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Rice imports PHL’s strongest bet for taming inflation — BSP

THE central bank expects the proposed rice tariffication law to help bring inflation back to within its preferred range, while projecting the inflation-dampening impact of suspending fuel tax hikes at only fraction of a percentage point.
The Bangko Sentral ng Pilipinas (BSP) said on Wednesday at a Senate hearing that the suspension of the P2 per liter fuel excise tax scheduled for 2019 will shave an estimated 0.2 percentage point off the full-year inflation rate, a reduction that could still be wiped out should global crude prices rise further.
By way of contrast, more liberal rice imports being contemplated under the proposed rice tariffication law have the potential to bring inflation back to the bank’s 2-4% target range, after the indicator hit a nine-year high of 6.7% in September, bringing the year to date average to 5%.
“With rice tariffication we see inflation being reduced by about 0.7 percentage point for 2019. It should bring us squarely within the inflation target band,” said BSP Assistant Governor Francisco G. Dakila, Jr.
Inflation has been driven by, among others things, higher global fuel prices and disruptions to the rice supply, which economic managers hope to counter by more freely importing cheap foreign rice, in exchange for a tariff that will help fund programs to make domestic farmers more competitive. But they have tended to minimize the inflation impact of tax hikes to insulate the government’s revenue-generating capability from political pressure.
According to the BSP’s estimates, “if the fuel excise tax is suspended over the whole of 2019, we see inflation coming down by 0.2 percentage point,” Mr. Dakila said.
Mr. Dakila said such a reduction would result in inflation falling to 4.1% instead of the forecast 4.3% for 2019.
However, assuming the Dubai crude benchmark continues to average around $80 per barrel (/bbl), the BSP said that the inflation rate will fall by only 0.1 percentage point, with the impact diminishing further if the suspension is lifted sometime that year
“If the suspension is for a portion of the year, the impact on inflation would correspondingly be smaller,” he said.
In a bid to temper inflation expectations, economic managers recommended to Malacañang the suspension of a scheduled P2 per liter fuel excise tax in 2019 after oil futures signalled crude prices of above $80/bbl in the last three months of the year. Malacañang committed to suspend the tax hike, but has yet to come out with an official order implementing the measure.
According to the Tax Reform for Acceleration and Inclusion (TRAIN) law, the succeeding tax increases will be halted when Dubai crude oil averages $80/bbl or above in the preceding three months of its implementation. The law raised fuel excise taxes by P2.5 per liter this year, and is scheduled to increase it by P2 per liter in 2019 and P1.5 per liter in 2020.
The Department of Finance (DoF) is currently reviewing the implementing rules and regulations of the suspension of the tax hikes, as well as the conditions for reinstating them. The DoF said the trigger for resuming the tax hikes is when the Dubai crude benchmark averages below $80/bbl in any three-month period.
Mr. Dakila however said Dubai crude could fall next year based on signals from the futures market, with some contracts for future delivery falling below the $80 trigger level.
Finance Undersecretary Karl Kendrick T. Chua said during the same hearing that the government will suspend the 2019 fuel tax hike for “three months at most,” given the expected decline in fuel prices.
Senator Sherwin T. Gatchalian, who chaired the hearing, sought a longer suspension period of “six months” to be able to give the public more relief as world oil prices are expected to fall further towards the latter part of the year.
Mr. Gatchalian also said that since the government wanted to suspend the fuel tax hike scheduled for 2019 before the three-month trigger period provided for by law, corresponding adjustments may require legislative action.
“The proposed fuel tax suspension requires congressional action. Section 43 of the TRAIN Law on the automatic suspension of the fuel tax will not apply because the proposed suspension is not based on the breach of the $80 threshold as provided in the law. Therefore, the Executive will not be able to unilaterally suspend the fuel tax without congressional approval,” he said.
Ronilo Balbieran, Vice-President for Business Development at the Research, Education and Institutional Development (REID) Foundation, Inc. said in the same hearing that a six-month suspension “will be enough,” as a 150 basis-point increase in policy rates will have kicked in by then. — Elijah Joseph C. Tubayan

TRAIN collections ahead of target at P33.7 billion

REVENUE generated by the Tax Reform for Acceleration and Inclusion (TRAIN) law amounted to P33.7 billion in the first half, exceeding the P30.1 billion target, the Department of Finance (DoF) said.
Finance Undersecretary Karl Kendrick T. Chua told the Senate that TRAIN revenue is “on the dot,” in a presentation during a Senate hearing yesterday into the fuel excise tax suspension for 2019.
The revenue generated is equivalent to 53.23% of the DoF’s downward-revised full-year target of P63.3 billion.
“We are on track,” Mr. Chua said.
The Development Budget Coordination Committee initially estimated total TRAIN revenue for 2018 at P89.9 billion, but this was lowered by P26.6 billion due to the delay in implementation of the e-invoicing system and the fuel marking program provided for under the law.
In the first half, TRAIN revenue included excise tax collections of P55.8 billion, below the P69.6 billion target.
TRAIN-related excise taxes collected from petroleum, sugar-sweetened beverages, coal, and minerals were short of their targets, while those raised from tobacco and automobile levies exceeded their goals.
Value-added tax (VAT) collections meanwhile totaled P300 million, far short of the P18.6 billion target.
On the other hand, foregone revenue from reduced income taxes was lower than expected at P51.5 billion compared to the P70.5 billion projected.
Other sources of TRAIN revenue meanwhile generated P29.1 billion, above the P12.4 billion target.
Data from the Bureau of Internal Revenue show that TRAIN-related revenue for the eight months to August was only P10.6 billion — well below the P41 billion estimate for the period — largely due to forgone VAT revenue and collection shortfalls from petroleum, coal, and sugar-sweetened beverage excise taxes.
But Mr. Chua called the BIR data “inaccurate,” and “still being reviewed,” as the raw data have yet to reflect the big picture of TRAIN’s actual impact.
“VAT, we see very low collections. We are actually trying to understand. Maybe some of the VAT payers shifted away from the VAT, to percentage tax,” he said.
TRAIN, or Republic Act No. 10963, reduced the number of VAT exemptions for individuals, but raised the VAT-exempt threshold to P3 million in gross sales, from P1.9 million previously, for self-employed persons and professionals.
“Another reason for that is our large importation for capital equipment for the ‘Build, Build, Build.’ We are charging more input than output VAT…so there will be a temporary net VAT shortage but it also means that once the infra is built and used, they will generate output VAT.,” added Mr. Chua.
He also said that the lower-than-expected revenue from sugary drinks was due to the delay in the issuance of the implementing rules and regulations, as different types of drinks incur varying tax rates.
“We had to determine for certain products if they are milk or non-milk products because milk determines whether you are exempt. There were also issues about whether that product contains regular sugar or syrup,” he said.
Mr. Chua said that it is more accurate to measure the full-year revenue impact of TRAIN.
“On petroleum, there’s also a timing problem because in the first 45 days we do not expect any collection. The gasoline stations held a buffer stock,” he said, acknowledging that stock may have been built up before TRAIN took effect to avoid the excise.
“There are many reasons why it is hard to (estimate). We prefer to look at the entire year,” he said.
Budget Assistant Secretary Rolando U. Toledo said that the fuel marking program will be awarded to the winning bidder “within the month or hopefully within the week.”
He said that it is “possible” that the foregone revenue was due to smuggling of fuel amid the delay in the fuel marking program.
Meanwhile the DoF reiterated that it is seeking assistance from South Korea to establish an e-invoicing system within the next two years.
“We’d rather have these measures properly than rush and have it not work. So we want the procurement done properly. We want the trust receipts prepared better, we want the invoicing and studied better rather than rushed, collecting some, and not sustaining it,” said Mr. Chua. — Elijah Joseph C. Tubayan

NTC to testify this week in Now Telecom injunction hearing

THE National Telecommunications Commission (NTC) will testify on Friday, Oct. 26, in a hearing for an injunction sought by Now Telecom Co., Inc. over the selection process for the telecom industry’s new entrant, the so-called “third player.”
Now Telecom, an affiliate of listed Now Corp., offered its evidence yesterday, Aldrich Fitz U. Dy, counsel for Now Telecom, told reporters after the hearing at the Manila Regional Trial Court Branch 42.
Now sued on Oct. 9 to block some of the selection terms including various security deposits required of bidders. It contests the terms of reference for selection that require a P700 million “participation security,” a P14 to P24 billion performance security, and a P10 million non-refundable appeal fee
Mr. Dy said it presented to the court letters it sent to the NTC, two witnesses who were present at the public hearing discussing the terms of selection, and its “position paper wherein we detailed certain observations with respect to the memo circular which have not been considered by the NTC when they finalized the memorandum circular.”
An earlier request for a temporary restraining order (TRO) was rejected, with the court citing the petition’s failure to meet the standards for issuing a TRO.
Mr. Dy said that despite the denial of the TRO, Now Telecom is not discouraged from pursuing the application for preliminary injunction.
“The Court is still receiving evidence so were hopeful that this is the avenue for us be able to present evidence in support of our application for writ of preliminary injunction,” he said.
He said Now Telecom is not asking the court to stop the selection process, saying it wants a neutral party to decide on its objections to the selection terms.
The Department of Information and Communications Technology has set the deadline for submission of bids for third-player selection on Nov. 7. — Vann Marlo M. Villegas

DA to test anti-counterfeiting technology for import permits

THE Department of Agriculture (DA) hopes to conduct a pilot text next year of chip-embedded import certificates to deter falsification of the documents.
In an interview, DA Minimum Access Volume (MAV) Secretariat Executive Director Clint D. Hassan said, “Sooner or later we will embed chips that will stay connected to the cloud.”
“We are hoping for pilot implementation by early next year,” Mr. Hassan said. According to him, the new technology will be paid for by the DA and would come at no additional cost to importers.
According to Mr. Hassan, the system preserves the original data even should permits be damaged. It also prevents importers from presenting fake import certificates. — Reicelene Joy N. Ignacio

US sets PHL sugar export quota for 2018-2019

THE United States has allocated an initial volume of 142,160 metric tons raw value (MTRV) or 136,201 metric tons commercial weight (MTCW) of sugar for the Philippines as its quota for 2018-2019, according to Sugar Order No. 3 of the Sugar Regulatory Administration (SRA).
The quotas effectivity period is Oct. 1 to Sept. 30, 2019. The allocations will be awarded to sugar exporters on a first-come, first-served basis.
All “A” or US quota sugar quedan-permits validated and re-validated pursuant to Sugar Order No. 4, series 2014-2015 dated Oct. 10, 2014 (regular, swapped, verified, or reinstated) are eligible for verification, according to the order.
In case an exporter has sold its verified “A” quedan-permits to another party, the allocation of that exporter is deemed cancelled, and the “A” quedan-permits shall be again subject to verification by the SRA for allocation on a first-come, first-served basis.
The SRA said that it is necessary to ensure that the full quota is shipped to the US after the verification of “A” quedans is completed. — Reicelene Joy N. Ignacio

DTI adjusting industry plans amid trade war

THE Department of Trade and Industry (DTI) said it is in talks to adjust its various industry road maps in response to disruptions in the domestic and international markets, including the US-China trade dispute and inflation.
“With abrupt changes in the domestic and external markets such as the trade war involving major trading economies, heightened inflation, rising imports and the export slowdown, we need (stakeholder) inputs as we continue to formulate our policies and programs to better address these changes,” Assistant Secretary for the DTI’s Industry Development and Trade Policy Group (IDTPG), Rafaelita M. Aldaba, was quoted as saying in a statement on Wednesday.
The DTI started discussions with the business process outsourcing industry last month. Discussions due to take place this month involve the mining, tourism, paper, book publishing and printing sectors.
In November, the DTI will consult the construction; mass housing; cement and ceramic tiles; agribusiness; metalcasting; tool and die; and shipbuilding and ship repair sectors.
In December, it hopes to meet with the furniture, jewelry and gifts, decor and houseware sectors.
It will seek talks with the automotive, aerospace, electronics and appliances sectors before the year ends, but at unspecified dates.
“We have to re-engage the stakeholders as we’re seeing changes in the environment,” Trade IDTPG Undersecretary Rodolfo S. Ceferino said.
“These TID [trade and industry development] talks are instrumental in development and implementation of the industry road maps. As we deepen our discussions on the action points of these road maps, we can readily map out what will happen in these industries and what changes are needed,” Mr. Rodolfo, also the BoI Managing Head, added.
The discussions will generate updates on both sides’ programs, projects and concerns affecting the competitiveness of the various respective industries.
Mr. Rodolfo said core strategies remain in place. Among the priorities is increasing the ability of domestic industry to service domestic demand currently supplied by imports.
“That is why we need to identify what critical investments are needed in order to localize the products and services that we are now importing,” Mr. Rodolfo added.
The undersecretary also said the DTI continues to seek non-traditional trading partners and improve the overall business environment as the Philippines positions itself as a manufacturing and services hub for the Association of Southeast Nations. — Janina C. Lim

Bid deadline set for Manila Thermal Power site

STATE-LED Power Sector Assets and Liabilities Management Corp. (PSALM) has given interested buyers until Nov. 23 to submit their bids for the site of the decommissioned Manila Thermal Power Plant used to stand.
In an advertisement published on Wednesday, PSALM has issued an invitation to interested parties to the land with an indicative area of 20,975 square meters in Paco, Manila at a minimum bid price of P736.368 million.
The land, which the agency is selling through eight lots, used to host a power plant that supplied electricity to the Luzon grid. The facility was decommissioned in 2000 and privatized in 2009.
PSALM has set the schedule of bidding activities, including the due diligence on Oct. 22 to Nov. 21, and the pre-bid conference on Nov. 5. The agency previously auctioned the property but ended up without any interested bidders.
In August, PSALM President and Chief Executive Irene Joy B. Garcia said a “road map” for a second round of bidding was being finalized after declaring the public auction a failure when no bids were received as of noon on Aug. 15, 2018.
She had said PSALM would look into the reasons why the four bidders, who initially purchased bid documents, decided to eventually not participate in the bidding.
When the power plant was privatized in 2009, largely for the remaining value of the structure, the proceeds were used to liquidate maturing power sector debts.
The privatization paved the way for a complete clean up of the land where the plant used to sit, ahead of the site’s disposal.
PSALM said the property has a potential commercial value because of its proximity to Manila’s business district.
It said the proceeds from the sale of the underlying land would help augment the agency’s funding sources for the management of its assumed liabilities.
PSALM was created under Republic Act No. 9136, the Electric Power Industry Reform Act (EPIRA) of 2001, the law that restructured the Philippine power sector. It took over the ownership of all existing government-owned power generation assets. Its principal purpose is to manage the orderly sale and privatization of these assets. — Victor V. Saulon

DoE wants to boost share of power traded on spot market

THE Department of Energy (DoE) wants the volume of electricity traded on the spot market to increase by encouraging more private entities to put up merchant power plants, or those without an approved power supply agreement (PSA).
“Our objective is to increase the volume (share) of the spot market to 20%,… so there will really be a supply and demand play, there will be real demand and supply interaction,” Energy Secretary Alfonso G. Cusi told reporters.
Mr. Cusi said he was pinning his optimism on China putting up coal-fired power plants in the Philippines as “merchants” or power generators whose energy output is traded at the electricity spot market.
In May, he said he asked China that instead of extending grants, it should urge Chinese companies to come to the country and build power plants. He said companies came over to study the market and were initially looking to build four coal-fired power plants in Luzon and the Visayas with a total capacity of 1,500 megawatts (MW).
“I hope that when [China’s] President Xi Jinping arrives this November, he will have — hopefully, I’m not saying he will — good news for us that there will really be these power plants that will be put up in the Philippines,” Mr. Cusi said.
He said the merchant plants may opt to enter into PSAs later, but in the near term he prefers them to trade their output at the spot market. He had said that PSAs had tied consumers to high power prices in long-term contracts.
“What is the use of the spot market or the WESM (Wholesale Electricity Spot Market) if all the supply is already contracted,” he said.
Mr. Cusi said he understands that it would be hard for a power developer to build a plant without a PSA “because of bankability,” referring to the requirement of lenders that plant builders obtain a signed power supply contract before providing project financing. A PSA ensures a steady stream of revenue, assuring loan repayment.
During the discussions he had with China’s National Energy Administration, the parties signed a memorandum of understanding for a draft a master plan for the country’s power distribution and transmission sectors.
The talks took place during the bilateral meetings during President Rodrigo R. Duterte’s visit to China in April for the Boao Forum for Asia in Hainan province. — Victor V. Saulon

A gift for mothers: Extended maternity leave

After more than two decades and several failed attempts, the bicameral committee finally approved draft legislation increasing the paid maternity leave benefit for working women. To be called the “105-Day Expanded Maternity Leave Law” if enacted, it will amend Republic Act No. 7322 of 1992, which at present entitles mothers to paid leave of 60 days for normal delivery or 78 days for caesarian section delivery.
The draft stresses that the State recognizes women’s maternal functions as a social responsibility and seeks to uphold women’s rights to health and decent work. Accordingly, the legislation intends to grant women ample time to regain their overall wellness, as well as time to nurture their newborn before resuming work.
The draft stipulates that maternity leave shall be granted to female employees in every instance of pregnancy, miscarriage or emergency termination of pregnancy, regardless of frequency. This means that the maternity benefit shall be provided with no limit on the number of pregnancies or miscarriages – a definite improvement from Republic Act No. 8282 or the Social Security Law which only provides paid maternity leave for the first four deliveries or miscarriages.
Female employees in the government sector and private sector, with or without pending administrative cases, including voluntary members of the Social Security System (SSS) in the informal economy shall be covered by the Act regardless of civil status and legitimacy of the child.
Maternity leave period shall be increased to 105 days with full pay for both normal and caesarian section delivery. Solo parents, as defined under Republic Act No. 8972 or the “Solo Welfare Act,” shall be entitled to additional paid leave of 15 days. However, the existing maternity leave period of 60 days with full pay shall continue to apply in cases of miscarriage or emergency termination of pregnancy. In addition to the standard number of leave credits, the leave can be extended at the option of the employee by up to 30 days but without pay. The employee, however, must notify her employer of the extension, in writing, at least 45 days before the end of her maternity leave. In case of medical emergency, no prior notice is necessary but subsequent notice shall be given advising the employer of the employee’s health condition.
Leave of up to seven days can be allocated to the father of the child, whether or not he is married to the female employee. In case of death, absence, or incapacity of the father, the allocated days may be assigned to an alternate caregiver who must be a relative up to the fourth degree of consanguinity or the current partner of the employee. In order to allocate the leave credits, written notice must be submitted to both employers of the female employee and alternate caregiver. In case the female employee dies or is permanently incapacitated, the balance of the unused maternity leave shall accrue to the father of the child or to the alternate caregiver.
In availing the maternity leave, the legislation emphasizes that postnatal leave should not be less than 60 days.
By law, the SSS pays the daily maternity benefit of the employee computed based on the employee’s average monthly salary credit. In addition, SSS members and non-members can avail of the maternity benefits covering health care services from the Philippine Health Insurance Corp. (PhilHealth) provided that they have complied with its membership rules and benefit requirements.
In order for SSS members to be eligible to claim maternity benefit, the employee should have paid at least three monthly contributions in the 12-month period immediately preceding the semester of delivery, miscarriage, or emergency termination of pregnancy. Also, the employee should have notified her employer of her pregnancy so that the SSS can also be notified by the employer accordingly. In cases where the employer failed to remit the required contributions of the employee to the SSS or the employer has failed to notify the SSS of the pregnancy, the employer shall pay damages to the SSS equivalent to the benefit which the employee would otherwise have been entitled to.
In addition, it provides that the paid maternity leave shall be exempt from income tax. This means that the entire pay to be received by the employee during her maternity leave will soon be tax-free, compared to the existing exemption under Section 32(B) of the Tax Code which only covers benefits received from the SSS.
Furthermore, the legislation protects women from employment discrimination, as well as provides security of tenure for those who avail of the benefit. Maternity leave shall not be used as basis for demotion or termination of female employees. However, parallel transfer or reassignment from one unit to another shall be allowed so long as it does not involve a reduction in rank, status, salary, or otherwise amount to constructive dismissal.
To add teeth to its provisions, it imposes penalties for non-compliance. Violators shall be punished by a fine ranging from P20,000 to P200,000, or imprisonment of six years and one day up to a maximum of 12 years, or both. Last but not least, non-compliance shall also be a ground for non-renewal of the employer’s business permit.
It is with high hopes that we await the legislation’s signing into law soon. Since the Constitution recognizes the Filipino family as the foundation of the nation, it is essential that mothers, who are considered the life-giver and light of the family, be cared for and protected.
The views or opinions in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
 
Janeth A. Parcon is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
janeth.a.parcon@ph.pwc.com

Where to with Philippine bilateral trade?

Please allow me to share with you a recent report by Moody’s Analytics, which I believe is very relevant particularly to those who are very concerned with the ongoing trade war between the United States and China. Essentially, Moody’s Analytics noted that “US trade policy has the potential to do more harm than good for US manufacturing and the broader economy, particularly if more protectionist policies are implemented by the US or if its trading partners retaliate.”
The report, titled “Pride and Protectionism: U.S. Trade Policy and Its Impact on Asia,” offered three trade scenarios and their resulting impact on US, Chinese, and the Asian economies. The report used the “Moody’s Analytics Global Macro Model,” which reportedly covers more than 70 countries linked via trade flows, foreign direct investment, commodity prices, and financial markets.
SCENARIO 1: EXPECTED TARIFFS (50% PROBABILITY)
The first scenario assumes the current US tariffs on $311 billion of imported goods, with no further retaliation, and tariffs on $134 billion of US exports. If this is the extent of the tariff increases, then while not good for the US and global economies, the overall impact will be limited.

• US: Real GDP would fall just over 0.13 percentage points at the peak of the impact a year from now, and 200,000 jobs would be lost over the period. The economic impact outside of the US will be comparable.

• China: GDP growth would fall by 0.03 percentage point in 2018 to 6.67%, and in GDP in 2019 would be 0.09 percentage point below the no-tariffs baseline to 6.28%. The unemployment rate would remain at baseline levels through 2023, but consumption would soften and drive down house price growth by 0.14 percentage point in 2019 to 2.76%. China’s stock market would be most affected as retail investors continue to pull out of the equity markets.

• Asia: The rest of Asia is not immune, but the hit to GDP growth would be negligible: real GDP growth would decline by only 0.02 percentage point in 2018 and 0.08 percentage point by 2019, impacted mostly by exports.

• Specific sectors: However, reduced global trade flows would drag on commodity prices and have a pronounced impact on commodity export-oriented countries such as Australia and Indonesia. A slowdown in regional demand would also hurt India’s petroleum-related exports.

SCENARIO 2: THREATENED TARIFFS (40% PROBABILITY)
This scenario assumes that all tariffs that US President Donald Trump has threatened are implemented, including a 15% average tariff on $800 billion in US imports. This total includes $275 billion in vehicle imports subject to a 25% tariff. This scenario also assumes a 15% tariff on an additional $475 billion of US exports. If actually implemented, close to one-third of all imported goods into the US would be subject to higher tariffs. Assuming that impacted US trading partners would respond with in-kind tariffs on US goods, the macroeconomic consequences would be more serious.

• US: Real GDP would decline by 0.5 percentage point and employment by 700,000 jobs at its peak.

• China: GDP growth would fall by 0.07 percentage point in 2018 to 6.62% and in 2019 would be 0.42 percentage point below the no-tariffs baseline at 5.95%.

• Asia: Real GDP growth would decline by around 0.06 percentage point in 2018 and 0.38 percentage point in 2019 before recovering in 2020.

• Specific sectors: Economies that are important tech hubs throughout Asia, such as Taiwan, Malaysia, Hong Kong and Singapore, would suffer from tariffs on Chinese tech exports to the US simply because of their role in the supply chain.

SCENARIO 3: TRADE CONFLAGRATION (10% PROBABILITY)
This scenario assumes an across-the-board 25% hike in tariffs on US-China trade, coupled with Chinese “qualitative” measures that complicate doing business in China for American companies.

• US: Under this scenario, the US economy would descend into recession by the second half of 2019. Real GDP would decline by 1.8 percentage points by early 2020, costing the economy almost 2.6 million jobs. Unemployment would rise to well over 5%.

• The rest of the global economy would also suffer, although a stronger US dollar would somewhat mitigate the impact.

• China: GDP growth would drop by 1.19 percentage point to 5.18% in 2019 and 0.19 percentage point to 5.64% in 2020. The stock market would also fall sharply, declining by 9.4% in 2019.

• Asia: GDP growth would fall around 0.24 percentage point in 2018 and 0.92 percentage point in 2019 before recovering modestly in 2020.

• Specific sectors: Under this scenario, too, tech hubs (Taiwan, Malaysia, Hong Kong, Singapore) would be severely affected, while commodity producers (Australia, Indonesia) would face lower prices. Foreign direct investment would fall in India.

These scenarios become doubly important in light of the report that the trade tiff is now worrying finance ministers in the Asia-Pacific region. APEC finance ministers meeting recently in Port Moresby, Papua New Guinea, expressed concern that the trade war between the world’s two largest economies was endangering the economy of the entire Asia-Pacific region.
In a statement, the ministers said risks to the global economy have gone up given the “heightened trade and geopolitical tensions.” While this was more in reference to the US-China tiff, it can also include the ongoing crises involving Iran and Saudi Arabia that has impact on global oil supply and prices.
In a report on the APEC meeting by the Agence France-Presse out of Sydney, as published by the Philippine Star, Papua New Guinea treasurer Charles Abel was also quoted as warning that “protectionist trends stemming from trade tensions and the buildup of debt are troubling and a real threat to development and prosperity right around the APEC region.”
“Amid concerns that the Trump administration was pursuing a strong dollar policy and persistent suspicions that China is similarly manipulating currency exchange rates to gain a competitive edge, the group did say it would ‘refrain from competitive devaluation and will not target our exchange rates for competitive purposes,’” the AFP report added.
Only recently, Trump said his government would impose billions of dollars’ worth of additional tariffs on Chinese goods, alleging that China has been systematically cheating on globally agreed trade rules, AFP reported. In turn, it said, Beijing is taking retaliatory measures to protect its economy’s growth.
Chinese President Xi Jinping is expected to visit the Philippines next month. For sure, trade and economic matters will be in the agenda when he meets President Duterte. Meantime, BusinessWorld has reported that the Philippines and the US are now working to resolve a number of pending bilateral trade issues, in light of the possibility of signing a new free trade pact in the future. How we move forward with these two developments can make a big difference on our trade fortunes.
I was in Singapore in late 2004. Lee Hsien Loong had just succeeded Goh Chok Tong as Singapore’s third Prime Minister, and Goh had just been named Senior Minister, a post he held until 2011. In a meeting with Goh at the Istana, I recall him mentioning Singapore’s effort to attract more investments from the Middle East.
This was about three years after 9/11, or the September 11, 2001, terrorist attack on the World Trade Center in New York, and still the height of strained relations between the US and the western world and the Arab and Muslim world. With US allies having become skeptical of Arab money, investment opportunities for the latter became limited at the time. And, in that crisis, Singapore saw an opportunity and made the most of it.
Today, given the obvious competition between the two world’s two largest economies, the Philippines should also take advantage of the situation to get the best deals from both countries. While being a friend to all and a foe to none is easier said than done, now is the time for the Philippines to brush up on diplomacy and negotiating tactics as it tries to put the nation’s interest ahead of anyone else’s. We are living in very interesting times. In crises around us, we should realize the opportunities for advancement or advantage.
 
Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council
matort@yahoo.com

Swiss integrity

I attended the Managing and Teaching Business Ethics conference at Lassalle-Haus, Bad Schönbrunn, Canton of Zug, Switzerland, from May 13 to 16, 2018. The conference aimed to strengthen both the theoretical discourse and the practice of corporate ethics. This conference is year two of a three-year event. The first was held here in the Philippines for the Asia-Pacific Region, and was hosted by Ateneo de Manila University. This year’s conference was hosted by Lassalle-Haus for the European and African region, and next year’s event will be at Sta. Clara University, California, for the Americas.
One of the guest speakers was Eva Häuselmann, the founder and managing partner of despite Ltd., a consulting company in Switzerland. She presented a conceptual framework used to measure integrity. It is used for assessing people for positions of trust and for designing leadership development programs that emphasize a culture of integrity.
The framework has three dimensions: 1) value compass; sensitivity to value conflicts; 2) judging and decision-making in line with company values; and 3) principled, courageous, and firm behavior. Each candidate is rated on a scale from 1 (low) to 4 (high). From 2012 to 2016, 108 applicants were rated, and 25% were rated top candidates (those who rated 4 in all three dimensions). Candidates (59%) garnering mostly 3’s and 4’s were rated as good candidates. Candidates who rated below 2 were classified as having risk areas.
The same framework is used in leadership training, with the goal of developing moral competencies. Training modules include Self-Awareness and Self-Reflection; Knowledge (code of conduct and behavioral ethics); Behavioral competencies; and Corporate Values (including responsibility, gratitude, and fairness).
Candidates who pass this test emerge as visionary leaders who are able to balance their moral values while focusing on pragmatic business solutions.
I thought it would be difficult to encounter a person who would embody these three dimensions, let alone be a true visionary leader. But just three days later, I would meet such a person.
On the last day of the conference, we left our wonderful mountaintop retreat to visit Victorinox. The company, founded by Karl Elsener in 1884, started as a knife cutler’s workshop in the village of Ibach in central Switzerland. In 1891, Karl Elsener supplied knives to the Swiss Army for the first time. He went on to develop the Swiss Officer’s and Sports Knife – now the iconic Swiss Army Knife – in 1897, creating the foundation for a flourishing company that would be able to hold its own on the world stage. The company is still family-owned, and its founding values of integrity, solidarity, deep roots in the region, openness, trust, gratefulness, risk-taking, and responsibility have shaped the Victorinox company philosophy.
We started with a factory tour, which showed the intricate steps of knife-making. I was very impressed by how their factory was run sustainably, using recycled steel and aluminum and energy-efficient machinery. Throughout the factory, large picture windows not only bring in natural sunlight, but also provide a breathtaking view of the beautiful Alps. We were introduced to their skilled technicians, local Swiss workers, most of whom have been with the company for over 20 years. We also saw apprentices, fresh from school, training to be the company’s future technicians and engineers. Because the work is tedious and repetitive, the workers are encouraged to be multi-skilled so they can rotate departments and tasks.
Our tour ended with a talk by Carl Elsener Jr, the current CEO and great-grandson of the founder. His presentation highlighted how his family’s ensuring values have resulted in their company’s continued success.
But what impressed me the most was the man himself. Using the above-mentioned framework, I realized that he was a true ethical leader. He has the moral compass that allowed him to be very vocal about his Christian values. He has aligned his judgment and decision-making with the company’s values by prioritizing long-term strategies over short-term profitability. Finally, he showed principled, courageous, and firm behavior when he steered the company through the post-9/11 crisis without having to let go of a single employee for economic reasons.
At the end of his talk, one of my co-participants from the Philippines asked about the risk of unstable workers running amok, given the presence of all the sharp instruments. However, based on his reply, he did not understand where she was coming from. He talked about how the company engages ergonomic experts to ensure the workers’ body integrity and how the company ensures continued job satisfaction.
I concluded that this modest, humble, and hardworking executive, who thinks in generations, cannot envision the possibility of havoc in his Swiss mountain paradise.
 
Pia T. Manalastas is the Graduate Program Coordinator of the Management and Organization Department of the Ramon V. Del Rosario College of Business, De La Salle University. She teaches Lasallian Business Leadership with CSR and Ethics and Business Communication.
pia.manalastas@dlsu.edu.ph

Capitalism and electricity distribution

Yesterday, a lecture on “Capitalism and inclusion under weak institutions” was delivered by national scientist Dr. Raul Fabella, my former professor at UP School of Economics and fellow columnist here in BusinessWorld. Another columnist Romy Bernardo mentioned the lecture in his column here last Monday.
Dr. Fabella talked about the primacy of fighting poverty and not inequality per se, the unwarranted expansion of state and politicians’ powers and regulations to sectors and services that are beyond their competence, the resulting government failure as government intervenes more and more supposedly to correct a perceived market failure, the consolidation of capital and investments into conglomerates that can somehow check the government’s over-arching interventionism, both local and national.
When applied to an ongoing legislative dispute between existing distribution utility (DU), Panay Electric Company, Inc. (PECO) serving Iloilo City, and newcomer MORE Electric and Power Corp. (MORE Power), the issue of “weak but over-arching institutions” of government comes to fore.
power line
The PECO franchise bill at the House of Representatives was filed in Congress in July 2017 and after two hearings in November that year, end of story. MORE Power franchise bill on the other hand was filed only in August 2018 and was passed on third reading in just one month, faster than even Malacañang’s priority bills.
I asked some friends living in Iloilo City, two of whom are faculty members of UP Visayas, how their experience is with PECO, if bad or good in terms of pricing and power supply stability.
One friend who also frequents Manila and Zambales said, “I haven’t noticed a real difference between PECO and Meralco and the electric cooperative in Zambales. In my 15 years in Iloilo, the reliability of electricity has certainly increased. We used to regularly suffer from blackouts — once a week or more though often for only a few minutes — but that is no longer the case. I am not sure why. It could be because of the coal power plants that were built more than PECO. I’m just offended that Imperial Manila gets to decide this issue. It seems to me that the people who have to live with PECO should be the ones that make the decision.”
Good points – why the franchise and permit to operate electricity DUs and cooperatives are centralized in Congress and not decentralized in provinces and cities where the DUs operate? Because of the Constitution.
A related point, why financially-muscular MORE Power would go for legislation and take over an entire franchise area – which is very politically controversial and generator of business uncertainty – when they can compete with PECO and all other DUs and electric cooperatives nationwide via the retail competition and open access (RCOA) provision of the EPIRA law of 2001?
Becoming a retail electricity supplier (RES) to serve the “contestable customers” (CCs) or those that consume 750 kW or more is not politically controversial, will not require a Congress franchise, only an ERC accreditation, and one can go national and compete with several other RES.
Below are some numbers on the implementation status of retail competition. It is a good guide for those contemplating to enter the Philippines’ electricity supply and distribution sub-sector. Minus the Supreme Court TRO on RCOA implementation around February 2017, the number of CCS and RES players should be expanding fast by now.
Electricity
By going through legislative assault where Congress sat and did not act on the franchise renewal of PECO while its own franchise bill was approved in legislative lightning speed, MORE Power has put itself in the eye of public criticism of legislative favoritism if not cronyism.
Perhaps this is a lesson that the power of the legislature to create franchises should be removed in the Constitution. Like power generation, power distribution should be deregulated and non-franchised.
Capitalism in electricity distribution must get accreditation only from DoE and ERC which assess players based on technical grounds, not on political and cronyism factors.
 
Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers
minimalgovernment@gmail.com

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