Environmental Technologies Industries
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Market Plans

Philippines Export Market Plan
II. Challenges and Opportunities for US Environmental Firms

This chapter outlines the basic policies governing access by U.S. companies to the Philippine environmental market. It also reviews American firms' competitive position with respect to other foreign and local suppliers, and presents an overview of current sources of financing for environmental projects. Last, it recommends basic market entry strategies for U.S. exporters.

Market Access
Most categories of environmental equipment are classified as freely importable, which means that prior approval from a Philippine Government agency is not required to obtain equipment through customs at the port of entry. Import duties are 10 percent of the total export value. The Bureau of Customs is planning to shift to transaction value (invoice value) as the basis of computing the import duty by January 2000. This move will require congressional authorization. There are no standard requirements pertaining to the product quality, labeling, or packaging of environmental equipment imports.
During the 1980s, an import tax exemption was available for imports of pollution control equipment. However, Congress declined to renew the program, citing a lack of participation and abuse of equipment classifications as the primary reasons for cancellation.
After the import duty, another 10 percent expanded value-added tax (EVAT) is added to goods and services sold in the Philippine market. The Court of Tax Appeals issued a decision in late 1996 allowing a refund of the EVAT paid in U.S. dollars on domestic purchases of taxable goods by the Philippine branch of a foreign corporation, provided that the branches primary function is to facilitate the collection of receivables from the corporation's regional operating centers.
Consultancy fees paid to a nonresident foreign consultant are not subject to Philippine income or withholding tax, provided that: 1) the foreign corporation has no permanent establishment in the Philippines, and 2) the services rendered do not exceed an aggregate of 183 days within any 12-month period. By definition, permanent establishment does not include the area or regional headquarters of foreign corporations, provided these headquarters do not derive income from sources within the Philippines.
According to the U.S.-Philippines Bilateral Tax Treaty, Philippine corporations that provide management consulting and management information consulting services, and receive technology and technical assistance from a U.S. corporation are subject to a 10 percent withholding tax on the technical assistance fees paid as royalties. Technical assistance agreements must be registered with the Bureau of Patents, Trademarks and Technology Transfer of the Department of Trade and Industry. Technology provided by the U.S. corporation can be in the form of software, manuals, and documents which can be enhanced, modified, or updated on a regular basis.
Equity Participation and Public Procurements
The Foreign Investments Act of 1991 restricts foreign equity participation in a number of fields related to the environmental market. These are listed in table 2.
Foreign ownership of construction firms, public utilities (including water supply and wastewater treatment), professional services, and firms engaged in the exploration and development of natural resources are restricted to 40 percent. For build-operate-transfer (BOT) projects not requiring a certificate of public franchise, foreign contractors with home government accreditation may undertake construction work. Foreign equity restrictions do not apply to foreign-assisted projects required to undergo international competitive bidding (e.g., Asian Development Bank and World Bank projects).
Companies must have a minimum of $200,000 capitalization to be more than 40 percent foreign owned. This requirement may be reduced to $100,000 for companies that use advanced technology or employ directly at least 50 employees. The advanced technology determination must be made by the Department of Science and Technology
Government procurements are awarded through competitive bidding. Foreign and local firms must pass the prequalification requirements of a particular agency for accreditation and bidding. Only the Philippine Government Service Insurance System can provide insurance coverage for public sector projects, including BOT projects. The more successful firms have established close, long-term relationships with their client agencies.
Intellectual Property Protection
The Philippines is a signatory to the Paris Convention for the Protection of Industrial Property and the Patent Cooperation Treaty. It is a member of the World Intellectual Property Organization and World Trade Organization. Despite these international treaties, intellectual property rights protection remains a serious bilateral concern between the United States and Philippines. Trademark counterfeiting is common. Being on the U.S. Trade representative's Special 301 Priority Watch List prompted the Philippines to sign a bilateral intellectual property rights agreement with the United States committing to strengthen legal protection and boosting enforcement. A new code is currently awaiting passage in the Philippine Congress.
Table 2: Allowable Foreign Equity Positions (%) in Restricted Investment Areas
Investment CategoryDescriptionForeign Equity Limitation
2 Services involving the practice of a licensed professional: a) engineering b) forestry
c) law d) chemistry e) geology
No Foreign Equity
3Retail trade
10Contracts for the construction and repair of locally funded works except projects covered under RA 7718 (Expanded BOT Law) and projects which are foreign assisted and required to undergo international competitive biddingUp to 25 %
13Ownership of private landsUp to 40 %
14Operation and management of public utilities
17Construction a) Contracts for the supply of materials, goods and commodities to a government-owned or -controlled corporation, company, agency, or municipal corporation b) Private domestic and overseas construction contracts
18BOT projects requiring a public utility franchise
Source: Philippine Government's Foreign Investment Act of 1991 (RA 7042).

U.S. Market Share and Foreign Competition
Imports of pollution control equipment in the Philippines account for 80-90 percent of the total market. The United States has an advantageous position in the import market due to its historic ties with the Philippines, as well as price competitiveness and the high quality of U.S.-manufactured equipment. The main competition for U.S. firms comes from European (German, British, French, and Italian) and Asian (Japanese, Taiwanese, and Singaporean) companies (see figure 2).
Water and Wastewater Treatment Equipment
The United States has the largest import market share in the Philippine water and wastewater market. According to the U.S. Department of Commerce, the United States accounted for 21 percent of the more than $250 million water supply and distribution equipment market in 1996.1 Second is Italy, accounting for 18 percent, Japan with 15 percent, and Singapore and Germany with less than 10 percent each. An earlier U.S. Department of Commerce study reported U.S. market share of the water and wastewater treatment equipment at nearly 40 percent. The absolute value of imports of U.S.-made equipment is expected to grow by 18-20 percent annually, primarily due to a general decline in prices as economies of scale are achieved in the production of high-technology equipment. The relative U.S. market share is expected to decline, however, due to the efforts of other countries, particularly Japan, to regain market share by lowering their equipment prices.
The best known foreign suppliers of water and wastewater treatment equipment in the Philippine market include Fischer and Co., which distributes aerators, slurry pumps, and other pollution control equipment; Brahm Industries, which supplies water treatment, desalination, and reverse osmosis equipment; and Edward Keller, which markets various water pollution control equipment.

Air Pollution Control Equipment
The United States also enjoys a leading position in the air pollution control equipment (APCE) market. Its market share is about 30 percent, followed by Singapore with 25 percent, Japan with 15-20 percent, and the United Kingdom with about 10 percent (see figure 3).3 U.S.- produced APCE has a good reputation in the Philippines, due to both its quality and price competitiveness. APCE imports from the United States are expected to grow at an annual rate of 20 percent.

Waste Management Equipment
Japan and the United States currently dominate the market for solid waste management, with shares of 75 and 25 percent, respectively (see figure 4).
Monitoring Equipment
The Philippine Government and companies rely predominantly on imports to meet the need for water and air monitoring equipment. Ambient and discharge monitoring instruments are high-technology products that exceed the manufacturing capability of local firms.
In the water and wastewater monitoring equipment market segment, U.S. firms enjoy a 20 percent market share, second to Japan (with a 30 percent market share). Singaporean and Australian companies occupy 18 and 12 percent of the market, respectively (see figure 4). U.S. companies dominate the market for air monitoring equipment with a market share of 30 percent, followed by Japan (22 percent), Singapore (18 percent), and Germany (12 percent).
Although quantitative estimates of the Philippine market for environmental services are not currently available, it is safe to say that Philippine subsidiaries of U.S. companies, such as Dames & Moore, Woodward-Clyde, Louis Berger, and PRC-EMI, are strong players in the environmental services market, which includes environmental impact assessment (EIA) and baseline studies, ISO 14000 compliance system design, and training. Other U.S.-based companies active in the market include Hagler Bailly Services, Inc. and Weston International (a subsidiary of Roy F. Weston, Inc.). To date, competition from European or other Asian consulting firms has been limited.

Local Capabilities
The local production of environmental equipment continues to occupy only a marginal position in the Philippine environmental technologies market. In the services market, however, local companies are highly competitive, given their low cost and strong connections with the government and business communities.
Water and Wastewater Treatment Equipment
In the Philippine water and wastewater equipment market, local producers have a 15-20 percent market share. Most local producers are Filipino-owned firms with only a few foreign subsidiaries. Among local manufacturers are Jupiter Marketing, a producer of boiling and cooling towers for wastewater treatment; AC Machineries, a manufacturer of water aerators; Mastercool Corporation of the Philippines, a producer of cooling towers and other water treatment equipment; Megafresh International, Inc., a manufacturer of ionizers; and Salcon Philippines, a designer and manufacturer of water and wastewater treatment facilities.
While it is not technologically sophisticated, locally produced equipment is more price competitive than imports. However, the quality and durability of locally produced equipment is generally lower compared to imported equipment. The principal buyers of this equipment are local industries with outmoded industrial plants and small industries that require inexpensive equipment and facilities for pollution control. The growing overall demand for water and wastewater treatment equipment is expected to drive an increase in its local production by 4-6 percent annually over the next several years. Large companies, especially subsidiaries of multinational corporations, will most likely continue to import equipment from their country of origin for quality assurance despite higher prices.
Air Pollution Control Equipment
Locally produced air pollution control equipment accounts for about 10 percent of the total market. It includes baghouse dust collectors, wet scrubbers, simple cyclones, cyclone precipitators, pulse jet dust collectors, gravity setting chambers, gas absorbers, fans, bins, and hoppers. Locally made scrubbers and cyclones are extensively used in woodworking factories, lumber yards, foundries, and other factories that emit coarse particulates. The main domestic suppliers of APCE are Aleja Industries, Niagara Industrial Equipment Corp., and Network Metal Industries.
Even though 35-95 percent of locally produced air pollution control equipment is composed of imported components and parts, it is cheaper than fully foreign-manufactured imported equipment. The average quality level is quite low, but there are examples of effective and durable products. Local producers also provide design, installation, technical assistance, and after-sales service to their customers. Some end-users manufacture their own emissions control equipment in order to economize and expedite the equipment installation process.
Limited development and design capabilities prevent local APCE producers from manufacturing complex air pollution control equipment such as electrostatic precipitators.
Waste Management Equipment
Presently, local producers do not have the technological capability to manufacture solid waste management equipment. The only types of equipment that are currently fabricated locally are arm container rollers and bodies for transport and collection vehicles. Most basic equipment is imported.
There are only three known local manufacturers of incinerators. These firms are general metal and engineering contractors and do not specialize in incinerator manufacturing. Their capabilities and resources are generally below the standards and quality of imported units. Although the prices of locally fabricated units are half those of their imported counterparts, these units have very few control devices and do not meet point source air quality standards.
Monitoring Equipment
Air and water quality monitoring equipment is nearly 100 percent imported.

Figure 4: Philippine Water and Air Quality Monitoring Equipment Market
Import Market Shares (1995)

Consulting Services
There are only about 10 wholly Filipino-owned environmental consulting firms. The majority of these firms are single-office operations located in the Metro Manila area. They conduct most of their provincial work from their Manila base. On the whole, these firms specialize in environmental impact assessments, environmental baseline studies, environmental master planning, and environmental audits. Several have branched into design and specification work for air and water pollution control systems for their regular clients. Additionally, a number of the more standard engineering consulting firms have entered the wastewater systems design business for large-scale commercial and residential developments. The leading, wholly Filipino-owned consulting firms include Seastems, Inc. and Geosphere Technologies.

Market Entry Strategies for U.S. Companies
U.S. firms enjoy a good reputation in the Philippines. U.S. equipment suppliers are price competitive, which is a primary consideration in the procurement of environmental equipment in the Philippines. However, few U.S. suppliers are actually represented in the market, and they are not as visible as some of their European and Asian counterparts.
U.S. equipment suppliers already operating in the Philippines, and those that are looking for ways to enter the market should designate a Philippine distributor and frequently visit prospective clients like their Japanese and Singaporean competitors are doing. Companies can also offer to upgrade existing facilities. To gain a good reputation and establish themselves in the market, U.S. firms (or their distributors) should be prepared to provide technical assistance, spare parts, and in-country maintenance agreements to support the equipment sale.
Although price is the main factor influencing purchasing decisions, Filipino end-users have a preference for suppliers with an established reputation. Many believe imported products are generally of higher quality than domestic products. To increase their product visibility, U.S. exporters should consider the following:
* Provide literature. Supply color brochures and articles that have appeared in professional journals and that emphasize product quality.
* Establish sales and maintenance networks. Develop contacts through participation in specialized trade shows (such as ENVIRONTECH '97, which was held June 26-28 in Cebu City), seminars, conferences, and social events. Provide a single point of contact, including phone, fax, and e-mail information, to prospective buyers. Regular visits to the Philippines help to keep contacts active.
* Sponsor a U.S. site visit. Have a technician or technical team from a prospective Filipino buyer participate in a U.S. training program.

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