Letter of Instructions No. 64

[ LETTER OF INSTRUCTION NO. 64, March 13, 1973 ]

ANNOUNCING THE APPROVAL AND EFFECTIVITY OF THE ADDENDA TO THE FIFTH INVESTMENT PRIORITIES PLAN AND THIRD EXPORT PRIORITIES PLAN UNDER THE INVESTMENT INCENTIVES ACT AND EXPORT INCENTIVES ACT.

WHEREAS, pursuant to the provisions of Republic Act 51865 otherwise known as the investment Incentives Act, and Republic Act 6135, otherwise known as the Export Incentives Act, the Board of Investments has prepared the Addenda to the Fifth Investment Priorities Plan and the Third Export Priorities Plan and the same have been submitted to me for approval through, and with the recommendation of the National Economic and Development Authority;

WHEREAS, after a careful study of the Addenda to the Plans and their supporting data, I have found the Addenda to be feasible and in conformity with law and accordingly approved it. NOW THEREFORE, pursuant to Section 18 of Republic Act 5l86, and Section h of Republic Act NOW, I, FERDINAND E. MARCOS, President of the Philippines, do hereby declare and proclaim in effect the Addenda to the Fifth Investment Priorities Plan and the Third Export Priorities Plan hereto attached.

Done in the City of Manila, this 13th day of March, in the year of Our Lord, nineteen hundred and seventy-three.

(Sgd.) FERDINAND E. MARCOS President Republic of the Philippines

By the President:

(Sgd.) ALEJANDRO MELCHOR Executive Secretary ADDENDA TO THE FIFTH INVESTMENT PRIORITIES PLAN A ND THE THIRD EXPORT PRIORITIES PLAN 1972 Rebulika ng Pilipinas Tanggapan ng Pangulo LUPON NG PAMUMUHUNAN (BOARD OF INVESTMENT) Ortigas Building Ortigas Ave., Pasig, Rizal20 November 1972 National Economic Development Authority c/o Hon. Alejandro Melchor Executive Secretary Malacañang, Manila Dear Sir: We are submitting herewith our proposed amendments to the Fifth Investment Priorities Plan (IPP) and the Third Export Priorities (EPP). The inclusion of eight (8) new projects in the Fifth Investment Priorities Plan and three (3) new projects in the Third Export Priorities Plan is proposed. We are also recommending the amendment of the measured capacity for two (2) IPP projects.

I. New Additions Five of the eleven new projects recommended for inclusion would be producing components for the Progressive Car Manufacturing Program. The new project being proposed for inclusion are the following: FIFTH INVESTMENT PRIORITIES PLAN Project Status Measured Capacity Rock aggregates Non-pioneer Local: 507,000 cu. m Condition: Cebu island only Automotive engine block Pioneer Local: 58,000 units (with cylinder head) Export: Variable Electric motors for automotive Non-pioneer Local: 65,000 units use Export: Variable Automotive gauges and Non-pioneer Local: 56,000 units instruments Export: Variable Vehicle shock absorber Non-pioneer Local: 600,000 units Export: Variable Gum rosin and gum turpentime Pioneer Local: 8,000 M.T. Export: Variable Glass containers Non-pioneer Local: 113,000 M.T. Textiles Non-pioneer Local: 115,400,000 sq. yds. Export: Variable Condition: Only new textile mills will be entitled to registration under the IPP, with the condition of location outside the Greater Manila area (including the five surrounding provinces of Bulacan, Laguna, Batangas, Cavite and Rizal). Expansion of existing textile mills in the Greater Manila area should be registered under the Export Incentives Act, with a commitment to export a minimum proportion of production resulting from the expansion in capacity.

THIRD EXPORT PRIORITIES PLAN

BTN SITC Status Exportable ProductsList A: Exportable Products of Existing Firms 73.38 812.3 Wrought iron furniture 82.50 729.2 Fluorescent and mercury lamp ballasts List B: Exportable Products of Preferred Areas of Investments 84.63 732.0 Pioneer Motor Vehicle transmission A short description of the projects proposed for inclusion in the IPP and EPP together with the different data and economic factors which were considered in their evaluation are shown in the attachments.

II. Amendment of Measured Capacity The proposed amendment of the measured capacity for two (2) IPP projects are: Project Measured Capacity Flashlight Local: 1,656,000 units Export: 1,400,000 units Magnetic starter Local: 36,000 units Export: 40,000 units We are recommending the addition of an export measured capacity of 1,400,000 units for flashlighs. Our study of the export market for flashlights has shown that there is a potential for Philippines export of this product. Lower production costs in the Philippines would give us a competitive position with Hongkong which supplies a substantial of the world market. In the case of magnetic starters, we are recommending the increase of the local measured capacity from 19,000 units to 36,000 units and of the export measured capacity from 20,000 units to 40,000 units. This increased of 17,000 units and of the export measured capacity is merely the restoration of the measured capacity is merely the restoration of the measured capacity granted to a BOI-approved project which has subsequently withdraw its application. This capacity was taken into account in computing the "existing/approved capacity" in the Fifth IPP. On the other hand, the addition of 20,000 units for the export measured capacity is based on a revision of our estimate of the export market for magnetic starters. Very truly yours,

(Sgd.) VICENTE T.

PATERNO

Chariman January 17,1972 Dr. Gerardo Sicat Officer-in-Charge National Economic Development Authority Metropolitan Bank Bldg., Ayala Ave., Makati, Rizal Dear Dr. Sicat:We are submitting for inclusion in our proposed addenda to the Fifth Investment Priorities Plan and Third Export Priorities Plan the following cellophane projects. The pertinent data on this project are as follows: Measured capacity: Local: 6,400 MT Export: Variable Status: Pioneer Conditions:

1. The project must be located close to the Northern Luzon Copper Smelter in order to make the cost of sulfuric acid as low as possible;

2. The project must be located in an area which is economically accessible to sites suitable to tree farming;

3. That a project for the manufacture of pulp to be used as raw material for the cellophane project should be submitted within one year from the start of the operation of the cellophane project. Description of the Product: Cellophane is the name given to a thin transparent film consisting of a base sheet of cellulose, regenerated from viscose, containing variable amounts of water and softener, and coated on one or both sides to render it moisture-proof and capable of being sealed with heat or solvent. This product satisfies the requirements of a wide range of applications, mostly in the field of packaging. Demand-supply gap and annual capacity of recommended economic-size plant: Demand projection year: 1976 Projected demand: Local: 6,400 MT Export: variable Measured capacity: Local: 6,400 MT Export: variable Annual capacity of recommended economic-size 5,000 MT plant: Recommended economic-size plant by investment requirement and value of output: Total investment requirements: P134,494,000 Capital 118,315,000 equipment Others 16,179,000 Value of output: 54,155,000 Labor requirements of economic-size plant by level of skill: Total: No. : 525 persons Salary : P3,838,000 Supervisory and skilled: No : 314 persons Salary : P2,873,000 Semi-skilled No : 129 persons P640.00 UnskilledNo : 82 persons Salary : P325.000 Economic factors: Value added coefficient at 0.55 domestic prices: Value added coefficient at world 0.39 prices: Usage of indigenous raw 0.263 materials : Fixed assess per worker: P225,362 Fixed assess per wage: 30.83 Fixed assess/value added at 3.97 domestic prices Foreign exchange benefit-cost 1.33 radio: Foreign exchange 2.69 benefit/imported raw materias: Discounted rate of return on foreign exchange investment Enclosed, for your reference, is a copy of our proposed Addenda to the Fifth Investment Priorities Plan and the Third Export Priorities Plan which we submitted to your office last November Very truly yours,

(Sgd.) VICENTE T.

PATERNO

Chariman Republic of Philippines Office of the President BOARD OF INVESTMENTS Ortigas Bldg., Ortigas Ave., Pasig, Rizal MEMORANDUM — TO : The NEDA Board THROUGH: The Director General FROM : Vicente T. Paterno DATE : February 8, 1973 SUBJECT : Garments for Exports We have earlier recommended the inclusion of garments under list B of the Fourth EPP which is now under review by the NEDA before submission to the President By provision of law, the Fourth EPP will become effective by May 1973. Garments has been singled out as an export area for development and special assistance in the current export drive. It is a labor-intensive industry with a relatively short gestation period and with significantly great potential in developed markets. The advantages inherent to establishing garment plants in the Philippines seem to have been realized by many foreign investors and they have come to seek assistance from the Board of Investments to babble preparations leading to an early start-up of operations.These investors have decided to base their operations in the Philippines since the incentives they would enjoy would give them competitive advantage over other garment exporters. Their entry would mean substantial foreign capital inflow and they would bring with them new technical know-how and marketing expertise which give assurance of outlets for total production. The timetables of these new ventures do not allow them to wait until the Fourth EPP is approved. Two new garment ventures will be set up in the country within the next two months:

1. Gaty Clothing Pty. Limited (foreign partner) — General Textile Mills 2. Shuen Mei Trading Co., Ltd.(Foreign partner) — La Sampaguita, Inc.

3. G.S. Manalac, Inc. Another three new garment ventures will be set up within the year:

1. Far Eastern Textiles Ltd. (Taipei) (foreign partner)- — Amon Trading Corporation 2. Diversified Corporate Industries (foreign investor)—

3. Genesco, Inc. (foreign partner) — Integrated Shoe, Inc. The sooner these projects start operating and exporting their production, the sooner will they generate badly needed foreign exchange and open up employment opportunities for Filipino labor. In the light of these, we are therefore requesting that garments be considered as part of the Addenda to the Third EPP rather than as part of the Fourth EPP. Attached are the economic data for this industry.

(Sgd.) VICENTE T.

PATERNO

Chariman GARMENTS ECONOMIC DATA Status : Non-Pioneer MC : Variable (Export) Condition: At least 70%of total production must be exported. Annual capacity of recommended economic-size plant: 24,000 dozens ladies' lingerie or 41,230 dozens children's clothes (25 sewing machines) Total project cost : P 1,225,000 Capital requirement : P 331,000 Other : P4,992,000 Value of Output : 924,000 Labor Generation Total Number : 128 Salary : P 473,000 Skilled Number : 25 Salary : P144,000 Semi-skilled Number : 92Salary : P 302,000 Unskilled Number : 11 Salary : P27,000 Value Added Coefficient at domestic prices : .62 at world prices : .62 Usage of indigenous raw material : .highly indenous Ratio of direct labor to total labor : 67 Total fixed assets per worker : P 2,585 Imported fixed assets per worker : $ 128 Foreign exchange benefit-cost ratio : 231.96 Attachment A DESCRIPTION OF PRODUCTS INVESTMENT PRIORITIES PLAN Rock Aggregates Rock aggregates ure crushed gravel graded into desired sizes varying from one-fourth to one-half inch. They are generally used in the construction of roads, buildings, piers, bridges and other concrete products such as hollow blocks and pipes. Crushed, graded and washed aggresgated differ in quality from the ordinary gravel taken directly from river beds by the "salandra" method. Rock aggregates were included in the First and Second Investment Priorities Plans with a non-pioneer status and a measured capacity of 4,000,000 metric tons. The declared measured capacity has been filled up by four firms with plant sites in Bulacan, Rizal and Quezon. The proposed measured capacity for 507,000 cubic meters would be applicable to the Cebu island only where there is presently no existing producer of rock aggregates. Automotive Engine Block (With Cylinder Head) The engine block is that part of the automotive engine which forms the structure to which all other parts are attached. Generally, it is made of cast iron but some smaller engines are now made of aluminum alloys. The engine block itself is composed of the cylinder block, cylinder head, manifolds, and the oil pan which are bolted together to form a single structure. The basic use of the engine block is to provide space for the conversion of chemical energy of the fuel into mechanical energy, to allow for the removal of the products of combustion, and to hold in place the mechincal parts which transmit the power developed inside the cylinder to the external part of the engine, fom which end the load is connected. All automotive engine blocks are presently imported. They come in either as spare parts for worn-out engines or as part of a completely assembled new engine. Electric Motors For Automotive Use There are three types of electric motors for automotive use: starter motor, wiper motorand altenator/generator. A starter motor is a DC motor used for turning or starting the automative engine until it fires and continues to turn under its own power. T he starter motor consumes the largest amount of current in the electrical system of an automotive vehicle. Because of this requirement, it needs a heavy duty switch which is connected to the battery by a thick heavy cable. A wiper motor is a DC motor used to turn the windshield wiper blades. The wiper blades are connected to the wiper motor through linkages. An alternator/generator is an electrical device used in automotive vehicles to produce current for their electrical system. This may be either a generator which produces direct current or an alternator which produces alternating current. In the case of an alternator, the alternating current is converted to direct current through the use of diodes or rectifiers which are built into the alternator. Electric motors for automotive use are presently imported, either as part of the CKD packs of automotive vehicles or as spare parts. Automotive Gauges and Instruments Automotive gauges and instruments are devices used in cars, trucks, motorcyles and practically all land vehicles operated by prime movers for the purpose of either indicating, recording, or measuring various parameters related to the operation of the vehicle. Among the most commonly used gauges and instruments are the following:

a) Ammeter — this indicates or measures the amount of current received or delivered by the storage battery.

b) ressure gauge — this indicates or measures the oil pressure in the moving parts internal to the engine.

c) Temperature gauge — this measures the temperature inside the engine and/or indicate whether the engine is hot or cold.

d) Speedometer — this indicates the speed of the vehicle either in kilometers per hour or miles per hour and records the total distance travelled.

e) Tachometer — this indicates the engine speed in revolutions per minute. In the absence of any local manufacturer of automotive gauges and instruments, all of these are presently imported either as spare parts or as part of the CKD pack for new vehicles. Vehicle Shock Absorber A shock absorber is an automotive component which forms part of the suspension system in order to effect a smoother and safer ride. Although there are many variations in the designs and type of shock absorbers, it is basically composed of a cylinder, a piston and valve mechanism which restricts the movement of a fluid confined within the cylinder. Shock absorbers are normally used in practically all types of road vehicles. The investment area being proposed for inclusion in the 1PP would cover shock absorbers for cars, trucks and motorcycles. The demand for shock absorbers is presently mainly supplied through importation either as part of CKD packs or as spare parts. There is one local manufacturer of shockabsorbers but its production is very small and the quality of its present products is unacceptable to local assemblers. Its output goes mainly to the jeepney market where the operators are not very particular about quality of the shock absorbers used. Gum Rosin and Gum Turpentine Rosin is a solid resinous material that occurs naturally in the oleoresin of pine and other coniferous trees. Gum rosin, also known as colophony, is the hot residue drawn off from a distillation still after processing the oleoresin. There are three major sources of gum rosin, namely: the oleoresin exudale of the living pine tree, the oleoresin contained in the aged stump of the pine tree, and the tall oil rosin produced as a by-product in kraft paper production. Gum turpentine is a by-product in the production of gum rosin. It is the distillate from the steam distillation of oleoresin from the exudate of the living pine. Gum turpentine is the highest quality turpentine and has a pleasant odor. In the Philippines, there are two possible sources of gum rosin and gum turpentine: the Benguet pine tree and the Mindoro pine tree. Gum rosin, in its modified and unmodified forms has a variety of uses. It is used for protective coatings, adhesives, lacquers, plastics, printer's ink and linoleum. Gum turpentine is used as a solvent for paints and varnishes. Glass Containers Glass containers include bottles for beverages, food products, drugs, pharmaceuticals, cosmetics and chemicals. This area was listed in the First IPP with a non-pioneer status and a measured capacity of 95,000 MT. (90,000 M.T. for local and 5,000 M.T. for export). This has since been filled up with the registration of five glass plants. The existing glass plants, however, can no longer supply the demand for glass containers which has subsequently increased and the gap is being filled through importation. By 1975, demand for glass containers is expected to be 315,200 M.T. while the capacity of the existing and proposed firms would amount to only 202,450 M.T., leaving a gap of 112,750 M.T. Textiles Woven fabrics are the products of the spinning, weaving and finishing of natural and man-made fibers used essentially for clothing. They are also used for draperies, mosquito nets, weddings, paddings, surgical and clinical gauzes, etc. Woven fabrics may be unbleached, scoured, bleached, dyed, printed, mercerized, napped, etc. The designs may also be produced by additional warp or weft threads introduced during weaving. Cotton has been the major raw material for fabrics. Man-made fibers like rayon, nylon, polyester, acrylics, etc. have, however, been developed as substitutes or for blending with cotton to improve the quality of fabrics (to add strength, resistance to creases, stains, mildew, light, etc.). Motor Vehicle Transmission The motor vehicle transmission is the link between the engine and the wheels. Thetransmission is coupled to the engine through the clutch plate mounted on the clutch gear. Torque to drive the wheels is transmitted by meshing of gears with predetermined gear ratio that determines the speed of the vehicle for a given engine speed (rpm). These gears are linked to the propeller shaft which in turn drives the differential gears that cause rotation of the vehicle's wheels. Speed change is effected by shifting of gears meshed to the dme gear. This shiftng is effected by a mechanical means (a shift lever) or by fluid pressure (as in automatic transmission). The proposed product is the non-automatic type. The is at present no local manufacturer of motor vehicle transmission. It comes in as part of CKD packs. Attachment B STATISTICAL TABLES ADDENDUM TO TABLE 27 OF THE FIFTH INVESTMENT PRIORITIES PLAN DEMAND-SUPPLY GAP AND ANNUAL CAPACITY IF THE RECOMMENDED ECONOMIC-SIZE PLANT (in thousands) Annual Measured Capacity Capacity of Demand Project Existing the Name of Product Projection DemandCapacity Recommeded Year Total Local Export Economic- Size Plant Flashlight 1974 3,056 — 3,056 1,656 1,400 1,200 units units units units units Magnetic starter 1974 76 units — 76 units36 units40 units 34 units Rock aggregates 1975 507 cu. — 507 cu. 507 cu.— 309 cu. m m m m Automotive engine block (with cylinder 1975 Variable — Variable 5,818Variable 12.2 units head) units Electric motors for automotive use 1974 Variable — Variable65 unitsVariable 20 units Vehicle shock 1974 Variable — Variable600unitsVariable 30 units absorber Gum rosin and gum turpentine 1975 Variable — Variable 8 M.T.Variable 6.5 M.T. Glass containers 1975 315 M.T. 202 113 113— 28 M.T.

M.T. M.T. M.T.

Textiles 1975 Variable 625,000Variable115,400Variable625,000 sq sq yds. sq yds. yds. (10,000 spindles and 245 looms at 92% efficiency) ADDENDUM TO TABLE 28 OF THEFIFTH INVESTMENT PRIORITIES PLAN RECOMMENDED ECONOMICS-SIZE PLANT BY INVESTMENT REQUIREMENT AND VALUE OF OUTPUT (in thousands pesos) Investment Requirements Name of Product Capital Value of Total Other Equipment Out Rock aggregates 3,872 3,151 721 3,770 Automotive engine block (with cylinder head) 51,278 40,679 10,599 52,654 Electric motors for automotive use 3,906 1,410 2,496 8,200 Automotive gauges and instrument 4,025 2,825 1,200 6,000 Vehicle shock absorber 4,570 2,620 1,950 5,000 Gum rosin and gum turpentine 4,548 4,008 540 14,538 Glass Container 36,894 28,697 8,197 23,849 Textiles 36,952 32,298 5,654 25,779 ADDENDUM TO TABLE 29 OF THE FIFTH INVESTMENT PRIORITIES PLAN LABOR REQUIREMENT OF ECONOMICS-SIZE PLANT BY LEVEL OF SKILL Total Sup. and Skilled Semi-Skilled Unskilled Salary Salary Salary Salary Name of (in (in (in (in Product Number Number Number Number thousand thousand thousand thousand P) P) P) P) Rock aggregates 178 934 82 559 56 219 40 156 Automotive engine block (with cylinder 525 2,850 381 2,284 64 220 80 346 head) Electric motors for automotive 71 438 55 379 10 42 6 17 use Automotive gauges and instruments 82 846 62 756 10 55 10 34 Vehicle shock 192 1,643 138 1,380 30 173 25 90 absorber Gum rosin and gum turoentine 46 194 10 93 9 30 27 71 Glass containers 176 843 100 528 42 179 34 136 Textiles 541 2,339 464 2,098 15 63 62 178ADDENDUM TO TABLE 30 OF THE FIFTH INVESTMENT PRIORITIES PLAN ECONOMIC FACTORS Value Value Usage of Fixed Fixed Fixed Foreign Foreign Discounted Added Added IndigenousAssets AssetsAsset/ValueExchangeExchangeRate of Name CoefficientCoefficientRaw Per Per Added at Benefit Benefit/ Return on of at at Materials WorkerPeso Domestic Cost Imported Foreign Product Domestic World Wage Prices Ratio Raw Exchange Prices Prices MaterialsInvestment Rock aggregates 82 .82 [*] 17,702 3.37 1.01 non-graded good h.i. Automotive engine block with cylinder head) .36 .62 .24 77,484 14.27 2.14 2.77 4.63 44 Electric motors for automotive use .38 .38 .38 19,859 3.22 .045 1.73 3.08 over 150 Automotive gauges and instruments .42 .33 .49 34,449 3.34 1.13 2.89 3.21 over 150 Vehicle shock absorber .35 .44 .08 13,575 1.59 0.76 1.80 1.94 140 Gum rosin and gum turpentine .32 .24 [*] 87,139 20.70 0.86 40.68 [*] over h.i. n.i. 150 Glass containers .74 .77 .24163,051 34.04 1.53 2.17 8.83 116 Textiles .63 .60 .23 57,800 13.38 1.84 1.73 5.44 60 [*] h.i. Highly indigenous [*] n.i. negligible un parts ADDENDUM TO TABLE 31 OF THE FIFTH INVESTMENT PRIORITIES PLAN LINKAGE EFFECTS Annual Capacity of the Recommended Name of Product MC for Export Economics- Size Plant Rock aggregates 0.71 — 0.80 0.71 — 0.80 Automotive engine block with cylinder head) 1.11 — 1.20 1.01 — 1.20 Electric motors for automotive use 1.11 — 1.20 1.01 — 1.20 Automotive gauges andinstruments 1.11 — 1.20 1.01 — 1.20 Vehicle shock absorber 1.11 — 1.20 1.01 — 1.20 Gum rosin and gum turpentine 1.31 — 1.40 1.01 — 1.20 Glass containers 0.91 — 1.00 1.21 — 1.40 Textiles 1.01 — 1.20 2.41 — 3.20 ADDENDUM TO TABLE 32 OF THE THIRD INVESTMENT PRIORITIES PLAN DEMAND-SUPPLY GAP AND ANNUAL CAPACITY OF THE RECOMMENDED ECONOMIC-SIZE PLANT (in thousands) Annual Capacity of the Recommended Name of Export Product MC for Export Economic- Size Plant Motor vehicle transmission Variable 72 units ADDENDUM TO TABLE 33 OF THE THIRD INVESTMENT PRIORITIES PLAN RECOMMENDED ECONOMIC-SIZE PLANT BY INVESTMENT REQUIREMENT AND VALUE OF OUTPUT (in thousand pesos) Investment Requirements Value of Name of Product Capital Output Total Equipment Others Motor vehicle transmission 115,786 98,793 16,993 74,565 ADDENDUM TO TABLE 34 OF THE THIRD INVESTMENT PRIORITIES PLAN LABOR REQUIREMENT OF RECOMMENDED ECONOMIC-SIZE PLANT BY LEVEL OF SKILL Total Sup. and Skilled Semi-Skilled Unskilled Name of Number Salary Number Salary Number Salary Number Salary Product (in thounsand P)(in thounsand P)(in thounsand P)(in thounsand P)Motor vehicle 566 4,601 509 4,393 24 10+ 33 99 transmission ADDENDUM TO TABLE 35 OF THE THIRD INVESTMENT PRIORITIES PLAN ECONOMIC FACTORS Foriegn Usage of Name of Usage of Direct Value Added exchange Indigenous Product Labor Coefficient Benefit-Cost Raw Materials Ratio Motor vehicle .3712 .19 .72 .2.29 transmission