Multinational Monitor


Not Kosher: The Ralph Reed-Jack Abramoff Connection.
by Andrew Wheat

The United States, Bolivia, and the Political Economy of Coca
by Gretchen Gordon

The CAFTA Chronicles: Strong-Arming Central America, Mocking Democracy
by Tom Ricker and Burke Stansbury

Thais Take to the Streets to Stop U.S. Trade Agenda
by Martin Khor

Drilling East Timor: Australia's Oil Grab inthe Timor Sea
by Charles Scheiner


Saving $60 Billion: Lawrence Korb's Common Sense Budget Defense Plan
An Interview with Lawrence Korb

The Market for Virtue: The Impact of Corporate Social Responsibility
An Interview with David Vogel


Behind the Lines

The Lobby Reform Fiasco

The Front
Philippines Gets Stomped - EPA Program Off Track

The Lawrence Summers Memorial Award

Names In the News

Book Notes


The Front

Philippines Get Stomped

Manila - Forty-year-old Johnny Gaudia has followed in his family's footsteps, making shoes for decades. He became interested in shoe production when his in-laws encouraged him to take up the craft, being shoemakers themselves.

While his in-laws produced mostly baby shoes, Gaudia and his wife decided to specialize in men's leather shoes and set up Gaudia Shoes Manufacturing in Marikina, a municipality in Metro Manila, in 1986. Eventually, his company diversified into the production of casual shoes, school shoes, sandals and slippers, using both leather and synthetic materials.

But the Philippine shoe industry has fallen on hard times. Gaudia Shoes belongs to the more than 80 percent of registered shoe manufacturers in the country classified as small-scale and cottage industries, which are usually family-owned and produce hand-crafted shoes using only sewing and trimming machines.

Gaudia says his company used to employ some 100 workers and received an average of 10,000 orders every month, usually from large-scale retailers and malls such as Shoemart, Plaza Fair and Gaisano Mall. Now, however, he would be lucky to accept about 100 orders in a week. More often than not, his company has no orders for weeks. He had to lay off most of his workforce and now employs only a few "on-call" workers.

Gaudia, a member of the Philippines Shoemakers Association (SMP), currently spends most of his time as part of a technical team formed by the Department of Trade and Industry (DTI) that regularly inspects shoe imports and monitors their valuation. His efforts are an attempt to save the industry that has enabled him to send his four children to school, and to fight what he perceives as the main reason behind the industry's demise - the onslaught of cheap imports as a result of trade liberalization.

A Flood of Imports

Gaudia's experience is neither new nor unique. Since the 1990s, footwear groups in Marikina and other areas have been warning against the influx of cheap goods from China, Korea, Taiwan and other countries due to liberalization, which intensified when the Philippines became a member of the World Trade Organization (WTO) in 1995.

Shoe imports have been rising sharply. From 1997 to 1999, the country imported an average of 38.5 million pairs of shoes. By 2001-2003, the average volume zoomed 56 percent, to 60.2 million pairs.

And this only covers legally imported shoes. Smuggling has also reportedly become rampant, although the government has yet to release figures on the extent of the problem.

The downswing in demand for locally made shoes is apparent as Filipinos continue to flock to commercial centers' flea markets, where an ordinary pair of counterfeit Nike shoes can go for as low as 300 pesos - roughly $6.

Due to the cheap price, only a few would purchase more expensive locally made leather shoes even if they are marked as made in Marikina. Adding to the problem is Filipinos' continuing preference for foreign shoe brands such as Skechers, Nike, Adidas and Converse, most of which are subcontracted to factories in China and other countries with low labor costs.

Sole of the Philippines

Gaudia, like other shoemakers, laments the fate that has befallen the local shoe industry. He says that in the past, one could go down Shoe Avenue in Marikina and hear the sounds of workers drafting and assembling soles and shoes. At present, the sounds have diminished and there are only a few shops with stocks of finished shoes wrapped in plastic and ready to be delivered.

In the past, the local shoe industry supported the growth of other small establishments such as panciterias and other eateries where workers would get their evening snacks. Upstream industries also benefit from the industry, such as local tanneries which produce the processed leather or animal hide needed in the manufacture of shoes.

From the 1950s to the 1980s, according to the SMP, the Philippine shoe industry experienced a boom from strong local and international demand. During these years, many Filipinos wore locally made shoes such as the Ang Tibay and Mabuhay brands, and carried locally made leather handbags and purses. These products were also exported to foreign markets or ordered by local Chinese distributors for marketing in the provinces.

But now, imported shoes and leather products from China make up 80 percent of the Philippine market. Filipino shoemakers have to compete for the remaining 20 percent of the market with imports from other countries.

Competitive Imbalance

The demise of Philippine-made shoes can be attributed to decades of government neglect and just a few years of aggressive liberalization. Imports have destroyed the local shoe industry. The government has admitted this, but is evasive on calls to protect the sector by restricting imports.

Compared to foreign shoe companies with government subsidies to invest in improved technologies, the local industry continues to use traditional low-tech methods, relying on the skills and ingenuity of Filipino shoemakers.

The SMP says that local shoemakers cannot compete on price alone, as they are plagued with high production costs. About 75 percent of their manufacturing costs come from the sourcing and processing of raw materials such as leather hides, which they have to import because local tanneries were not developed enough to meet large-scale demand. It is estimated that around 80 percent of the components of finished local leather footwear for export are imported.

Worse, shoe imports are grossly undervalued. Liberalized customs rules have enabled smugglers to flourish, says Gaudia. An average pair of imported shoes since 1997 was valued at $12, but by 2002 the same pair had a valuation of $0.76.

Gaudia points out that the use of "transaction value" as the means of customs valuation, abetted by seething corruption in the customs agency, has hurt local producers. Transaction value refers to the value agreed upon by the seller and the importer, and is not based on the actual cost of materials or the market price of the product when sold in the local market. This has enabled unscrupulous importers to have their stocks undervalued by customs inspectors and dramatically reduce the import duties they must pay.

Saving the Industry

Gaudia says that the only chance for Filipino shoemakers to survive is for local consumers to return to the appreciation and patronage of local products. He calls this the economics of nationalism: ensuring that Filipinos buy Filipino-made products. But this cannot be realized without full government support.

The SMP has also been making some inroads in monitoring reports of undervaluation. Though Gaudia admits that he has had many frustrations on the job, their team has been able to prevent the entry of some undervalued shoes, or increase their valuation. For example, a pair of Diadora brand shoes declared as $2 per pair was revalued to $13.75 upon intervention by Gaudia's team. Unfortunately, many members of the monitoring team have received death threats allegedly from importers and customs insiders affected by their monitoring.

Nevertheless, Gaudia feels this is the best way he can contribute to saving the industry his livelihood has depended upon.

The SMP has proposed a series of measures which it says can help revitalize the local shoe industry. It urges:

  • Creation of a National Footwear Authority that would safeguard and protect the interests of the local footwear industry;
  • Strict implementation of Republic Act 8800 which requires the imposition of safeguards whenever a deluge of imports has affected local production;
  • Better enforcement of the Consumer Act which requires country-of-origin labeling; and
  • Formulation of a Standard for Quality and Safety for footwear products.

In the long-term, however, local shoemakers, as well as other manufacturers, believe they would benefit from the reversal of liberalization and the reorientation of government policies towards those that favor domestic producers over foreign corporations. They worry, though, that things may be going in the opposite direction. Footwear products are targeted for further liberalization under WTO proposals now under negotiation. The reduction of industrial tariffs, or non-agricultural market access (NAMA), is one of the major issues on the WTO agenda. Filipino people's groups and non-government organization have warned that if a NAMA agreement is implemented, local manufacturing industries face extinction.

- By John Paul E. Andaquig
Joseph S. Yu assisted with reporting
on this article, which was
distributed by IBON Features.

EPA Program Off Track

A U.S. Environmental Protection Agency (EPA) program that loosens regulatory review for large manufacturers that purportedly clean up their acts may be backfiring, according to a February report by the Environmental Integrity Project (EIP).

The Performance Track Program, which was started in 2000 under the Clinton administration, rewards clean facilities with "regulatory and administrative incentives" and "low-priority status for routine inspection," with the understanding that these facilities will internally enforce environmental laws and commit to "continual environmental improvement." As of July 2005, the Performance Track Program had placed on its honor roll 351 manufacturing and public sector facilities.

"The EPA is allowing 'self reporting' of the worst kind today, as polluters get to pick their subjects, design their own tests, grade themselves and even change their report cards after the fact to avoid a failing grade," contends Eric Schaeffer, director of the Washington, D.C.-based EIP.

Between 2000 and 2004, 10 out of the 13 Performance Track companies that the EIP investigated reported an increase of toxic air and water emissions while in the program. Two plants reported a tripling of toxic discharge to surface water, and six plants reported an increase in carcinogenic emissions by more than 164,000 pounds. Many companies also demonstrated poor follow-through on their environmental commitments. For example, in 2003, a DuPont plant in Spruance, Virginia committed to reducing annual water consumption by 50 million gallons, yet it only ended up reducing water use by 6 million gallons, citing the excessive costs of further reductions.

Several companies defended themselves against these charges, focusing on changes in the way the EPA estimates pollution emissions. These companies contend that the apparent pollution increase is due to changes made between 2000 and 2004 in "emissions factors" used by the EPA to measure pollution outputs. An emissions factor is a value that represents the amount of a pollutant that is released during a specific process, such as chemical wood pulping or synthetic rubber production. This value is plugged into the annual inventory of a facility in order to estimate that facility's annual emissions. Thus, changes in emissions factors lead to changes in reported pollutants.

"The large alleged methanol increases are not increases at all but rather an artifact of International Paper's decision in recent years to use new emissions factors developed from EPA models to estimate releases from our systems," according to a statement released by International Paper, a company with several pulp and paper mills cited in the EIP report. Likewise, Glynn Young, spokesperson for Monsanto, attributed reported air and water emissions increases to increases in the calculated values of certain emissions factors.

The EPA does not necessarily endorse this defense by honor roll members, however. The government agency is unable to say definitively whether different emissions factors played an instrumental role in the apparent increase in toxic air and water emissions among Performance Track facilities.

One engineer with EPA's Office of Air Quality Planning and Standards (OAQPS) scoffed at the notion that changes in emissions factors are responsible for overall toxic air and water emissions among honor roll companies. By contrast, another OAQPS engineer, Peter Westlin, says the polluters' explanations may be correct. The necessary information for evaluating such claims is not readily accessible to the public.

EPA spokesperson Dale Kemmory indicates that the EPA has not performed a comparison of industrial discharges in 2000 and 2004 that retroactively corrects for changes in emissions factors.

The EIP's Schaeffer acknowledges that different emissions factors could have been responsible for some of the apparent emissions increases. But he counters that "Performance Track is supposed to reward companies that do better. Looking at the data does not give confidence that these companies are doing better than their peers."

A second essential analysis to evaluate the effectiveness of the program entails comparing the progress of honor roll members with other companies. The fact that emissions factors may have changed should not impact this analysis because the changes would have affected all facilities equally. Schaeffer says that later this year, when the EPA has analyzed 2004 data about factory emissions, it will be possible to do a comparative study between Performance Track members and non-members and come to a more definitive conclusion.

In the meantime, amidst serious questions about the effectiveness of Performance Track, the EPA is taking steps to expand the program.

- Sarah Lazare


The January/February Lawrence Summers Memorial Award* goes to the U.S. Patent and Trademark Office for the award of a patent for "an animal toy that a dog may carry in its mouth."

BusinessWeek notes that the toy "not only sounds suspiciously like a stick, but also looks like one in the patent drawings."

Source: Michael Orey, "The Patent Epidemic," BusinessWeek, January 9, 2006.

*In a 1991 internal memorandum, then-World Bank economist Lawrence Summers argued for the transfer of waste and dirty industries from industrialized to developing countries. "Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs (lesser developed countries)?" wrote Summers, who went on to serve as Treasury Secretary during the Clinton administration and is the outgoing president of Harvard University. "I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. ... I've always thought that underpopulated countries in Africa are vastly under polluted; their air quality is vastly inefficiently low [sic] compared to Los Angeles or Mexico City." Summers later said the memo was meant to be ironic.


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