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The Effects of Globalization on Economic Restructuring on Philippine by variablepitch339

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									The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses of the Actors of the Philippine Industrial Relations System1
Jorge V. Sibal
Professor University of the Philippines School of Labor and Industrial Relations E-mail:

The Philippine labor policies and standards are based on international labor standards (ILS). With the present intensification of globalization and the resulting economic restructuring, there are agitations from certain groups that these high labor standards need to be liberalized since the country is experiencing “jobless growth” in the formal industrial sector and the use of capital intensive work processes is being encouraged in the face of very high unemployment and underemployment rates of 10.8% and 17.6% respectively. This paper argues against the suggestions of liberalizing labor policies and standards which may lead to the race to the bottom lowering of wages, benefits and working conditions among workers in the underdeveloped and developing countries as their comparative advantage and the possible retaliation of developed countries through the imposition of their high labor standards as a trade protectionist device in order to protect the jobs of their local labor force earning high wages and benefits. The major actors of the Philippine IR system- government, employers, trade unions and civil society groups- have responded to the said imbalance between high labor standards in the face of high unemployment and underemployment rates. This paper advocates the retention of Philippine labor policies based on international labor standards as the correct path in the attainment of economic growth and development that will result in social equity and decent work.

Paper presented by Prof. Jorge V. Sibal, Office-in-Charge-Dean of the University of the Philippine School of Labor and Industrial Relations (UP SOLAIR) at the International Society of Labour and Social Security Law (ISLSSL) 8th Asian Regional Congress, October 31- November 3, 2005 at the Holiday Inn Asia World, Taipei, Taiwan.

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Globalization Trends in Asia
Globalization was more intense in Asia, particularly East Asia which contributed to the fast growth of the region today. Globalization in Asia is characterized by the increasing participation of foreign capital, including small and medium scale investors from the NICs (Taiwan, So. Korea, Singapore, Malaysia, China, etc.) in the enterprises of the developing economies including infrastructure and energy development projects which were previously monopolized by the state. These foreign investors favor the less developed countries due to cheap labor costs. The impact of globalization on employment was favorable to South Korea, Thailand, Singapore and Malaysia. It is not as successful in the Philippines.

Effects of Globalization to Philippine IR Actors
Globalization in the Philippines was accelerated since it joined the WTO and APEC in 1990s. The country was a recipient of several structural adjustment loans from the WB-IMF.

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Figure 1. Responses of IR Actors to Globalization A. GOVERNMENT WORLD BANK-IMF GOVERNMENT RESPONSES


Development Strategies under Globalization >reduction of subsidies to state enterprises >reduction of tariff rates >import liberalization >foreign exchange decontrol & flotation of the peso >privatization > etc. VARIOUS MEASURES ADOPTED BY MANAGEMENT >Reengineering & Rightsizing >TQM >Flexibilization- internal & external >OD & HRD investments >Pro-active non-union /union-based HRD

B. EMPLOYERS Economic Liberalization Deregulation >> Democratization Devolution Decentralization

Cost Reduction/ Increase Productivity to Prevent Closure

C. LABOR Effects to Labor and Trade Unions >casualization of labor >redundancy- reduction of jobs >sub-contracting/piece rates The Gove >reduction of union membership >reduction of unioninitiated wages & benefits adjustments

USUAL TRADE UNION RESPONSES >strikes and mass actions >strengthened collective bargaining negotiations >cooperation w/ management >workers‟ participation in management >non-traditional trade union activities or social movement unionism (SMU)

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The Government
The government adapted the development strategies prescribed by the WB-IMF whose main features are trade and investments liberalization and globalization. The schematic diagram in Figure 1 illustrates the Four “D” strategies that the Philippine government initiated under former President Fidel Ramos- Deregulation, Democratization, Devolution and Decentralization. Among the typical economic programs of the government include reduction of subsidies to state enterprises, privatization, import liberalization, foreign exchange decontrol and investments liberalization. Privatization and build-operate-transfer (BOT) projects resulted in the decline of state ownership of big enterprises and infrastructure. This strengthened private business cartels which may disadvantage the workers and consumers. Globalization was not able to arrest the increasing income inequality among countries and regions of the world. In the Philippines, income inequality among classes and among regions remained (Sibal 2002). As will be explained later, the country failed to develop its agroindustrial base and did not create enough jobs to absorb the unemployed and the new entrants in the labor force. The trickle down effect to the poor did not materialize. The widening social inequity as a consequence of WTO‟s trade liberalization prompted the World Bank to promote “Growth with Social Justice” aligned with Unicef‟s “Development with a Human Face”, WHO‟s “Health for All”, and UNDP‟s emphasis on human development (Tapiola 2002). The country adopted the 1998 “ILO Declaration on Fundamental Principles and Rights at Work” which became the basis of the International Labor Standards (ILS)2. Together with the social justice provision of the 1987 Constitution3, this has strongly influenced the country‟s labor and industrial relations policies.

The Employers
Globalization brought “jobless growth” in the formal industrial sector of the economy since global enterprises invested in capital-intensive tertiary manufacturing processes or

This is based on the following ILO conventions: Nos. 87 and 98 on Freedom of Association and Collective bargaining; Nos. 29 and 105 on the Abolition of Forced Labor; Nos. 100 and 111 on Equal Remuneration and Non-Discrimination; and Nos. 138 and 182 on the Abolition of Child Labor, in Particular its Worst Forms. 3 Art. II- Declaration of Principles and State Policies of the 1987 Philippine Constitution. Section 9. The State shall promote a just and dynamic social order that will ensure the prosperity and independence of the nation and free the people from poverty through policies that provide adequate social services, promote full employment, a rising standard of living, and an improved quality of life for all. Section 10. The State shall promote social justice in all phases of national development. (

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outsourced marketing operations to take advantage of the country‟s export quotas, local markets, cheap labor, ports, telecommunications, etc. Local employers were thus exposed to intense competition from global producers and importers of finished goods that included smuggled items. Technological innovation and investments in HRD and new forms of labor flexibility became a must in order to offer better services at competitive prices to consumers. Most of the big enterprises were able to adjust by increasing labor productivity and competitiveness. Among these measures were:1) increase in capital intensive operations; 2) work flexibility arrangement through various forms of outsourcing, reengineering, right sizing; and 3) investments in HRD, organizational development and human capability building. Philippine employers, especially the big enterprises have proven to be very resilient. Local conglomerates, mostly owned by ethnic and Chinese Filipinos, have adjusted, adapted and even expanded as a result of globalization. San Miguel Corporation, United Laboratories, Jollibee Foods and Splash Corporation have expanded operations abroad, particularly in other Asian countries. Most of these enterprises adopted cost reduction and productivity programs in order to survive and grow. Filipino employers, especially in the small and medium categories in agriculture and in sunset industries were among the losers in the globalization process. The labor-intensive firms were not prepared for liberalization and globalization (ECOP 2004, FTA 2003). Some of these industries are in the garments and apparel, car parts manufacturing, agricultural producers (vegetables, palay, corn, poultry), etc. They have to upgrade their technologies and enhance their productivity. Otherwise, they may be absorbed by others that are growing due to globalization. Since 1980, the share of manufacturing has continued to decline as shown in Table 1. Agriculture‟s contribution to GDP continued to decline from 33.3 percent in 1967 to 20.0 percent in 2000. Although declining, this sector however is a very stable sector since its average annual growth rate is steady from a range of 2 to 4 percent. What increased significantly was the service sector from 36 percent in 1980 to 45.6 percent in 2000. Hence, the Philippine growth pattern was characterized by the increase in services with agricultural and industrial sectors declining4.


Structural changes in the economy (or growth of industry and the decline in agriculture share to GDP) are also measures of economic development. The transformation of an economy from agricultural to industrial is an indication of a successful economic development.

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Table 1. Percent Share of Manufacturing, Agriculture and Services to Gross Domestic Product (GDP) (in million pesos) Sector Agriculture Industry>Manufacturing >Other Industries Services 1967 33.3% 18.3 5.2 43.2 1970 27.8% 22.5 7.1 42.6 1980 23.5% 27.6 12.9 36.0 1990 22.4% 25.6 10.0 42.0 2000 20.0% 24.8 9.6 45.6

Source of Data: National Statistics Coordination Board, Philippine Statistical Yearbook. Other industries include mining and quarrying, construction, electricity, gas and water

Labor was absorbed not by industry but by the service sector. As of 2000, more than half of the country‟s employed labor force which used to be in agriculture were absorbed by the service sector.

Table 2. Labor Absorption of Agriculture, Manufacturing and Services (in percentage) Sector Agriculture Manufacturing Services Totals 1971 50.4 12.0 37.6 100.0 1981 51.4 10.5 38.1 100.0 1991 45.2 11.0 43.8 100.0 2000 37.0 10.3 52.7 100.0

Reference: Phil. Statistical Yearbook, National Statistics Coordination Board

Over-all, industry failed to absorb an increasing labor force, unlike other developing countries and Asia‟s newly industrializing economies. In recent years, industry‟s labor productivity declined. The manufacturing to employment ratio over the last two decades has not changed to about 4% (Felipe and Lanzona 2005 citing Balicasan).

The Workers
Workers in developing and underdeveloped countries are made to compete with workers in industrialized countries. Factories in developed countries can easily be transferred elsewhere via international subcontracting. This has weakened the trade union movement in the country. The decision making power in the country‟s workplaces is moved away from the shop floor since global companies decide on their subcontracted operations in their corporate headquarters.

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Labor cartels in the developed regions, particularly in the US and Europe were also weakened due to the decline in worker unionization and trade union initiated benefits. Trade unions now tend to be less ideological and are more receptive to possible strategic partnership in enterprise building through new industrial relations processes. This may bring about more unity in the international labor movement. Trade unions were encouraged to engage in non-traditional (sometimes non-collective bargaining) activities such as investments in labor enterprises, renewed political unionism and organizing the informal sector of the economy. This has widened the base of operations of the trade union movement and make the trade unionists more effective leaders of the labor movement. In the Philippines, some trade union-based party-list groups like the Anakpawis and Partido ng mga Manggagawa have been elected as lawmakers in the Philippine Congress. Trade unions and other labor organizations in the country weakened due to the widespread casualization and sub-contracting of labor. This may be true only in the short-run, since globalization, if it turns around the Philippine economy to an NIC status even in years beyond 20205, will mean transforming the vast informal sector of the economy to the formal sector. This will surely mean a massive growth of trade unionism in the Philippines similar to the free trade period of the 1930s. The responses of trade unions to globalization within the collective bargaining process (or conditional demands) are as follows: 1. Multi-skilling, job rotation, HRD and training 2. Entrepreneurship training and development 3. Employee cooperative formation with management support and assistance- credit, consumers, savings and loan association, marketing, producers, etc. 4. Employees‟ stock option program (ESOP) 5. Increased retirement benefits, early retirement provisions, unemployment insurance, pension plans, etc. 6. Negotiated reduction of work hours to prevent lay-offs 7. Salary hike freeze but with provisions for profit sharing and workers‟ participation in management upon recovery 8. Cooperativization of work processes, joint ventures with TUs and employees associations (commonweal enterprises) or subcontracting with management assistance and subsidy 9. Other form of labor-management cooperation (LMC) like works‟ councils, codetermination and labor-management strategic alliances. On the other hand, trade union responses to globalization outside the collective bargaining process are as follows:

The realistic year is 2035 since we are 15 years behind Malaysia and their NIC-hood target is 2020.

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1. 2. 3. 4.

Community organizing in the informal sector Labor enterprises and labor entrepreneurship Political unionism, lobbying and electoral struggles Skills upgrading and retraining of workers

Effects of Globalization to Philippine Labor and IR Policies
A developing country, the Philippines has several sets of labor standards because of its segmented economy and industrial relations system. The country has a shrinking formal sector whose wage and salaried employees (around 52% of the labor force) are covered by legislated labor standards set under the various ILO conventions6 (Leogardo 2004, Macaraya 2005). In the private sector, the labor standards are mostly stipulated in the Labor Code of the Philippines, the Social Security System, PhilHealth, Pag-ibig Fund and Employees Compensation Commission. In the government sector, the labor standards are governed by the Civil Service Laws and the Government Service Insurance System. The increasing informal sector where workers are mostly not on a formal labormanagement relations (such as unpaid family workers, self-employed or own-account workers, piece rate and other local and overseas contractual workers) are directly or indirectly covered by several laws affecting informal workers. Among these laws include the Barangay MicroBusiness Enterprise (BMBE) Law 7 , Cooperative Code of the Philippines, Cooperative Development Authority (CDA) Law, Local Government Code, laws governing the Overseas Workers‟ Welfare Administration (OWWA) and the Overseas Employment Development Board (OEDB), Comprehensive Agrarian Reform Law (CARL), Agriculture and Fisheries Modernization Act, Magna Carta for Small Farmer, Social Amelioration Program in the Sugar Industry, Small and Medium Enterprises Development Council (SMED), Social Reform and Poverty Alleviation Act, certain provisions of the Labor Code of the Philippines, SSS, PhilHealth, and Employees Compensation Commission Law (Tolentino, Sibal and Macaranas 2001). Bach Macayara (2005) noted: “The framer of the [Labor] Code at that time simply ignored the fact that in those developed countries, many of their workers already joined their formal sector of the economy; whereas in the Philippines, a large majority of our workers were still with the informal sector. As a consequence, we have a Labor Law that was focused in

Among those exempted from coverage are managerial employees, field personnel, unpaid family workers, domestic helpers, persons in personal service of another and workers paid by results. 7 The BMBE Law stipulates stipulates “BMBE is any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, whose total assets including those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated, shall not be more than Three Million Pesos (P3,000,000.00). The BMBEs shall be exempt from the coverage of the Minimum Wage Law, but their employees shall be entitled to the same benefits given to any regular employee such as social security and healthcare benefits.”

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protecting the smaller segment of the workforce in the formal sector. Nonetheless, we consoled ourselves with the thought that as „economic development deepens, most of our workers will eventually end up with the formal sector of our economy‟ an assumption that now appeared premature as this was reversed when globalization was introduced”. Macaraya cited Table 3 below to prove his point: Table 3- Comparative Sizes of Formal and Informal Sectors, 1999 and 2003a 1999 No. of workers 30,758,000 27,742,000 6,013,688 18,069,322 3,932,312 8,864,000 1,498,000 3,775,000 2003 % to total No. of employed workers 90.19 (9.8)b 34,571,000 30,635,000 21.68 5,706,460 65.13 20,013,540 14.17 4,868,540 31.95 9,912,000 5.40 1,486,000 13.61 3,765,000 Difference % of total employed 88.61(11.4)b +3,813,100 +2893,000 18.63 -307,228 65.32 +1,944,218 15.89 32.35 4.85 12.28

Labor Force Total employed Formal sector Informal sector Wage & salary Self employed
Domestic helpers

Unpaid workers

Source: Leogardo, V. J. (2004). a Determined through residual methodology, using NSO Labor Force Surveys and Annual Survey of Philippine Business & Industry b Percent unemployed

The workers in the formal sector and covered by the labor standards under the Labor Code for 1999 and 2003 comprise only of 21.68 percent and 18.63 percent, respectively, of the total employed workforce. During the same period, the formal sector workers declined by 307,228 as globalization deepened. The workers in the informal sector which accounted for 65 percent of the employed labor force grew by 1,944,213. These are the workers not covered by the Labor Code.

Approaches in Promoting Compliance to Labor Standards
Verma (2005) formulated a framework in promoting compliance to labor standards. In the extreme poles are the “soft approach” (or do nothing) and the “hard approach” (or impose standards and sanctions). The “hard approach” forces compliance as in the case of standards imposed by TNCs and states of developed countries. Verma, however, does not favor the “hard approach” especially to the informal sector of a developing country since this will lead to the North-South debates.

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To many developing countries, labour standards imposed from outside are nothing more than old wine of protectionism in a new bottle of global labor standards. All three parties [IR actors] in developed countries favor some form of regulation to increase labor standards, while all three parties in developing countries uniformly oppose any attempt to impose such standards through extra-national initiatives8. Verma identified three steps in promoting and developing compliance to labor standards. These are1. developing standards either through legislation or corporate codes, 2. monitoring compliance through government inspections/sanctions or voluntary selfassessment through the stakeholders themselves, and 3. providing remedies when compliance is wanting through internal or external agents. Verma and Amante recommended that the promotion for compliance to labor standards should not be imposed from outside but initiated from within through national public policy enactment, corporate codes and NGO advocacy campaigns. These recommendations are actually the milder forms of the “hard approach” as shown below.

Approaches in Promoting Labor Standards Compliance

“Soft approach” (do nothing)

NGO advocacy campaigns (Good practices)

Corporate Codes

National public policies

“Hard approach” (impose standards & sanctions)

Web of Labor Standards
Verite (2003) observed that there is high level of compliance to labor standards among exporters, franchisees and large corporations with reputational risks. The level of compliance diminishes as one goes “deeper down the supply chain and in small and micro-enterprises that produce for the domestic market”. Shown in Table 4 is the web of labor standards in the formal and informal sectors:


This was affirmed by the report of Giebels (2005) on studies in 11 countries in Asia and Eastern Europe.

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Table 4- Philippine Web of Labor Standards Regulations SECTOR Workers Covered 2003 Percentage Employed Nature Production FORMAL 5,706,460 INFORMAL 20,013,540 65.32% >Local firms supplying other firms linked with TNCs and local firms with operations abroad

of 18.62% of >Production directly linked to TNCs9 >Firms supplying TNC-linked firms >Local firms with operations abroad >Purely domestic, no linkage abroad Labor Code, Social Security System, PhilHealth, Pag-ibig Fund, Employees Compensation Commission, Civil Service Law, Government Service Insurance System, Collective Bargaining Agreements, Collective Negotiations Agreements, Philippine Quality Awards, Corporate Codes of Conduct, Corporate Social Responsibility, UN Global Compact, Social Compliance, Social Accountability 8000, ILO, OECD Guidelines for MNCs, ISO 14000, AccountAbility 1000, Global Reporting Initiative, Global Sullivan Principles, best practices, etc. (Amante 2005, Macaraya 2005) of >Wide coverage for TNCs, & firms linked with TNCs and

>Purely domestic, no linkage abroad Barangay Micro-Business Enterprise (BMBE) Law, Cooperative Code of the Philippines, Cooperative Development Authority Law, Local Government Code, Overseas Workers‟ Welfare Administration, Philippine Overseas Employment Administration, Comprehensive Agrarian Reform Law, Agriculture & Fisheries Modernization Act, Magna Carta for Small Farmers, Social Amelioration Program in the Sugar Industry, Small and Medium Enterprises Development Council, Social Reform and Poverty Alleviation Act, & certain provisions of the Labor Code, SSS, PhilHealth, Employees Compensation Commission Law, good practices, community acceptance, etc. (Tolentino, Sibal & Macaranas 2001)

Labor Standards Laws, Corporate Codes, etc.

Extent Coverage

Low coverage and ineffective regulations due to vague laws and lack

Transnational corporations

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Workers’ Organizations

local firms with operations abroad >Moderate coverage for firms catering to local markets Trade unions, cooperatives, NGOs, employees associations, consumer associations, partylist groups, corporate foundations, academe, etc.

of knowledge of good practices

Peoples‟ organizations, trade unions, cooperatives, crafts/guilds, NGOs, socio-civic organizations, church groups, corporate foundations, academe, party list groups, etc.

Drivers for Labor Standards Compliance
1. Presence or absence of local labor standards laws and corporate codes There are elaborate labor standards laws and corporate codes in the formal sector. This has resulted in wide coverage and relatively effective regulations (See Table 4). The country fared better than its Asian neighbors in compliance with labor standards. This was a result of the country‟s ratification of “30 ILO conventions, of which 28 are in force” (Amante 2005). There are many laws on labor standards that affect the bigger informal sector. Majority of the workers in the informal sector which comprise more than half of the labor force are not covered by the Labor Code and the Civil Service Laws. BMBE registered enterprises are exempted from the legislated minimum wage. Many local governments are still hesitant to apply the law in their own areas due to the tax exemption stipulations of the law (Banzon-Natad 2005). The law is being implemented by the various government agencies including the Departments of Trade and Industry, Interior and Local Government, Finance, Labor and Employment, among others. Despite this, there is already a new bill filed in Congress that seeks to amend the law. 2. Degree of enforcement of labor standards laws by government agencies and corporate codes by industry guilds/associations. Enforcement of labor standards laws by the Department of Labor and Employment (DOLE) through the Bureau of Working Conditions (BWC) is weak primarily due to the limited number of labor inspectors (Amante 2005 and Palafox 2003). Dole has shifted its thrust by encouraging voluntary compliance particularly in enterprises with at least 200 workers through partnership with labor, professional and employers‟ organizations and other government agencies.

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An example of these partnerships is the “Social Accord for Industrial peace and Stability” launched in October 4, 2004 by ECOP, various trade union federations (TUCP, FFW, TUPAS, etc.) and the DOLE. To monitor the implementation and compliance of the Accord, a Tripartite Assistance and Supervising Committee (TASC) was created. 3. Degree of tie-ups of local firms with foreign firms or industry associations that uphold or require labor standards compliance. Transnational corporations (TNCs) protect their brands/product quality and jobs in home countries by requiring all its business partners and suppliers around the globe to comply with the international labor standards (ILS). These ILS and other norms are called the “Global Eight” initiatives as follows (Amante 2005): a. UN Global Compact; b. ILO Conventions; c. OECD Guidelines for Multinational Enterprises; d. ISO 14000 series; e. AcountAbility 1000; f. Global Reporting Initiative; g. Global Sullivan Principles; and h. Social Accountability 8000. The Philippines is in a tight squeeze between the North-South debates on the ILS compliance. With relatively higher wages compared with other Asian developing countries due to higher-level compliance with labor standards, the country is also losing investments to low wage Asian economies like Vietnam, China, Bangladesh, etc. The country however has lower wage rates compared to the Asian NICs- South Korea, Taiwan, Hongkong, Singapore and Malaysia. Enterprises linked to the supply chains of TNCs or local firms with operations abroad and exporting to developed countries have no other option but to comply with the imposed ILS. Anyway, complying with the ILS makes these enterprises globally competitive and will help the nation preserve and create quality jobs. Local enterprises with no linkages abroad, particularly those in the informal sector have both low awareness and low level of compliance with labor standards. This is caused by low level of enforcement and vague labor standards for the informal sector workers. Strict or forced enforcement of labor standards to the informal sector may lead to dangerous consequences since we are a labor surplus economy and competing with low wages economies in Asia.

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As recommended by Amante (2005) and Verma (2005), compliance with labor standards especially to the bigger informal sector and the local enterprise in the formal sector catering to the local market should not be imposed from the outside but from within through the good practices approach and continuous improvement. The development of local corporate codes that will be applied to the “domestic formal sector, their suppliers and their suppliers‟ supplier” would likely reach the informal sector. Another way to reach the informal sector, according to Verma, is through the NGOs, P0s and cooperatives. 4. Presence or absence of workers organizations in the workplace like trade unions, employees associations, cooperatives, crafts unions/guilds and peoples‟ organizations (P0s) The presence of trade unions in workplaces in the formal sector has contributed to the high level of compliance to labor standards. But trade union membership is declining due to outsourcing and the decline of the formal sector itself. Trade unions have to be reinvented and transformed by uniting with or helping organize other forms of workers‟ organizations like employees associations, guilds, crafts unions, cooperatives, labor-management councils (LMCs), peoples‟ organizations (P0s) of vendors, farmers, drivers and other workers of similar occupations. From these newer forms of labor organizations, the advocacy campaign for new laws on labor standards based on good or best practices and the formulation of industry codes among professions and occupations can be pursued. 5. Level of awareness of consumer groups and civil society organizations like NGOs, church, academe, socio-civic groups, etc. on labor standards and their effects on consumer welfare and earnings of worker-consumers. Because of the over-all low incomes of the Filipino workers and consumers, they are usually price conscious and not quality conscious. Hence, local products are easily underpriced by imported low quality products or local producers scrimp on labor standards just to lower their costs of production. In developed countries, trade unions, consumer groups and civil society organizations are pressuring their governments and TNCs in labor standards compliance in order to protect consumer welfare, jobs and purchasing power.

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In the Philippines, the Buy Philippine-Made Products Movement and the Fair Trade Alliance (FTA)10 are among the consumer advocates campaigning for the patronage of locally produced products and services side-by-side with social compliance and product quality standards. Philippine retailers do not impose compliance to local quality standards despite the presence of local standards like the Philippine Quality Awards (PQA) 11 and the Philippine Products Standards under the supervision of the Bureau of Product Standards (PS) of DTI. It is only in food products and medicines under the Bureau of Food and Drugs (BFAD) that local quality standards are imposed. Compliance to labor standards however is not a basis in the BFAD award.

Critique Against High Philippine Labor Standards
Dr. Gerardo P. Sicat in a paper “Reforming the Philippine Labor Market” 12 criticized the high level of the country‟s labor standards and suggested that these standards be deregulated or liberalized. The summary of Dr. Sicat‟s paper is written below: Philippine labor market policies, in the presence of a high degree of excess labor supply, are highly regulated and they tend to be along standards of highly developed markets. The policies adopted by the government are more pro-employed labor than to promote the over-all employment of the labor force. These policies made the country to miss the path of labor intensive development in industrial enterprises, a pattern typical of the early growth of East Asian economies. These policies strengthened a powerful labor bureaucracy in the government. Side effects of the regulations and the culture surrounding the disposition of labor management issues encouraged rent-seeking and other motivational distortions in the behavior of labor when employed. The welfare policies as developed have contributed to the distortion in labor skill formation, the tendency to provide an increase of emoluments without any link to productivity growth, and so on… In undertaking reforms, productivity change needs to be placed in the center stage of reforms. Finally, it is argued that the labor sector would find it in its interest to deal positively with the challenges of globalization. This means recognizing that labor market policies need to adjust to global competition. This further means

The “Buy Filipino Movement” with the slogan “Tangkilikin at Paunlarin ang Sariling Atin” (Patronize and improve our own products) was initiated by the National Economic Protectionism Association (NEPA) in 1934. It was the organized reaction of Filipino producers and intellectuals during the free trade period imposed by the United States. 11 PQA is the local equivalent of the Malcolm-Baldridge Award. 12 Dr. Gerardo P. Sicat is professor emeritus of the UP School of Economics. The paper was written on April 2004.

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that it emphasizes the need to accept economic liberalization would require encouraging the growth of investments from, all sources- including foreign direct investments. Such a route will create jobs and improved welfare for the working man. From my understanding, the framework of Dr. Sicat‟s paper is illustrated below: Figure 2: Dr. Gerardo P. Sicat’s Framework of Analysis of Philippine Industrial Relations Policies Globalization & Economic Restructuring

Distorted Labor Skills Formation

International Labor StandardsILS (ILO, UNDP, WTO, WHO, etc.)

ProEmployed Labor Policies based on ILS

Capital Intensive Industries

Rent Seeking Economic Activities (mostly services)

High Unemployment and Underemployment

Powerful Labor Bureaucracy (TUs and Gov‟t.)

Low Productivity

Large Informal Sector

There is no disagreement with Dr. Sicat on the following: 1. The inadequate skills formation in the country left the greater bulk of the labor force lacking in needed and relevant skills. 2. The existence of a powerful labor bureaucracy in the trade union movement and in the government agencies concerned with industrial relations contributed to legalism and adversarial relations between labor and management in the country. 3. The high employment and underemployment contributed to the big informal sector in the economy.

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4. The productivity of Philippine industries is low compared to developed and some developing Asian countries. The Philippine labor policies based on international labor standards (ILS) may have contributed to the capital intensiveness of our industries in the formal sector (jobless growth) and the increase in rent-seeking activities particularly in the services sector. This effect may occur only in the short run and may have a reverse effect in the long run. Dr. Sicat‟s suggested policy intervention of liberalizing labor standards to encourage investments in labor intensive enterprises and promote job creation in the country may be based on the World Bank‟s traditional trickle down philosophy. This was already discarded in the 1970s. This may lead to intense competition among developing countries by using low wages as their comparative advantage. A worldwide downward wage spiral may happen and further widen the social inequity between the developed and developing countries and the income inequity among rich and poor classes in developing countries. Developed countries on the other hand may use ILS as a protectionist tool to preserve jobs of their workers. Both consequences were pointed out in the ministerial meeting of the WTO in Singapore in 1995 as justification for the promotion of ILS based on ILO standards.

Factors for Competitiveness
Cost of labor is not the only reason for the lack of competitiveness of the country‟s labor intensive industries. There are more important economic and non-economic factors that contribute to their low productivity13. Among these are: 1. Low level of knowledge and skills of both employer/management and labor, and the lack of government support in skills training14; 2. poor infrastructure like roads, bridges, ports (land, sea and air), telecommunications, irrigation, power, etc. (Garcia 2002); 3. high cost of direct inputs of production like electricity, water, transportation, communications, interest of capital, labor, etc. Electricity in the country is one of the most expensive in Asia and almost in the same category as Japan; 4. high bureaucratic cost of doing business due to government inefficiency and rampant graft and corruption15;

All these factors, including labor costs, were discussed by various resource speakers like Joseph Francia, Peter Limqueco, Antonio Garcia and this writer in a “Forum on Industrial Debacle” co-sponsored by the UP SOLAIR and the Fair Trade Alliance (FTA) which analyzed the state of the Philippine economy and the performance of industries in the last 3 decades. Some of the papers presented were published in the 2002 issue of the Philippine Journal of Labor and Industrial Relations of UP SOLAIR. 14 For example, skills training in Singapore and South Korea is free or heavily supported by the government in partnership with the private sector. In the Employers‟ Summit on Employment and Industrial Relations, the employers asked: “How can the Philippines become competitive and Filipino workers employable if our educational system keeps lagging behind those of China and our neighbors?” (ECOP 2004).

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5. inadequate government protection of local industries like low tariffs and dumping and smuggling of imported goods16; 6. low level of patronage of the local consumers (due to colonial mentality), the government (due to conditions imposed on foreign-funded projects), and the big enterprises (like the complementation systems of transnational companies whereby they use imported inputs from their affiliates) (Limqueco 2002)17; and 7. other non-economic factors like political instability, peace and order, security maintenance, etc. International labor standards (ILS) may lead to pro-employed labor policies because if their employers are efficient and competitive, they can afford them anyway. It may encourage capital or machine intensive production processes since the cost of machine will be justified by the high cost of labor. ILS may also cause the closure of inefficient and uncompetitive firms that cannot adjust to the new environment. But those firms that have adjusted to the ILS and the new liberalized environment will become more efficient and competitive. They will eventually expand and absorb the market share of those firms that have closed down. The employers of the country especially the members of the Employers Confederation of the Philippines (ECOP), the Philippine Chamber of Commerce and Industries (PCCI) and the Fair Trade Alliance (FTA) view ILS not a disadvantage but a competitive advantage. If more local enterprises were able to adapt to the ILS, there will be more opportunities for them to expand both in the domestic and international markets. Jollibee Foods Corporation, although catering mostly to the local market, have complied with the ILS as well as the European ISO standards although these are not required of them to operate in the local market. ILS may also encourage rent seeking activities especially in the services sector. Inefficient local enterprises that cannot comply with the ILS may close down as a result of cheaper competitive imports. They may shift to just marketing, instead of producing the products. But in the long run, if the Filipino businessperson were entrepreneurial, s/he will learn new technologies from the marketing arrangement either as agent, partner, franchisee or co-owner and will become more productive. S/He will eventually go back to manufacturing if s/he can find some comparative advantage in it. ILS have in fact caused the unity of the major actors of the Philippine IR system- the employers/management, labor (trade unions, NGOs and peoples‟ organizations) and the
“In its Corruption Perception Index 2003, Transparency International has placed the Philippines as the 11th most corrupt nation in the world.” (Inquirer News Service 2004), “Mapping the Future: Mobilizing Business Toward Economic Growth”, 2 February 2004, 16 “The government loses as much P175 billion a year to outright and technical smuggling (underdeclaration, misdeclaration, etc.).”, (ECOP 2004) 17 “Unlike the Philippines, South Korea was not dependent on multinational companies (MNCs) to fuel her economic program… Korean industrialization cannot be separated from the role of nationalism and Confucianism in her economic development.” (Limqueco 2002)

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government, as well as international agencies like the ILO, UN, WHO and WTO. Likewise, because of ILS, partnership and cooperation among big enterprises and the micro, small and medium enterprises including those in the informal sector have been formed. Tapiola (2002) cited the Philippine Action Program for Decent Work, being the first in Asia, as a good example where organizations of government, employers and workers have worked together in the program‟s formulation and implementation. Citing Werner Konrad Blenk of the ILO, Tapiola explained that the program was in line with the government‟s medium-term national development plan 2001-2004. The 3-year program responded to “such national priorities as the reduction of mass poverty especially in the rural areas, the promotion of SMEs and self-employment in urban areas, as well as to the enhancement of international competitiveness”18.

The ILs and the Unity of the Philippine IR Actors
The major actors of the Philippine IR system do not believe that the ILS is one of the causes of economic stagnation, high unemployment and high underemployment. Instead, the major Philippine IR actors believe that ILS and decent work will be the basis of their unity and common advocacy. Wider compliance with ILS and decent work will lead to higher industry productivity and competitiveness, job preservation and job creation, hence solve the problems of the Philippine economy- low production and low incomes, and inequitable distribution of incomes among classes and among regions. The government is guided by the social justice provisions of the 1987 Constitution and is a member and signatory of the following international bodies: 1. The United Nation‟s Universal Declaration of Human Rights of 1948; 2. The International Labor Organization‟s Declaration of Fundamental Principles of Rights and Work of 1998; and 3. The Rio Declaration on Environment and Development. Aside from the Labor Code and the various tripartite bodies in the government bodies which operationalize and monitor compliance with the labor standards based on the ILS, there are also various laws and legislations that help empower labor even those in the informal sector. Realizing that the country‟s economy is very segmented with a large informal sector (IS) that provides jobs to more than 50 percent of the labor force (Tolentino, Sibal &


The report of the ILO Director-General to the 1999 International Labor Conference on Decent Work took note of the prevailing low income and high un/underemployment of developing countries today, hence resolving to assist member countries not only in setting labor standards but also in creating decent work opportunities to both the formal and informal sectors (ILO 2003).

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Macaranas 2001), various laws have been enacted exempting some IS enterprises from complying with selected labor standards and promoting entrepreneurship and job creation19. Advocating compliance with the ILS and decent work will help correct the glaring defects of excessive liberalization and globalization based on the traditional trickle down concept of the World Bank. It is the trend in the world today as it commits not only ILO‟s 175 memberstate but also the civil society at large (Tapiola 2002). Promoting compliance with the ILS therefore serves as a comparative advantage especially for developing countries like the Philippines since this will guide its local enterprises towards increased productivity and competitiveness. It will also prevent low wage competition among developing countries and the widening global poverty and income inequity. Some of the programs spearheaded by the employers and management organizations are the Global Compact Initiative and the Big Brother-Small Brother Program. The Global Compact Initiative of 2003 involved the Philippine Chamber of Commerce and Industry (PCCI), Employers Confederation of the Philippines (ECOP), Philippine Business for Social Progress (PBSP), the United Nations Development Programme (UNDP) and the League of Cities of the Philippines in promoting not only the ILS but also human rights and environmental standards through 9 principles20. This partnership aims to promote local sustainable development in selected Philippine towns through the transfer of corporate citizenship know-how to local business community. More specifically, the partnership will assist receptive SMEs located in poverty-stricken areas to implement proven Global Compact Initiatives with positive effects both the competitiveness of the firm and the social well-being of the its stakeholders (PCCI 2003). The Big Brother-Small Brother project of the PCCI and ECOP focuses on networking and transfer of technology in good business management and the promotion of social compliance and productivity to micro, small and medium enterprises in order to encourage outsourcing and backward linkaging locally.

The latest of these laws is the 2002 Barangay Micro Business Enterprise Law (R.A. 9178). Its objective is to hasten the country's economic development and alleviate poverty by encouraging the formation and growth of barangay-based micro and small enterprises. One of the incentives granted to registered BMBEs is exemption from the coverage of the Minimum Wage Law and it instead, encouraged the workers and BMBE owners


set mutually accepted wage rates. (

The nine principles include: Human Rights: Principle 1- Business should support and respect the protection of internationally proclaimed human rights within their sphere of influence; and Principle 2- make sure that they are not complicit in human rights abuses.; Labor Standards: Principle 3- Business should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4- the elimination of all forms of forced labor and compulsory labor; and Principle 5- the effective abolition of child labor; and Principle 6- eliminate discrimination with respect to employment and occupation; Environment: Principle 7- Businesses should support a precautionary approach to environmental challenges; Principle 8- undertake initiatives to promote environmental responsibility; and Principle 9- encourage the development and diffusion of environmentally friendly programs.

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The Fair Trade Alliance (FTA), composed of organizations of labor, employers and NGOs zeroes in on anti-smuggling campaign, entrepreneurship promotion, tariff protection and other safety net provisions to selective industries. The objectives are the help create and preserve jobs. FTA also supports movements that promote the patronage of products and services made in the Philippines side by side with industry productivity and competitiveness.

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Amante, Maragtas (2005), “Social Accountability in Philippine Enterprises: Moving Ahead in Advocacy”, Multipartite Policy Dialogue in Social Accountability, Dusit Hotel, Makati City, March 15, 2005, sponsored by ECOP Asia Monitor Research Center (2004), A Critical Guide to Corporate Code of Conduct, Voices from the South, Hongkong: Asia Monitor Resource Center, Ltd. Banzon-Natad, Jessica (2005), “Government Urged: Back Law to Help Micro-Business”, Sun Star, Jan. 25, 2005 business..html Cabacungan Jr., Gil (2005), “Smuggling costs RP P140 B yearly, says study”, Philippine Daily Inquirer, April 5, 2005, p. A5 Employers Confederation of the Philippines (2004), “Industry Agenda on Job Creation and Industrial Peace”, Employers‟ Summit on Employment and Industrial Relations, Philippine Trade Training Center, Manila, August 23-24, 2004. Fair Trade Alliance (2003), Fair Trade, Not Free Trade, Quezon City: Fair Trade Alliance. Francia, Joseph H. (2002), “From Import Substitution to Export Promotion: Finding the Right Formula”, Philippine Journal of Labor and Industrial Relations, Quezon City: UP SOLAIR. Garcia, Antonio (2002), “The Role of Government Institutions in Addressing Problems of the Domestic Industries”, Philippine Journal of Labor and Industrial Relations, Quezon City: UP SOLAIR. Giebels, Mirko (2005), “Overview of the Achievements in the Other 11 Countries”, Multipartite Policy Dialogue in Social Accountability, Dusit Hotel, Makati City, March 15, 2005, sponsored by ECOP International Labor Organization (2003), A Global Programme: Investing in Employment for Poverty Reduction and Local Economic growth, A Programme Document of the Employment-Intensive Growth, Geneva: ILO. International Labor Organization, The Challenge of Informal Work in the Philippines, Makati City: ILO Manila.

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Inquirer News Service (2004), “Mapping the Future: Mobilizing Business Toward Economic Growth”, 2 February 2004, Kuruvilla, Sarosh and Anil Verma (2005), “Globalization, Logics of Action, International Labor Standards and National Government Roles”, Leogardo, V. J. (2004) “Addressing the Roots of Decent Work Deficits: Issues and Priorities,” 2nd High-Level National Policy Dialogue on the Social Dimension of Globalization, ILO Auditorium, ILO Manila, 2 December 2004 Limqueco, Peter (2002), “Six Factors to Consider in Understanding the Philippine Industrial Debacle”, Philippine Journal of Labor and Industrial Relations, Quezon City: UP SOLAIR. Macaraya, B. (1999) “The Labor Code and the Unprotected Workers”, Proceedings of the Philippine Industrial Relations Society National Conference, Diliman, Quezon City, Philippines. Macaraya, Bach (2005), “Labor Market and Industrial Relations Environments: Focus on Policy Issues Concerns and Options in a Globalized Economy”, Strategic Planning Workshop of the Employers‟ Confederation of the Philippines (ECOP), Tagaytay Highlands, January 14-15, 2005. Palafox, Juan Amor (2003), “Implementing International Standards at the National Level”, Monitoring International Labor Standards, National Legal Framework, Summary of a Workshop, The National Academies Press, Philippine Chamber of Commerce and Industry (2003), “Business Organizations Sign Global Compact Partnership Agreement”, Sibal, Jorge V. (2002), “Measures of Economic Development: How the Philippines Fares”, Philippine Journal of Labor and Industrial Relations, Quezon City: UP SOLAIR. Sibal, Jorge V. (2004), “Training Knowledge Workers- Philippines”, Training Knowledge Workers, Tokyo: Asian Productivity Organization. Sicat, Gerardo P. (2004), “Philippine Employment and Labor Market Reforms”, UP School of Economics

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Tapiola, Kari (2002), “The ILO Declaration on Fundamental Principles and Rights at Work: A Follow Up”, Philippine Journal of Labor and Industrial Relations, Quezon City: UP SOLAIR. Tolentino, Catalina, Jorge Sibal and Bonifacio Macaranas (2001), “Survey and Assessment of Laws on the Informal Sector”, Philippine Journal of Development, Makati City: Philippine Institute for Development Studies. ____________, Verite (2003), “A Training Course on Social Compliance in a Factory-based Setting”, Antipolo City, Feb. 20-22, 2003, sponsored by ECOP, ILO and Verite. Verma, Anil (2005), “Global Labor Standards: Can We Get from Here to There?”, ILO Conference Room, Makati City, March 2005, sponsored by the ILO Association of the Philippines (ILAPI)

Asian Labor Network on International Financial Institutions (IFIs), Philippine Chapter, Bureau of Labor Relations, Bureau of Product Standards, Bureau of Working Conditions, 1987 Philippine Constitution, 2002 BMBE Law (RA No. 9178), Roster of Candidates for the First Party-List Elections

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