Achieving the ASEAN Economic Community 2015: Challenges for Member Countries and Businesses

8. Achieving the AEC 2015: Challenges for the Philippines

8 Achieving the AEC 2015: Challenges for the Philippines Jenny D. Balboa, Fatima Lourdes E. Del Prado, and Josef T. Yap1 ASEAN member countries are moving towards achieving the ASEAN Economic Community (AEC) by 2015. Recent studies have shown the benefits of the AEC. For example, the study edited by Plummer and Chia (2009) presents estimates that ASEAN economic welfare will rise by 5.3 per cent or US$69 billion relative to the baseline. It is therefore important for policymakers in the region to sustain the momentum — or perhaps even accelerate the pace — towards estab­ lishing the AEC. Policy measures are being implemented based on the AEC Blueprint agreed on in 2007. However, progress among the ASEAN member countries in meeting their commitments has been uneven. Moreover, many difficult regional issues have not yet been resolved. Among these are wide development gaps and entrenched domestic interests.2 Hence, achieving the AEC in 2015 may be on the optimistic side. The theme 100 Jenny D. Balboa, Fatima Lourdes E. Del Prado, and Josef T. Yap of 2010’s ASEAN Summit, “From Vision to Action”, is therefore quite appropriate. This chapter reviews the progress of the Philippines in meeting its commitments. The progress is largely reflected in the AEC Scorecard, an analytical tool in tracking the achievements of member countries that was developed by ASEAN for this purpose. The framework of the AEC Blueprint is described in Box 1 of the Preface. As of this writing, only the Philippine scorecard for the first batch of priority actions was available. The official data is supplemented by a study conducted by the Economic Research Institute for ASEAN and East Asia (ERIA; Corbett and Umezaki 2009). In the next section, the current Philippine economic situation is described by comparing it with other economies in terms of indicators of competitiveness. Many of the latter are components of the AEC Blueprint. This is followed by a section where the Philippine performance in terms of the ASEAN Scorecard is presented and discussed. As mentioned earlier, the official data will be supplemented by results from the ERIA studies. The penultimate section attempts to explain the progress of the Philippines in meeting its AEC commitments, particularly vis­à­vis the more developed ASEAN countries. The last section looks at structural problems in the Philippines that may prevent it from benefiting from the AEC. These problems also explain the relatively poor performance of the Philippines in terms of competitiveness. Competitiveness of the Philippine Economy The AEC Blueprint calls for creating a single market and production base that will improve the competitiveness of the region. In this context, the Philippines stands to benefit a great deal since its level of competitiveness lags those of many economies, including its ASEAN neighbours. For example, the World Bank’s Doing Business report shows a deteriorating performance for the Philippines in its latest survey on the ease of doing business. The country fell by three notches, from its rank of 141th in 2009 to its rank of 144th in 2010. The same survey also shows the country’s global ranking weakening in all areas of doing business, particularly in the areas of ease of paying taxes, starting Challenges for the Philippines 101 a business, dealing with construction permits, and protecting investors (Table 8.1). Factors that can explain this poor performance are shown in Fig­ ure 8.1. Latest surveys show that corruption, an inefficient government, and the inadequate infrastructure remain the main obstacles for doing business in the Philippines. The Philippine situation highlights two key issues related to the AEC and economic integration in general. First, the factors that hamper progress towards implementing the country’s commitments have to be explained. Some of these factors may overlap with a second category: factors that prevent the Philippines from benefiting fully from the implementation of these commitments, in particular (from previous policies under the banner of liberalization, privatization, and deregulation, in general). These factors will be discussed in turn in the last two sections of the chapter. TAblE 8.1 Ease of Doing business in the Philippines Doing business 2010 rank Doing business 2009 rank Change in rank Starting a Business 162 155 –7 Dealing with Construction Permits 111 106 –5 Employing Workers 115 114 –1 Registering Property 102 101 –1 Getting Credit 127 125 –2 Protecting Investors 132 127 –5 Paying Taxes 135 126 –9 Trading Across Borders 68 66 –2 Enforcing Contracts 118...