Attracting new players into the industry

The Philippine economy recorded its fastest growth in three decades with 7% achieved in 2007. Increased government spending, higher remittances from overseas Filipinos and a buoyant services sector fuelled growth. There is also a need for the country to attract investments to boost its various industries, in particular, the plastics and petrochemical industries. Peter L. Wallace, President of the Wallace Business Forum (WBF), a think-tank engaged in providing tips on doing business in the Philippines, recommends "a stable, fair business environment with a massive increase in business-support spending" to facilitate and encourage investments into the country. But the government has declared it is doing its best to improve the business climate. As part of this goal, five economic "super regions" are being developed to focus on the economic strengths of various regions of the Philippines, as well as the implementation of tax reforms, continued privatization of state assets, and the setting up of necessary infrastructure in various areas of the Philippines. The government recently decided to move away from balancing the budget to implement and prioritize spending on public works. Tariffs - a thorny issue Federation of Philippine Industries (FPI) President Jesus L. Arranza once said that the distorted tariffs system has rendered the local plastics business uncompetitive. This is because finished plastic products are levied 5% tariffs while raw materials, the petrochemicals are levied 20-30%. Manufacturers complained that other than the low demand for intermediate products, the market share of imported resins has increased to as much as 50%, as against 43% in 1999. Local plastics manufacturers urge the government to correct tariff distortions as a result of the free trade agreements drawn by the Association of Southeast Asian Nations (ASEAN). In a letter to the Cabinet-level Tariff and Related Matters Committee (CTRM) on January 21, 2008, the Philippine Plastics Industry Association, Inc. (PPIA) said some finished products have faster tariff reduction schedules than the main raw material, plastic resins. The PPIA cited Executive Order 486, endorsed by the CTRM in February last year, which lowered the Common Effective Preferential Tariff (CEPT) rate on plastic resins to the level of finished goods at 5% under the ASEAN Free Trade Area. Under the ASEAN-CEPT arrangement, products originating from within the region should enjoy preferential treatment over products imported or sourced from outside. Products covered by the order include polymers of ethylene, polymers of propylene, polymers of vinyl chloride, floor coverings of plastics, film and strip of plastics and twine, cordage, ropes and cables covered with plastics. These petrochemical products are used as raw materials for a wide variety of plastic consumer goods such as shopping bags, films and various kitchen and household wares. The PPIA claimed that domestic production of plastic products, based on resin consumption, declined by 5.6% to 453,351 metric tons in 2006 from 480,116 MT in 2005. The tariff distortion stems from the downstream plastic industry誷 resin imports at duty rate of 15% from non-ASEAN countries such as Korea, Japan, Taiwan, Saudi Arabia, China, India and Kuwait while finished goods from ASEAN competitors enter the market at 5% CEPT rate. The downstream sector is composed of plastics makers using resin as raw material for finished plastic products. Rising production costs hit The Philippine plastics industry expects sluggish or no growth at all in the next few years as it reels from the high power and labor costs as well as the entry of cheap finished plastic products into the local market. Most local plastics makers have slowed down operations as demand from other industries for plastic packaging and other plastics has declined due to cheap imports. Local plastics prodHighsnobiety Sneakers