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Sugar stakeholders seek bigger role in moderating imports

THE Confederation of Sugar Producers (CONFED) is lobbying for a bigger role in moderating sugar imports, saying volumes should be based on projected domestic production shortfalls relative to demand.

The sugar producers are seeking to impose some measure of control on imports after economic managers cited the example of freeing up the rice import market as a possible model for sugar.

“CONFED reiterates its position is no longer avoidable due to the industry’s inability to meet domestic demand, these imports must henceforth be calibrated on the basis of a careful analysis of projected production versus demand, and in consultation with industry stakeholders in which the SRA (Sugar Regulatory Administration) would be the lead agency,” Raymond V. Montinola, spokesperson of CONFED, told BusinessWorld in a text message.

Finance Secretary Carlos G. Dominguez III said in July that the government is taking a close look at sugar import liberalization because price of the domestic product is double the world market price, weighing on the competitiveness of the food processing industry.

Mr. Montinola said the process of making accurate supply and demand projections will require updating industry data on area under cultivation and production estimates from various sugarcane-growing districts, as well as demand estimates from industrial users, food exporters, and domestic consumers.

He also called for better utilization of funding under the Sugarcane Industry Development Act (SIDA).

Asked to comment, Rolando T. Dy, executive director of Center for Food and Agribusiness of University of Asia and the Pacific, said sugar planters and food processors should first reach a “happy compromise” on the possible liberalization of sugar imports given their different needs.

“The former employs hundreds of thousand workers in Negros with no immediate alternative; the latter needs properly priced sugar to compete,” he said in a text message.

He also noted other considerations, such as “1) How competitive are our sugar-based products… like dried mango and banana chips?; 2) How competitive are our local sugar-based products compared to imports like biscuits from Malaysia?; 3) How much sugar is needed (for import) out of total demand?”

Eliseo R. Ponce, an international consultant specializing in Agriculture and Rural Development, said only sugar liberalization can drive the industry to become more competitive.

“We are so far behind… Sugar productivity is not at par with countries like Colombia or even Thailand, so dapat i-angat natin ‘yung (we need to improve) sugar productivity, to improve our production system, the varieties we plant,” Mr. Ponce said.

Mr. Ponce is a former director of the Bureau of Agricultural Research.

“Also the cost of production. We are not as mechanized as Thailand. We are still depending on manual labor,” he added. — Vincent Mariel P. Galang

Power cooperatives seek new mandate for NEA

WIKIPEDIA

ELECTRIC cooperatives are pushing for greater autonomy for the industry by supporting a move to give the National Electrification Administration (NEA) greater budgetary leeway through a proposed law that is backed by some members of the House of Representatives.

Presley C. De Jesus, president of the Philippine Rural Electric Cooperatives Association, Inc. (Philreca), said one of the group’s priorities is the conversion of NEA into the National Electrification Authority.

Through Philreca, which won a seat at the House of Representatives in the last election as a party-list, he said he would push for the passage of House Bill 468 to streamline the budget process for a reconfigured NEA, among others.

The proposed measure, aside from renaming the agency, seeks to define and enhance the powers of NEA, including its functions and operations to achieve the government’s policy for total rural electrification.

Mr. De Jesus, who is Philreca’s nominee in Congress, said the bill is his top priority as a Representative.

Asked to comment, Energy Secretary Alfonso G. Cusi said the electric cooperatives are free to do as they please, even with their plan to convert NEA into an “Authority.”

“Wala ri’ng problema sa akin ‘yun,”(it’s not a problem) he said. “Whether you are authority, you are administration… or whatever, gawin lang natin ang trabaho, wala tayong problema.” (Let’s just do our jobs, and there will be no problems).

In the meantime, he said while electric cooperatives remain under his supervision, the Department of Energy (DoE) will continue monitoring their performance and will cancel franchises for non-performing cooperatives if necessary.

“It’s not a threat, but it’s a job that we have to do,” he said.

“Cooperatives have done their job,” Mr. Cusi said. “The only thing is that now, the game requires a higher level of performance so we have to elevate.”

However, Senator Sherwin T. Gatchalian questioned the proposal, saying the DoE and NEA, in their current form, need to coordinate their actions especially on rural electrification.

“Personally, off-top, the mandate of NEA is to supervise all electric cooperatives in the country as well as to make sure that the missionary responsibilities of the electric co-ops are being met, meaning they are given a franchise to operate and to serve all the unserved areas,” he said.

Mr. Gatchalian said the cooperatives’ mandate requires “social responsibility.”

“DoE, being the lead agency when it comes to energy and power, has that responsibility also,” he said.

He said the two agencies “should be in line when it comes to electrification policies.” He added that the two cannot be separated, since DoE as the lead agency crafts the policies that NEA implements.

“NEA needs to work with DoE, and DoE needs to have control the agency because it is mandated to roll out electrification,” he added. — Victor V. Saulon

CoA cites CAAP failure to submit contract of PAL leases

THE Commission on Audit (CoA) said the Civil Aviation Authority of the Philippines (CAAP) failed to provide supporting documents for payments arising from land rented from Philippine Airlines in Bacolod and Ozamiz.

In its 2018 annual audit report, CoA noted the absence of a lease contract to cover the lease and property tax payments.

The findings were issued after CAAP agreed in December to pay PAL P157.625 million to settle PAL’s claims against the agency for unpaid rent between 1992 and 2018.

“The absence of a lease contract detailing therein, among others, the nature, rates, duration, description and actual measurement of the lot area being leased, as well as the rights and obligations of each party raised doubts on the validity of the claim and the accuracy and reasonableness of the rental rates being charged,” said the state auditors.

CoA recommended that CAAP “coordinate with PAL for the submission of the duly approved lease contract and other documents to support the alleged obligation for rental fees from 1992 to 2018.”

It added, “[We recommended that Management should] require the refund of the amount paid to PAL, if the prior years’ obligation could not be sustained.” — Vince Angelo C. Ferreras

Further talks scheduled with China Customs over shipments of cigarette-making machinery

THE DEPARTMENT of Finance (DoF) said it will hold further discussions with Chinese customs officials about shipments of cigarette-making machines to the Philippines, which must be registered but are often used in the illicit production of cigarette products that evade tax.

The discussions follow confirmation from the Bureau of Customs (BoC) that it has received a preliminary report from China on such shipments.

“We are going to talk to their Customs about a number of issues and one of them is going to be these cigarette making machines. We are not certain that all of them come from China but our best guess is that majority of them come from China,” Finance Secretary Carlos G. Dominguez III told reporters in a briefing last week.

These unregistered cigarette-making machines are usually used to make cigarette products to evade taxation.

“I think they submitted their initial report already,” the BoC Assistant Commissioner of the Post Clearance Audit Group Vincent Philip C. Maronilla told the BusinessWorld on Monday.

In early July, the BoC said when its Chinese counterparts have agreed to “look into the matter” of cigarette-making machine exports to the Philippines.

“We’re trying to get into the gist of this illegal cigarette-making syndicate because we noticed that it’s not only in Luzon, but they’re operating in other areas,” Mr. Maronilla added.

In earlier statements, DoF said the increase in the tobacco excise tax has led traders to resort to smuggling such machinery.

Meanwhile, Undersecretary Mark Dennis Y.C. Joven said at the same briefing that the DoF is scheduled to sign five agreements, two of which will involve BoC. The BoC’s agreements concern cooperation with China Customs and X-ray equipment donations from the Chinese government.

The “cooperation on trade” between the two agencies is expected to address concerns regarding substandard products and invoicing, Maronilla said.

He also said that BoC is finalizing a bilateral agreement between the two agencies for possible joint operations, setting up parameters and common policies to “avoid entry of illicit goods.”

“The third is a Framework agreement between DoF and CIDCA (China International Development Cooperation Agency) which spells out the process wherein we can take out reminbi loans from China. Fourth is the segment of the PNR South Long-Haul line regarding the hiring of a project management consultant and the fifth one involves phytosanitary inspections,” Mr. Joven added. — Beatrice M. Laforga

CTA approves BIR settlement with ABS-CBN unit

THE Court of Tax Appeals (CTA) approved a settlement between ABS-CBN Film Productions, Inc. and the Bureau of Internal Revenue (BIR) regarding the company’s P31-million tax deficiency for 2009.

In a 16-page decision issued on July 31, the CTA first division said both parties have complied with the requirements for the settlement.

The case before the CTA is now deemed “closed and terminated.”

“The Judicial Compromise Agreement entered into by the parties is hereby approved and this Judgement on Compromise Agreement is hereby rendered in accordance therewith. The parties are hereby enjoined to faithfully comply with all the terms and conditions of the aforesaid Compromise Agreement,” the court ruled.

Under the compromise, ABS-CBN Film Productions agreed to pay the BIR P16.1 million.

The agreement called for the film production firm to pay the equivalent to 40% of the basic income tax and basic value added tax as well as 100% of the expanded withholding tax and basic withholding tax on compensation, and basic documentary stamp tax.

The court said the application to settle was grounded on “doubtful validity of respondent’s assessment.”

According to Section 3 of Revenue Regulation No. 30-2002, one of the grounds for doubtful validity is that it is based on presumptions with doubts about its legal or factual basis, or the assessment was based on the “best evidence obtainable,” subject but it can be disputed by sufficient or competent evidence.

The BIR was found to have failed to demonstrate that the company received taxable income from any property, activity, or service equivalent to the tax deficiencies. “Absent any empirical evidence that the alleged differences in the data matching were indeed taxable income received by the petitioner, said deficiency assessments were mere presumptions.”

The court said the memorandum of the petitioner refuted the alleged tax deficiency taxes by presenting evidence during the trial that the assessments were not based on actual facts but “mere presumptions, which is a requisite for compromise settlement under the Tax Code.

The agreement was also approved by the National Evaluation Board which is composed of the BIR and four deputy commissioners, which is also required by the Tax Code.

The settlement was approved by Presiding Judge Roman G. Del Rosario and Associate Justices Esperanza R. Fabon-Victorino and Catherine T. Manahan. — Vann Marlo M. Villegas

Tax court denies Maibarara appeal of tax refund ruling

THE Court of Tax Appeals (CTA) denied for lack of merit the motion for reconsideration of Maibarara Geothermal, Inc. over the dismissal of its P81.6 million tax refund claim.

In a five-page resolution dated July 9, the court’s special first division affirmed its March decision, maintaining that the company was not able to prove that it had zero-rated sales in 2013 that are attributable to its unutilized input value-added tax.

“In this case, petitioner failed to comply with requisites (b) and (f), that the taxpayer is engaged in zero-rated or effectively zero-rated sales and that the input taxes claimed are attributable to zero-rated or effectively zero-rated sales, respectively,” the court ruled.

“Considering the foregoing, there is no cogent reason to disturb the assailed Decision,” it added.

The court said Maibarara claimed that the documents it presented before the court showed that it has zero-rated sales from its operations as a renewable energy contractor.

The firm also argued that there is no requirement that the zero-rated sales should be made during the period when the input taxes claimed to be refunded were incurred.

It also said that there is an effective denial of relief from any court which deprives it of its property without due process.

“As to petitioner’s assertion that by denying petitioner of its right to refund, the Court has denied petitioner of what is rightfully owed to it and effectively allowed respondent to be unjustly enriched by keeping what rightfully belongs to petitioner, suffice it to say that the fundamental duty of the Court is to apply the law regardless of who may be affected,” the court said.

The decision was written by Associate Justice Erlinda P. Uy and concurred in by Presiding Justice Roman G. Del Rosario and Associate Justice Cielito N. Mindaro-Grulla. — Vann Marlo M. Villegas

Royalties, Customs duties and post-clearance audits

The royalties that you pay relating to the goods that you import may be subject to Customs duties as part of the dutiable value of the importation. Have you made this evaluation? Are you paying duties on those dutiable royalties? Is there a risk that this will be uncovered during a customs audit?

When goods are imported, the dutiable value is determined by the importers themselves based on their assessment. Following the Transaction Value Method of determining the dutiable value prescribed under Customs Administrative Order (CAO) 04-2004, the dutiable value for an imported article is the price paid or payable for the goods, when sold for export to the Philippines after considering several adjustments.

One of these adjustments is royalties and license fees being paid to the seller related to the goods being valued.

Royalties or license fees are normally paid by importers to the offshore supplier for the use of certain intellectual property rights on the imported products. More often than not, royalties, even if they qualify as an adjustment to the transaction value, are not usually declared by the importers as part of dutiable value upon importation mainly because they are being paid or remitted after the importation is completed. Usually, the royalty to be paid is determinable only after the subsequent sale of the imported goods.

However, not all royalties qualify as adjustments. Royalties are only considered dutiable when all of the three conditions are met.

First, royalties or license fees should be related to the imported goods being valued. One example is when the royalties paid are for trademark, copyright or other intellectual property rights that are necessary for the marketing or distribution of imported goods. Also, royalties are related to imported goods when the royalty is computed based on the sale of licensed products.

The second condition is that the royalties and license fees should be paid by the importer, directly or indirectly, to the offshore seller. This requirement is quite simple. To be dutiable, the royalties paid should ultimately accrue to the benefit of the seller.

Finally, the payment of royalties and license fees should be a condition of the sale of the goods to the importer. The importer cannot purchase the goods without paying the royalty. If a buyer imports a product under a specific trademark and has to pay royalties to the offshore seller, without which the licensed product cannot be purchased then subsequently sold in the Philippines under that specific trademark, then the payment of royalties is considered a condition of sale.

All the above conditions must be met; otherwise, there is room to argue that the royalties should not be dutiable.

Now, some of you may wonder how will the royalty be declared as a component of dutiable value when the actual royalty is determined and remitted to the seller only after the importation is complete. As provided under CAO 04-2004, the importer must declare the adjustments to transaction value in regard to royalties and accordingly pay the additional duties within 45 days from the time of payment of the royalties. However, under CAO 01-2019, it was provided that Customs duties on royalties should be paid within 30 days from the date of payment or accrual of royalties which can be considered an adjustment to the transaction price under the Bureau of Customs’ (BoC) Prior Disclosure Program (PDP) so no administrative fines and interest will be imposed.

If the importer fails to do so, will his failure be discovered by the BoC? Can the duties still be assessed? Will he be penalized?

It is mostly during post-clearance audits that the BoC discovers unpaid duties on the royalties.

The BoC’s audit function, formally known as “post-clearance audit,” has been revived and institutionalized through CAO 01-2019 which was signed by the Secretary of Finance in January.

During post-clearance audits, one of the issues that may arise is the valuation of the imported goods for Customs duty purposes.

Royalties tend to be a usual subject of inquiry by the examiners during post-clearance audits. By default, the examiner usually considers any royalties recorded in the books as dutiable and have the burden shifted to the importers to prove otherwise. In one Court of Tax Appeals (CTA) case, the examiner even computed the ratio of imported licensed goods to the total importations to approximate the portion of the importer’s total net sales of the imported licensed goods. The percentage rate of royalty was then applied on the approximated total net sales of the imported licensed goods to determine the royalty fees from which the deficiency customs duties (plus value-added tax) were computed. The CTA ruled that only the actual royalty fees related to the sale of licensed goods should be dutiable. The petitioner, though, was not able to sufficiently support the actual quantity of licensed goods imported and the actual amount of sales of the licensed goods; thus, the assessment was upheld.

Considering the above, importers must ensure that all relevant documents including licensing agreements/contracts related to royalties, invoices, pertinent schedules, and other documents, are kept and maintained. Of course, you would not want to be heavily penalized — administrative fines range from 25%/125% in cases of negligence to 600% in case of fraud, plus interest of 20% per annum for non-payment of customs duties.

It is best practice as well for importers to regularly conduct a study of their customs operations, either through self-assessment or with the help of consultants, to determine the level of compliance. If there were royalties not declared for Customs duties, importers can still consider availing of BoC’s prior disclosure program (PDP) even upon failure to pay within 30 days. The royalties can be declared and duties paid without an administrative fine but with interest if no audit notification letter has been received. On the other hand, a 10% administrative fine and interest will be imposed if an audit notification letter has been received by the importer.

With the formal roll-out of post-clearance audits, we can expect that an increasing number of audit notification letters will be sent out by the BoC. We should not worry though, but only if we make being always prepared a royal duty to ourselves.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

 

John Paulo D. Garcia is a manager of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

pagrantthornton@ph.gt.com

Continuities in Philippine foreign and national policies in the maritime sector

Two Interlocking perspectives may be gleaned from the Chinese vessel-ramming of a Filipino boat F/B Gem-Ver that left 22 Filipino fishers abandoned in the waters off Recto Rank on June 9.

The first one links the incident with our external relations and President Rodrigo Duterte’s foreign policy vis-à-vis China. It frames the maritime incident from the prism of the issue of sovereignty in disputed areas, thus reflecting the larger diplomatic conflict between the Philippines and China and Duterte’s decision to shelve the arbitration award against China’s dash-lined-claims in the South China Sea.

A politically charged lens, the external relations perspective connects the incident to China’s aggressive pursuit of its core interests through the occupation of Philippine-claimed islands in the West Philippine Sea, thereby securitizing or designating the maritime incident as a national security concern. China’s gray zone operations, which involve the deployment of maritime militia in civilian fishing operations in distant waters, has inevitably transformed the maritime incident into a case of state-sponsored violation of international maritime and humanitarian laws.

At this level, the focus is on the Philippines’ maritime entitlements located on an archipelagic state’s sovereign rights in the exclusive economic zone (EEZ). This lens zeroes in on certain diplomatic solutions for advancing a small state’s claims vis-à-vis those of the Great Power’s. For the Philippines, these include Senior Associate Justice Antonio Carpio’s proposed “no-war” strategies based on a unilateral filing of an extended continental shelf claim with the UN, participation in naval and aerial patrols in the Freedom of Navigation Operations (FONOPs) of the US and allies, an ASEAN mini-lateral convention in support of the arbitral ruling, and expanded patrols in the EEZ.

The external relations perspective, however, is not mutually exclusive from what has also emerged as a domestic level of analysis, in which the focus on weak enforcement of Philippine fisheries management policies underpins the maritime incident. This lens presents the larger issue of foreign intrusion in our waters, a historical problem attributed to the state’s prioritization for commercial fishing and weak local government support for municipal fisheries.

Specific issues on fisheries management appear at the frontline of this perspective: At the national level, it reflects how decades of internal security and insurgency-thrusted national security relegated our maritime and marine sectors to a subordinate position. Maritime terrorism and the threat of transnational crimes at sea have also subdivided the limited resource allocation we have for the West Philippine Sea and for the protection of the Sulu Sulawesi waters.

A local level of analysis of the maritime incident also finds a connection with the continuing problem of illegal commercial fishing. The ramming incident has highlighted the prevalence of foreign commercial encroachment in municipal waters (within 15 km from the state’s coastline), and in the West Philippine Seas from 2012 to 2019. RA 10654 or the Amended Fisheries Code vests preferential use rights in municipal waters to the municipal fisherfolk. But, lacking in local government support, this sector has depended on limited resources to fish beyond municipal waters. This problem is further traced back to the lack of tools at the local government (LGU) level to implement the amended fisheries law and to the LGU’s weak compliance with the law. A case in point is the low implementation of the required installation of the vessel monitoring mechanism (VMM) for all fishing vessels — municipal or commercial, foreign or Philippine flagged, as a means of regulating illegal, unmonitored, and unreported fishing (IUU) by Filipino or foreign commercial fishing operations.

Accordingly, the Filipino boat, Gem-Ver, which lacked an updated certificate of clearance with the Bureau of Fisheries and Aquatic Resources (BFAR), was without a monitoring mechanism which could have been used to track abandoned fishers.

Beyond diplomacy, the domestic level of analysis requires a view to establish the continuities between our foreign and our national and local policies in the maritime sector. After the vessel ramming incident, the BFAR and international advocacy NGO, OCEANA, took one of the earlier leads to summon the LGUs to step up in their enforcement of sea patrol operations, support for municipal fishing, establishment of fishery management areas, purchase and deployment of fast crafts, and delineation of municipal waters. Indeed, the protection of municipal waters should complement national initiatives at enhanced and modernising patrol and defense of the EEZ. It would be inconceivable to defend our deep waters while our municipal waters, which is the municipal fisherfolk’s livelihoods security, remain porous to commercial and IUU fishing.

This perspective challenges us to shift the view towards a collective responsibility for protecting our oceans where the Philippines exercises jurisdiction.

 

Alma Maria O. Salvador, PhD is an Assistant Professor of Political Science at the Ateneo De Manila University.

Divided by land, connected by sea

I just returned the other day from a trip to India on the invitation of Johnny Chotrani, Chair of the Philippine-India Business Council (PIBC) of which I’m a member. We met with the ASEAN-India Business Council (AIBC), the Federation of Indian Chambers of Commerce Inc. (FICCI), and the Chamber of Indian Industry (CII). The trip had a dual purpose: it included matters pertaining to the Philippine Council for Foreign Relations (PCFR), which I chair, and where Johnny’s a member. I met with Philippihne Ambassador to India Dondon Bagatsing, our Defense Attaché and officials of India’s Ministry of External Affairs (MFA).

ASEAN-India trade, tourism and investments have a lot of room for improvement. Although our ASEAN neighbors, linked by Asia’s land mass to India, are far more advantaged than us, collectively, we haven’t done enough to scale up business ties. ASEAN brings in better results from other regional blocs and bilateral ties where we’ve been successful in gradually reducing and eliminating trade and investment barriers. India has yet to benefit from ASEAN’s nominal GDP of $3.1 trillion and per capita income of $4,747.

There are two billion people between India and ASEAN that haven’t been leveraged to-date. We lack an economic partnership to create the policy and business environment needed to step up B2B linkaging and performance. Toward that end, the Regional Comprehensive Economic Partnership (RCEP) between India, ASEAN and its six FTA partners (China, Japan, India, South Korea, Australia, and New Zealand) is being rushed with another ministerial meeting slated this month. The arrangement is also open to any other external economic partners, such as nations in Central Asia and remaining nations in South Asia and Oceania.

ASEAN-India trade has grown from $43.9 billion in 2010 to $81.33 billion in 2018. Indonesia, Malaysia, Thailand, Vietnam, and the Philippines account for 82% of total ASEAN trade with India. While the ASEAN imports over $1.2-trillion worth of goods from all over the world, India supplied only about two to three percent of ASEAN’s total imports; while its imports from ASEAN accounted for about 12% of total. India’s FDI flows to ASEAN were only $1.8 billion, or around 1.5% of total FDIs. Greater market access by both sides require amending negative lists in certain sectors and the successful conclusion of RCEP and other trade agreements.

The Philippines is at a disadvantage. It’s not part of the Asian land mass compared to the rest of ASEAN (except for Indonesia and Brunei). But we’re connected by water: the Indian Ocean flows through the South China Sea and into the Pacific Ocean. India-PH joint ventures in the country could radiate to back to India and to the Asia-Pacific region, which accounts for around 84% of our country’s total exports. Shipbuilding, pharmaceuticals, land transports, artificial intelligence, space programs, and technical services are potential areas of cooperation.

Toward that end, AIBC and FICCI discussed a range of initiatives for this year and next:

• the 2nd India-ASEAN InnoTech Summit, Nov. 21-23, in the Philippines.

• MEDEX 2019, Oct. 9-11, in Myanmar.

• the 19th Vietnam International Textile and Garment Industry Exhibition, Nov 20-23, Ho Chi Minh City.

• the 5th ASEAN-India Expo and Summit, 3Q 2020, Ho Chi Minh City.

• and Expo 2020, Dubai

Subsequent meetings with India’s MFA and our Embassy focused on India’s “Indo-Pacific” concept, a term that gained currency in light of the strategic competition between the US and China. I wanted to know if there was alignment in the thinking of India, the US, Japan, and other countries friendly to the Philippines. My understanding is limited to a military construct where those countries opposed to China’s militarization of the South China Sea and Belt-Road Initiative invites strategic pushback. Apparently, India’s still in the process of crafting its own architecture by its think tanks, bureaucracy, and national leadership.

Its foundations rest on a cooperative approach for these priorities: integrated economies, sustainable development of marine resources or blue economy, rules-based maritime order, international law and military deterrence. Its pillars would likely be maritime cooperation, trade and investments, connectivity, socio-cultural, science and technology, and the UN’s social development goals. As such, various study and technical working groups have been organized to design the master plan. India has set up the Indo-Pacific Division in the MFA and is setting up a Center for Indo-Pacific Studies at a leading university.

If it hasn’t been done yet, our Department of Foreign Affairs should set up its own Indo-Pacific desk and tap the services of think tanks like the PCFR to help craft an integrated approach for strategic alignment with the world’s leading economic and military powers. After obtaining official approval of the strategic plan, joint working groups on sectoral cooperation, e.g., maritime security, trade expansion, medical services, should be organized. All that eventually will require Executive-Legislative approval leading to an Indo-Pacific summit to formalize our alignment.

PCFR is well-placed to conduct appropriate studies for the Departments of Foreign Affairs (DFA) and National Defense (DND) and the office of the National Security Adviser (NSA) for the country’s future Indo-Pacific policy. It’s composed of four sectors: diplomatic, security, economic, and academic. Its members are former senior leaders in their respective fields of expertise. PCFR has been conducting valuable Track 2 dialogues with its counterparts in China; helped craft the National Security Policy and National Security Strategy for the NSA; and is currently helping the DFA and DND in an advisory capacity. PCFR is currently working on local and global think tank tie-ups.

One area of interest to me is the Indian-manufactured Brahmos — a medium-range ramjet supersonic cruise missile that can be launched from submarines, ships, aircraft, or land-based launchers. With Brahmos, we could protect our entire EEZ and back up our maritime assets out there. The good news is that India has recently approved its version of Foreign Military Sales, whereby foreign customers could procure defense articles at the same price as the Indian Armed Forces. Credit terms approximating Official Development Assistance could be negotiated. My advice is to get this pronto.

 

Rafael M. Alunan III served in the cabinet of President Corazon C. Aquino as Secretary of Tourism, and in the cabinet of President Fidel V. Ramos as Secretary of Interior and Local Government.

rmalunan@gmail.com

map@map.org.ph

http://map.org.ph

What? Jobs of the future beyond AI do not exist yet

About eight years ago, the Research Center for Responsible Consumption and Production based in the Wuppertal Institut asked us to organize a forum on jobs of the future, among other “futuristic” challenges and scenarios. We did not know what jobs there would be because we had just started Industry 4.0 then.

Fast forward to 2019, just seven years after that forum, we now face Artificial Intelligence (AI), Block Chain, Solar Tech, Fintech, and jobs that will become obsolete by 2030. I feel sad that even “farmers” may become obsolete. What would we be eating then?

With these many scenarios of the very near future, a summit on how women (and men) will face the challenges of today’s workplace is coming up and may answer the questions bugging our strategic plans and our courses of action.

And if that sounds like what you are also worried about, then join us at the Women@Work Accelerate, Create, Transform (ACT) in a Digital World Summit on Aug. 30, from 9 a.m. to 5 p.m. at the Dusit Thani Manila.

Organized by the Women’s Business Council Philippines (WomenBizPH), the Women’s Business and Leadership Summit 2019 highlights various experts who create, capture, and deliver value through digital transformation. Women who have broken new ground, defied cultural barriers, and conquered summits never before reached. Much like a contemporary vanguard, overcoming every challenge that comes their way day by day. What makes Women@Work even more awesome is that it is a “not for women only” event, as both men and women participants are welcome to join.

WomenBizPH has partnered with numerous companies, such as Capital One, KPMG, Ortigas & Co., Posible (Phoenix Fuels), SGV & Co., TeamAsia, Dusit Thani Manila, HBC, Double Dragon, UnionBank, CDO, P&A Grant Thornton, Waters Philippines, PNB, CMG, BDB Law, Accenture Philippines, Business Innovations Gateway, Inc. (BIG), Wellmade, CCI France Philippines, GAIN, Spark! PH, La Camara, Philippine Daily Inquirer, The Philippine Star, Island Rose, and VMV Hypoallergenics to make the summit possible.

The five panels in Women@Work will pique and satisfy your interest, the speakers will cover a variety of topics about our current digital world. Kristine Romano, managing partner at McKinsey & Co. Philippines, is the keynote speaker.

The first panel focuses on customer experience-led digital transformation. Here, participants will learn about the important role and use of data to understand customer needs, wants, and expectations. There will also be a discussion on how companies can leverage and access this knowledge for growth and sustainable success. Speakers for this panel include Catherine Candano, head of data platforms partnership in Google Asia Pacific; Gerry Dy, digital head of Security Bank; and Suzanne Lee, managing partner at Analytiks Inc. and CTO and CIO of Bridge Southeast Asia. Jonathan Joson, partner at Entropia CPR and Boozy.ph and co-founder of HairMNL, will be moderating the forum.

The second panel centers on rapid start-up and scaling-up through digital. Participants who are fascinated with the inner workings of a start-up and their eventual scaling-up in the industry will gain a lot of insights during this particular forum. Case studies from different prominent companies will be shared by the panelists. Albet Buddahim, CEO of Katapult Digital and chief marketing capability strategist of Mansmith and Fielders Inc., will be moderating. Featured speakers include Bhavna Suresh, CEO of Lamudi Philippines; Mia Bulatao, president and COO of QuadX Inc.; and Minette Navarrete, president of Kickstart Ventures.

Tackling the issue of capturing value through digital transformation, the third panel will look at fintech and blockchain technology. The panelists include Erica Valerio, chief business development officer of Satoshi Citadel Ventures Inc.; Fam Alonto, head of innovation at Insular Life Assurance Co. Ltd.; Linda Lan, VP of digital commerce at Oriente (Cashalo); and Yang Yang Zhang, co-founder of Philippine Digital Asset Exchange (PDAX). Mench Dizon, founder of AskGina.ph, is the moderator.

As we delve deeper into the impact of digital transformation, we will see the smaller, yet vital details that go into it. In the fourth panel, knowledgeable speakers such as Ireen Catane, enterprise commercial director of Microsoft; Ambe Tierro, senior managing director and artificial intelligence delivery and capability lead at Accenture Technology; and Dannah Majarocon, managing director of Lalamove Philippines will discuss how to deliver value through digital tools and applications. Vince Rodriguez, category head for banking, financial services, insurance, and public sector at PLDT Enterprise, completes the panel as moderator.

Capping the Summit will be a special fireside chat between established leaders and next generation leaders in the digital field on the way forward for women leaders, their vision for shaping the world, their secrets to success, and advice on hurdling challenges and enabling women empowerment. Joining the conversation are Myla Villanueva, chairman of MDI Group and CEO of Novare Technologies, Inc.; Maria Christina Coronel, president and CEO of Pointwest Technologies and concurrently president of the Health Information Management Association of the Philippines; Ana Maria Aboitiz-Delgado, head for consumer finance, chief customer experience officer and senior VP of UnionBank of the Philippines; and Kathleen Yu, founder and CEO of Rumarocket Inc. Ken Lingan, CEO of the Publicis Groupe Philippines, will moderate the panel.

Excited yet? Visit https://www.womenbiz.ph/summit2019/ to know more about the Women@Work Summit and sign up today. Registration rates start at P5,000. We can’t wait to accelerate, create, and transform with you!

Surely, we will learn from these men and women who are in the midst of Industry 4.0. Who knows, our jobs may even disappear sooner than later. Would you care to know if your job would still be there?

The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.

 

Chit U. Juan is a member of the MAP Inclusive Growth Committee and the President of the Philippine Coffee Board Inc.

pujuan29@gmail.com

map@map.org.ph

http://map.org.ph

Why is Philippines’ GDP growth decelerating?

The Philippines’ GDP growth over the past 18 years has a beautiful and not-so beautiful story. Accelerating from 2001 to 2015, then decelerating lately: 6.9% in 2016, 6.7% in 2017, 6.2% in 2018, 5.6% in 2019’s 1st quarter (Q1), then 5.5% in Q2.

Why?

For brevity’s sake, we limit the possible factors to only two — external and internal factors. For external, we compare the Philippines’ growth with Asia’s big economies plus the US. For internal factors, we check the growth rates of GDP’s three components on the demand side: household consumption (C), government consumption (G), and private investments (I).

We can summarize the Table’s numbers for 12 economies as follows:

2001-2015: The global economy was generally good, except for the global financial turmoil in 2008-2009 that started in the US. Surprisingly, only the US and Japan performed badly while the rest managed to grow faster than the period from 2001-2005. The Philippines experienced consistent higher average growth over those 15 years.

2016-2018: The global and external economy seemed to be good. Seven countries have generally rising growth trends (the USA, Japan, Taiwan, Thailand, Singapore, Malaysia, Vietnam), three have flat trends (China, South Korea, Indonesia), and two have been declining (India and Philippines). But India’s “low” is still above 7%.

2019 H1: The external environment is bad. All have lower 2019 growth than 2016-18 levels except three countries — Japan, Indonesia, and Malaysia.

So if external factors have not been bad over the past three years yet the Philippines experienced consistent growth deceleration, the internal factors would explain it. The Department of Finance and National Economic and Development Authority pointed to high world oil prices in 2018, then the delayed approval of the 2019 budget as the main reasons for growth deceleration.

But this is not supported by the numbers. In 2017, growth of G was only 6.2% yet GDP grew at 6.7%, while in 2018, growth of G was double — 13.1% — and yet GDP grew only at 6.2%. In 2019 first half (H1), G was growing at 7.4% and GDP grew at 5.6%. G is not a big enough factor to pull overall GDP up or down compared to C and I.

What pulled down GDP growth in 2018 was low growth — only 5.6% — in C which is huge — it makes up about 65% of GDP.

In 2019, the main factor pulling growth down came from investments. Growth of I has been declining, from 25% in 2016, down to 13% in 2018, 8% in 2019 Q1, and a contraction at -8.5% in Q2. I is about 23% of GDP.

What caused the big decline of C in 2018?

The most proximate explanation is high inflation, 5.2% in 2018 from only 2.9% in 2017. This was largely due to higher oil taxes under the TRAIN (Tax Reform for Acceleration and Inclusion) law. High inflation adversely affected consumer confidence and hence, the decline in C.

What caused the big decline of I in 2018 and 2019?

The most proximate candidate is business uncertainty — from the proposed Endo bill (thankfully vetoed by the President in late July) and the TRABAHO (Tax Reform for Attracting Better and Higher Quality Opportunities) bill which was not passed and has been refiled in the present Congress. Many existing companies did not expand and some planned investments did not materialize. Then the reversal from integrated PPP (pubic-private partnership) to hybrid PPP kicked in. Some big infrastructure projects that could have been done by big local companies were instead given to China, Japan, other foreign contractors.

The new Congress should take note of these trends — the decline in C and I. Hence, they should not enact bills that will further erode consumer and investment confidence like higher taxes, higher regulatory fees, higher labor rigidities including higher mandatory minimum wages.

Congress should instead enact tax cut somewhere, reduced regulatory fees, and let companies give realistic labor pay. Expensive but repetitive work can easily be replaced by machines and robots now. Let the unskilled earn something, not zero by being unemployed and unhired.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.

minimalgovernment@gmail.com

China clips Cathay’s wings over staff backing Hong Kong protests

By David Fickling

AIRLINES are fundamental to the self-image of sovereign territories. The largest one in any country is routinely dubbed a “flag carrier,” as if it was the leader of a naval squadron. No wonder Beijing has it in for Cathay Pacific Airways Ltd.

China’s civil aviation authority has ordered Cathay to bar air crew who supported Hong Kong’s recent protests from working on flights to or from mainland China, citing bogus threats to aviation safety. It also told the airline to submit information about all crew flying over mainland Chinese airspace for pre-approval. Cathay’s Chief Executive Officer Rupert Hogg swiftly responded that the carrier would comply with the new rules.

Hogg had little choice. Chinese airspace represents a great wall which Cathay must cross every day of its existence. While the airline could probably survive if it lost landing rights at mainland airports, maintaining free passage over the country is an existential issue.

FIGHT OR FLIGHT
That shows up when you look at where Cathay picks up its passengers. Flights to and from China account for only about 7% of the carrier’s traffic and Europe, where the shortest routes must inevitably traverse the mainland, is another 21%. Add up those two buckets and you’re looking at more than a quarter of the total — and a comparable portion of revenues — that could be affected by the new rules.

To get an idea of how damaging a wider embargo could be, consider how Cathay’s third-biggest shareholder, Qatar Airways, has fared since Saudi Arabia closed its airspace to the carrier in June 2017. A 2.8 billion riyal ($765 million) profit in the year through March 2017 reversed into a 252 million riyal loss the following year. Thanks in part to the need to divert around Saudi territory, fuel costs went up about 30%, by more than 3 billion riyal, even as passenger numbers fell 8.9%. Matters would probably have been even worse if its planes hadn’t been pressed into service to airlift essentials to and from the country, with freight carriage going up by 205,000 metric tons during the year.

FREIGHTED WITH WORRY
The situation would almost certainly be worse than that for Cathay Pacific. For one thing, China is simply larger than Saudi Arabia and more comprehensively blocks key routes. The option of carrying out a minor diversion over neighboring territory, as Qatar has done with Iranian and Iraqi airspace, simply wouldn’t work for European routes. For another, while both carriers are major cargo airlines, Cathay can’t fall back on the sort of airlift role that Qatar performed.

A demonstrator holds a banner during a protest against the recent violence in Yuen Long, at Hong Kong Airport on July 26. — REUTERS

Quite the opposite: Cathay’s cargo unit, which accounts for about a quarter of revenue, is highly vulnerable to the current US-China tensions thanks to the outsize share of electronics in Hong Kong’s airborne trade. The volume of cargo carried fell 5.7% from a year earlier, or 59,000 tons, in the six months through June. Revenue per ton, per kilometer, dropped 9.8%.

LIGHT AIRCRAFT
For the moment, air crew unions seem reassured that the rules on overflying China won’t be a dramatic change to current regulations — but Cathay’s management is on notice that Beijing can turn the issue into a more potent weapon.

The worst-case scenario, of an airline that’s forced to police the political views of its own workforce in order to maintain the open skies it needs to operate, would be a horrendous one for Cathay. Driving a wedge between management and staff inclined to support Hong Kong’s aspirations for greater freedom, and between the airline and customers who retain loyalty to it as an icon of the territory’s unique status, could quickly erase the gains from nearly four years of turning round the business.

AN OFFER THEY CAN’T REFUSE
Waiting in the wings in that event is the risk that the long-rumored takeover by Cathay’s second-largest shareholder, Air China Ltd., could finally come to fruition. The largest shareholder, Swire Pacific Ltd., would likely have to reduce or sell its 45% holding to get Air China’s 30% stake into a majority — but for all that Cathay is a prestigious jewel in the crown for ultimate shareholder John Swire & Sons Ltd., it represents only 13% of so of total revenue. There’d be no sense in the Swires sacrificing their broader relations with China for the sake of the airline.

That would be another small victory for China Inc. and a larger blow to Hong Kong’s sense of itself as an independent territory. No wonder Beijing is so keen to clip Cathay Pacific’s wings.

 

BLOOMBERG OPINION

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