Clark-Subic garments hub?

Trade And Industry Secretary Peter Favila must be a regular reader of the The Asian Wall Street Journal.

A couple of months ago, the newspaper came out with an item about the escalating costs of manufacturing industries in southern China, the most industrialized part of this country, particularly the Guangzhou area which belongs to the so-called Pearl River delta.

The article noted that more and more factories in the region were moving out of China. They included garment-making plants which, in the early 1990s, triggered the industrial boom in places like Shenzen special economic zone.

Favila must have been ecstatic to read it. China is the most ferocious of our competitors in the export markets, particularly in garments. The hardship of garment factories in southern China could be an opportunity for the Philippine garment industry to make a dramatic comeback.

And so, over at the Department of Trade and Industry nowadays, they are talking about the Favila blueprint for revival of the garments industry. They are toying with the idea of a "Garment City," a hub of garment manufacture.

From what I hear, Favila is looking intently at the Clark special economic zone.

Now connected by a toll road to the Subic Freeport, Clark offers a unique setup for light manufacturing industries. It has its own international airport, and it connects to the Subic seaport through a 30-minute drive superhighway.

There is nothing like such an advantage for manufacturing in the whole country.

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The Favila blueprint unabashedly borrows from a similar plan for China's first special economic zone at Shenzen some 20 years ago.

In 1989, I went to Shenzen to interview the managing director. There was nothing there except the administration office. It was all just open land.

Less than 20 years later today, the area is bustling. It has more skyscrapers than the Makati business district. And it is a city built by the garments sector.

A couple of months ago, Favila had a secret meeting with the new board of the Confederation of Garments Exporters of the Philippines, or Congep. It so happened that five of the seven board members of the confederation were based in Hong Kong. They have humongous factories in the Guangzhou area.

Were they probably interested in moving to the Philippines?

At its height in the early 1990s, the Philippine garment industry employed over a million workers directly. Its workforce is now estimated to be down drastically to some 200,000 people.

Favila had a two-hour brainstorming with the Congep board at Grand Hyatt Hotel in Hong Kong on how to revive the garment industry.

It so happened that the Grandma at the Palace was just around the area. She apparently has a special interest in the sector. The Lola used to be head of the Garments Export and Textile Board during the time of Tita Cory, also known as former president Corazon Aquino.

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The seven Congep board account for about 25 percent of Philippine garments exports to the United States, the world's biggest buyer of clothing. That was about $400 million last year.

Word from the Department of Trade and Industry is that the seven giants committed to the Grandma and to Favila that they would retain their investments in the Philippines.

And so how does this cute administration turn the bad news from China to good news for us?

In their two-hour meeting in Hong Kong, the group presented to Favila a wish list of sorts. They included measures to reduce the electricity rates.

Regarding the idea to make Clark and Subic into a garment-manufacturing hub, the group said they would need lower water and power costs. They thus suggested that the biggest three locators in the special zone be made to sit in the board of Clark Development Corp., which manages the zone.

But here's a little kink: The ongoing fight between the Board of Investments (BoI) and the Department of Finance over tax incentives.

The finance department has been moving to reduce the incentives granted by the BoI to expansions of existing factories. Unfortunately, Favila will need such incentives to attract the relocating factories from China.

But the main item on the Favila blueprint remains the "free trade" agreements with Japan and the United States, which can open up those rich markets to the local garment industry. For instance, the United States charges 15 percent tariff on Philippine-made garments. A free trade agreement with the US government will eliminate such import duties.

That, in effect, means our garment companies can cut their prices by 15 percent to stay competitive. In the dog-eat-dog world of business, even a fraction of a percentage point leeway in pricing can mean deal or no deal. By Conrado Banal III - Philippine Daily Inquirer