FRANCHISING a major force in the economy

The franchise method of distribution is a significant part of the nation's marketing system and sales are expected to reach $178 billion in 1974. The Consumer Goods and Services Division, Bureau of Domestic Commerce, has a continuing program which collects and publishes data on franchising by key business sectors.

DEPARTMENT

UNITED

Prepared by John E. Walsh

Far East Division

Office of International Marketing
Bureau of International Commerce
Based in part on reports
furnished by the U.S. Embassy,
Manila.

Foreign Trade Outlook

Introduction

The economy of the Philippines is still characterized as an underdeveloped one, with the majority of the populace rural and over 30% of the national output still originating from agricultural activities. While industrial production has steadily expanded and diversified since World War II, its growth has been relatively slow in recent years. It currently contributes around 26% to national output. The past focus of government policy in concentrating on the encouragement of import substitution industries has recently shifted to a policy of active encouragement of export industries. Hence, government policies today are geared toward the creation of a climate conducive to industrial growth and the provision of necessary social overhead capital and services for the accelerated growth and development of the industrial sector.

The Philippines enjoyed unprecedented economic growth and expansion of international reserves in 1973. Reflecting this sustained vigorous improvement in the country's performance, its total trade is expected to increase substantially in the next several years, with imports from the United States matching or bettering the overall percentage rise.

The higher level of the country's traditional agricultural and mineral exports is expected to continue for an extended period in view of continuing world commodity shortages. There are also improved prospects for locally manufactured exports, one of the government's prime goals. The current and prospective buoyancy of business activity is expected to lead to greater imports of producer goods as well as allowable consumer items.

Until 1973, the United States had been the Philippines' major trading partner. The Philippines is at present actively establishing additional trade relationships with other countries. Philippine exports from the United States expanded by 24.7% in 1973, outpacing considerably the 20.6% increase in imports from Japan. Comparable figures the previous year had been 7% U.S. and 11% Japanese growth. The pattern of Japanese expansion at the expense of the U.S. in the Philippine market in recent years was thus

The information supplied in this report is not intended to serve in lieu of legal counsel. Such advice may be obtained from attorneys in the United States who specialize in foreign law. A list of attorneys in the Philippines may be obtained from the Office of Export Development, Bureau of International Commerce, U.S. Department of Commerce, Washington, D.C. 20230, or from Department of Commerce District Offices located in 42 cities around the United States. Information on certain aspects of the Philippines is available in the Background Notes series of brochures prepared by the U.S. Department of State. These reports on individual countries describe history, government and political conditions, economy and foreign relations. An annual subscription costs $14.50 (25g for single copies) and can be obtained from the GPO Bookstore, Dept. of State, Washington, D.C. 20520.

UCS.D.

Foreign Trade

Imports.-Increased from $1,334 million in 1972 to $1,597 million in 1973. U.S. market share increased from 25.4% to 28.3%. Chief imports: nonelectrical machinery, base metals, mineral fuels and lubricants, transport equipment, chemicals, electrical machinery, cotton, and wheat. Other major suppliers: Japan, West Germany, Australia, and the United Kingdom.

Exports. Increased from $1,168 million in 1972 to $1,837 million in 1973. U.S. share decreased from 40.7% to 36.5%. Chief exports: logs and lumber, sugar, copper ore, copra, coconut oil, plywood, canned pineapple, and abaca. Other principal markets: Japan, Netherlands, and West Germany. Trade Policy. Philippines seeks to diversify trading base, protect domestic industries, and conserve foreign exchange. Many consumer goods imports are banned temporarily. Protective tariffs for products which can be locally manufactured.

Trade Prospects.—Level of U.S. exports and market share up slightly through next year. Mining, construction, irrigation, and food processing equipment among best sales opportunities.

Foreign Investment

U.S. direct investment $707 million (book value) at end of 1972, mainly manufacturing, extractive industries. Investment Prospects.-Continued uncertainty, although new Constitution has eliminated some uncertainties and Government endeavoring to increase attractiveness of Philippines for foreign investment.

Finance

Currency.-Peso held to guiding rate of 6.435 to U.S. $1 from September 1970 to April 1972, subsequently fluctuating around 6.72. Money supply rose from 6,794 million pesos at end 1972 to 8,151 million pesos at end 1973.

Domestic Credit and Investment.-Government measures under martial law since 1972 has had beneficial effects on general price stability, selective expansion of domestic credit primarily to help rehabilitate flood-stricken agricultural, industrial facilities. Further expansion money supply expected in 1974 with more credit, both public and private, available than in past several years. Total domestic credit outstanding 22.4 billion pesos at end 1973.

National Budget.-Estimated revenue in FY 1973 was 6.2 billion pesos. Current expenditures, 5.5 billion; capital expenditures, 2.1 billion; of total, 27% for social objectives, 37% for economic objectives and 16% for national defense. Foreign Aid.-Small AID program includes project and technical assistance. Moderate P.L. 480 program. Eximbank, ADB, and IBRD active. Multilateral Consultative Group channeling long-term assistance.

Balance of Payments.-Trade deficit of $241 million in 1972, overall BOP had favorable $555 million surplus. Reserves at end 1973 at all-time high level.

Economy

Economy still largely agricultural but industrialization taking place at moderate pace.

GNP.-$10.7 billion in 1973, increased by about 10% in real terms over 1972. Per capita GNP roughly $267. Agriculture. Contributed 25% to GNP in 1972. Rice and corn main cash crops. Copra, logs, sugar, coconut oil are principal export crops. Rice and corn production increasing, but productivity lagging behind some other Asian nations in most crops.

Manufacturing.-Expanding moderately; contributed 17% to GNP in 1972. Consists primarily of finishing operations and light industries.

Commerce.-Contributed 13% to GNP in 1972. Retail trade limited to wholly owned Philippine and American firms. Both wholesale and retail price indices rose about 10% in 1972.

Development Plan.-Current 4-year plan (1973-1976) seeks to achieve food self-sufficiency, develop infrastructure, and promote basic, import-substituting, and export industries.

Basic Economic Facilities

Transportation.-Inadequate land transport facilities include about 750 miles of railroads, mainly in Luzon; and 40,000 miles of roads, largely unpaved. Coastal shipping provides inter-island service; domestic airlines serve major cities. Regular international air and sea services. Port of Manila handles 85-90% of imports.

Communications.-Telephone service extends to all principal islands. Radio network serves entire Philippines; TV stations in major population centers; participate in International Satellite Network.

Power. Electric power production about 8.9 billion kilowatt hours in 1972. More generating facilities needed with rising demand.

Natural Resources

Land.-7,100 islands comprising 115,707 square miles. Climate.-Tropical with generally abundant rainfall. Minerals. Highly mineralized area includes copper, nickel, chromite, and iron ores, some coal and variety of miscellaneous minerals of lesser importance. Important source of foreign exchange.

Forestry. Hardwood forests cover about 40% of land area; major resource and foreign exchange earner.

Population

Size.-Approximately 40.2 million (mid-1973), of predominant Malay origin, increasing about 3% per year. Chinese largest minority group.

Languages.-Official language Pilipino (based on Tagalog), English, and Spanish. English widely used.

Education.-80% literacy rate, well developed system of free public education.

Labor.-Estimated 13.2 million labor force growing by 375,000 annually. About 8.5% unemployment.

reversed in 1973, although Japan continues to have a large share of the market-32% compared to 28% for the U.S. Philippine exports to Japan grew an unprecedented 73.5% in 1973, so that Japan edged out the U.S. as the number one Philippine export market customer for the first time. Japan was also the Philippines' overall top trading partner, accounting for 34.7% of total trade compared to 32.6% for the U.S. Other major trading partners include West Germany, the Netherlands, the United Kingdom, the Republic of China, Indonesia, and Korea.

American firms are facing the transition following termination, on July 3, 1974, of the Laurel/Langley Agreement which, with its predecessor treaty, had been the umbrella for American trade and investment relations with

Lauan, white sawlogs and veneer logs Yarns of continuous artificial or synthetic textiles not put up for retail