In days gone by, the garments industry was so vibrant that it was one of the country’s major dollar-earners.
Optimism ran high last year when efforts were initiated to cause a boom that would restore the industry to its former glory.
More companies were expected to cash in on the Philippines’s inclusion in the new Generalized System of Preference (GSP+) scheme being implemented by the European Union (EU). Such arrangement, it was anticipated, would afford developing countries duty-free access to EU markets for as long as they complied with international conventions concerning human rights and sustainable development.
In 2014 we were the only member-country of the Association of Southeast Asian Nations (Asean) to be included in the GSP+ scheme. This should have given our garment firms a modest lead over our competitors in the region.
To achieve this, the government and private stakeholders should bring the garments industry back to globally competitive standards. The struggle is far from easy. Since its peak in the 1990s, the industry has been survived by those who had no other recourse but to engage in contract manufacturing. From a cottage-type industry in the early 1950s, the garments industry evolved into a leading nontraditional export sector.
Government data show that, from $36 million worth of garments and textiles exported in 1970, the industry prospered and breached the billion-dollar mark in 1987. But the move of the World Trade Organization in 1995 to set a 10-year phase-out of the Multi-Fiber Agreement (MFA) proved daunting for the industry. The agreement put a cap on quotas and preferential tariffs on garments and textile items imported from developing countries by the United States, Canada and some European nations. Opening the playing field to markets with proficiency in manufacturing huge volumes at much lower costs, such as China, practically sidelined small countries such as ours.
In 2000 the industry had its most productive year when its earnings broke the $3-billion mark. Revenues slid to $1.9 billion in 2006, the year after the MFA was tussled, decelerating further to $1.2 billion in 2010. There was a minor pickup in 2011, however, to $1.5 billion. In November 2014 garments were just the eighth-biggest export of the country, with $132.14 million in earnings for the month. At its peak in 1991, the industry was ranked third among Philippine exports. It provided employment to about a million people, with the number dwindling to 660,000 by 2005, and further receding to half a million by 2011. But hope springs eternal, so they say. Economists projected in September 2015 that the sector’s export share would double due to the big demand from the country’s two biggest markets, Europe and America, although all indicators showed otherwise.
The industry was the biggest loser in 2015, decreasing by almost 50 percent year-on-year, according to Philippine Statistics Authority (PSA) records. Agency data from January to June 2016 reveal no entry for clothing and apparel, and was seemingly lumped under other manufacturers (loser at average of -26 percent) due to its negligible output for this year. Officials in the PSA revealed that clothing and apparel was delisted in the roll of export industries.
This is an appalling turn of events for what was once the nation’s greatest labor-producing sector. Today’s pitiful state of the garments industry baffles economists, because it negated their bullish predictions resulting from the inclusion of the Philippines in the GSP of two major markets of the world, not to mention the economic integration in the Asean region.
Industry players attributed the sudden business slump to the previous government’s move to abruptly stop the grant of tax incentives for downstream manufacturing industries. These are those involved in knitting, weaving and textile finishing. The withdrawal of tax incentives forced many companies to completely abandon local production.
When the Philippine government, through the Department of Trade and Industry, negotiated for preferential tariff privileges to enter the lucrative European market, the request was granted, but with the provision that local garment manufacturers should produce a certification that the fabrics they used in making the finished products were locally sourced and manufactured. So when the orders started to come in, the downstream industries that would have provided the much-needed locally manufactured products were forcibly shut down by the policies of another agency of the government, the Department of Finance (DOF), which argued that these downstream companies were involved in some unspecified irregularities and unilaterally suspended their access to incentives provided for under Executive Order 226.
The suspension of tax incentives created a domino effect. Garment manufacturers could not comply with the criteria to export under the preferential tariff provisions, and were forced, along with their subcontractors, to shut down operations. Export sales dropped, massive lay-offs occurred, and potential investors in the sector simply walked away.
Industry representatives are now in the thick of talks with the new dispensation. They are requesting President Duterte to look into the problems of the tax credit center by completing whatever audit had to be done, and to remove the suspension of incentives due to the imposition of new documentary requirements in midstream. These impositions, industry leaders believe, are in direct violation of the President’s pronouncement during his inaugural speech, admonishing government officials who are involved in the grant of concessions to simplify procedures and not to change the rules midway.
There were enough warnings given by the industry to the previous government. In November 2014 they cautioned that the actions of DOF officials in indiscriminately suspending the grant of tax credits would cause the downfall of the garments sector. News items were distributed; letters of appeal were sent, and suits were filed, but all remained unheeded. Cases against responsible finance officials gathered dust in the Office of the President, thereby putting the industry in peril in 2015. This year the industry is virtually gasping for breath.
If the scam allegations were true, the closure of these downstream industries should have had no impact at all on the country’s garment-export production. The DOF had taken the position that these downstream firms were never in operation, and shutting them down would have left the garments sector unharmed. The numbers now belie that postulation.
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