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For purposes of this paper, laws are categorized either as laws affecting trade, commerce and investment flows, on one hand, or laws affecting employment and labor relations, including social protection for workers, on the other.
There is a rich collection of commercial, trade and investments laws in the Philippines. Most are of general application, although certain provisions of these laws can be singled out as these have implications on the growth and development of the textile, garments and footwear industries.
1) Corporate laws. The laws with the most pervasive application are the Corporation Code and the Partnership Law, the latter being integrated in the Civil Code of the Philippines. These laws provide the preconditions and procedures for juridical entities to do business, prescribe their structures, and regulate the relationships between and among their stakeholders. No establishment doing business as a corporation or partnership is exempt from the application of these laws.
2) Investment policy. At both policy and operational levels, the textiles, gar and footwear industries are subsumed under the application of several
investments laws, mainly the Omnibus Investments Code, the Foreign Investments Act, the Export Development Act, and the Special Economic Zone Act. Supportive of the main investment laws are the Countrywide Industrialization Act, the Magna Carta for Small Enterprises, and Republic Act No. 7652, which allows long-term lease of private lands by foreign investors.
The overarching investment policy statement for the Philippines is that found in Article 2 of the Omnibus Investments Code, which is "to accelerate the sound development of the national economy in consonance with economic nationalism and in pursuance of a planned and economically feasible and practical dispersal of industries and the promotion of small and medium scale industries, under conditions which will encourage competition and discourage monopolies."
The policy statement includes attraction of both local and foreign investments, with appropriate incentives, as the foundation of economic development. Investments are to be evaluated on certain identified outcomes, particularly l) employment content; 2) increased productivity; 3) transfer and improvement of technical skills; 4) economic stewardship; 5) international competitiveness; 5) balanced regional development; and 6) increased volume and value of exports. It can also be noted that industrial peace is of itself a distinct investment policy. These outcomes can conceivably be approximated in the medium to the long term, and it would be interesting to see how discussions toward a code of conduct in the textile, garments and footwear industries will consider these desired outcomes.
3) Import and export of materials and products. The textiles, garments and footwear industries in the Philippines are highly dependent on the import of raw materials and the export of finished products. In this sense, the Bonded Warehouse Act and the Warehouse Receipts Law are pai-ticularly relevant legislations. Both laws provide for a systematic regulation on storage and safekeeping of stocks and inventories, and thereby facilitate the flow of import and export of materials and goods. The function of bonded warehouses, in addition, should also be understood in a complementary sense with laws establishing special economic zones, such as the Special Economic Zone Act of 1995, to the extent that these zones may be operated and managed as separate customs terrrliories.
In recognition of the increased use of trust receipts as a convenient device to assist importers solve their financing problems, and also as a response to a growing number of reported abuses of this device, there is a Trust Receipts Law regulating trust receipts transactions. Taken together, these laws provide the legal infrastructure supportive of the operational requirements of all industries, but particularly so in the textile, garments and footwear industries.
4) International subcontracting. Letter of Instruction No. 1213 and the Bulk Importation Law, while.principally intended to facilitate the operational requirements of industries, raise special concerns with respect to the textiles, garments and footwear industries, again because of the import-export characteristics of the latter. Both laws are incorporated by reference to the rules and regulations issued by the Garments and Textiles Export Board (GTEB). Both laws authorize a registered manufacturer-exporter to receive raw materials, accessories and supplies on consignment basis from a foreign principal or buyer with the condition that the same shall be manufactured into textiles or textile products and exported back to the principal or to the buyer designated by the
principal. This arrangement, analoguous to a contract of bailment in civil law, encourages
a high degree of consignment subcontracting on an international scale. Admittedly. this is
necessary to cope with the internationalization of clothing production. It has in fact sign)ficantly contributed in sustaining the role of the Philippines as a major player in textiles, clothing and footwear. To nationalists and other cause-oriented groups, however, the arrangement has been criticized as a device disadvantageous to Filipino workers because it allegedly perpetuates a cheap labor policy and can only generate precarious types of employment.
5) Special laws. A law of special application to the textile and clothing industries is Executive Order No. 537, as amended by Executive Orders No. 823 and 952, establishing the GTEB under the Department of Trade and Industry (DTI). Beyond empowering the GTEB to allocate quotas and provide timely information on garments and textile trends, the sign)ficance of the law is that it operationalizes the Philippines' commitments under the Multi- Fibres Agreement (MFA) and can rightfully be said to be the main legal instrument in making possible the entry and survival of the Philippines in the highly-competitive and continuously fluctuating international textiles market.
The Labor Code is the primary legislation governing labor and employment relations in the Philippines. Since it took effect in 1975, amendatory and supplemental legislations have been enacted principally to respond to emerging trends and issues in employment relations. In so far as these affect the garments and footwear sector, and in a more limited sense the textiles industry, the provisions of particular importance are those on subcontracting and homework. Amendatory and supplemental legislations include Republic Act No. 6715, or the New Labor Relations Law; Republic Act No. 6725, or the Anti-Discrimination Against Women Act; Republic Act No. 6727, or the Wage Rationalization Act; Republic A;t No. 6971, or the Productivity Incentives Act; Republic Act No. 7610, or the Special Protection of Children Act; Republic A-t No. 7796, or the Technical Education and Skills Development Act; and Republic Act No. 7877, or the Anti-Sexual Harrassment Act.
As in trade and investment laws, these laws apply generally across industries. Certain provisions of these laws, however, can be given special attention because of the issues associated with them.
1) Subcontracting. homework and related issues. Studies have shown that there is a high incidence of subcontracting and homework arrangements in the Philippine garments industry. The legal framework for subcontracting is laid down in Book III (Working Conditions) of the Labor Code, particularly Articles 106 to 109. Under these provisions, contracting or subcontracting of work is expressly recognized as a legitimate work arrangement. These provisions likewise provide for the liabilities of the employerprincipal, the contractor or subcontractor and pseudo-contractors called "labor-only" contractors, in respect to the employees under a subcontracting arrangement. At the same
time, Article 106 of the Code confers authority on the Secretary of Labor and Employment to regulate certain types of labor contracting to prevent any circumvention of the provisions of the Code. A notable development in this regard is the issuance by the Secretary of Labor and Employment of the new implementing rules on contracting and subcontracting, embodied in Department Order No. 10, which took effect on 22 June 1 997.
Likewise categorized under Book III of the Code are the provisions governing the employment of homeworkers (Articles 153 to 155). Article 155 provides:
"ART. 155. Distribution of Homework. -- For purposes of this Chapter, the "employer" of homeworkers includes any person, natural or artificial, who for his account or benefit, or on behalf of any person residing outside the country, directly or indirectly or through any employee; agent, contractor, subcontractor or any other person:
"(1) Delivers, or causes to be delivered, any goods, articles.or materials to be processed or fabricated in or about a home and thereafter to be returned or to be disposed of or distributed in accordance with his directions;
"(2) Sells any goods, articles or materials to be processed or fabricated in or about a home and then rebuys them after such processing or fabrication, either through himself or through some other person."
This provision on homework is the Labor Code equivalent of consignment subcontracting in investment language. The Bulk Importation Law and Letter of Instruction No. 1213 amounted to an official recognition of consignment subcontracting on an international level as a part of investment policy. Article 155 operationalizes this policy at the local level, down to where the work is actually performed -- in so many homes which are beyond the reach of labor standards regulation. Beside traditional issues like precarious employment and poor working conditions, consignment subcontracting in the garments industry also tends to raise issues on unpaid work and child labor. The Special Protection for Children Act is intended to be one of the principal legal instruments to address the issue of child labor. At this time, however, there is yet no evidence on the impact of the act in addressing this issue.
2) Wage and productivity. The Wage Rationalization Act and the Productivity Incentives Act are of particular interest to the garments and footwear industries for two reasons.
First, the act provides for the determination of piece-rate wages. The Philippines has a high incidence of piece-raters in the garments and footwear industries. In relation to the Productivity Incentives Act, the observation has been made of a significant shift at least in the garments industry from regular employment and fixed wage systems to more flexible employment and wage arrangements, such as subcontracting and piece-rate wage. This may be an indication that flexible employment and wage arrangements are preferred because they afford investors a more rational labor-pricing approach based on productivity. Indeed, the GTEB itself has acknowledged that the Philippines actually receives low value for each garment exported, ranking several rungs below Thailand and Indonesia, and just above Sri Lanka and Pakistan.
Second, in the recent increases in minimum wages mandated by the Regional Tripartite Wage and Productivity Boards (RTWPBs), enterprises in the garments sector are exempted from immediate compliance with newly-mandated wage increases for a maximum period of one year, if it is proved to the satisfaction of the RTWPB that the establishment concerned.is covered by forward contracts from its foreign principals or buyers. Labor groups have noted that the exemptions may deprive affected workers of equal protection of the laws considering that conditions justifying an. increase in wages are equally operative on the workers in the garments sector as they are on workers in all other industries.
3) Women issues. A large majority of the workforce in the clothing and footwear industries are women. The women workforce would stand to benefit from the Anti-Women Discrimination Law and the Anti-Sexual Harassment Law, although there is no data at this point to what extent they have actually benefitted from these laws. Statistics estimate that about 80% of all garment workers in the special economic zones are women. While this may be a positive indication of the growing assimilation of women into formal and productive employment, a source of apprehension is the fact that most leave employment before reaching the age of thirty. The available labor market information do not show a career for these women after they have left the workforce.
4) Training. Part of the investment policy is to give incentives to investors. Under the Omnibus Investments Code, the Special Economic Zone Act, and the Labor (:ode, incentives in the form of tax deductions for travelling expenses are allowed. The intended outcomes for giving incentives for training are technology transfer, skills upgrading, and more private sector involvement in training and human resource development. Unfortunately, the implementing mechanisms for operationalizing training incentives have never been put in place, in spite of the fact that a provision on training incentives has been in the Labor Code since 1975. Operationalizing this incentive can be a timely subject for discussion at this time because skills upgrading is a necessary strategy for productivity improvement and eventually for securing employment.
The Technical Education and Skills Development Act, which created the Technical Education and Skills Development Authority (TESDA), is the primary legal instrument for technical and vocational training. As such, its role in industrialization cannot be overemphasized. It has been observed that the internationalization of garments production has come to the developing economies in waves, with Hongkong, South Korea, Thailand and Indonesia among the first Asian economies to benefit from the first wave. The Philippines came on its own in terms of garments and footwear exports after the first wave. Compared with Hongkong, garments production in the Philippines cover very little of the so-called garment value-added chain. with a focus limited to garments
assembly. Compared with South Korea, the focus of garments production in the Philippines is still in the lower value-added variety. To keep abreast of the competition, the Philippines should be expanding its position in the garment value-added chain and redirecting its garments and textiles production to higher value-added outputs. The manpower development interventions needed to support this redirection lies primarily with TESDA and secondarily with the private sector.
5) Labor relations. The New Labor Relations Law can be evaluated in how it has enhanced collective bargaining, productivity and industrial peace in the textile, clothing and footwear industries. Notably, there are collective bargaining agreements particularly in the garments industry which hardly improve on the minimum standards fixed by law. This may be taken simply as evidence that certain organized garments establishments may be experiencing difficulties brought about by the fluctuating pressures of internationalization, or that their productivity levels cannot reasonably sustain compensation schemes significantly above minimum standards. The other factor to consider is the apparent weakening or even decimation of union ranks coupled with resort by certain employers to more aggressive union suppression or avoidance strategies. Notably, there have been high-profile disputes in recent years which led to the closure of once dominant players, as for instance the case of Universal Textiles in the textile industry? Aries Philippines in the garments industry, and Rubberwold Philippines in the footwear industry. These establishments appear to have become uncompetitive because of various reasons, including unsustainable labor costs, unstable industrial relations which undermined productivity, and resistance by the union to potentially labor-displacing but productivity-enhancing new technology.
On the other hand, a fundamental labor relations policy under the Labor Code is tripartism. Since 1995. the joint initiatives of the Department of Labor and Employment and the Department of Trade and Industry have led to the formation of a Garments and Textile Industry Tripartite Consultative Board. The Board was formed at a time when the garments and textiles industries began experiencing the pressures of competition from other garments and textiles producing countries. Two of its major objectives are to enhance the productivity and foster industrial harmony in these industries. While the Board was active in its first year of operation, it has not met this year. It may be worthwhile to consider reviving the Board and influencing its. agenda as to include discussions on a code of conduct for the industry.
The number and complexity of investments and labor laws affecting the textiles? garments and footwear industries indicate how far development is made to depend on formal legal structures and documents. Yet, making sense out of this complexity is a necessary precondition toward evolving a code of conduct appropriate to national conditions. Is investment policy in conflict with labor and employment policy?
There should be no conflict whatsoever if the bottom line is to equally promote trade, investments, and labor rights under a liberalized regime which respects human dignity. In the Philippine context, no code of conduct in the textiles, garments and footwear industries can ever be meaningful unless it addresses the gut issues in these industries: secure, gainful and productive employment; respect of labor standards and labor rights; productivity and equitable fixing of wages; a determined effort against child labor; real empowerment for women; and a commitment for sustainable and long-term development.
The conventional wisdom is to put the burden of resolving these issues on the government, through its policy and enforcement functions. However, the greater burden of ensuring the success of any code of conduct should be with the investors themselves, who have control of the factors of production and of the pricing of labor. It has been observed that in the haste of attracting foreign investors into their shores, developing economies tend to outbid each other by offering attractive investments incentives schemes. There is nothing wrong with this approach, except that it should not be taken advantage of to debase labor standards and the political rights of workers, particularly the right to self-organization and collective bargaining. A useful guide in evolving a code of conduct would be at least an affirmation of the core ILO Conventions. Ultimately, a code of conduct should be akin to a code of corporate responsibility, in which the investors themselves take a primarily role in elevating national conditions, including workers benefits so long as there is a commensurate increase in their productivity, to levels that are at par with core ILO standards.
