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Global trade jitters, contractualization E.O. to impact exports

Global trade jitters, contractualization E.O. to impact exports

UNCERTAINTIES in global trade and a stiffer national policy on contractualization may prevent export performance this year from following the usual trend of starting slow but rebounding in the latter months, an export industry leader said on Wednesday.

He explained that exporters will try to curb the impact of the brewing trade tension between the world’s largest economies—China and the United States—threatening to raise tariffs on dozens of products. They are also in the phase of adjusting to President Duterte’s recently issued executive order (EO) on contractual employment.

Sergio R. Ortiz-Luis Jr., president of the Philippine Exporters Confederation Inc. (Philexport), said these are the major factors to the 6-percent slowdown in the country’s commodity exports in the first quarter. Merchandise goods traded outbound dropped by 6 percent in the January-to-March stretch to $15.75 billion, from $16.76 billion during the
same period last year.

“Well, exports went down because of many reasons. Among them is that agriculture went down because they had a supply problem. Second, and [from what] I understand, a lot of our exporters, especially in handicrafts, held off from hiring people and expanding [operations] because of the issue on contractualization,” Ortiz-Luis, in English and Filipino, told the BusinessMirror.

He said firms had to temper plans to employ more workers because the President was signaling he will issue an EO prohibiting fixed-term employment. The EO was subsequently signed, with the President announcing this on Labor Day itself.

“Rather than be saddled with permanent employees that they might not need, what happened is that they waited for a resolution, a policy. That is why you will notice employment significantly went down,” Ortiz-Luis added.

The recent Labor Force Survey (LFS) by the Philippine Statistics Authority (PSA) reported an increase in the country’s employment to 94.7 percent, from 93.4 percent, and a drop in unemployment to 5.3 percent, from 6.6 percent—both year-on-year. Underemployment rate, on the other hand, ballooned to 18 percent from 16.3 percent, according to the January LFS.

The exports slowdown can be treated as normal, Ortiz-Luis explained, as firms usually refresh their inventory of raw materials in the January-to-March period after depleting their
resources from the previous year. This is usually followed by an upward trend in the latter quarters when exporters begin to pick up momentum.

However, the Philexport chief admitted he doubts that export performance will follow this usual trend this year given the uncertainties on both the national and international level. “Right now I cannot really say if we can rebound because lawmakers are still discussing what to make of the endo EO of the President,” he said.

“And on the global level, there is an instability to a certain degree. We cannot really say if we will bounce back as usual, but we are hoping that our exports will rebound,” Ortiz-Luis added.

He pressed legislators in both the Senate and House of Representatives to not “pass something that is not internationally practiced,” referring to a possible law prohibiting all forms of contractual arrangements. “In a world where outsourcing is the trend, those who do not do it are losers, and we don’t want to be the losers,” Ortiz-Luis said.

Electronic products continue to carry the weight for the country’s exports, surging by 5.4 percent to $8.69 billion in the first quarter compared to last year’s $8.24 billion. The sector is seeking to grow by 6 percent this year, the Semiconductor and Electronics Industries Foundation Inc. announced in February.

The target growth is slightly moderate as compared to the industry’s 11-percent hike last year, when electronics exports expanded to an all-time high of $32.7 billion, from $29.4 billion in 2016. The sector also pumped more than half of the country’s commodity exports in the previous year at 52 percent.

As a whole, the government aims to hike export receipts by 9 percent this year, following a 9.53-percent growth in the previous year. It is also looking to hit the lower end of at least a $122-billion export revenue in 2022.

“It is a range target of $122 billion to $131 billion. We are cautiously optimistic that we can at least get to the lower end of that target depending upon the kind of assistance packages that we provide,” said Senen M. Perlada, director of the trade department’s exports marketing agency, in February.

Ortiz-Luis also called on the government to speed up trade arrangements in the pipeline with nontraditional markets, such as Russia, so that exporters can fully utilize them.

The Philippines is eligible to apply for a General System of Preferences with the Eurasian Economic Union, of which Russia is a member, and is now working to apply more than a dozen of its farm goods in the trade privilege.

The escalating trade conflict between China and the US, which Ortiz-Luis cited also as a factor to exports slowdown, was sparked by Washington’s imposition of stiffer duties on steel products. US President Donald J. Trump authorized in March the additional tariffs on steel (25 percent) and aluminum (10 percent) in a move that further cemented the leader’s
protectionist stance.

As a retaliation, China’s Ministry of Commerce announced in April the country’s plan to slap heavier duties on 106 US products amounting to about $50 billion yearly. China also filed a case against the United States at the WTO for allegedly violating the General Agreement on Tariffs and Trade 1994 and the Agreement on Safeguards.

The other factor that will make it difficult for exports to rebound, according to the Philexport chief, was EO 51, which is intended to implement Article 106 of the Labor Code aimed at protecting the security of tenure of all workers.

“Contracting or subcontracting, when undertaken to circumvent the worker’s right to security of tenure, self-organization and collective bargaining, and peaceful concerted activities pursuant to the 1987 Philippine Constitution, is hereby strictly prohibited,” the EO read.

Putting an end to the practice of contractualization was one of Duterte’s campaign promises in the 2016 polls.

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