Legarda: PHL Gov’t Must Prepare MSMEs for ASEAN Economic Integration

Senator Loren Legarda today said that as ASEAN member-countries anticipate the emergence of the ASEAN Economic Community (AEC) by December 2015, the Philippine government must ensure that the country’s micro, small and medium enterprises (MSMEs) are ready to be part it.

Legarda said that, in pursuit of an AEC, ASEAN operates on the assumption that with open borders and free trade, more investments will come in and therefore improve the region’s competitiveness.

“It is believed that the AEC will allow the region to gain greater influence in the global economic and political stage. But we take note that the ASEAN region is dominated by MSMEs, which continue to operate as subsistence-based enterprises. If left unprepared or if they remain uncompetitive, our MSMEs will find little benefit from an AEC,” said Legarda, noting that MSMEs account for 98 percent of all enterprises and about 85 percent of total employment in the region.

The Department of Foreign Affairs (DFA) reported that as of 2010, duties have been eliminated on 99.2 percent of tariff lines for the ASEAN-6 Member States, including Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand.  In the case of Cambodia, Lao PDR, Myanmar and Vietnam, tariff has been reduced to 0 to 5 percent on 97.52 percent of tariff lines.  This is partly the reason why there is a significant level of goods from other ASEAN countries in the Philippine market today.

“For the consumers, this can mean wider choices, lower product costs, and exposure to ASEAN brands.  For Philippine MSMEs that are not able to bring their production costs down and compete against well-supported MSMEs of other countries, this development can spell the end,” the Senator warned.

Legarda said that while MSMEs are the backbone of the ASEAN economies, contributing to about 30 to 50 percent to GDP and accounting for 19 to 31 percent of their economies’ exports, they are clearly susceptible to greater competition given that they have limited access to finance and technologies, as well as markets.

“MSMEs have limited capacities for compliance with standards and certification.  Under this scenario, MSMEs are likely to lose out in deeper competition that will be ushered by AEC. Clearly, innovation and creativity play a significant role in transforming small businesses into competitive components of the ASEAN value chain.  We need to develop industries that will be innovators, rather than consumers, of technology,” she explained.

“If played out wisely, ASEAN’s bold vision of achieving the free flow of goods, services, investment, and skilled labor in the region may help us achieve higher productivity and economic diversification; but we have to play our cards well. The road for an AEC has been paved. We just need to make sure that the path we take will indeed bring us to the goal of a better life for all the people in the region,” Legarda concluded.