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The Effects of Globalization on Economic Restructuring on

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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: jvsibal@up.edu.ph


                                                  Abstract
          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.
1
  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.




                                                                                             Jorge V. Sibal 269
The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
of the Actors of the Philippine Industrial Relations System




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.




270 Jorge V. Sibal
  The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
                                               of the Actors of the Philippine Industrial Relations System




                        Figure 1. Responses of IR Actors to Globalization
                            A. GOVERNMENT                    GOVERNMENT RESPONSES


   WORLD BANK-IMF                                  Development Strategies under
                                                   Globalization
                                                   >reduction of subsidies to state
                                                   enterprises
                                                   >reduction of tariff rates
   STRUCTURAL                                      >import liberalization
   ADJUSTMENT                                      >foreign exchange decontrol &
   PROGRAMS (SAPs)                                 flotation of the peso
                                                   >privatization
                                                   > etc.


                              B. EMPLOYERS               VARIOUS MEASURES
                                                         ADOPTED BY MANAGEMENT
Economic                                                   >Reengineering &
Liberalization                  Cost Reduction/            Rightsizing
Deregulation                    Increase                   >TQM
>>                              Productivity to
Democratization                                            >Flexibilization- internal &
Devolution                      Prevent Closure            external
Decentralization                                           >OD & HRD investments
                                                           >Pro-active non-union
                                                           /union-based HRD


         C. LABOR                              USUAL TRADE UNION RESPONSES

 Effects to Labor and
                                                              >strikes and mass actions
 Trade Unions
                                                              >strengthened collective
 >casualization of labor
                                                              bargaining negotiations
 >redundancy- reduction of
                                                              >cooperation w/
 jobs
                                                              management
 >sub-contracting/piece rates
The Gove
                                                              >workers‟ participation in
 >reduction of union
                                                              management
 membership
                                                              >non-traditional trade union
 >reduction of union-
                                                              activities or social
 initiated wages & benefits
                                                              movement unionism (SMU)
 adjustments




                                                                                      Jorge V. Sibal 271
The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
of the Actors of the Philippine Industrial Relations System




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 agro-
industrial 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

2
  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. (http://www.chanrobles.com/article2.htm)




272 Jorge V. Sibal
    The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
                                                 of the Actors of the Philippine Industrial Relations System




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.




4
  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.




                                                                                              Jorge V. Sibal 273
The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
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   Table 1. Percent Share of Manufacturing, Agriculture and Services to Gross Domestic
                             Product (GDP) (in million pesos)

 Sector                   1967            1970             1980          1990          2000
 Agriculture              33.3%           27.8%            23.5%         22.4%         20.0%
 Industry-
 >Manufacturing           18.3            22.5             27.6          25.6          24.8
 >Other Industries        5.2             7.1              12.9          10.0          9.6
 Services                 43.2            42.6             36.0          42.0          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               1971                1981                 1991                2000
 Agriculture          50.4                51.4                 45.2                37.0
 Manufacturing        12.0                10.5                 11.0                10.3
 Services             37.6                38.1                 43.8                52.7
 Totals               100.0               100.0                100.0               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.




274 Jorge V. Sibal
    The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
                                                 of the Actors of the Philippine Industrial Relations System




     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, co-
              determination and labor-management strategic alliances.

     On the other hand, trade union responses to globalization outside the collective bargaining
process are as follows:

5
    The realistic year is 2035 since we are 15 years behind Malaysia and their NIC-hood target is 2020.




                                                                                               Jorge V. Sibal 275
The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
of the Actors of the Philippine Industrial Relations System




         1.   Community organizing in the informal sector
         2.   Labor enterprises and labor entrepreneurship
         3.   Political unionism, lobbying and electoral struggles
         4.   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 labor-
management 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 Micro-
Business 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

6
  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.”




276 Jorge V. Sibal
 The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
                                              of the Actors of the Philippine Industrial Relations System




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                        2003                                 Difference
                      No.      of    % to total No.        of        % of total
                      workers        employed     workers            employed
 Labor Force          30,758,000     90.19 (9.8)b 34,571,000         88.61(11.4)b +3,813,100
 Total employed       27,742,000                  30,635,000                      +2893,000
 Formal sector        6,013,688      21.68        5,706,460          18.63        -307,228
 Informal sector      18,069,322     65.13        20,013,540         65.32        +1,944,218
 Wage & salary        3,932,312      14.17        4,868,540          15.89
 Self employed        8,864,000      31.95        9,912,000          32.35
 Domestic helpers     1,498,000      5.40         1,486,000          4.85
 Unpaid workers       3,775,000      13.61        3,765,000          12.28
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.




                                                                                     Jorge V. Sibal 277
The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
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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 are-

           1. developing standards either through legislation or corporate codes,
           2. monitoring compliance through government inspections/sanctions or voluntary self-
              assessment 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                                     NGO               Corporate       National        “Hard
    approach”                                 advocacy          Codes           public          approach”
    (do nothing)                              campaigns                         policies        (impose
                                              (Good                                             standards &
                                              practices)                                        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:


8
    This was affirmed by the report of Giebels (2005) on studies in 11 countries in Asia and Eastern Europe.




278 Jorge V. Sibal
    The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
                                                 of the Actors of the Philippine Industrial Relations System




                        Table 4- Philippine Web of Labor Standards Regulations

    SECTOR               FORMAL                               INFORMAL
    Workers              5,706,460                            20,013,540
    Covered 2003
    Percentage      of 18.62%                                 65.32%
    Employed
    Nature          of >Production directly linked to         >Local firms supplying other firms
    Production         TNCs9                                  linked with TNCs and local firms with
                       >Firms supplying TNC-linked            operations abroad
                       firms
                       >Local firms with operations
                       abroad
                       >Purely domestic, no linkage           >Purely domestic, no linkage abroad
                       abroad
    Labor              Labor Code, Social Security            Barangay Micro-Business Enterprise
    Standards          System, PhilHealth, Pag-ibig           (BMBE) Law, Cooperative Code of the
    Laws,              Fund,                Employees         Philippines, Cooperative Development
    Corporate          Compensation       Commission,         Authority Law, Local Government
    Codes, etc.        Civil Service Law, Government          Code, Overseas Workers‟ Welfare
                       Service Insurance System,              Administration, Philippine Overseas
                       Collective           Bargaining        Employment             Administration,
                       Agreements,           Collective       Comprehensive Agrarian Reform Law,
                       Negotiations       Agreements,         Agriculture & Fisheries Modernization
                       Philippine Quality Awards,             Act, Magna Carta for Small Farmers,
                       Corporate Codes of Conduct,            Social Amelioration Program in the
                       Corporate                 Social       Sugar Industry, Small and Medium
                       Responsibility, UN Global              Enterprises Development Council,
                       Compact, Social Compliance,            Social Reform and Poverty Alleviation
                       Social Accountability 8000,            Act, & certain provisions of the Labor
                       ILO, OECD Guidelines for               Code, SSS, PhilHealth, Employees
                       MNCs,         ISO        14000,        Compensation Commission Law, good
                       AccountAbility 1000, Global            practices, community acceptance, etc.
                       Reporting Initiative, Global           (Tolentino, Sibal & Macaranas 2001)
                       Sullivan     Principles,    best
                       practices, etc. (Amante 2005,
                       Macaraya 2005)
    Extent          of >Wide coverage for TNCs,               Low      coverage    and    ineffective
    Coverage        & firms linked with TNCs and              regulations due to vague laws and lack

9
    Transnational corporations




                                                                                        Jorge V. Sibal 279
The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
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 Regulations         local firms with operations           of knowledge of good practices
                     abroad
                     >Moderate coverage for firms
                     catering to local markets
 Workers’            Trade unions, cooperatives,           Peoples‟ organizations, trade unions,
 Organizations       NGOs, employees associations,         cooperatives, crafts/guilds, NGOs,
                     consumer associations, partylist      socio-civic    organizations,    church
                     groups, corporate foundations,        groups,      corporate      foundations,
                     academe, etc.                         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.




280 Jorge V. Sibal
The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
                                             of the Actors of the Philippine Industrial Relations System




        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.




                                                                                    Jorge V. Sibal 281
The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
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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 under-
     priced 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.




282 Jorge V. Sibal
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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

10
   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          Pro-                  Capital Intensive
     Labor                  Employed              Industries                       High
     Standards-             Labor                                                  Unemployment
     ILS (ILO,              Policies                                               and
     UNDP,                  based on                                               Underemploy-
                                                  Rent Seeking                     ment
     WTO, WHO,              ILS
                                                  Economic
     etc.)
                                                  Activities
                                                  (mostly services)
                Powerful Labor                                                     Large Informal
                Bureaucracy (TUs and              Low                              Sector
                Gov‟t.)                           Productivity




     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.




284 Jorge V. Sibal
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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;

13
   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

15
   “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, http://www.inq7.net
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)




286 Jorge V. Sibal
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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 &




18
  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 member-
state 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.

19
  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                 to
set mutually accepted wage rates. (http://www.nwpc.dole.gov.ph/updates_archive.html)
20
  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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References
Amante, Maragtas (2005), “Social Accountability in Philippine Enterprises: Moving Ahead in
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   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
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Cabacungan Jr., Gil (2005), “Smuggling costs RP P140 B yearly, says study”, Philippine Daily
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Employers Confederation of the Philippines (2004), “Industry Agenda on Job Creation and
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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
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Garcia, Antonio (2002), “The Role of Government Institutions in Addressing Problems of the
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Giebels, Mirko (2005), “Overview of the Achievements in the Other 11 Countries”,
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International Labor Organization (2003), A Global Programme: Investing in Employment for
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     Employment-Intensive Growth, Geneva: ILO.

International Labor Organization, The Challenge of Informal Work in the Philippines, Makati
     City: ILO Manila.




290 Jorge V. Sibal
 The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses
                                              of the Actors of the Philippine Industrial Relations System




Inquirer News Service (2004), “Mapping the Future: Mobilizing Business Toward Economic
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Kuruvilla, Sarosh and Anil Verma (2005), “Globalization, Logics of Action, International
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Leogardo, V. J. (2004) “Addressing the Roots of Decent Work Deficits: Issues and Priorities,”
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Limqueco, Peter (2002), “Six Factors to Consider in Understanding the Philippine Industrial
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Macaraya, B. (1999) “The Labor Code and the Unprotected Workers”, Proceedings of the
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Macaraya, Bach (2005), “Labor Market and Industrial Relations Environments: Focus on
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Palafox, Juan Amor (2003), “Implementing International Standards at the National Level”,
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Philippine Chamber of Commerce and Industry (2003), “Business Organizations Sign Global
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Sicat, Gerardo P. (2004), “Philippine Employment and Labor Market Reforms”, UP School of
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                                                                                     Jorge V. Sibal 291
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of the Actors of the Philippine Industrial Relations System




Tapiola, Kari (2002), “The ILO Declaration on Fundamental Principles and Rights at Work: A
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Tolentino, Catalina, Jorge Sibal and Bonifacio Macaranas (2001), “Survey and Assessment of
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Websites:
Asian Labor Network on International Financial Institutions (IFIs), Philippine Chapter,
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Bureau of Labor Relations, http://www.blr.dole.gov.ph

Bureau of Product Standards, http://www.dti.gov.ph/contentment/7/11/697.jsp

Bureau of Working Conditions, http://www.dole.gov.ph/
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Roster of Candidates for the First Party-List Elections
    http://members.tripod.com/~chapelnet/partylist.html




292 Jorge V. Sibal

								
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