THE GLOBAL CHALLENGE IN SERVICES TRADE A Look at Philippine Competitiveness THE GLOBAL CHALLENGE IN SERVICES TRADE A Look at Philippine Competitiveness Edited by Gloria O. Pasadilla PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas Copyright 2006 by the Philippine Institute for Development Studies (PIDS) and the German Technical Cooperation (GTZ) Printed in the Philippines. All rights reserved. The findings, interpretations, and conclusions in this volume are those of the authors and do not necessarily reflect those of GTZ and PIDS and other institutions associated with the studies presented in this volume. Please address all inquiries to: PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES NEDA sa Makati Building, 106 Amorsolo St. Legaspi Village, 1229 Makati City, Philippines Tel.: +63-2 8942584; 8935705 Fax: +63-2 8939589; 8942584 Email: [email protected] Website: http://www.pids.gov.ph ISBN 978-971-564-056-5 RP 09-06-500 Photo credits (cover): PIDS photo files (first and second rows, left photos); The Farm at San Benito (first row, right photo); for collage, second row, right photo: www.hpproductions/ lc.com/production.htm (reel, foreground); www.elitehomevacations.com/images/film.jpg (reel, background); www.ststours.ca/cms_images/clapper.jpg (clapper, foreground). iv Table of Contents List of Tables ……………………………………………………………………………… vii List of Figures and Boxes ………………………………………………………… xi List of Appendices ……………………………………………………………………… xiv Foreword Josef T. Yap ………………………………………………………………… xv Foreword Anja Gomm ………………………………………………………………… xvii Acronyms …………………………………………………………………………………… xix Chapter 1 Overview: A Look at Services Trade in the Philippines Gloria O. Pasadilla Importance of Services in the Economy: Some Facts and Figures …… 2 Prospects of Services as Dollar Earner ………………………………………… 5 Outsourcing Opportunities, Medical Tourism, and Others ………………… 15 Contribution of this Volume ………………………………………………………… 18 References ……………………………………………………………………………… 18 Chapter 2 Cross-border Transactions in Higher Education: Philippine Competitiveness Andrea L. Santiago Abstract …………………………………………………………………………………… 19 Background ……………………………………………………………………………… 20 Principal Issues and Concerns in Education Services ……………………… 22 State of Philippine Higher Education …………………………………………… 25 Measuring Philippine Competitiveness in Higher Education Trade ………………………………………………………… 29 The Asian Context ……………………………………………………………………… 38 Experts’ Views on Cross-border Transactions ………………………………… 43 Summary ………………………………………………………………………………… 46 Insights and Recommendations ………………………………………………… 47 Conclusion ………………………………………………………………………………… 51 References ……………………………………………………………………………… 52 Chapter 3 Challenges in Health Services Trade: Philippine Case Maria Cherry Lyn S. Rodolfo and Jovi C. Dacanay Abstract …………………………………………………………………………………… 55 Introduction ……………………………………………………………………………… 55 Global Trends in Health Services Trade ………………………………………… 56 Assessment of Capabilities ………………………………………………………… 76 Other Strategic Options ……………………………………………………………… 82 Appendices ……………………………………………………………………………… 90 References ……………………………………………………………………………… 97 v Chapter 4 Audiovisual Services Sector: Can the Philippines Follow “Bollywood”? Gloria O. Pasadilla and Angelina M. Lantin, Jr. Abstract …………………………………………………………………………………… 99 Global Overview of the AVS Sector ………………………………………………… 99 An Overview of the Philippine AVS Sector ……………………………………… 113 The Philippine Film Industry ………………………………………………………… 121 The Television Broadcasting Industry …………………………………………… 134 Summary and Conclusion …………………………………………………………… 147 Appendices ……………………………………………………………………………… 151 References ……………………………………………………………………………… 161 Chapter 5 The Philippine Information and Communication Technology Sector: Evolving Structure and Emerging Policy Issues Winston Conrad B. Padojinog Abstract …………………………………………………………………………………… 163 Background ……………………………………………………………………………… 164 The ICT Sector and Its Impact on the Philippine Economy ………………… 170 Evolving Structure and Behavior ………………………………………………… 186 ICT Absorption and Penetration …………………………………………………… 204 Policy Framework to Close the Divide …………………………………………… 217 References ……………………………………………………………………………… 221 Chapter 6 Sustaining Philippine Advantage in Business Process Outsourcing Ceferino S. Rodolfo Abstract …………………………………………………………………………………… 225 Introduction ……………………………………………………………………………… 225 Business Process Outsourcing …………………………………………………… 232 Growth of BPO Worldwide …………………………………………………………… 236 The Philippine BPO Industry ………………………………………………………… 243 RP’s Attractiveness as a BPO Location: Industry Value Chain …………… 249 Policy Recommendations …………………………………………………………… 268 Areas for Further Study ……………………………………………………………… 271 References ……………………………………………………………………………… 273 Chapter 7 Does the Philippines Need a Trade Representative Office? Gloria O. Pasadilla and Christine Marie M. Liao Abstract …………………………………………………………………………………… 275 Introduction ……………………………………………………………………………… 275 Trade Policy Formation in the Philippines ……………………………………… 277 Institutional Inefficiencies in the Current Structure ………………………… 283 An Agenda for Reform ………………………………………………………………… 292 Appendices ……………………………………………………………………………… 298 References ……………………………………………………………………………… 315 About the Authors ……………………………………………………………………… 317 vi List of Tables Chapter 1 Table 1. Sector share to GDP (in percent) ……………………………………… 2 Table 2. Sector share in employment (in percent) …………………………… 3 Table 3. Distribution of FDI stock, by industry (in percent)………………… 4 Table 4. Average family expenditures by income class in the Philippines, 2000 …………………………………………………… 4 Table 5. Services as growth driver? ……………………………………………… 5 Table 6. Exports of services (balance of payments), 1999-2004 ……… 8 Table 7. Revealed comparative advantage of the Philippines, 2000 and 2003 …………………………………………………………… 11 Table 8. Embodied and disembodied service trade (in thousand PhP) …………………………………………………………… 13 Table 9. Comparison of OFW remittances with other BOP flows (in million US$) ……………………………………………………………… 13 Table 10. Percentage share of newly deployed OFWs by skill category……………………………………………………………… 14 Table 11. Alien employment permits issued by selected occupation group, Philippines: selected years…………………………………… 16 Chapter 2 Table 1. Number of FAAP- and AACCUP-accredited programs, SY 2002-2003 …………………………………………………………… 27 Table 2. Average number of students per HEI, SY 1994-1995 to 2001-2002 ……………………………………………………………… 27 Table 3. Number of foreign students studying in Philippine HEIs per school year ………………………………………………………… 29 Table 4. Foreign students enrolled in selected Asia-Pacific countries, 2001 …………………………………………………………… 30 Table 5. HEIs with the most number of foreign students, SY 2002-2003 ……………………………………………………………… 30 Table 6. Number of foreign students in Philippine HEIs by national origin …………………………………………………………… 32 Table 7. Number of Americans in Philippine HEIs, SY 1997-2002 …… 32 Table 8. Top 10 courses enrolled in Philippine HEIs by foreign students, SY 2002-2003 ……………………………………………… 33 Table 9. Number of foreign students at AIM’s major degree programs …………………………………………………… 34 Table 10. Growth competitiveness index and components, 2001 ……… 35 Table 11. Current competitiveness index and components, 2001 …… 36 Table 12. Tuition and living costs in the Philippines, 1999, in PhP and US$ ……………………………………………………………… 37 Table 13. Tuition and living costs, selected Asian countries, low-end in US$, 2001 ……………………………………………………… 37 vii Table 14. Tuition and living costs, selected Asian countries, high-end in US$, 2001 …………………………………………………… 38 Table 15. Tuition and living costs across major programs, selected countries, in US$ ……………………………………………… 38 Table 16. An Asia-Pacific regional typology of cross-border education … 39 Table 17. China’s cooperative relations with foreign institutions ………… 42 Chapter 3 Table 1. Median wait time and waitlists for British Columbia, as of 31 March 2005 ……………………………………………………… 58 Table 2. Comparative costs of treatment (in US$) …………………………… 59 Table 3. GATS modes of supply ……………………………………………………… 60 Table 4. Categories of consumers moving abroad …………………………… 64 Table 5. Major health tourism destinations in Asia ………………………… 68 Table 6. Japanese residents overseas: long stayers and permanent retirees ………………………………………………………… 69 Table 7. Summary of how US health plans treat healthcare received abroad …………………………………………………………… 70 Table 8. Investment rules on hospital and insurance companies ……… 74 Table 9. Supply of health professionals ………………………………………… 79 Table 10. Enrollment in medical schools ………………………………………… 79 Table 11. Health and social services in the GATS Scheduling Guidelines and in the UN Central Product Classification (CPC) List ………… 87 Table 12. Overview of commitments for Modes 1, 2, and 3 on medical, health-related, and social services …………………………………… 88 Table 13. Summary of specific commitments in the GATS ………………… 89 Chapter 4 Table 1. Market share of US films in different countries, 2000-2003 ………………………………………………………………… 102 Table 2. Top 10 world box office films, 1900-2005 (in million US$) ……………………………………………………………… 102 Table 3. Top 10 countries producing feature films, 2002 ………………… 103 Table 4. Top 10 countries in film investment, 2002 ……………………… 104 Table 5. Number of screens, 1990-2003 ……………………………………… 107 Table 6. Number of screens in Asia, 2002 …………………………………… 108 Table 7. Breakdown of the television industry’s sources of revenue (in percent) ……………………………………………………… 108 Table 8. Minimum quota requirements for