Retail Trade Policy and the Philippine Economy

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Retail Trade Policy and the
          Philippine Economy


                           Submitted to:
Trade and Investment Policy Analysis and Advocacy Support (TAPS) -
                Philippine Exporters Confederation




                          A Project of:
             Policy and Development Foundation, Inc.




                              1999
                                                                                          3


     Retail Trade and Liberalization: Towards Retailing and
             Distribution Services for the 21st Century


        The project was commissioned by PHILEXPORT-TAPS to examine further the
policy issue of retail trade liberalization. The contributions of the project to the ongoing
discussion on the liberalization issue as well as to future discussions on the development
of the retail trade sector are as follows:


               The project provides more detailed information about the state of the
                Philippine retail and wholesale trade sector than earlier studies.


               The project emphasizes the importance of addressing the entire
                distribution sector rather than just the retail trade industry.


               The project examines, and draws insights for the issue of retail trade
                liberalization in the country from, the experiences on retail trade
                regulation in OECD countries, retail trade deregulation in Japan, and the
                liberalization of selected service industries in the OECD countries and the
                Philippines.


        The study team was headed by Dr. Ponciano S. Intal,Jr., Executive Director of the
DLSU Angelo King Institute for Economic and Business Studies, De La Salle University
and former President of the Philippine Institute for Development Studies (PIDS). The
members of the study team were: Dr. Myrna Austria, Research Fellow, PIDS; Dr. Cesar
Cororaton, Research Fellow, PIDS; Ms. Melanie Milo, Research Associate, PIDS; and
Ms. Rafaelita Aldaba, Research Associate, PIDS. Research support was provided by Mr.
Ronald Yacat (programmer) and Ms. Leilanie Basilio, Mr. Euben Paracuelles and Ms.
Janet Cuenca (research assistants). The study team benefited a lot from the support and
understanding of Ms. Pilipinas Quising of PHILEXPORT-TAPS as well as the
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administrative support of Ms. Corazon Marquez and Mr. Oscar Laspunia of Policy and
Development Foundation, Inc. (PDFI).


       The Project Report consists of three parts. Part One is the integrative report. It is
composed of three chapters; namely, Chapter One, on the structure and development of
the Philippine distribution industry and on the competitive pressure and efficiency of the
distribution sector and the retail trade industry; Chapter Two, on regulation and
regulatory changes in retail trade and selected service industries in OECD countries and
the Philippines; and Chapter Three, on retail trade nationalization and liberalization:
towards retailing and distribution services for the 21st century. Part Two consists of four
supporting and related studies on the liberalization of the banking, insurance and
telecommunications industries, the issue of franchising and technology transfer and the
simulations on the impact of foreign direct investment in retailing on the rest of the
economy. Part Three consists of Appendix tables.
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                                        Chapter I

     Structure and Development of the Philippine Distribution
                                        Industry

I.     Contribution of the distribution sector to the economy

               Output and Employment. The distribution sector; i.e., wholesale and
retail trade, is an important and rising sector of the Philippine economy. The sector
accounted for 15.6 percent of GDP in 1998, up from 14.5 percent in 1985 (see Table 1).
The bulk of the value added in the sector is contributed by the retail trade sub-sector,
accounting for about four-fifths in 1985 and three-fourths in 1998. The decline in the
share of retail trade to the total value added in the distribution sector stems from the faster
growth of the wholesale sub-sector during the period. Indeed, the share of wholesale
trade to the national output increased significantly while that of retail trade actually
declined marginally during the past decade or so.


               The contribution of the distribution sector to total output varies
considerably among the regions in the country. The top four regions in terms of the share
of the distribution sector to the regional gross domestic product are Central Visayas,
Western Visayas, Northern Mindanao and Southern Mindanao. Their trade shares are
much higher than the national average, with Central Visayas being the most trade
dependent at 29 percent of regional output (see Table 1). The four regions with the
lowest shares are CAR, ARMM, Eastern Visayas and Central Mindanao. These four
regions are among the poorer regions in the country. Metro Manila, which dominates
much of the country's wholesale and retail trade, is actually less trade dependent than the
national average. Nevertheless, Metro Manila accounts for more than a quarter of the
national value added in retail and wholesale trade. Similarly, Southern Tagalog and
Central Visayas together account for another quarter. A trio of regions -Western Visayas,
Southern Mindanao and Central Luzon - contribute another quarter. Thus, trading activity
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