This story
was taken from Bulatlat, the Philippines's alternative weekly
newsmagazine (www.bulatlat.com, www.bulatlat.net, www.bulatlat.org).
Vol. V, No. 44, December
11-17, 2005
Trade Liberalization and the
Demise
The demise of
Philippine-made shoes is a result of decades of government neglect and
intensified by just a few years of aggressive liberalization under the World
Trade Organization.
By JP Andaquig
IBON Features
Posted by Bulatlat
Shoemaking has always been the bread and butter
of 40-year-old Johnny Gaudia. Like nearly everyone else in Marikina City,
shoemaking for Gaudia is a family business. He became interested in shoe
production when his in-laws encouraged him to take up the craft, being
shoemakers themselves.
While his in-laws produced mostly baby shoes,
Gaudia and his wife decided to specialize in men's leather shoes and put up
Gaudia Shoes Manufacturing in 1986. Eventually, his company diversified into the
production of casual shoes, school shoes, sandals and slippers, using both
leather and synthetic materials.
But the Philippine shoe industry has fallen on hard times. Gaudia Shoes belongs
to the more than 80% of registered shoe manufacturers in the country that fall
under small-scale and cottage industries, which are usually family-owned and
produce hand-crafted shoes using only sewing and trimming machines.
Gaudia told IBON Features his company used to
employ some 100 workers and received an average of 10,000 orders every month,
usually from large-scale retailers and malls such as Shoemart, Plaza Fair and
Gaisano Mall. Now, however, he would be lucky to accept about 100 orders in a
week. More often than not, his company has no orders for weeks. He had to lay
off most of his workforce and now employs only a few "on-call" workers as his
production dramatically dwindled.
Gaudia, a member of the Samahan ng mga
Magsasapatos ng Pilipinas (SMP), currently spends most of his time as part of
the technical team formed by the Department of Trade and Industry (DTI) that
regularly inspects incoming volumes of shoe imports and monitors their
valuation. His efforts are an attempt to save the industry that has enabled him
to send his four children to school, and to fight what he perceives as the main
reason behind the industry's demise: the onslaught of cheap imports as a result
of trade liberalization.
Disastrous for local shoemakers
Gaudia's experience is neither new nor unique.
Since the 1990s, footwear groups in Marikina and other areas have been warning
against the influx of cheap goods from China, Korea, Taiwan and other countries
due to liberalization, which intensified when the country became a member in
1995 of the World Trade Organization (WTO).
True enough, shoe imports have been arriving in
increasing volumes year after year. From 1997 to 1999, the country imported an
average of 38.5 million pairs of shoes. By 2001-2003, the volume zoomed 56
percent to 60.2 million pairs.
And this only covers legally imported shoes.
Smuggling has also reportedly become rampant although government has yet to
release actual figures of the extent of the problem.
Nevertheless, the impact has been disastrous for
local shoemakers, particularly in
Marikina and Laguna. Almost a century of rich shoemaking tradition in Marikina
was lost when many small manufacturing firms closed down, retrenched workers,
sold Chinese imports themselves or entered into exploitative subcontracting
arrangements with foreign corporations.
From 513 registered manufacturers in 1994, there
are only 145 remaining in the country's shoe capital. More than 600,000 shoe
workers lose their jobs every year and average production has dwindled from
105,000 pairs of shoes a year in 1994 to 42,000 pairs in 2003.
The downswing in demand for locally-made shoes
is apparent as Filipinos continue to flock to flea markets and tiangges in
Greenhills and other commercial centers, where an ordinary pair of counterfeit
Nike shoes can go for as low as P300.
Due to the cheap price, only a few would
purchase more expensive locally-made leather shoes even if they are marketed as
made in Marikina. Add to this Filipinos' continuing preference for foreign shoe
brands such as Skechers, Nike, Adidas, and Converse, most of which are
subcontracted by their mother companies to factories in China and other
countries with low labor costs.
Dominated by imported shoes
Gaudia, like other shoemakers, laments the fate
that has befallen the local shoe industry. He said that in the past, one can go
down Shoe Avenue in Marikina and hear the sounds of workers drafting and
assembling soles and shoe lasts. At present, the sounds have diminished and one
can only see a few shops with stocks of finished shoes wrapped in plastic and
ready to be delivered.
In the past, the local shoe industry even
supported the growth of other small establishments such as panciterias and other
eateries where workers would get their evening snacks. Downstream industries
also benefit from the industry, such as local tanneries which produce the
processed leather or animal hide needed in the manufacture of shoes.
From the 1950s to the 1980s, the SMP said that
the Philippine shoe industry experienced a boom owing from strong local and
international demand. During these years, many Filipinos wore locally-made shoes
such as the Ang Tibay and Mabuhay brands, and carried locally-made leather
handbags and purses. These products were also exported to foreign markets or
ordered by local Chinese distributors for marketing in the provinces, the SMP
added.
At present, 80 percent of the Philippine market
is dominated by imported shoes and leather products from China. Filipino
shoemakers have to compete for the remaining 20 percent of the market with
imports from other countries.
Aggressive liberalization
The demise of Philippine-made shoes can be
attributed to decades of government neglect and just a few years of aggressive
liberalization. Imports have literally killed the local shoe industry. Even
government has admitted this, but is evasive on calls to protect the sector by
halting importation.
Compared to foreign shoe companies that have
access to government subsidies with which to invest in improving their
technologies, the local industry continues to use traditional low-tech methods,
relying on the skills and ingenuity of Filipino shoemakers.
The SMP says that local shoemakers cannot
compete on price alone as they are plagued with high production costs. About 75
percent of their manufacturing costs come from the sourcing and processing of
raw materials such as leather hides, which they have to import since local
tanneries were not developed enough to meet large-scale demand. It is estimated
that around 80% of the components of finished local leather footwear for export
are imported.
Worse, shoe imports are grossly undervalued.
Liberalized customs rules have enabled technical smugglers to flourish, says
Gaudia. An average pair of imported shoes in 1997 was valued at $12 but by 2002,
the same pair had a valuation of $0.76.
Gaudia points out that the use of transaction
value as the means of customs valuation have hurt local producers. Transaction
value refers to the value agreed upon by the seller and the importer, and is not
based on the actual cost of materials or the market price of the produce when
sold in the local market. This has enabled unscrupulous importers to have their
stocks undervalued by Customs inspectors. Given the seething corruption in the
agency, importers are finding it easier to pay less in duties for their imports
which they would sell either at knock-off prices in flea markets and discount
stalls, or at its original market price in malls and high-end shops.
Crushing local industries
Liberalization in essence has allowed the
greater entry of imports into the country, destroying local industries and
making local production more import-dependent. And with institutions such as the
WTO enforcing rules on further tariff reduction, the worst may still befall our
local producers, including our shoemakers.
Gaudia pointed out that footwear is not covered
by the General Agreement on Tariffs and Trade (GATT), but it was still
liberalized by the government under the Tariff Reform Program.
Despite the government's thrust to liberalize
and enforce an export-oriented policy, the local shoe industry never became
competitive in terms of state subsidies. Unfair trade arrangements have also
made it impossible for local shoe exporters to gain a greater share of the
international market. With local shoe technology still way behind that of China,
the US and the EU, as well as stringent safety and quality standards enforced by
rich countries, exporters face an uphill battle.
Worse, footwear products are targeted for
further liberalization under the WTO's upcoming Sixth Ministerial in Hong Kong
this December. The reduction of industrial tariffs, or non-agricultural market
access (NAMA), is one of the major issues set to be negotiated at the
ministerial. People's groups and non-government organizations have warned that
once this new agreement is implemented, local manufacturing industries face
extinction. "Parang nakabaon ka sa lupa, huhukayin ka pa nang mas matulin
(We already feel we're below the ground, and now says Gaudia.
Saving the industry
Gaudia says that the only chance for Filipino
shoemakers to survive is for local consumers to return to the appreciation and
patronage of local products. He calls this the economics of nationalism:
ensuring Filipinos buy Filipino-made products. But this cannot be realized
without full government support.
The SMP has also been making some inroads in
monitoring reports of undervaluation. Though Gaudia admits that he has had many
frustrations on the job, their team has been able to prevent the entry of
undervalued shoes, or increased their valuation. For example, a pair of Diadora
brand shoes declared as $2 per pair was revalued to $13.75 upon intervention by
Gaudia's team. Unfortunately, many members of the monitoring team have received
death threats allegedly from importers and customs insiders affected by their
monitoring.
Nevertheless, Gaudia feels this is the best way
he can contribute in saving the industry his livelihood has depended upon.
In particular, the SMP has called on the
government to undertake the following measures:
Creation of a National Footwear Authority that
would safeguard and protect the interests of the local footwear industry;
Strict implementation of Republic Act 8800 which
requires the imposition of safeguards whenever a deluge of imports have affected
local production, and the Consumer Act which requires the labeling of products
sold locally.
Formulation of a standard for quality and
safety
In the long-term, however, local shoemakers, as
well as other manufacturers, would benefit from the reversal of liberalization
and the reorientation of government policies towards those that favor domestic
producers over foreign corporations. (With reports from Joseph S. Yu) Ibon
Features/Posted byBulatlat © 2005 Bulatlat
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of the Local Shoe Industry