1. Trade Facilitation in the Philippines: Testing the EC governance framework
Political Economy at Work
Brussels, January 2011
Bryan Fornari
Unit E2, EuropeAid, European Commission
This standard presentation needs to be adapted to fit the audience and purpose.
It should be used with the support of the document: EuropeAid Tools and Methods series, Reference Document No 4 “Analysing and Addressing Governance in Sector Operations”, which is the main source of information of this power point.
AIDCO/Unit E4 would be grateful to receive any suggestions, comments or new examples that could enrich the presentation to the unit's functional mailbox or to the HoU Dominique Dellicour

2. How did we get to the Philippines case study
General framework defined in the Reference Document “Analysing and Addressing Governance in Sector Operations”
Methodology being applied to Trade Facilitation as a pilot sector
Ongoing TF programme in Philippines tackling governance issues, but need to go beyond technicalities
Desk + field work to apply methodology to the Philippines context
Involved in the exercise: Delegation, DEVCO E4+E2, ECDPM consultants

3. The governance analysis framework
Political system/government
Rule making and executive actors at different levels
Context
Checks and balances organisations
Supervise sector organisations or handle complaints (auditors, judiciary, ombudsmen,…)
Non-state actors
Citizens, voters, consumers, user groups economic agents, elites, media…
Core public agencies
Sector ministries, agencies with regulatory or supporting roles, …
Frontline service providers
Public and private providers delivering services
Donors, international organisations
Influence on sector governance and accountability relations
MAKING THE GOVERNANCE ICEBERG VISIBLE
The methodology is intended to be a practical tool to provide EC staff with some guidance and an analytical framework to increase their understanding of governance issues at sector level in order to better support partner countries' efforts in this field.
Step 1: Assessing the context of sector governance
political attention of sector; broader public sector reform context; strong judiciary; decentralisation; international context; etc.
Step 2: Mapping the actors: interests, power, incentives
six clusters of actors: focus on key interests and relationships
Step 3: Assessing accountability relations
who accounts to whom; who depends on whom, who can pressure whom; who is voiceless; who are agents of change
Step 4: Summing up: analysing reform readiness
strengths, opportunities, weaknesses, threats
Governance
Accountability 3 3

4. The TRTA 2 project in the Philippines
€ 6.5 million,
Project purpose: Support selected agencies and non-state actors to implement deeper integration into the international trading systems
Some expected results:
- Integrate 35 agencies into a National Single Window
- Risk Management System enhanced
- Custom Transit System at ports improved
- Strengthened Bureau of Customs
(including perception of its standards of integrity)
Component 1: Trade Policy and Export Development
Component 2: Standards Harmonisation and SPS Conformity
Component 3: Trade Facilitation
Component 4:Rapid Response Facility
Focus on automation and effectiveness of customs operations (faster, cheaper, more transparent) 4 4

5. The case study in practice – the process
Longstanding involvement of the Delegation in the sector
Programme already addressing governance issues
Desk and field work – one week of meetings with key stakeholders (lead by Delegation + one consultant)
Mix of “Internal” (EC) and “external” work/discussions 5 5

6. STEP 1 – Key features of the context
Level
Features
Indicators/Sources
Sector
In customs emphasis on revenue generation
TF with strategic plan but slow progress (resistance); greater automation
BoC mistrusted within government, probs of principal-agent mechanisms, appointments by executive/legislative powers
National and Export Development Plans
‘Doing Business’ Indicators
Strategic Action Plan of the Bureau of Customs
National
Economy heavily regulated; High corruption
Public sector reform is slow, low salaries
New Administration (fighting corruption)
Congress with short mandates
EC country assistance reviews, governance assessments, TI index
Regional / Int’national
Pressure from globalisation for competitiveness, International and ASEAN commitments
ASEAN TF Programme; WTO Trade Policy Review
ASEAN laggard, consumption driven economy, heavy reliance on remittances (>10% of GDP), significant drop in applied tariffs from over 40% to 8%, trade to GDP ratio 62%, strong reliance on one export sector (electronics), Business Process Operations (outsourcing) on the rise, managed crisis relatively well
Market governance: weak governance, high corruption levels and constitutional investment restrictions hamper FDI. Legislation usually in place but enforcement weak and political intervention high.
World Bank ‘Doing Business’: weak rankings across the board (above 100) with “trading across boarders” relatively better at rank 68. Philippines ranks 139 in TI CPI index behind Nigeria, Pakistan etc.
Political attention of sector: Customs reform has high priority (e2m, NSW) and is well funded but progress is very slow. International (RKC) and ASEAN obligations help trigger reform
Sector: trade important but focus in customs on revenue generation more than TF
Regeional commitments important but not systematiaclly enforced 6 6

7. STEP 2: Mapping the actors
Stakeholders: blurred boundaries
Political system/government
Congress
Executive body
Context
Checks and balances organisations
Judiciary
Congress
Commission on Audit
Non-state actors
Media
Importers/Exporters
Shipping Companies
Producers
Core public agencies
Customs Authority,
Trade Ministry
Frontline service providers
Customs officials
Donors, international organisations
EC, JICA, US Aid, ASEAN, WCO, WTO 7 7

8. STEP 2: Mapping the actors
Cluster of Actors
Key Actors
Power / Interests
Driver of change
Core Public Agencies
Bureau of Customs (Department of Finance) – senior officials
Holds key TF powers
Interests: greater efficiency in TF, subject to budget and capacity constraints, need to improve image
Potentially, with varying degrees depending on who in the top management
Department of Trade and Industry
Interest in improving TF, but little power to influence policy or performance; also prefers to concentrate on trade negotiations
Limited (but potenital) driver of change
Frontline Service Providers
Customs officials
Interest: interst to keep status quo for rent seeking, but image problem
Overall resitance to change
Non-State Actors: Private Sector Operators
Exporters
Interest: improved TF (while maintaining cosy status quo relationship with government)
Weak driver of change
Media
Quite independent, focuses on negative corruption stories
Potentially can mobilise public opinion 8

9. STEP 2: Mapping the actors
Cluster of Actors
Key Actors
Power / Interests
Driver of change?
Non-state actors
Farmers/ Producers
Little power to affect policy: lack of organisation, information on TF and capacity to build positions and lobby
Driver of change
Checks and Balance Organisations
Judiciary
Interest in persuing customs transgressors
Driver of change but prob of capacity
Commission on Audit, Congress
Political System / Government
Congress, Senate
Difficulty to pass TF legislation due to vested interest groups
Limited driver of change
International Organisations
ASEAN, WCO, WTO
Interest in TF harmonisation but little power at nat’l level
Potentially, if mandate strengthened
Donors
EC, JICA, US Aid
Improved TF, leading ulitmately to increased trade and development
Non-state actors: private sector operators are important, including buyers, exporters, producers/farmers and the full range of ‘middlemen’ including transporters, logistical support services, etc.
Core public agencies: BoC, DTI, DA (with various agencies), Presidential Anti Smuggling Group
BoC still very much focused on revenue generation (contributing over 23% to treasury), TF plays a secondary role. HR management in BoC highly politicised. Change resistant in BoC high given attractive rent-seeking opportunities. Currently IT driven change ongoing with potentially strong governance impacts
While only at the level of a Bureau customs is a very strong player within the government system
Ethnical devide between Malay dominated government sector and Sino dominated business sector.
Negative Public Opinion vis-à-vis BoC, TF not very high on Business Chambers agenda but corruption/governance in general is
Donors: US Aid reduced engagement, MCC finally pulled out, EC and JICA main TA providers, Worldbank and Eximbank interested to support NSW

10. Step 3: Analysing governance relationships
Customs – Political system:
Annual targets based on revenue collection
System of appointments at all levels
Members of parliament formerly BoC Commissioners
Low salaries of customs staff would require major reform
Private Sector operators – Customs
Limited involvement in reform issues
Focus on short term profit – privileged relationships
Government – donors
Focus on technical issues to address governance
Limited leverage by donors, focus on supply-side

11. Step 4: Summing up Cluster of Actors Key Features
Key Strengths Opportunities
Weaknesses Threats
Major Trends
Broader Context
Globalisation and competition. New technology. New political leadership. Weak national accountability institutions.
External pressure exists on Philippines to reform.
External pressures (e.g. falling revenue) may end up making reform more difficult.
Context is increasingly favourable. ‘Jury is out’ on new administration’s anti-corruption push
Actors, interests and incentives
Strong political interests limit incentives for deep reforms.
New president committed to fighting corruption, including in BoC
Reformers may lack power against vested interests.
Donor-driven technical reforms have had success, but future progress may require tackling governance issues.
Governance Relations
Cliental relations between BoC and politicians. Revenue targets for BoC.
Accountability gaps in BoC’s relations.
Wide range of knowledgeable reform demandeurs, albeit currently unorganised and disparate.
Lack of clear driver for deep governance reform in sector. Public apathy on prospects for real reform.
Despite dynamic context and technical reforms, little change in underlying governance roles between key actors.
It takes time, plan ahead: analysis, dialogue and awareness, mapping and understanding the political economy
Added value of regional integration in supporting governance:
- Learning from trading partners by adapting (or imitating) successful institutions and regulations
- International competition forces to reform institutional and regulatory setting to improve domestic business environment
Rent seeking and corruption might be harder in more open economies
Comment on the Table: not telling much, does this help?

12. Towards some conclusions / considerations
The dichotomy between “technical solutions” and institutional change
Look beyond TF at some key features (political influence, salaries, accountability)
Encouraging private sector to be more engaged in reform, increasing accountability of BoC to stakeholders
Building capacity of stakeholders (congressmen, academia, media) could also strengthen the demand side of governance
Address overall corruption issues, not only within Customs
Need to go beyond technical approach – automation has its limits in addressing corruption

13. More general questions about the tool
Added value of the Governance Analysis Framework? It helps?
Supports analysis / dialogue?
How to improve it?
Additional steps after the analysis?
Need for further reflection on how to engage with stakeholders on the use of the tool
emerging issues and/or lessons -        the points you make (including importance of preparation, usefulness of formalising the analysis or making the methodology and the assumptions explicit etc..) -        but also the political sensitivities (once you start to unpack these aspects, etc.) -        and such sensitivities are also present when one tries to answer the question about o        with whom to undertake the analysis o        who the analysis is meant to serve – o        or with whom to share the analysis (you may find comfort that this issue was the subject of some work we did two years ago on behalf of DAC – this resulted in guiding principles that you may find interesting or relevant – see annex)
2. emerging questions of relevance (also to a non-TF audience): -        What has been the added value of the Governance Analysis Framework? Did it really help you ‘unpack’ the political and political economy factors? -        What does such approach help you do better? Did or will it contribute to better dialogue with other development partners? With developing partners? Does it help in better targeting stakeholders and engagement strategies? -         How can this approach/methodology be sharpened or taken forward? What may be additional questions to seek answers to?  (this may be useful in getting feedback from experienced PE practitioners in terms of improvement of the GAF tool) -         What may be additional next steps after such exercise?

14. Some considerations
Clarity of objectives: For who is the analysis? Donors, stakeholders, internal EC? Need for further reflection on how to engage with stakeholders on the use of the tool
Timing: context specific (in case study, EC programme + new political developments)
Format of study:
Good mix of EC officials / external support. Delegation key role
Approach in interviews: long preparation, ask right questions (in case study, good open dialogue with stakeholders)
Methodology: difficulty in placing actors in specific categories
Difficult balance for donors in supporting without being perceived as taking sides: from analysis to action is not easy…
Need for further reflection on how to engage with stakeholders on the use of the tool
emerging issues and/or lessons -        the points you make (including importance of preparation, usefulness of formalising the analysis or making the methodology and the assumptions explicit etc..) -        but also the political sensitivities (once you start to unpack these aspects, etc.) -        and such sensitivities are also present when one tries to answer the question about o        with whom to undertake the analysis o        who the analysis is meant to serve – o        or with whom to share the analysis (you may find comfort that this issue was the subject of some work we did two years ago on behalf of DAC – this resulted in guiding principles that you may find interesting or relevant – see annex)
2. emerging questions of relevance (also to a non-TF audience): -        What has been the added value of the Governance Analysis Framework? Did it really help you ‘unpack’ the political and political economy factors? -        What does such approach help you do better? Did or will it contribute to better dialogue with other development partners? With developing partners? Does it help in better targeting stakeholders and engagement strategies? -         How can this approach/methodology be sharpened or taken forward? What may be additional questions to seek answers to?  (this may be useful in getting feedback from experienced PE practitioners in terms of improvement of the GAF tool) -         What may be additional next steps after such exercise?