marke t rather than authorised foreign exchange dealers. unrecorded million recorded would
in by
have
represented
Employment. protectionist Australian such the
by the Central 1978, judging the Ministry
One Bureau
Another when the Philippines,
cent
of
that
tourism of the
convert • their Central Bank or expenditures
amounted between of the year's
to US$146 receipts Bank, This GNP.
of the arguments against dismantling an existing measure is its impact on employme.nt. The of Industry Economics points out, however, that
an argument service sector
(Australia, opportunities• distribution
prefer to with the Tourist
Bank might have, by the discrepancy of Tourism and those 0.6. per
• not all because
neglects which
the important are connected
job-creating •with trade
effects liberalisation.
1980). Trade llberalisation provides in the distribution of imported products and maintenance of capital-embodying new adverse
structure the
impact
of
protectionism
of protectionism tariff concession
31
on
employment and in the technology.
employment
emphasises, as it and compensating
in
does
occurs in tax
the on
imported capital any compensating towards capital
equipment. subsidy intensity.
Protection
This structure of the use of labour,
on
increases
the
costs
of
protection results
in
without a bias
production
in
the
industries using the protected services. It results not only higher consumer prices but also in lower levels of production employment in the industries using the service inputs째 Capital
flows.
flows into all foreign banks and
Table
17
shows
the Philippines. capital in the other financial
areas among foreign aggregate foreign
the
structure
Services Philippines. institutions
investors. investment
make
of up
In are
They between
equity
in and
capital
about a quarter of the services sector, the most preferred
accounted 1970 and
for 15 1981.
per
cent
of
The popularity of _anks as an investment for foreign capital is a direct consequence of the lifting of policies protecting Philippine ownership of banks. This was mainly because of the increased capitalisation program of the Central Bank, which required capital equity
domestic commercial of 100 million pesos, infusion.
The massive liberalisation had been inflow of
of
inflow of capital the protection of
the protectionist foreign capital.
protective
policies
transportation flow of capital Economic
banks either
to
into the ownership
policies Thus, we
towards
the
and consultancy services into these areas.
growth.
Many
services
put up through
a minimum mergers or
banking sector upon indicates that it
that were can deduce ownership
preventing that the of
probably
are
paid-in foreign
insurance,
inhibit
in
the
the highly the
free
nature
of
infrastructure, such as banking, communications, transportation, etc. These infrastructure services must be given priority in the push towards economic growth. Therefore, in a developing economy where these services are not yet adequately produced locally, imports will be necessary. MoreoVer, technology, another requirement for economic growth, can be transferred to the developing country through trade in services. _ Thus we can infer that premature services may It produced one-fourth billion. demand services support
protectionism undermine economic
has for
been shown intermediate of the total This intermediate
for services. amounting the economy's
to
in infrastructure growth.
and
earlier that the amount use was US$4.67 billion intermediate requirements demand was 38 per cent
Table about output.
18 shows that US$16@ million
32
technology
of services in 1978, or of US$18.96 of the total
in 1978, imported were necessary
to
The potential
structure of of an economy.
aimed at benefitS manufacturing against important
17
promoting that segment sector. the to
can alsoaffect protectionism
industrialilsation. of the Services This results in
.,,
unorganised economic
&pproved Se_t,,er
protectionism Philippine
services growth.
foreign 1981
investment
â&#x20AC;˘, Industry
the growth services is
It therefore .. mainly .,.... .. sector linkedwith the effective discrimination
sector
by
in
industr]r,
which
is
21Fehruar]r
Amount_ (US Sm)
potentially
1970
Banks and other financial Mining Commerce Business services Personal services Recreational services Other services Pubiic utilities Agriculture, fisheries Construction Others
institutions
and
forestry
Total
Source:
Central
Bank
of
the
Philippines.
33
,
942.97
51.78
277.28 299.94 104.11 60.65 18.64 0.09 0.01
15.22 16.47 5.72 3.33 1.02 -
49.03 40.78 27.02 0.73
2.70 2.24 1.48 0.04
1821.25
30
Distribution (,t) ........
Manufacturing
to
100.00
. ^
,
TABLE
18
B_eakdownof 197S (US$
imported million)
Service
services
into
(I)
(2)
Intermediate demand
Transportation
_''_:'
Communication
and
Total demand
in_rmediateand
(3) Imports
f4-_l
(4) (3)-(2)
services,
(5) (I)x(4)
1057.4
1943
90.0
.046
48.6
123.2
202
8.7
.043
5.3
Trade
1415.8
4385
Finance
1091.8
1223
22.1
.018
19.7
287.8
996
15.0
.0!5
4.3
88.5
1840
26.7
.015
1.3
117.1
747
100.2
.134
15.7
490.6
i029
150.5
.146
71.6
st0rage
Real
estate
Government, education Hotels
and
health
-
-
and
restaurants Others
Total
imported
services
for
intermediate
Total
imported
services
for
final
Total
imported
services
Source:
-
1978
Interindustry
use
166.5
use
246.7 413.2
Accounts
of
34
the
Philippines.
4
Prospects
Z.ntra-KSEAH
for
within
ASEAN
extends
such traded services and technology. Despite with the other ASEAN
insignificant United States. therefore be relations with which
cooperat£on
in
traded
services
prospects
Cooperation encompassing tourism, services
policy
will
a
broad
compared with developed countries, Policy cooperation in traded geared towards increasing the other ASEAN nations, especially
mutually
Some
over
benefit
progress
has
the
Philippines
been
spectrum,
as transportation, this, the Philippines countries is
achieved
finance, trade in relatively
particularly the services • should Philippines trade in those services
and
the
in
traded
cooperation. For example, in the field of tourism, have agreed on a common• travel document •instead of each of the ASEAN countries fo•r group tours of Intra-ASEAN fares have been introduced to encourage the region.
region. service
governments visas to enter 5-10 persons. travel within
On overseas shipping, a meeting of ASEAN Economic Ministers in 1977 decided to organise an ad hoc working group to devise measures to solve problems in regional shipping. The Federation of ASEAN Shipowners' Association also assigned its national units to undertake investigation• of such problems, with .•the• Philippines stuaying joint shipping services for intra-ASEAN trade. Another meeting of representatives of governments, shippers, and commodity organisations in 1977 urged effective cooperation of shipping bodies on a regional basis. The Philippine Insurance Commission is actively involved in promoting regional cooperation in insurance. In October 1980, it hosted the Sixth Meeting of the ASEAN Insurance Commissioners which advanced •the cause of ASEAN harmonisation of insurance laws and unified forms of insurance statistics.
Philippine-Australian Efficiency Australia interests operate
is and of in
competitive Prospects
prospects the the
prime consideration Philippines in traded
developing terms of
nations efficiently
such run
in cooperation services. It
is
between in the
as the Philippines and internationally
to
enterprises. for
policy
agreements signed between early as 1960, the two relating to the waiver of
cooperation
can
the Philippines countries entered passport visa fees
be
deduced
from
and Australia. into an agreement for non-immigrants.
As
In 1971, they signed an air transport agreement in Manila. There have bean development assistance programs for Zamboanga del Sur and Samar, two of the most troubled areas in the Philippines. A
35
'
trade agreement was signed in Manila in 1975 and, in 1979, the two countries signed a convention for the avoidan.ce of double taxation and the prevention of fiscal evasion of income taxes. Between
ASEAN
and
Australia,
the
Development
Import
Finance
Facility governments origin for
(1980) is intended 'to reduce of importing capital goods and use in developing countries'.
the cost services of The character
to ASEAN Australian of trade
relations merchandise
between trade,
particularly their mutual
in nonwelfare.
Strategies
for
ASEAN and also shows
reducing
The ASEAN emphasis meaningful cooperation â&#x20AC;˘states provides ample in traded services. timetables, bilateral approach
may
be
Australia, respect for
distortions on
friendship, good understanding, and among members and with other friendly room for strategies to reduce distortions For such purposes, adjustments to existing negotiations, and the industry-by-industry
adopted
within
the
framework
of
previous
agreements. On
the
part
of
the
Philippines,
there
is
great
leeway
for
such strategies to diminish existing distortions. Under a Constitutional provision, the President of the Philippines may enter into any international agreement as the national welfare and interest may require without the concurrence of the National Assembly (Sec. 16, Art. XIV). He may also issue decrees, orders, or instructions which form part of the law of the land whenever in his judgement adequately on any action (Amendment
the National Assembly fails matter that in his judgement 6, 16 October, 1976).
However, in assessing economic considerations not to be disregarded. on these matters will
prospects for such as defence It
not
is to greatly
36
be hoped impede
policy and
or is unable to act requires immediate
cooperation, foreign policy
that misunderstandings cooperation.
nonare
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