Just came from Bangkok in relation to some trade work. Anyway, here are some notes made while bored in the plane:
First, something to raise the hackles of anti-trade people:
"Any discussion of trade and globalization should begin with this fact: Over the last 30 years, world trade has grown twice as fast as output - and the economies that have grown fastest have been those that trade most. Nothing is more important to global economic growth than trade. Far from being a zero-sum game, expansion in trade benefits all countries - big and small, rich and poor.
Citizens of nations that reform their economies and open themselves to trade and competition have better jobs, improved living standards, and greater opportunities. At the same time, nations that try to close themselves off from competition, hinder free markets and fail to invest in their people simply get left behind. Indeed, no country has escaped poverty without opening up trade." (The Case for Free Trade, Gordon Brown and Hank Paulson, 28 November 2006, AWSJ, p.15)
So let the long cranky (and sometimes really bizarre) anti-trade comments come, he-he! But seriously, the simple fact still remains, it is those countries that open their economies and subject local industries to competition that do far better for their citizens in terms of income and standards of living than those who don't. It may be selective, partial, or gradual but the important thing is to open up.
Incidentally, while in Kinokuniya (for which I came out with Morton's "The Rothschilds" and Giddens' "The Third Way") I saw a copy of Jagdish Bhagwati's “In Defence of Globalisation”. I highly recommend readers to buy this book.
Mr Bhagwati is an eminent scholar, author of numerous important works, some with Robert Hudec (one of the acknowledged fathers of international economic law). “In Defence of Globalisation” is one designed for the layman: free of statistics, quantitative economic analysis, and is of simple ambitions. It strives admirably to educate the layman on the issues surrounding globalization and trade, and answers some of the more specious arguments raised by its detractors.
Thus, far from worsening poverty, destroying cultures, abusing the environment, and weakening democracy, Mr. Bhagwati shows the beneficial effects of globalization and the misleading premises (to put it mildly) with which globalization’s critics base their arguments.
Some uncommon wisdom learned from an economist co-lecturer at the Philja lecture series:
"We should stop beating ourselves down. Enough with the lament that 50 years ago we were second only to Japan in terms of GDP per capital and that now other countries have overtaken us from that slot. It must be remembered that 50 years ago, it was rare for a country to actually measure its GDP and the Philippines was one of the few (along with Japan and India) who did.
So if we limit the comparisons at present to the same three countries, we'd still be second to Japan in terms of GDP per capita."
Some additional uncommon wisdom:
"Countries in which it is easy to fire are also those in which it is easy to hire."
Also:
"To those who favor increasing tariffs, it must be remembered that such merely increases the motivation of the unscrupulous to increase smuggling."
Was asked by the Bangkok police to get off the walkway and walk instead on the polluted streets this morning. It appeared that their king would be driving by and the Thais don't like the idea of someone walking above the king's head. Everybody was therefore forbidden to use the walkways over the streets where the king would be passing. Interesting.
Anyway, after Suvarnabhumi Airport, the NAIA really is ... interesting. Well, let's see what happens with NAIA Terminal 3. After all this time it should be really good, considering its been aged to perfection already.
However, just found out that for some reason Thailand does not have Stolichnaya. They have Absolut, Smirnoff, and a host of other vodkas (Kristal, etc.) but no Stolich. Just another reason why I really like Manila.
Anyway, in Bangkok and thirsty for beer. Heineken? Singha? San Mig pale! Chilled to balance my Tabacalera Robusto. Even in another country, Buy Filipino.
1.12.06
7.10.06
Of trade treaties and multinationals
There are still a lot of interesting issues cropping up regarding the nature and process of trade treaties. One big issue is the difference between treaties and executive agreements, and on this issue hangs the question on whether the legislative branch of government would have a say on whether the Philippines should indeed enter into a new international commitment. In one article of mine, I wrote:
"The Supreme Court also held in Commissioner of Customs vs. Eastern Sea Trading that treaties (which will require Senate concurrence for validity) generally refer to basic political issues, changes in national policy and permanent international arrangements; while executive agreements (which do not require such concurrence) refer to adjustments of detail carrying out well-established national policies, and temporary arrangements."
One reason why these issues keep getting raised is the ongoing confusion on how international law is to be considered in relation to Philippine law (specifically as a basis for a cause of action and not really on the question of effectivity thereof). This is further compounded by the fact that we seem to make no distinction between treaty law and customary international law, and for which we apply in both instances the doctrine of incorporation (rulings of the Supreme Court have indicated this, mostly using as basis Article II, Section 2, of the Constitution).
Other jurisdictions, particularly the US and the UK, have made such distinctions and with regard to treaty law, the transformation doctrine is usually employed and thus their need for an enabling law. The US, it must be noted, also makes a distinction between treaties and executive agreements, and further make distinctions between self-executing and those which are not self-executing. To appreciate the complexity of the US process, it has formulated four methods by which treaties are said to apply within the domestic jurisdiction. Add to this the "TPA" mechanism between the president and Congress. Japan's practice apparently is to constitutionally consider international law as part of the law of the land, with some instances indicating that international law could even be considered of having a status higher than that of its own constitution. The Philippines, the US, the EC, and a host of other countries do not follow this practice and have consistently held, at least as far as within their own particular jurisdictions are concerned, that constitutional provisions apply over and above that of international law.
* * * * * * *
One interesting comment I got from a kind reader was with regard to the power of multinational corporations. This argument - which essentially says that multinational corporations have become more powerful than nation States, thus resulting in the diminishing of State sovereignty - has been raised a long time ago. And has been quickly debunked. I won't take up much space on this but the reasons why such is untrue lies in two words: "government" and "competition".
Note that multinational corporation's wealth, vast as it is, is still subject to territorial constraints in that whatever the business or asset or fund it would still have to land within the jurisdiction of a State. These assets don't just float around, after all, and thus would be subject to State regulation. [Interestingly, an article came out in today's issue of Business Mirror, discussing the issue of corporate nationality in the context of increasing globalization. See the 9 October 2006 issue, page C1, "The Rise of Corporate Nationality" - jemy] Boeing, GE, and Microsoft, no matter how big they are, still has to bow before anti-trust lawyers of the EC and the US. Big multinationals here in the Philippines, believe it or not, are powerless if the government suddenly decides to increase tariffs on an agri product or enters into a trade agreement involving industrial products. Those of you who are familiar with trade know what I'm talking about. Besides, ever wonder why large corporations are into environmental causes, labor development, etc? It's to protect their brand, their reputation. That gives you an indication how fragile corporate power is vis-a-vis that of governments. People (and their governments) can turn against them anytime. Witness what happened a few years back when a clothing/shoe company got charged with employing child labor in another country.
Besides, for those who are concerned with the power of multinationals, the solution is more freer trade and not less of it for the simple reason that they get to be subjected to competition. IBM vis-a-vis Microsoft, or GM vis-a-vis other auto companies are just a few examples. In a situation where freer trade is the norm, it is the consumers (with their power of choice), the people (with their empowerment), and their elected government that rules and not the vested interests of a few. That is not the case in our country, where protectionist policies essentially shield oligarchs and thus result to the detriment of consumers and the general Philippine public.
Contrary to the misconception of many, the Philippine economy is not that open. Liberalized trade does not mean only tariffs but rather a whole range of measures. The ironic thing about it all is that while our governments may mouth free trade slogans it doesn't necessarily mean they follow through. So essentially we still have a not so open economy but with the impression by many (because of the pronouncements) that we are. Hence, we suffer all the ill consequences of protectionist policies and trade liberalization gets the blame. What this country needs really is greater, consistent, and better managed trade liberalization.
Nobody is saying that multinationals are saints and if one is concerned with their power then one should be disconcerted about the possibility - should they so decide - of them tying up with the local oligarchy and exploiting our resources, with the rest of the population having little or no say in the matter. The solution, again, is more transparency and greater trade liberalization. Admittedly, markets could and can go wrong and, yet, supporters of freer trade know this and thus our ongoing and constant campaign for the enactment of competition policy laws in this country. In any event, for anybody who has worked in a corporation, one would know that size and power are all transitory, that such is still in the hands of the consumer and the nature of the competition. Microsoft, Nokia, Yahoo!, Samsung, and a host of others were just small operations until they hit it big. A lot of the giants at the time they were starting out are no longer around or not as big now as they were then (look at IBM, BT, or GM for example). Unfortunately, the benefits of competition and more equal opportunity for wealth access (which results in only a small number of people possessing a greater portion of the country's wealth) is sadly lacking in this country.
Nevertheless, for all the concern regarding multinationals, it must be remembered that they bring in much needed capital, income, and jobs to this country. They are some of the largest taxpayers here and do the country a great deal of good. They are also involved in a lot of governance projects, as well as in charitable works. The training, technology, and exposure that they are giving our citizenry is substantial and beneficial. Which is more than I can say for our oligarchic class.
For those who like numbers, there are a lot of formal published studies (which I noted elsewhere in this blog) that show that the wealth of corporations are not all that it's cracked up to be vis-a-vis the wealth and power of States and their governments.
24.8.06
The WTO
There seems to be some sort of trade fatigue going around these days, with people refraining from thinking or discussing anything that has to do with international trade. One reason perhaps is that the world economy, as is normally happens, things being cyclical, is cooling down. Another is that the Doha Round of negotiations just went off the rails.
However, there are some who continue to discuss issues relating to international trade. Unfortunately, quite a few of them are those who know next to nothing on the subject.
Some insist on ranting against the WTO. Why? Some people persist on the wrong notion that, because of the WTO, Philippine tariff rates went down. However, it must be remembered that the WTO rules were framed in such a way that countries (including the Philippines) have a great deal of leeway in formulating their domestic rules so as to ensure that they get the most out of WTO membership. If our tariff rates are low (which they aren't that low really) it's because of our unilateral (meaning self-imposed) commitments made at ASEAN. [Note that we have just recently agreed to an expanded free trade system with ASEAN, a sort of EU type common-market system, by 2015, thus speeding up the process by 5 years. This is upon the initiative of Indonesia] Our bound rate commitments in the WTO are quite high (e.g., sugar is at 80%), with some products having no bound rate commitments at all (e.g., cement, ceramics). The WTO never asked us to engage in free trade, never asked us to unilaterally lower our tariffs to the levels that we have now, and the WTO rules have enough safety provisions by which a country can use to protect itself in cases where trade harms it enough. People should really just take the time to read the rule book.
Some people have complained that, because of the WTO, a lot of our vegetable farmers lose their livelihood due to the flooding of Chinese or Taiwanese garlic, onions, etc. Again, this is nonsense. Such vegetables are coming in not because it was our commitment in the WTO but because some of our unscrupulous businessmen are engaged in the smuggling of such vegetables. Obviously, we never committed to allow smuggling and the WTO never asked us to allow smuggling. If those vegetables are getting in, don't blame the WTO but blame the businessmen engaged in smuggling, and our government officials tasked with regulating/stopping smuggling.
Which leads to another point, that whatever we are bound to do as WTO Members it is because we committed ourselves voluntarily. It was not dictated upon us. To anyone who complains about the "green room", it must be remembered that in the end, all 149 Members would have to agree (by consensus) to whatever new commitment is there. As we have consistently wrote, the WTO is not dictatorial, if ever, it is too democratic (sometimes) for its own good.
Then there is the complaint that the WTO is dominated by the rich countries and is merely a vehicle for such rich countries to further exploit the poorer countries. Again, this argument belies the lack of understanding on the system and its nature. Firstly, you have the consensus rule, by which all 149 Members have to agree on a measure. The reason why Doha is sputtering is because the rich countries were stopped by an effective grouping of poorer countries from ramming their demands upon the latter. If the WTO were not around, such a thing could not have happened (more on that later). Secondly, the argument conveniently forgets the fact that with the WTO you have the most (without exaggeration) effective and efficient international dispute settlement system around. Here you have a system where a country as poor as Brazil can beat a powerhouse like the US. Finally, there is simply no alternative to the system. People have consistently used the analogy of international trade as a boxing match between a heavyweight (i.e., the US) and a lightweight (i.e., the Philippines), thus emphasizing the mismatch. The point is, even without the WTO the fight goes on. How anybody can actually think that without the WTO trade and business stops is beyond me. Business goes on, trade goes on. Thus, the analogy of the boxing match is that the fight goes on, with the difference being that if you have the WTO the fight would have a set of rules, with a system that allows you to litigate if somebody cheats, and a forum for countries to band together against the rich big ones.
Which leads to the next point of some people (thankfully they are only a few) that it would be better to do away with the WTO and instead have the Philippines go with bilateral trade deals. The lack of a sense of reality and common sense in the proposal is incredibly overwhelming. In any event, I have written about this before and will not duplicate the points in this entry. Let me just say that if these people want Philippine companies subjected to a world of multiple - and highly complicated - rules that can be readily exploited by multinational companies (which has the resources to master the rules, analyze them, and take advantage of them quickly) and by which our already overworked government agencies would have to grapple with (thus in all probability leading to an increase in smuggling and technical smuggling) then whose side are these people on?
Then you have some people complaining about rich country illegal subsidies, non-tariff barriers, etc. As if the WTO created those things. In reality, those things were in existence even before the WTO came into being. In fact, the WTO was created, in part, to actually provide a mechanism in order to get rid of the subsidies and the NTBs.
Finally, and most illogically, is the joy of some people when the Doha Round got waylaid. Doha was an attempt to correct certain imperfections in the rules and system (and, having said that, there is no such perfect system). There were, supposedly, some rules that were slanted against developing countries and in favor of developed countries. Doha was supposed to correct that slant. Now think: with Doha comatose the status quo remains and the status quo being: the continued presence of some rules which are slanted against developing countries in favor of developed countries. What is there to be happy about that? Granted, no deal would perhaps have been better than a bad deal. However, the fact that we have been deprived a good deal should make us mad and sad, not happy.
The WTO is not perfect. Nothing is. But it is the best thing we have. It gives trade a set of rules, a dispute system second to none, and a forum for groupings of countries with similar interests. Some people criticize the WTO for not guaranteeing an even or level playing field. The problem with that is what is a "level playing field"? There is no such thing explicitly defined. Nor can it be even if people try. Admittedly, some of the reasons for the confusion regarding the WTO are that those who advocate for it get carried away by their own rhetoric. What is to be remembered is this: the WTO never promised the undefined level playing field, never imposed free trade, or aspired for free markets. Its goals are more humble and real: that "the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development". I suggest people take at least few minutes to read the Marrakesh Agreement. Why anybody would oppose those goals is beyond me.
Contrary to the thoughts of some, trade negotiators and trade experts are not naive people. They know that competition is harsh, they know that our trading partners are looking out for themselves first and foremost, and they know that markets fail. That is why we need the rules precisely because the competition can get really nasty. As for markets failing, the mere fact that competition policy is being discussed urgently at the WTO way way back is an acknowledgement that markets do fail and is sometimes in need of correction.
The naivety actually lies with the anti-WTO lot. Thus, you have some people criticize the WTO for not completely reigning in richer, more powerful countries and having everybody being completely equal. Right. That only happens in smurf land. Or, as Homer Simpson would say, in "Happy Land in a gumdrop house on Lollipop Lane". Even the UN makes a distinction, officially, between the powerful countries and the less powerful. That's why there is the Security Council permanent members. At least you don't have that distinction in the WTO. In the WTO, unlike in the UN, every member has veto power.
The problem with the anti-WTO activists is that they act as if they're infallible. Which they're far from being. Nobody is. They have to realize the incredible struggle that our trade negotiators and policy makers do to keep up, just keep up, with the bewildering details that international trade demands. If they really believe in what they preach, all fine and good, but they also have to accept that a clear majority of Filipinos are believers in trade and globalization. Who are they to say that they alone can be right and that the majority of Filipinos dumb enough or misled enough to be in the wrong? Besides, if they think that the economic direction of the country is wrong then let them run for office. Let them get accountability for their opinions and thoughts. The problem is, they won't get elected because of their hysterical approach to policy making, which requires a cooler mind and a restrained disciplined intellect. Filipinos are smart enough to recognize that. If they say they don't have the resources to win an election or at least have their voice heard, then welcome to the real world because the Philippines, in the international community, is faced with the same problems vis-a-vis the rich boys like the US and the EU.
One thing we have to remember about international trade is that it only ensures smoother transfer of goods from one country to another. It does not force people to buy imported goods. It does not force Filipinos to drink Coke (instead of Sarsi), wear Nike (instead of ... Boston), eat McDonald's (instead of Tonang's palabok), watch My Super Ex-Girlfriend (instead of I Wanna Be Happy), or use a Nokia cellphone (instead of using the ... public payphone). If our countrymen prefer such goods because either they're better, cheaper, or just because, who are these anti-trade activists to tell them otherwise? The solution is not to deprive people of choice but to make better Philippine goods. If the option is really there to get a good Philippine product, most Filipinos would certainly buy Filipino. But if that option is not there then people may not want to opt for some Philippine products not because they're not nationalistic but because they don't have the luxury of gambling their income on more expensive but uncertain products. Thus, it would be better if the anti-trade activists practice what they preach: stop using laptops, don't drive cars, don't eat foreign foods, don't read foreign books (might as well be consistent), don't wear foreign clothes and shoes. They shouldn't watch foreign movies. They should buy only local goods even if they're more expensive and not as good (thus, on the latter, reward the inefficient over the efficient). These anti-trade activists should do it because they're probably the ones with the income to spare, as most of the rest of our countrymen who are under poverty levels need all the cheap but good products they can buy with their meagre incomes.
I have read anti-WTO literature, specially those being relied on a lot by local anti-WTO activists. However, when you analyze what is being said in those literature (particularly the reasonable ones that bat for lessening of subsidies, more market access for poor countries, better balance for intellectual property particularly for medicines) they are not really against the WTO. And they are not really against trade. What it comes down to is that those literature, taking their natural and logical conclusion, are actually asking for an improved WTO and international trade system. That actually is what Doha is supposed to be about. Ironic. What is also ironic is that anti-WTO activists have a habit of resorting to trade liberalization and globalization to have access to all these imported or foreign anti-WTO literature. Then use their imported laptops or pc's to broadcast their thoughts to the rest of the world. Ironic. And funny. Funny because the anti-trade group seems so sure of themselves, their information, and their sources. However, it must be considered that for every Chomsky, Stiglitz, or Bello that the anti-trade people can quote, the rest of the world has Legrain, Bhagwati, or Habito (or Alburo). For every Confessions of an Economic Hitman (which I've read), there is also Why Globalization Works (or A World Without Walls). Obviously,therefore, there is a lot that can be learned from each side, particularly for so complicated a topic. I know that trade advocates take the criticisms of the system to heart and thus you would presently find a lot of serious analysis on what actual form international trade should take and if such can be or should be country specific. Thus, for the anti-trade advocates, a little open-mindedness and intellectual humility is perhaps needed to make the discussions on the subject more constructive.
In any event, if the anti-trade activists really believe that a protectionist approach (I refuse to call an approach that says the Filipino can't succeed in the global market place "nationalistic") is the best way forward, the WTO rules provide enough reasonable leeway for us to get away with it. However, if they want to completely close our borders and get out of the WTO then they should go bat for the idea. Remember, however, that if we do close our borders then do not think that the other countries will be happy to open their markets to us. If these anti-trade activists really believe that a lessening of our exports, higher prices for domestic consumers, lesser access to production materials are all better then go for it and work to have the Philippines get out of the WTO. We'd probably be the only country on earth to want to do so but who cares? China is a member. Iraq wants to be a member, so does Russia, Vietnam, Iran, Afghanistan, and Lebanon. Mahathir's Malaysia is a Member. Hugo Chavez's Venezuela is an original WTO Member. Chavez - the hero of the anti-trade lot - may mouth anti-trade slogans but he sure does not reject the benefits of oil trade and other such trade to keep his people happy and him continuing in power. In fact, Chavez, just today, unveiled plans to trade/export oil to China. But then who cares? Our local anti-WTO activists, so sure are they that international trade doesn't work (perhaps relying on analysis from some foreign anti-trade economists) have come across something that the rest of the world doesn't know. I am sure they have already provided for the possibility of us, by our lonesome, making all the televisions, cars, shoes, computers and laptops, milk, rice, meats (cannned or fresh), all the cement we need, all the steel we need, all the fishing equipment we need. I am sure they already have provided for all the technnology we'd ever need to manufacture all the stuff mentioned and more. They have come to the conclusion that all the medicine we need we can make by ourselves from scratch - from scratch as we can't use patented products that either have to be imported or need a foreign trade component (incidentally, the WTO was in the process of loosening up patent rules). I'm sure the anti-WTO activists have already assumed into their calculations the huge amount of cheap labor that would be available due to the returning OFW's, etc. who would now have to return home either because of retaliation by our former trading partners or simply because we don't have the WTO rules on services to protect them anymore. Finally, I'm sure they've also found a way to pay the equivalent income to those people who'd lose their jobs if the multinational companies up and leave and decide to take their business to "nationalistic" countries like Vietnam, Malaysia, Indonesia, or China.
Enough, therefore, of the name calling. Of calling our hardworking and patriotic trade negotiators or policy makers as traitors. If they are traitors, then what do you call domestic industry CEO's who fail to upgrade their facilities, fail to improve production methods, fail to give proper training to their staff, fail to foresee market trends, fail to protect the employment of the people working for them, and - after all is said and done - buy themselves mercedes benz's or family vacations to Hong Kong? The point is, international trade is an inherently difficult and complicated subject, for which name calling, hysterics, and sloppy thinking will be absolutely of no help.
What is needed here is constructive dialogue and - more importantly - disciplined informed thinking between the various sectors of our society. Thus, read the anti-WTO lit if one must but such should be read more carefully. Then, don't be one-sided or narrow minded, read WTO lit as well. Also important, read the WTO texts in the original. Take the effort. We're all in this together, rise or fall: government, business, academe, religious, etc. The headlines may scream "impeachment" and politics as usual but the rest of the world goes on. Trade goes on [in fact, at present, global trade growth is going much faster than global GDP; this information should be read alongside the fact that the Philippines still has a trade deficit, with only the electronics sector exports doing particularly well]. So should we keep on going - all of us together - as well for our country.
However, there are some who continue to discuss issues relating to international trade. Unfortunately, quite a few of them are those who know next to nothing on the subject.
Some insist on ranting against the WTO. Why? Some people persist on the wrong notion that, because of the WTO, Philippine tariff rates went down. However, it must be remembered that the WTO rules were framed in such a way that countries (including the Philippines) have a great deal of leeway in formulating their domestic rules so as to ensure that they get the most out of WTO membership. If our tariff rates are low (which they aren't that low really) it's because of our unilateral (meaning self-imposed) commitments made at ASEAN. [Note that we have just recently agreed to an expanded free trade system with ASEAN, a sort of EU type common-market system, by 2015, thus speeding up the process by 5 years. This is upon the initiative of Indonesia] Our bound rate commitments in the WTO are quite high (e.g., sugar is at 80%), with some products having no bound rate commitments at all (e.g., cement, ceramics). The WTO never asked us to engage in free trade, never asked us to unilaterally lower our tariffs to the levels that we have now, and the WTO rules have enough safety provisions by which a country can use to protect itself in cases where trade harms it enough. People should really just take the time to read the rule book.
Some people have complained that, because of the WTO, a lot of our vegetable farmers lose their livelihood due to the flooding of Chinese or Taiwanese garlic, onions, etc. Again, this is nonsense. Such vegetables are coming in not because it was our commitment in the WTO but because some of our unscrupulous businessmen are engaged in the smuggling of such vegetables. Obviously, we never committed to allow smuggling and the WTO never asked us to allow smuggling. If those vegetables are getting in, don't blame the WTO but blame the businessmen engaged in smuggling, and our government officials tasked with regulating/stopping smuggling.
Which leads to another point, that whatever we are bound to do as WTO Members it is because we committed ourselves voluntarily. It was not dictated upon us. To anyone who complains about the "green room", it must be remembered that in the end, all 149 Members would have to agree (by consensus) to whatever new commitment is there. As we have consistently wrote, the WTO is not dictatorial, if ever, it is too democratic (sometimes) for its own good.
Then there is the complaint that the WTO is dominated by the rich countries and is merely a vehicle for such rich countries to further exploit the poorer countries. Again, this argument belies the lack of understanding on the system and its nature. Firstly, you have the consensus rule, by which all 149 Members have to agree on a measure. The reason why Doha is sputtering is because the rich countries were stopped by an effective grouping of poorer countries from ramming their demands upon the latter. If the WTO were not around, such a thing could not have happened (more on that later). Secondly, the argument conveniently forgets the fact that with the WTO you have the most (without exaggeration) effective and efficient international dispute settlement system around. Here you have a system where a country as poor as Brazil can beat a powerhouse like the US. Finally, there is simply no alternative to the system. People have consistently used the analogy of international trade as a boxing match between a heavyweight (i.e., the US) and a lightweight (i.e., the Philippines), thus emphasizing the mismatch. The point is, even without the WTO the fight goes on. How anybody can actually think that without the WTO trade and business stops is beyond me. Business goes on, trade goes on. Thus, the analogy of the boxing match is that the fight goes on, with the difference being that if you have the WTO the fight would have a set of rules, with a system that allows you to litigate if somebody cheats, and a forum for countries to band together against the rich big ones.
Which leads to the next point of some people (thankfully they are only a few) that it would be better to do away with the WTO and instead have the Philippines go with bilateral trade deals. The lack of a sense of reality and common sense in the proposal is incredibly overwhelming. In any event, I have written about this before and will not duplicate the points in this entry. Let me just say that if these people want Philippine companies subjected to a world of multiple - and highly complicated - rules that can be readily exploited by multinational companies (which has the resources to master the rules, analyze them, and take advantage of them quickly) and by which our already overworked government agencies would have to grapple with (thus in all probability leading to an increase in smuggling and technical smuggling) then whose side are these people on?
Then you have some people complaining about rich country illegal subsidies, non-tariff barriers, etc. As if the WTO created those things. In reality, those things were in existence even before the WTO came into being. In fact, the WTO was created, in part, to actually provide a mechanism in order to get rid of the subsidies and the NTBs.
Finally, and most illogically, is the joy of some people when the Doha Round got waylaid. Doha was an attempt to correct certain imperfections in the rules and system (and, having said that, there is no such perfect system). There were, supposedly, some rules that were slanted against developing countries and in favor of developed countries. Doha was supposed to correct that slant. Now think: with Doha comatose the status quo remains and the status quo being: the continued presence of some rules which are slanted against developing countries in favor of developed countries. What is there to be happy about that? Granted, no deal would perhaps have been better than a bad deal. However, the fact that we have been deprived a good deal should make us mad and sad, not happy.
The WTO is not perfect. Nothing is. But it is the best thing we have. It gives trade a set of rules, a dispute system second to none, and a forum for groupings of countries with similar interests. Some people criticize the WTO for not guaranteeing an even or level playing field. The problem with that is what is a "level playing field"? There is no such thing explicitly defined. Nor can it be even if people try. Admittedly, some of the reasons for the confusion regarding the WTO are that those who advocate for it get carried away by their own rhetoric. What is to be remembered is this: the WTO never promised the undefined level playing field, never imposed free trade, or aspired for free markets. Its goals are more humble and real: that "the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development". I suggest people take at least few minutes to read the Marrakesh Agreement. Why anybody would oppose those goals is beyond me.
Contrary to the thoughts of some, trade negotiators and trade experts are not naive people. They know that competition is harsh, they know that our trading partners are looking out for themselves first and foremost, and they know that markets fail. That is why we need the rules precisely because the competition can get really nasty. As for markets failing, the mere fact that competition policy is being discussed urgently at the WTO way way back is an acknowledgement that markets do fail and is sometimes in need of correction.
The naivety actually lies with the anti-WTO lot. Thus, you have some people criticize the WTO for not completely reigning in richer, more powerful countries and having everybody being completely equal. Right. That only happens in smurf land. Or, as Homer Simpson would say, in "Happy Land in a gumdrop house on Lollipop Lane". Even the UN makes a distinction, officially, between the powerful countries and the less powerful. That's why there is the Security Council permanent members. At least you don't have that distinction in the WTO. In the WTO, unlike in the UN, every member has veto power.
The problem with the anti-WTO activists is that they act as if they're infallible. Which they're far from being. Nobody is. They have to realize the incredible struggle that our trade negotiators and policy makers do to keep up, just keep up, with the bewildering details that international trade demands. If they really believe in what they preach, all fine and good, but they also have to accept that a clear majority of Filipinos are believers in trade and globalization. Who are they to say that they alone can be right and that the majority of Filipinos dumb enough or misled enough to be in the wrong? Besides, if they think that the economic direction of the country is wrong then let them run for office. Let them get accountability for their opinions and thoughts. The problem is, they won't get elected because of their hysterical approach to policy making, which requires a cooler mind and a restrained disciplined intellect. Filipinos are smart enough to recognize that. If they say they don't have the resources to win an election or at least have their voice heard, then welcome to the real world because the Philippines, in the international community, is faced with the same problems vis-a-vis the rich boys like the US and the EU.
One thing we have to remember about international trade is that it only ensures smoother transfer of goods from one country to another. It does not force people to buy imported goods. It does not force Filipinos to drink Coke (instead of Sarsi), wear Nike (instead of ... Boston), eat McDonald's (instead of Tonang's palabok), watch My Super Ex-Girlfriend (instead of I Wanna Be Happy), or use a Nokia cellphone (instead of using the ... public payphone). If our countrymen prefer such goods because either they're better, cheaper, or just because, who are these anti-trade activists to tell them otherwise? The solution is not to deprive people of choice but to make better Philippine goods. If the option is really there to get a good Philippine product, most Filipinos would certainly buy Filipino. But if that option is not there then people may not want to opt for some Philippine products not because they're not nationalistic but because they don't have the luxury of gambling their income on more expensive but uncertain products. Thus, it would be better if the anti-trade activists practice what they preach: stop using laptops, don't drive cars, don't eat foreign foods, don't read foreign books (might as well be consistent), don't wear foreign clothes and shoes. They shouldn't watch foreign movies. They should buy only local goods even if they're more expensive and not as good (thus, on the latter, reward the inefficient over the efficient). These anti-trade activists should do it because they're probably the ones with the income to spare, as most of the rest of our countrymen who are under poverty levels need all the cheap but good products they can buy with their meagre incomes.
I have read anti-WTO literature, specially those being relied on a lot by local anti-WTO activists. However, when you analyze what is being said in those literature (particularly the reasonable ones that bat for lessening of subsidies, more market access for poor countries, better balance for intellectual property particularly for medicines) they are not really against the WTO. And they are not really against trade. What it comes down to is that those literature, taking their natural and logical conclusion, are actually asking for an improved WTO and international trade system. That actually is what Doha is supposed to be about. Ironic. What is also ironic is that anti-WTO activists have a habit of resorting to trade liberalization and globalization to have access to all these imported or foreign anti-WTO literature. Then use their imported laptops or pc's to broadcast their thoughts to the rest of the world. Ironic. And funny. Funny because the anti-trade group seems so sure of themselves, their information, and their sources. However, it must be considered that for every Chomsky, Stiglitz, or Bello that the anti-trade people can quote, the rest of the world has Legrain, Bhagwati, or Habito (or Alburo). For every Confessions of an Economic Hitman (which I've read), there is also Why Globalization Works (or A World Without Walls). Obviously,therefore, there is a lot that can be learned from each side, particularly for so complicated a topic. I know that trade advocates take the criticisms of the system to heart and thus you would presently find a lot of serious analysis on what actual form international trade should take and if such can be or should be country specific. Thus, for the anti-trade advocates, a little open-mindedness and intellectual humility is perhaps needed to make the discussions on the subject more constructive.
In any event, if the anti-trade activists really believe that a protectionist approach (I refuse to call an approach that says the Filipino can't succeed in the global market place "nationalistic") is the best way forward, the WTO rules provide enough reasonable leeway for us to get away with it. However, if they want to completely close our borders and get out of the WTO then they should go bat for the idea. Remember, however, that if we do close our borders then do not think that the other countries will be happy to open their markets to us. If these anti-trade activists really believe that a lessening of our exports, higher prices for domestic consumers, lesser access to production materials are all better then go for it and work to have the Philippines get out of the WTO. We'd probably be the only country on earth to want to do so but who cares? China is a member. Iraq wants to be a member, so does Russia, Vietnam, Iran, Afghanistan, and Lebanon. Mahathir's Malaysia is a Member. Hugo Chavez's Venezuela is an original WTO Member. Chavez - the hero of the anti-trade lot - may mouth anti-trade slogans but he sure does not reject the benefits of oil trade and other such trade to keep his people happy and him continuing in power. In fact, Chavez, just today, unveiled plans to trade/export oil to China. But then who cares? Our local anti-WTO activists, so sure are they that international trade doesn't work (perhaps relying on analysis from some foreign anti-trade economists) have come across something that the rest of the world doesn't know. I am sure they have already provided for the possibility of us, by our lonesome, making all the televisions, cars, shoes, computers and laptops, milk, rice, meats (cannned or fresh), all the cement we need, all the steel we need, all the fishing equipment we need. I am sure they already have provided for all the technnology we'd ever need to manufacture all the stuff mentioned and more. They have come to the conclusion that all the medicine we need we can make by ourselves from scratch - from scratch as we can't use patented products that either have to be imported or need a foreign trade component (incidentally, the WTO was in the process of loosening up patent rules). I'm sure the anti-WTO activists have already assumed into their calculations the huge amount of cheap labor that would be available due to the returning OFW's, etc. who would now have to return home either because of retaliation by our former trading partners or simply because we don't have the WTO rules on services to protect them anymore. Finally, I'm sure they've also found a way to pay the equivalent income to those people who'd lose their jobs if the multinational companies up and leave and decide to take their business to "nationalistic" countries like Vietnam, Malaysia, Indonesia, or China.
Enough, therefore, of the name calling. Of calling our hardworking and patriotic trade negotiators or policy makers as traitors. If they are traitors, then what do you call domestic industry CEO's who fail to upgrade their facilities, fail to improve production methods, fail to give proper training to their staff, fail to foresee market trends, fail to protect the employment of the people working for them, and - after all is said and done - buy themselves mercedes benz's or family vacations to Hong Kong? The point is, international trade is an inherently difficult and complicated subject, for which name calling, hysterics, and sloppy thinking will be absolutely of no help.
What is needed here is constructive dialogue and - more importantly - disciplined informed thinking between the various sectors of our society. Thus, read the anti-WTO lit if one must but such should be read more carefully. Then, don't be one-sided or narrow minded, read WTO lit as well. Also important, read the WTO texts in the original. Take the effort. We're all in this together, rise or fall: government, business, academe, religious, etc. The headlines may scream "impeachment" and politics as usual but the rest of the world goes on. Trade goes on [in fact, at present, global trade growth is going much faster than global GDP; this information should be read alongside the fact that the Philippines still has a trade deficit, with only the electronics sector exports doing particularly well]. So should we keep on going - all of us together - as well for our country.
30.5.06
Congressional briefing on the multilateral trading system
Greetings - -
The overriding characteristic prevailing in today’s multilateral trading system is that of uncertainty. There is a sense, even with trade liberalization’s ardent supporters, of uncertainty, even doubt, in relation to past beliefs about trade and its future.
An uncertain world
Thus, there is the interesting shift among trade experts and commentators from an absolute belief in trade to a more cautious and conditional stance. Today, free traders are now more apt to say that trade liberalization is good but is not enough. The Economist, an ardent supporter of free trade, recently declared that “weak infrastructure and underdeveloped credit markets can make economic restructuring difficult. These problems underline why trade liberalisation is no substitute for either more domestic reform or foreign aid. They also suggest that some of the poorest countries need more time to open their markets than others”, and admitting that the successful east Asian economies “adopted liberal trade partially, selectively and mostly gradually”. Peter Mandelson, EC Trade Commissioner, when he recently visited the Philippines, warned against thinking of free trade as a “magic wand” and goes on to say that “it does not automatically lead to greater economic growth. For this countries need high standards of governance and to invest effectively in their productive capacity and human resources in order to benefit from trade, and to deliver a better life for people.” The Wall Street Journal, in fact, recently even questioned the effect of free trade on US inflation. Which brings to mind the question that is, if a country as sophisticated and as developed as the US has an infrastructure still not good enough for trade liberalization to substantively affect its inflation rate, then what county is?
Then there is the question of bilateral trade deals. In 2003, immediately after the collapse that is Cancun, I was the first to publicly caution against the country immediately plunging into bilateral deals. In the days following the collapse of the WTO’s Fourth Ministerial, there had been a lot of pronouncements from the US and the EC that they shall aggressively follow the bilateral trade route with, in the words of Robert Zoellick, then US Trade Representative, the “can do” countries. This was followed by international essays and publications agreeable to the idea. The interesting thing about it is that if you read the local newspapers at that time, a number of our business leaders, policymakers, and academics supported the idea. I didn’t. And I still don’t.
However, now, it should be noted that even the government’s own research arm, the Philippine Institute for Development Studies, is wary as far as FTA’s are concerned. The 2006 PIDS study, entitled The Boom in FTAs: Let Prudence Reign and written by Dr. Josef Yap, President of the PIDS, goes to even express doubt as to the benefits that could be derived from FTAs. Dr. Yap instead suggests, of which I agree with and is actually the very point of my remarks today, that instead of rushing into FTAs, the government should be channeling resources to agricultural productivity, improving governance, and strenghtening institutions. In fact, the World Bank itself expressed suspicion against FTAs, highlighting the risks that poor countries face when they enter into such.
This is to not to say that the principle of trade liberalization is wrong. I am a believer in the power for good that trade liberalization can bring. However, the previous belief in an unconditionally effective and positive free trade is obviously being questioned, perhaps with good reason.
However, even assuming that there is no question regarding the form and benefits of free trade, there is the problem of the major country players not practicing what they preach. Thus, you see the spectacle of immigration issues sweeping the United States and France, of French politicians being disconcerted when Mittal (an Indian company) announced its intention to buy Arcelor (a French steel company), of the US Congress getting worried that its port operations have been bidded out to foreigners, of South Koreans refusing to open up its rice trade, and the US, Japan, and the EC sticking with their farm subsidies to the detriment of poor country farmers. Even the simple matter of a local football club in England being bought by a foreigner caused national outrage.
Note also that the progress of the Doha Round is being made to depend on the demands of local politics of the major players. The US has mid-term elections later this year and then the 2008 presidential elections. In between is the expiration of President Bush’s Trade Promotion Authority in 2007, of which there is doubt as to whether political capital shall be expended for its renewal. President Bush’s re-assignment of Rob Portman, erstwhile USTR, to the OBM has been taken as a sign by some observers that the priority right now of the US is its domestic policy concerns. France shall be going to its presidential elections next year, of which its two main contenders, Nicolas Sarkozy and Dominique de Villepin, have taken extra pains to show their nationalist credentials. In fact, both are staunch supporters of the CAP. The UK is grappling with domestic issues, such as education, while at the same time having discussions focused on whether Prime Minister Tony Blair is to step down this year or next. Recently elected German Chancellor Angela Merkel is still in her early days of national leadership.
The foregoing has made me think, in fact, of three things: one is that, while all economics may be international (as John Jackson would say), all politics is still local (as former US House Speaker Tip O’Neal would say), second is that, contrary to the belief of some free traders and multilateralists, nationalism and the concept of sovereignty are not dead and is far from it, and, third, the multilateral trading system is tagged with so many uncertainties that the need for further information is constant and highly paramount. It is this third matter that I shall discuss further.
Dealing with uncertainty
The question now, therefore, is: how do we deal with trade’s uncertainties? Before we go into that, it may be well worth recalling an editorial that the New York Times once made just a couple of years back:
“Put simply, the Philippines got taken. A charter member of the World Trade Organization in 1995, the former American colony dutifully embraced globalization's free-market gospel over the last decade, opening its economy to foreign trade and investment. Despite widespread worries about their ability to compete, Filipinos bought the theory that their farmers' lack of good transportation and high technology would be balanced out by their cheap labor. The government predicted that access to world markets would create a net gain of a half-million farming jobs a year, and improve the country's trade balance. It didn't happen.” (The Rigged Trade Game, 20 July 2003).
Interestingly, as well, it must be considered that, despite the openness of our economy, it has been observed that the contribution of value-added by Philippine manufacturers in its exports has declined in the past few years. Then there is the fact that Thailand and Malaysia have outpaced us when they did not unilaterally open up as quickly as we did. Economists are now even concerned about Vietnam overtaking us economically if the present rates of development continues.
Accordingly, there are several issues confronting the Philippines and all of them can be rooted to the problem of uncertainty. This uncertainty, I believe, comes in three forms: first is with regard to the overall direction of the multilateral talks, second is with regard to the benefits, if any, that we stand to gain from further liberalization and, third, how such benefits can be attained. The answer, I believe, to those uncertainties, is not a further opening up of the economy or a closing of it but something a little more basic and that is the improvement of the structure by which trade issues and policies are processed and addressed.
Dealing with the third question first, the same deals not only in ensuring that at the national level the benefits, if any, of trade liberalization is had but also that the benefits are not concentrated to a particular group and is, instead, felt by a great number of our countrymen. As far as this is concerned, there is really no choice and such can reasonably be achieved by improving the country’s governance, public transparency, business infrastructure (including credit access, stability of contracts, infrastructure development, transportation, energy, and a responsible workforce), other domestic reforms (such as lessening of corruption, better education, improvement of the peace and order situation, and judicial reliability), an effective competition policy, and, finally, a review of some of our trade related legislation.
With regard to competition policy, it must be stated at the outset that if ever there is an argument against an unfettered market it is competition policy. For competition policy is actually an admission that the market could go wrong and does on occasion go wrong. Competition policy, in its simplest form, primarily deals with the state of competition internally, that is, with regard to the state of competition within a country’s borders and seeks to rid it of harmful monopolies, cartels, and other anti-competitive practices.
With regard to some of our trade related legislation, we suggest a re-examination of RA 8752 (the anti-dumping law), RA 8800 (the safeguards law), Section 304 of the TCCP, Sections 401/402 of the TCCP, and RA 9135 (the customs valuation law).
Moving on now to the first and second uncertainties, I believe that the same can and should be addressed by improving the country’s monitoring, consultative, and policy formulation process - making it more effective and responsive to the needs and interests of domestic businesses, as well as to the peculiar demands of trade negotiations. These are my recommendations:
Consultative mechanism
Private sector participation in the formulation of positions and the conduct of negotiations still appears to be limited. To address the need for increased participation, hearings and proceedings would have to be institutionalized so as to lead to greater transparency and accountability in the conduct of trade negotiations. Among such would be the conduct of periodic and regular hearings in Congress to determine the state of our trade activities. This would have to involve greater private sector consultation and, as much as possible, participation during negotiations, as is practiced by many other countries. This is only fair considering that it is the very interests of the private sector that is at stake.
Congressional review of trade agreements
In connection with the point above is the refinement of our rules to remove any ambiguity as to the need for our elected representatives to have a say in our entry into any trade agreement. This is especially with regard to the ongoing confusion regarding the classification of trade agreements into “treaties (which need Senate concurrence) and “executive agreements” (which do not).
A reading of present laws and jurisprudence relating to the matter apparently indicate that trade agreements are generally classified as “executive agreements”, to the detriment of our policy making process. Considering the incredible impact that trade agreements have on the lives of ordinary Filipinos, such agreements should be made under conditions of full and public scrutiny and debate.
Thus, it is suggested that new rules be issued clarifying this matter so that any substantive trade agreement (and most trade agreements are substantive) will have to be submitted to the Senate for its concurrence or at least to a Congressional review. A process clearly needs to be established whereby trade agreements being entered into are reviewed and discussed publicly. If such review is not practically possible during the negotiations stage so as not to undermine the strategies being employed, then an oversight committee (perhaps by Congress) should be established, with powers to conduct public hearings on the propriety (or not) of such agreements on a regular or periodic basis. It is necessary that a government official or officials be clearly designated as responsible or accountable for such trade agreements. The purpose, of course, is not to lay blame but to ensure a system of accountability that will result in the imposition of restraint, intellectual rigidity, and openness when dealing in such matters.
Caution on FTAs
In the meantime, it may perhaps be prudent to suggest restraint with regard to Philippine intentions or activities pertaining to regional trade agreements or free trade agreements. While not commenting on the direction of any of the present FTA negotiations and focusing instead on the concept of FTA’s itself, it must be stated that for all their supposed benefits, they are simply tricky propositions. The very existence and potential number of the same provides an increasingly complex international trading system. Aside from what I have commented just a while back with regard to my thoughts on FTAs, I’d like to point out that FTAs come with its own set of practical and at the same time highly technical problems. Most significant among these would be that pertaining to the rules of origin, the overlapping jurisdictions by the different dispute settlement systems in place between the multilateral trading system and the different FTAs, and the non-tariff subjects (such as customs procedures, sanitary and phytosanitary measures, technical barriers to trade, and - perhaps - the issue of smuggling).
This is not to say that FTAs are destructive. Benefits certainly there may be and there is no dearth of economists who would point to such expected benefits. The point simply is that with regard to formulating a policy or view with regard to FTA’s, there is always the need for greater information regarding the environment that surrounds it. For the moment, a certain degree of caution would perhaps be justifiable under the circumstances when even exploring the idea of possible bilateral or regional trading arrangements precisely because there are no categorical indications regarding the direction, benefits, and risks that are concomitant with FTAs.
Establishment of formal written trade policy
Another suggestion is for the government to lay down publicly, in writing, a detailed draft of what our trade policy actually is. The USTR, for instance, regularly publishes a white paper containing its trade policy objectives for all to comment - thereby allowing the USTR to refine its approach and make it more responsive to US national interest. Adopting a similar practice in the Philippines would not only better inform the public as to where the government intends to take us in terms of trade but would also give the most affected stakeholders (which is us, the private citizens) the opportunity to speak out on the wisdom of such policy.
RPTR
Finally, trade negotiations of today are highly different from the trade negotiations of the past. Ten years ago, our prime trade activities circled around two or three countries. Now our partners are becoming more varied and, incidentally, Asian-centric. The inter-relatedness of the matters under trade discussions is greater. Just last week, USTR nominee Susan Schwab was asked regarding China’s financial services liberalization record, as well as on currency movements and how the latter affects the US trade deficit. There is, obviously, a need for greater coordination between the different government agencies that deal in trade and affect trade. Also, most interestingly for me, considering that it is a well accepted fact that today’s multilateral trading system has definitely moved away from the previous negotiation’s based system to the present rules based system, there seems to be a dearth of lawyers working within government that focus on trade. The multidisciplinary approach to our trade activities needs to be recognized and developed.
Thus, the creation of the Office of the Philippine Trade Representative (RPTR) is recommended. This should not necessarily be a huge bureaucratic creation, at least at the outset. When the USTR was created in 1962, its legal counsel’s office was composed only of two men . Incidentally, when the Office of the US Trade Representative (USTR) was created, the reasoning of the US Congress that created it was that trade policy should not be entrusted to the State Department (which it is said looked out for the interests of foreigners or broad foreign policy goals) or the Commerce Department (which always looked out for narrow domestic political interests) but rather to an office that would take the objective position and have trade as its only mission.
For the RPTR, it is ideal that the same be peopled with professionals of diverse backgrounds: diplomacy, law, economics, finance, etc. It has to be the primary source of information on matters dealing with international trade and, at least with regard to issues arising principally from trade negotiations, be responsible directly to the President.
The office must be given the responsibility of organizing an inter-agency committee that will effect closer coordination among the different affected or involved agencies of government. There should also be a mechanism set up that will result in the constant and consistent consultation with the Philippine Congress. There should also be a process formulated that will provide Congress the avenue with which to exercise “oversight” functions over the office of the trade negotiator (i.e., annual briefings, etc.)
Finally, the office of the trade representative should be handed the responsibility - through a formalized process - of consulting directly and constantly with the members of the private sector.
In conclusion - -
In my remarks during the U/ACT workshop on trade, I made mention of the fact that when the Uruguay Round of negotiations were contemplating the need for an international trade organization to oversee the various trade agreements being then considered, a negotiation was specifically set aside to discuss the "functioning of the GATT system" and was given the acronym "FOGS". Out of this the WTO was created. Interestingly, more than ten years later, what was deliberated under FOGS is still under a fog.
There is simply a need for greater and further understanding of how the multilateral trading system works and affects countries, including, obviously, our own. Indeed, a simple fact that is sometimes overlooked when discussions come around regarding the WTO is that a reading of the WTO Agreements reveals that not once in its 492 pages - starting with the Marrakesh Agreement creating the WTO up to the Ad Articles of the GATT - do the words “free trade” appear.
I am definitely not calling for us to be isolationists or protectionists. Nevertheless, if anything, if experience and history could be taken as a guide, there is nothing absolutely certain about trade and no one size fits all formula that we could or should want to duplicate en toto. Put simply, what we need is to find the right trade “mix” that is necessarily unique but appropriate for the Philippines.
Trade is merely a means to an end. It is an utterly complex matter and for which the Philippines need a strong and deliberate foundation from which to move out and confidently engage our trading partners.
Thus, for the present, rather than burdening ourselves with further international obligations or seeking to do so, it is suggested instead that that we prioritize reorganizing and making our house in order: improving governance, refining our laws and processes, and strengthening our institutions.
Thank you. I think I shall stop here.
The overriding characteristic prevailing in today’s multilateral trading system is that of uncertainty. There is a sense, even with trade liberalization’s ardent supporters, of uncertainty, even doubt, in relation to past beliefs about trade and its future.
An uncertain world
Thus, there is the interesting shift among trade experts and commentators from an absolute belief in trade to a more cautious and conditional stance. Today, free traders are now more apt to say that trade liberalization is good but is not enough. The Economist, an ardent supporter of free trade, recently declared that “weak infrastructure and underdeveloped credit markets can make economic restructuring difficult. These problems underline why trade liberalisation is no substitute for either more domestic reform or foreign aid. They also suggest that some of the poorest countries need more time to open their markets than others”, and admitting that the successful east Asian economies “adopted liberal trade partially, selectively and mostly gradually”. Peter Mandelson, EC Trade Commissioner, when he recently visited the Philippines, warned against thinking of free trade as a “magic wand” and goes on to say that “it does not automatically lead to greater economic growth. For this countries need high standards of governance and to invest effectively in their productive capacity and human resources in order to benefit from trade, and to deliver a better life for people.” The Wall Street Journal, in fact, recently even questioned the effect of free trade on US inflation. Which brings to mind the question that is, if a country as sophisticated and as developed as the US has an infrastructure still not good enough for trade liberalization to substantively affect its inflation rate, then what county is?
Then there is the question of bilateral trade deals. In 2003, immediately after the collapse that is Cancun, I was the first to publicly caution against the country immediately plunging into bilateral deals. In the days following the collapse of the WTO’s Fourth Ministerial, there had been a lot of pronouncements from the US and the EC that they shall aggressively follow the bilateral trade route with, in the words of Robert Zoellick, then US Trade Representative, the “can do” countries. This was followed by international essays and publications agreeable to the idea. The interesting thing about it is that if you read the local newspapers at that time, a number of our business leaders, policymakers, and academics supported the idea. I didn’t. And I still don’t.
However, now, it should be noted that even the government’s own research arm, the Philippine Institute for Development Studies, is wary as far as FTA’s are concerned. The 2006 PIDS study, entitled The Boom in FTAs: Let Prudence Reign and written by Dr. Josef Yap, President of the PIDS, goes to even express doubt as to the benefits that could be derived from FTAs. Dr. Yap instead suggests, of which I agree with and is actually the very point of my remarks today, that instead of rushing into FTAs, the government should be channeling resources to agricultural productivity, improving governance, and strenghtening institutions. In fact, the World Bank itself expressed suspicion against FTAs, highlighting the risks that poor countries face when they enter into such.
This is to not to say that the principle of trade liberalization is wrong. I am a believer in the power for good that trade liberalization can bring. However, the previous belief in an unconditionally effective and positive free trade is obviously being questioned, perhaps with good reason.
However, even assuming that there is no question regarding the form and benefits of free trade, there is the problem of the major country players not practicing what they preach. Thus, you see the spectacle of immigration issues sweeping the United States and France, of French politicians being disconcerted when Mittal (an Indian company) announced its intention to buy Arcelor (a French steel company), of the US Congress getting worried that its port operations have been bidded out to foreigners, of South Koreans refusing to open up its rice trade, and the US, Japan, and the EC sticking with their farm subsidies to the detriment of poor country farmers. Even the simple matter of a local football club in England being bought by a foreigner caused national outrage.
Note also that the progress of the Doha Round is being made to depend on the demands of local politics of the major players. The US has mid-term elections later this year and then the 2008 presidential elections. In between is the expiration of President Bush’s Trade Promotion Authority in 2007, of which there is doubt as to whether political capital shall be expended for its renewal. President Bush’s re-assignment of Rob Portman, erstwhile USTR, to the OBM has been taken as a sign by some observers that the priority right now of the US is its domestic policy concerns. France shall be going to its presidential elections next year, of which its two main contenders, Nicolas Sarkozy and Dominique de Villepin, have taken extra pains to show their nationalist credentials. In fact, both are staunch supporters of the CAP. The UK is grappling with domestic issues, such as education, while at the same time having discussions focused on whether Prime Minister Tony Blair is to step down this year or next. Recently elected German Chancellor Angela Merkel is still in her early days of national leadership.
The foregoing has made me think, in fact, of three things: one is that, while all economics may be international (as John Jackson would say), all politics is still local (as former US House Speaker Tip O’Neal would say), second is that, contrary to the belief of some free traders and multilateralists, nationalism and the concept of sovereignty are not dead and is far from it, and, third, the multilateral trading system is tagged with so many uncertainties that the need for further information is constant and highly paramount. It is this third matter that I shall discuss further.
Dealing with uncertainty
The question now, therefore, is: how do we deal with trade’s uncertainties? Before we go into that, it may be well worth recalling an editorial that the New York Times once made just a couple of years back:
“Put simply, the Philippines got taken. A charter member of the World Trade Organization in 1995, the former American colony dutifully embraced globalization's free-market gospel over the last decade, opening its economy to foreign trade and investment. Despite widespread worries about their ability to compete, Filipinos bought the theory that their farmers' lack of good transportation and high technology would be balanced out by their cheap labor. The government predicted that access to world markets would create a net gain of a half-million farming jobs a year, and improve the country's trade balance. It didn't happen.” (The Rigged Trade Game, 20 July 2003).
Interestingly, as well, it must be considered that, despite the openness of our economy, it has been observed that the contribution of value-added by Philippine manufacturers in its exports has declined in the past few years. Then there is the fact that Thailand and Malaysia have outpaced us when they did not unilaterally open up as quickly as we did. Economists are now even concerned about Vietnam overtaking us economically if the present rates of development continues.
Accordingly, there are several issues confronting the Philippines and all of them can be rooted to the problem of uncertainty. This uncertainty, I believe, comes in three forms: first is with regard to the overall direction of the multilateral talks, second is with regard to the benefits, if any, that we stand to gain from further liberalization and, third, how such benefits can be attained. The answer, I believe, to those uncertainties, is not a further opening up of the economy or a closing of it but something a little more basic and that is the improvement of the structure by which trade issues and policies are processed and addressed.
Dealing with the third question first, the same deals not only in ensuring that at the national level the benefits, if any, of trade liberalization is had but also that the benefits are not concentrated to a particular group and is, instead, felt by a great number of our countrymen. As far as this is concerned, there is really no choice and such can reasonably be achieved by improving the country’s governance, public transparency, business infrastructure (including credit access, stability of contracts, infrastructure development, transportation, energy, and a responsible workforce), other domestic reforms (such as lessening of corruption, better education, improvement of the peace and order situation, and judicial reliability), an effective competition policy, and, finally, a review of some of our trade related legislation.
With regard to competition policy, it must be stated at the outset that if ever there is an argument against an unfettered market it is competition policy. For competition policy is actually an admission that the market could go wrong and does on occasion go wrong. Competition policy, in its simplest form, primarily deals with the state of competition internally, that is, with regard to the state of competition within a country’s borders and seeks to rid it of harmful monopolies, cartels, and other anti-competitive practices.
With regard to some of our trade related legislation, we suggest a re-examination of RA 8752 (the anti-dumping law), RA 8800 (the safeguards law), Section 304 of the TCCP, Sections 401/402 of the TCCP, and RA 9135 (the customs valuation law).
Moving on now to the first and second uncertainties, I believe that the same can and should be addressed by improving the country’s monitoring, consultative, and policy formulation process - making it more effective and responsive to the needs and interests of domestic businesses, as well as to the peculiar demands of trade negotiations. These are my recommendations:
Consultative mechanism
Private sector participation in the formulation of positions and the conduct of negotiations still appears to be limited. To address the need for increased participation, hearings and proceedings would have to be institutionalized so as to lead to greater transparency and accountability in the conduct of trade negotiations. Among such would be the conduct of periodic and regular hearings in Congress to determine the state of our trade activities. This would have to involve greater private sector consultation and, as much as possible, participation during negotiations, as is practiced by many other countries. This is only fair considering that it is the very interests of the private sector that is at stake.
Congressional review of trade agreements
In connection with the point above is the refinement of our rules to remove any ambiguity as to the need for our elected representatives to have a say in our entry into any trade agreement. This is especially with regard to the ongoing confusion regarding the classification of trade agreements into “treaties (which need Senate concurrence) and “executive agreements” (which do not).
A reading of present laws and jurisprudence relating to the matter apparently indicate that trade agreements are generally classified as “executive agreements”, to the detriment of our policy making process. Considering the incredible impact that trade agreements have on the lives of ordinary Filipinos, such agreements should be made under conditions of full and public scrutiny and debate.
Thus, it is suggested that new rules be issued clarifying this matter so that any substantive trade agreement (and most trade agreements are substantive) will have to be submitted to the Senate for its concurrence or at least to a Congressional review. A process clearly needs to be established whereby trade agreements being entered into are reviewed and discussed publicly. If such review is not practically possible during the negotiations stage so as not to undermine the strategies being employed, then an oversight committee (perhaps by Congress) should be established, with powers to conduct public hearings on the propriety (or not) of such agreements on a regular or periodic basis. It is necessary that a government official or officials be clearly designated as responsible or accountable for such trade agreements. The purpose, of course, is not to lay blame but to ensure a system of accountability that will result in the imposition of restraint, intellectual rigidity, and openness when dealing in such matters.
Caution on FTAs
In the meantime, it may perhaps be prudent to suggest restraint with regard to Philippine intentions or activities pertaining to regional trade agreements or free trade agreements. While not commenting on the direction of any of the present FTA negotiations and focusing instead on the concept of FTA’s itself, it must be stated that for all their supposed benefits, they are simply tricky propositions. The very existence and potential number of the same provides an increasingly complex international trading system. Aside from what I have commented just a while back with regard to my thoughts on FTAs, I’d like to point out that FTAs come with its own set of practical and at the same time highly technical problems. Most significant among these would be that pertaining to the rules of origin, the overlapping jurisdictions by the different dispute settlement systems in place between the multilateral trading system and the different FTAs, and the non-tariff subjects (such as customs procedures, sanitary and phytosanitary measures, technical barriers to trade, and - perhaps - the issue of smuggling).
This is not to say that FTAs are destructive. Benefits certainly there may be and there is no dearth of economists who would point to such expected benefits. The point simply is that with regard to formulating a policy or view with regard to FTA’s, there is always the need for greater information regarding the environment that surrounds it. For the moment, a certain degree of caution would perhaps be justifiable under the circumstances when even exploring the idea of possible bilateral or regional trading arrangements precisely because there are no categorical indications regarding the direction, benefits, and risks that are concomitant with FTAs.
Establishment of formal written trade policy
Another suggestion is for the government to lay down publicly, in writing, a detailed draft of what our trade policy actually is. The USTR, for instance, regularly publishes a white paper containing its trade policy objectives for all to comment - thereby allowing the USTR to refine its approach and make it more responsive to US national interest. Adopting a similar practice in the Philippines would not only better inform the public as to where the government intends to take us in terms of trade but would also give the most affected stakeholders (which is us, the private citizens) the opportunity to speak out on the wisdom of such policy.
RPTR
Finally, trade negotiations of today are highly different from the trade negotiations of the past. Ten years ago, our prime trade activities circled around two or three countries. Now our partners are becoming more varied and, incidentally, Asian-centric. The inter-relatedness of the matters under trade discussions is greater. Just last week, USTR nominee Susan Schwab was asked regarding China’s financial services liberalization record, as well as on currency movements and how the latter affects the US trade deficit. There is, obviously, a need for greater coordination between the different government agencies that deal in trade and affect trade. Also, most interestingly for me, considering that it is a well accepted fact that today’s multilateral trading system has definitely moved away from the previous negotiation’s based system to the present rules based system, there seems to be a dearth of lawyers working within government that focus on trade. The multidisciplinary approach to our trade activities needs to be recognized and developed.
Thus, the creation of the Office of the Philippine Trade Representative (RPTR) is recommended. This should not necessarily be a huge bureaucratic creation, at least at the outset. When the USTR was created in 1962, its legal counsel’s office was composed only of two men . Incidentally, when the Office of the US Trade Representative (USTR) was created, the reasoning of the US Congress that created it was that trade policy should not be entrusted to the State Department (which it is said looked out for the interests of foreigners or broad foreign policy goals) or the Commerce Department (which always looked out for narrow domestic political interests) but rather to an office that would take the objective position and have trade as its only mission.
For the RPTR, it is ideal that the same be peopled with professionals of diverse backgrounds: diplomacy, law, economics, finance, etc. It has to be the primary source of information on matters dealing with international trade and, at least with regard to issues arising principally from trade negotiations, be responsible directly to the President.
The office must be given the responsibility of organizing an inter-agency committee that will effect closer coordination among the different affected or involved agencies of government. There should also be a mechanism set up that will result in the constant and consistent consultation with the Philippine Congress. There should also be a process formulated that will provide Congress the avenue with which to exercise “oversight” functions over the office of the trade negotiator (i.e., annual briefings, etc.)
Finally, the office of the trade representative should be handed the responsibility - through a formalized process - of consulting directly and constantly with the members of the private sector.
In conclusion - -
In my remarks during the U/ACT workshop on trade, I made mention of the fact that when the Uruguay Round of negotiations were contemplating the need for an international trade organization to oversee the various trade agreements being then considered, a negotiation was specifically set aside to discuss the "functioning of the GATT system" and was given the acronym "FOGS". Out of this the WTO was created. Interestingly, more than ten years later, what was deliberated under FOGS is still under a fog.
There is simply a need for greater and further understanding of how the multilateral trading system works and affects countries, including, obviously, our own. Indeed, a simple fact that is sometimes overlooked when discussions come around regarding the WTO is that a reading of the WTO Agreements reveals that not once in its 492 pages - starting with the Marrakesh Agreement creating the WTO up to the Ad Articles of the GATT - do the words “free trade” appear.
I am definitely not calling for us to be isolationists or protectionists. Nevertheless, if anything, if experience and history could be taken as a guide, there is nothing absolutely certain about trade and no one size fits all formula that we could or should want to duplicate en toto. Put simply, what we need is to find the right trade “mix” that is necessarily unique but appropriate for the Philippines.
Trade is merely a means to an end. It is an utterly complex matter and for which the Philippines need a strong and deliberate foundation from which to move out and confidently engage our trading partners.
Thus, for the present, rather than burdening ourselves with further international obligations or seeking to do so, it is suggested instead that that we prioritize reorganizing and making our house in order: improving governance, refining our laws and processes, and strengthening our institutions.
Thank you. I think I shall stop here.
21.3.06
From the pens of dead men
There is a book and incidentally a thought going around now reminding people that Western ideas and values were not spread due to their superiority or truth but due to the fact that Westerners were simply more adept at organized violence. A BBC documentary and a biography on Lord Nelson essentially admits to this, at least as far as the British are concerned. People here should realize that, far from the corporate governance, ethics, and democracy spouting people they see in CNN, the British (and most of Europe, including France and Germany), America, Japan, and China arose from a culture of killing. Of course, they perhaps prefer the term warrior culture. Essentially, it's still about killing.
Among the people they killed, humiliated, or conquered were of the Philippines.
The arrogance of these people, the bullying by which they thrived, can be read in Nick Joaquin's book Manila, My Manila. The day "the Manila of Soliman became the Manila of Legazpi", 19 May 1571. That day Miguel Lopez de Legazpi took formal possession of Manila by holding his sword in his hand and yelling "in a voice of fury,
'I have founded the City of Manila in the name of the King. If there be any there who would challenge this, let him come forward and I will measure my sword with his.'"
Of course, none of our forefathers came forward. Rajah Soliman and his men all having been soundly beaten. Repeatedly. This is the culture that we have to contend with, engage with.
So we keep trying. We keep fighting, in one way or another, for our right to be recognized as a people. Gregorio Del Pilar, on the day he died at Tirad Pass, wrote in his diary:
"I realize what a terrible task has been given me. And yet I feel that this is the most glorious moment of my life. What I do is done for my beloved country. No sacrifice can be too great."
He was a young 24 year old. Hopefully, the youth reading his words today would be inspired to be what they are and be Filipinos.
Fresh and stunning too are the words of Fr. Horacio de la Costa SJ, writing in 1971, of the place nationalism has - in the proper and correct sense of the word - in what could be made to apply in today's globalized world:
"We are told, of course, that this ideal is hopelessly out of date. Why cultivate nationalism in a world rapidly moving toward internationalism. If we must dedicate ourselves to an ideal, let it be to the brotherhood of man. As to that, we can readily agree that an international organization within which all men can live as brothers is a consummation devoutly to be wished. But we might point out that the very word 'internationalism' presupposes nationalism. If nations are to be united, there must be nations to unite. Those who have already achieved full nationhood can afford to take their nationalism for granted, can even be highmindedly apologetic about it. But we who, having been colonial subjects for four hundred years, are still seeking national identity and purpose, may perhaps be forgiven if nationalism is uppermost in our minds and boringly recurrent in our conversation.
Would it be thought discourteous on our part if we were to recall that it was once said of England that patriotism was the religion of the English? And that it was not so long ago that American school texts prescribed for use in the Philippines quoted with reverence the dictum of an American naval officer, 'My country, may she always be right, but right or wrong, my country'?
That is not a principle we are prepared to defend. What we are prepared to defend is this: that if we are nationalists it is not because we wish to separate ourselves from the rest of men, but, on the contrary, because we wish to build up a nation that can make its own distinctive contribution to the general advancement of the human race."
On the last, I would have to disagree with Fr. De La Costa, for it always has to be my country, hoping that she is in the right, but right or wrong I side with my country. For what we are is that which we contribute to the world and the human race, and what we are is something that we must believe in. Thus, as screwed up, insane, ridiculous the circumstance that it may be in right now, still my country, always my country.
In any event, we do not have a dearth of history and men to look up to for guidance and inspiration. And we most certainly do not lack it in ourselves that which could make this Philippines of ours a nation.
Among the people they killed, humiliated, or conquered were of the Philippines.
The arrogance of these people, the bullying by which they thrived, can be read in Nick Joaquin's book Manila, My Manila. The day "the Manila of Soliman became the Manila of Legazpi", 19 May 1571. That day Miguel Lopez de Legazpi took formal possession of Manila by holding his sword in his hand and yelling "in a voice of fury,
'I have founded the City of Manila in the name of the King. If there be any there who would challenge this, let him come forward and I will measure my sword with his.'"
Of course, none of our forefathers came forward. Rajah Soliman and his men all having been soundly beaten. Repeatedly. This is the culture that we have to contend with, engage with.
So we keep trying. We keep fighting, in one way or another, for our right to be recognized as a people. Gregorio Del Pilar, on the day he died at Tirad Pass, wrote in his diary:
"I realize what a terrible task has been given me. And yet I feel that this is the most glorious moment of my life. What I do is done for my beloved country. No sacrifice can be too great."
He was a young 24 year old. Hopefully, the youth reading his words today would be inspired to be what they are and be Filipinos.
Fresh and stunning too are the words of Fr. Horacio de la Costa SJ, writing in 1971, of the place nationalism has - in the proper and correct sense of the word - in what could be made to apply in today's globalized world:
"We are told, of course, that this ideal is hopelessly out of date. Why cultivate nationalism in a world rapidly moving toward internationalism. If we must dedicate ourselves to an ideal, let it be to the brotherhood of man. As to that, we can readily agree that an international organization within which all men can live as brothers is a consummation devoutly to be wished. But we might point out that the very word 'internationalism' presupposes nationalism. If nations are to be united, there must be nations to unite. Those who have already achieved full nationhood can afford to take their nationalism for granted, can even be highmindedly apologetic about it. But we who, having been colonial subjects for four hundred years, are still seeking national identity and purpose, may perhaps be forgiven if nationalism is uppermost in our minds and boringly recurrent in our conversation.
Would it be thought discourteous on our part if we were to recall that it was once said of England that patriotism was the religion of the English? And that it was not so long ago that American school texts prescribed for use in the Philippines quoted with reverence the dictum of an American naval officer, 'My country, may she always be right, but right or wrong, my country'?
That is not a principle we are prepared to defend. What we are prepared to defend is this: that if we are nationalists it is not because we wish to separate ourselves from the rest of men, but, on the contrary, because we wish to build up a nation that can make its own distinctive contribution to the general advancement of the human race."
On the last, I would have to disagree with Fr. De La Costa, for it always has to be my country, hoping that she is in the right, but right or wrong I side with my country. For what we are is that which we contribute to the world and the human race, and what we are is something that we must believe in. Thus, as screwed up, insane, ridiculous the circumstance that it may be in right now, still my country, always my country.
In any event, we do not have a dearth of history and men to look up to for guidance and inspiration. And we most certainly do not lack it in ourselves that which could make this Philippines of ours a nation.
10.3.06
Vox populi
Last Sunday, a columnist from the Philippine Star wrote:
"I disown the belief that vox populi, vox dei (the voice of the people is the voice of God.) If some of my Sigaw friends used the slogan, I am averse to such presumptions. This debate takes off from the widespread but false idea that this is how democracy works. It claims that democracy is morally right because the majority defines what is right and the government must follow the will of the people. "
Everyone, of course, has the right to his or her own opinion on this. The statement was made in a different context but I'd like to focus on such and tie it up with the main theme of this blog. The reason why the majority is given the right to decide is not because they are actually right but that they are given that presumption that they may be right because no other methodology has been devised to replace the majority rule. As Churchill would say, democracy may be flawed but it's the best we could come with so far. [In the context of the "People's Initiative" issue, one fundamental question before the Supreme Court is not whether the will of the people is to be questioned but whether the will of the people is actually properly being heard. Justice Guttierez's comment on the matter sums it best]
It speaks of the presumptiousness of the elite that they believe they know what's best for the people. That the masses would not have the intelligence to form their own opinion knowingly. If the majority of the people truly (emphasize "truly") believe that this country should go in a particular direction then - right or wrong - that is where we go. It may not be right, it may be based on faulty information or lack thereof but then the people should be allowed to determine their own destiny. Besides, who of us can say conclusively, who of us can argue with perfect knowlege and information, that such decision by the people is indeed wrong? Only time (and history) can tell. Or we can even go Biblical on this: "the race is not to the swift, nor the battle to the strong, nor bread to the wise, nor riches to the intelligent, nor favor to those with knowledge, but time and chance happen to them all". In any event, what can kind of leaders do we have if they don't have faith in their own people?
The rich has this belief that the people, the masses, should be saved from themselves and their ignorance, and thus a disregard of the vox populi dictum should be made because of that belief that the rich (the governing elite) are indeed the ones well read enough, informed enough, educated enough, to make the decisions for us. However, that is rubbish because if that were correct, considering that the Philippine elite has been in power continuously for almost the entire life of this Republic, we'd be a country right now economically at par with Singapore or Japan. It's this country's elite that got us in this mess and they still expect all of us to believe that they should be leading this country by sheer entitlement?
If the masses toy with the idea of electing actors and entertainers to political office it is because they are no longer left with a viable choice. Who are they going to elect, after all? Return the same old political names, albeit their younger versions, to power? If one reads our history from the 1920's, 30's, 40's, 50's, 60's, early 70's, late 80's, and the late 90's upward you'd be surprised at how the same names keep cropping up as office holders in Congress, the Judiciary, and the Executive Branch (and even media). And how the same problems keep plaguing us: corruption and inefficiency. And they expect us to believe that it is the ordinary Juan de la Cruz at fault? I strongly believe that the majority of Filipinos would know, consciously or instinctively, and vote for a good and effective leader when they see one. It's just that they haven't seen one yet.
I still refer readers to my entry below on Trade and the Elite regarding this matter. In addition, I am getting more and more convinced that the Marcos/Ninoy, Erap/GMA thing was simply a case of relatively "newer old money" versus really "old money". It's a perverse political rigodon. If it were really about democracy how come after all the People Powers that came and went we're still in this muck of corruption and ineptness? You can't blame the masses for this. Blame the people in power. And the people in power are all essentially cut from the same clothe.
Also, just thinking, I still can't understand what is meant by the term "good family" or "de buena familia". It may mean something long ago, in less civilized times, but in this day and age what possible meaning could it have? After all, if you don't have any druggie, pervert, or thief (private or in government) in your family, and if your family members study in school or actually work for a living and care for the family, wouldn't that make your family automatically qualify as a "good family"?
"I disown the belief that vox populi, vox dei (the voice of the people is the voice of God.) If some of my Sigaw friends used the slogan, I am averse to such presumptions. This debate takes off from the widespread but false idea that this is how democracy works. It claims that democracy is morally right because the majority defines what is right and the government must follow the will of the people. "
Everyone, of course, has the right to his or her own opinion on this. The statement was made in a different context but I'd like to focus on such and tie it up with the main theme of this blog. The reason why the majority is given the right to decide is not because they are actually right but that they are given that presumption that they may be right because no other methodology has been devised to replace the majority rule. As Churchill would say, democracy may be flawed but it's the best we could come with so far. [In the context of the "People's Initiative" issue, one fundamental question before the Supreme Court is not whether the will of the people is to be questioned but whether the will of the people is actually properly being heard. Justice Guttierez's comment on the matter sums it best]
It speaks of the presumptiousness of the elite that they believe they know what's best for the people. That the masses would not have the intelligence to form their own opinion knowingly. If the majority of the people truly (emphasize "truly") believe that this country should go in a particular direction then - right or wrong - that is where we go. It may not be right, it may be based on faulty information or lack thereof but then the people should be allowed to determine their own destiny. Besides, who of us can say conclusively, who of us can argue with perfect knowlege and information, that such decision by the people is indeed wrong? Only time (and history) can tell. Or we can even go Biblical on this: "the race is not to the swift, nor the battle to the strong, nor bread to the wise, nor riches to the intelligent, nor favor to those with knowledge, but time and chance happen to them all". In any event, what can kind of leaders do we have if they don't have faith in their own people?
The rich has this belief that the people, the masses, should be saved from themselves and their ignorance, and thus a disregard of the vox populi dictum should be made because of that belief that the rich (the governing elite) are indeed the ones well read enough, informed enough, educated enough, to make the decisions for us. However, that is rubbish because if that were correct, considering that the Philippine elite has been in power continuously for almost the entire life of this Republic, we'd be a country right now economically at par with Singapore or Japan. It's this country's elite that got us in this mess and they still expect all of us to believe that they should be leading this country by sheer entitlement?
If the masses toy with the idea of electing actors and entertainers to political office it is because they are no longer left with a viable choice. Who are they going to elect, after all? Return the same old political names, albeit their younger versions, to power? If one reads our history from the 1920's, 30's, 40's, 50's, 60's, early 70's, late 80's, and the late 90's upward you'd be surprised at how the same names keep cropping up as office holders in Congress, the Judiciary, and the Executive Branch (and even media). And how the same problems keep plaguing us: corruption and inefficiency. And they expect us to believe that it is the ordinary Juan de la Cruz at fault? I strongly believe that the majority of Filipinos would know, consciously or instinctively, and vote for a good and effective leader when they see one. It's just that they haven't seen one yet.
I still refer readers to my entry below on Trade and the Elite regarding this matter. In addition, I am getting more and more convinced that the Marcos/Ninoy, Erap/GMA thing was simply a case of relatively "newer old money" versus really "old money". It's a perverse political rigodon. If it were really about democracy how come after all the People Powers that came and went we're still in this muck of corruption and ineptness? You can't blame the masses for this. Blame the people in power. And the people in power are all essentially cut from the same clothe.
Also, just thinking, I still can't understand what is meant by the term "good family" or "de buena familia". It may mean something long ago, in less civilized times, but in this day and age what possible meaning could it have? After all, if you don't have any druggie, pervert, or thief (private or in government) in your family, and if your family members study in school or actually work for a living and care for the family, wouldn't that make your family automatically qualify as a "good family"?
6.3.06
Rock against the WTO
Just this weekend I read in the Manila Times that a group of Filipino musicians (Radioactive Sago, Village Idiots, etc.) are to release an album in protest of the ongoing Doha Round and the WTO. The musicians say that they are against free trade and that, although acknowledging the inevitableness of globalization and the benefits that can be had through freer trade, nevertheless feel that on the whole the multilateral trading system has been damaging to developing countries.
Lourd De Veyra, the lead vocalist for Radioactive Sago, called for an end to "excessive globalization", citing the inability of poorer countries to break through the trade barriers imposed by richer countries, the damage done by the increased influx of imported garlic and poultry to our farmers, and the fact that subsidies of the richer countries are hurting the economies of the poorer countries.
Such comments are interesting.
First of, is that what is excessive globalization? How can globalization be excessive? If globalization leads to choice, then more globalization leads to greater choice, where can the excess lie? If the choice of people becomes greater, whether it be in consumer goods, essentials, information, lifestyle, where is the downside?
However, perhaps what is really being lamented is the fact that only the developed countries are reaping the benefits of globalization, with the poorer countries unable to get market access for their own products into the developed countries. If that is the case, logically, the response is to call for greater, better, and more globalization and freer trade. If the problem is lack of market access, it is hard to understand why the solution is to lessen the drive for more market access. The present Doha Round is precisely an opportunity for developing countries to increase its market access while at the same time calling for special and differential treatment. If the Doha Round fails, the developing countries would have itself to blame (the developed countries too for having failed to practice what they preach) but note that more is riding on the Doha Round for the developing countries than that for the developed. That is why Peter Mandleson and the EC are all for “lowering expectations”. The loss of a failed Round is not that as painful for them. Nevertheless, for all the stubborness of the developed countries and the inability of the developing countries to make a united stand for fairer trade, the point here is that it's still the WTO and the ongoing Doha Round that is the poor countries best chance for improving their economies. If there is any other rational, workable avenue that could make the developed, richer, and more powerful countries to concede to the poorer ones then those with such ideas should speak up.
De Veyra also mentions the influx of imported garlic and poultry. The fact here is that imported garlic that hurt the local farmers were not imported but smuggled. There is a whole lot of difference between importing and smuggling. The latter obviously is a crime, for which the country receives no tax benefits. However, it would also mean that the blame here is not free trade or the WTO, which did not make any demands from us to increase importation of garlic, but of our own police system and customs monitoring system. The WTO should not be blamed for our inability to police our borders.
With regard to poultry, the reason why there was an increase in importation of poultry was because the local demand exceeded local production. If there is not enough chicken to go around with, what's wrong with importing them? The point here is that if the demand greatly exceeds the supply, the prices rise and who gets hurt? The consumers and when we say consumers we're not only talking of the Ayalas and the Madrigals, we're also talking here of our poor who have to make do with so little. If they can get cheaper and better goods for their money, what's wrong with that?
The foregoing, it has to be said, goes for rice. Rice is a protected industry, despite what people think. And we import rice because the supply is greatly exceeded by local demand. One reason for the lack of supply is because our land (a little also because of lack of technology) is inadequate to produce rice on a scale necessary. The Philippines, for the past 100 years, has never been a rice exporter and has never attained self-sufficiency on rice. Except that is for a brief period, during the much hated Marcos regime and under the program headed by Rafael Salas. Note that the WTO again never demands that we import rice. We import rice because we have to. Even then, with the rice being imported, it must be considered that the Filipino pays among the highest prices for this basic staple. To emphasize: our poor pays higher prices for its rice compared to the poor in Indonesia, Vietnam, and most other Asian country poor. This is the effect of not considering "comparative advantage". Yet we protect rice, rightly or wrongly, for a host of political or social or cultural reasons. If we have to protect rice (and the same argument goes for sugar), then let’s protect the same, along with the thousands of farmers depending on such for their livelihoods. But let us also remember that in protecting these thousands we are also making millions of our poor pay more for their daily food.
De Veyra goes on to comment against free trade and subsidies. The fact is, subsidies have always been there, even before the WTO and even before the GATT days. One of the goals of the WTO and the present Doha Round is to precisely negotiate to get rid of these subsidies. To actually "rock" against Doha and then lament the presence of subsidies is something that needs to be ... re-examined.
Which goes on to a further point: trade barriers, non-tariff barriers, subsidies, and the like have all been there and existed even before the WTO came into being. The reason for the WTO's existence is precisely to have a forum and an avenue to get rid of these things and ensure a better playing field for poorer countries. Get rid of the WTO and what do you have? We go back to the days of power plays, covert but muscular negotiating tactics, of which I'm sure nobody in his right mind will think we can outmuscle the US (or the EC) on a one-on-one negotiation without the benefit of the WTO.
Is the WTO a tool of the US? Then how come in most of the significant cases that the US went up to in the WTO's dispute settlement process against poorer countries the US consistently lost? The US lost to Brazil on a pharmaceuticals case, thus allowing Brazil the right to reproduce medicines against AIDS. Just recently, tiny Antigua beat the US on a case relating to online gambling. If the WTO had not been around, would these poor countries have won over the US?
Finally, globalization and free trade has been blamed for the dreaded “homogeny” of culture. Of everything being Americanized. That is simply not the case and for a group that has benefited greatly from globalization to argue such is simply eccentric. Nobody has ever, at the point of a gun, forced you to drink Coke, eat curry, watch the Pink Panther, listen to Beyonce, or wear Nike. It is your choice and the great thing about this is that this choice has been extended to the poor of our society. One big example here is the liberalization of our telecommunications industry in the 1990s. Because of that simple fact, our maids, jeepney drivers, janitors, all have cellphones. Cellphones with which to call their loved ones in the province, call up their kids in school, exchange news and information, educate themselves informally, and perhaps even change governments they don’t like.
A student once told me that she was concerned that globalization is destroying the culture of our mountain tribesmen. That is, they are now leaving their farming work in the mountains, stopped living in huts, and are now living in apartments, watching tv, and drinking Coke. My answer to her was, if you think living in mountains and breaking your back under the sun is so great why don’t you do it? The point here is that these people had a choice. They weren’t forced to change their lifestyle. If that is their choice, then no matter how unwise or unintelligent their choice is, we should respect it and be happy for them. It’s all well and good for people to be tourists while in Baguio and see these mountain people for a few minutes to be entertained but these are people too, with their own lives. We have no right to dictate to anyone how they should live their lives in the same way we don’t want us being dictated to.
Definitely the WTO is not perfect. But so is democracy. They’re both messy and they certainly need improvement. But there is simply no rational alternative. Besides, as I mentioned in a previous entry, the WTO never forced us to do anything, it never even compelled us to lower our tariffs. Whatever we did in terms of trade policy, we did it unilaterally and voluntarily as a people. If it turned out now, in retrospect, that we made commitments more onerous than we had to then we only have ourselves (and our government) to blame. However, before we start going on the blame game, ask yourself also how come you didn’t engage in the debate, how come you weren’t aware, how come you didn’t read up on this stuff on something clearly important for the country? These things and discussions have been around, in papers in our schools, in the newspapers, in the internet. Perhaps the government may have been less than ideally transparent in the past but, in any event, what was then was then and now we simply have to act.
This blog has never advocated for protectionism as a general policy or as a guiding principle. Neither, however, will it advocate for a blind “one-size fits all" type of free trade. Actually, free trade advocates in this country have probably done an equal amount of damage as the advocates of protectionism. Both should stop with their dogmatism. As for this blog, what it believes is that freer trade is indeed the way for this country to move forward. But the shape or form of that free trade, like discussions on democracy and form of government, is something that should be geared to match our unique culture, personality, geography, history, etc. as a people, and with an eye to the realities around us.
What this country needs right now is a more open, intelligent discussion of what to do with regard to our economy and of our trade policy. It is important that discussions on these be less exclusive, open to all our countrymen and not merely confined to a select number of bureaucrats and academics. This thing is so important that if Radioactive Sago and their fellow musicians want to join in on the discussions then that is great and more should follow their lead and contribute. But we should all do this smartly, with discipline, precision and clarity of thought, detachment, and with tolerance for each other’s views. Perhaps releasing a rock album on trade is a good start for everyone to get involved. But it shouldn’t definitely end there.
17.2.06
Fog of trade
(remarks given on the occasion of the Feliciano book launch)
State of play
When the Uruguay Round of negotiations were contemplating the need for an international trade organization to oversee the various trade agreements being considered, a negotiation was specifically set aside to discuss the "functioning of the GATT system" and was given the acronym "FOGS". Out of this the WTO was created. Unfortunately, more than ten years later, what was deliberated under FOGS is still under a fog.
Two noticeable things that one can notice is the lack of certainty as to the future of the multilateral trading system. The other is a subtle creeping shift from an absolutist belief among supporters of trade liberalization to a more cautious and conditional stance. Thus:
“The countries that have succeeded in raising living standards rapidly, over long periods, have followed many varieties of economic policy and have lived under many different forms of government … Not fully, or even nearly so … They adopted liberal trade partially, selectively and mostly gradually. But the important thing was that they adopted it.” (Liberty’s Great Advance, 28 June 2003; underscoring supplied)
“It is true that the poorest countries often face the biggest obstacles to reaping the gains from trade and that economists' models often assume these obstacles away. Many rely on tariffs as a source of government revenue. Weak infrastructure and underdeveloped credit markets can make economic restructuring difficult. These problems underline why trade liberalisation is no substitute for either more domestic reform or foreign aid. They also suggest that some of the poorest countries need more time to open their markets than others.” (Weighed in the Balance, 08 December 2005; underscoring supplied)
Interestingly, while there has indeed been comment that poor infrastructure can result in the non-effectivity or mitigation of the benefits of trade, this recent statement from an article in the Wall Street Journal was intriguing:
"Many believe globalization will create a firebreak against inflation, but trade barriers have been in a steady descent for more than 70 years with no consistent bearing on U.S. inflation rates." (A Hard Landing, AWSJ, 3 Feb. 2006, p.13)
So there it is, a country as sophisticated and as developed as the US and still with an infrastructure not good enough for trade liberalization to substantively affect its inflation rate. If the US has been found wanting, then what country wouldn’t? Is trade liberalization indeed that powerful a force that could benefit countries and their peoples? There now seems to be a creeping doubt that it is.
Finally, there is also the refusal of the developed countries to practice what they preach. For but the most recent examples, witness the national furor that erupted when a foreign company signaled its intention to purchase a European manufacturing company, a similar national outrage when a foreigner bought a local European football club, when the lifestyle of a country’s farmers are given greater consideration than the lives of starving farmers in least developed countries.
All of these do not bring much confidence in the world trading system. Thus, if we could not find that confidence elsewhere, we should ensure that we instead develop that confidence in ourselves.
Moving forward
Here, then, are some suggestions:
First is the review of our trade related legislation, particularly seeking to remove any ambiguities in them and ensure that they serve national interest. Among such laws suggested to be reviewed are: RA 8752 (the anti-dumping law), RA 8800 (the safeguards law), Section 304 of the TCCP, Sections 401/402 of the TCCP, and RA 9135 (the customs valuation law).
Second is the institutionalization of private sector participation in the formulation of positions and the conduct of negotiations. The appointment of a Special Envoy for Trade Negotiations, the expanded inclusion of private sector parties into the trade delegation to the Hong Kong Ministerial, and the establishment of UACT (with its appreciably defined objectives) are good first steps in this direction.
Third is the institutionalization of hearings and proceedings that would lead to greater transparency and accountability in the conduct of trade negotiations. Among such would be the conduct of periodic and regular hearings in Congress to determine the state of our trade activities.
Included with this suggestion is the refinement of our rules to remove any ambiguity as to the need for our elected representatives to have a say in our entry into any trade agreement. This is specially with regard to the ongoing confusion regarding the classification of trade agreements into “treaties” (which need Senate concurrence) and “executive agreements” (which do not). Thus, new rules could be issued clarifying this matter so that any substantive agreement (and most trade agreements are substantive) will have to be submitted to the Senate for its concurrence. This is but right as our elected representatives need to have a say as to whatever trade commitment the Philippines is entering into.
Another is for the government to lay down publicly, in writing, a detailed draft of what our trade policy actually is. Not only would it result in informing the public as to where the government intends to bring us in terms of trade, it would also give the most affected stakeholders (which is us, the private citizens) the opportunity to speak out on the wisdom of such policy.
Fourth is the creation of the office of the RPTR. This should not necessarily be a huge bureaucratic creation, at least at the outset. When the USTR was created in 1962, its legal counsel’s office was composed only of two men (one of whom happened to be Robert Hudec, one of the acknowledged fathers of international economic law). Incidentally, when the USTR was created, the reasoning of the US Congress that created it in 1962 was that trade policy should not be entrusted to the State Department (which it is said looked out for the interests of foreigners or broad foreign policy goals) or the Commerce Department (which always looked out for narrow domestic political interests) but rather to have an office that would take the middle and have trade as its only mission. For the RPTR, it is ideal that the same be peopled with professionals of diverse backgrounds: diplomacy, law, economics, finance, etc. Such an office would have the function of taking the lead in dealing in matters involving Philippine engagement in the WTO, AFTA, APEC, and UNCTAD, as well as dealing with issues brought about by prospective or probable bilateral or regional trading arrangements. It has to be the primary source of information on matters dealing with international trade and, at least with regard to issues arising principally from trade negotiations, be responsible directly to the President.
Finally, there is the need for the enactment of an effective competition policy law. Competition policy, in its simplest form, primarily deals with the state of competition internally, that is, with regard to the state of competition within a country’s borders and seeks to rid of harmful monopolies, cartels, and other anti-competitive practices. Furthermore, in a country where it is commonly acknowledged that the nation’s wealth is concentrated only in the hands of a very few, a robust competition policy would be one way of ensuring a more equitable distribution of wealth and, perhaps, a more meritocratic society. Competition policy can help in ensuring greater competition, efficient market conditions, more adaptable industries, promote the easier and more effective entry of new players in the market, greater quality goods entering that market, and price stability.
In fine, considering, the present state of the multilateral trading system, it is suggested that we prioritize in employing our public and oft-times called for united energies and efforts towards reorganizing and making our house in order. This is not a call for us to be isolationists or protectionists. Rather, it is so that we can develop a strong and deliberate base within which to move out and confidently engage our trading partners.
Thank you and I think I shall stop here.
State of play
When the Uruguay Round of negotiations were contemplating the need for an international trade organization to oversee the various trade agreements being considered, a negotiation was specifically set aside to discuss the "functioning of the GATT system" and was given the acronym "FOGS". Out of this the WTO was created. Unfortunately, more than ten years later, what was deliberated under FOGS is still under a fog.
Two noticeable things that one can notice is the lack of certainty as to the future of the multilateral trading system. The other is a subtle creeping shift from an absolutist belief among supporters of trade liberalization to a more cautious and conditional stance. Thus:
“The countries that have succeeded in raising living standards rapidly, over long periods, have followed many varieties of economic policy and have lived under many different forms of government … Not fully, or even nearly so … They adopted liberal trade partially, selectively and mostly gradually. But the important thing was that they adopted it.” (Liberty’s Great Advance, 28 June 2003; underscoring supplied)
“It is true that the poorest countries often face the biggest obstacles to reaping the gains from trade and that economists' models often assume these obstacles away. Many rely on tariffs as a source of government revenue. Weak infrastructure and underdeveloped credit markets can make economic restructuring difficult. These problems underline why trade liberalisation is no substitute for either more domestic reform or foreign aid. They also suggest that some of the poorest countries need more time to open their markets than others.” (Weighed in the Balance, 08 December 2005; underscoring supplied)
Interestingly, while there has indeed been comment that poor infrastructure can result in the non-effectivity or mitigation of the benefits of trade, this recent statement from an article in the Wall Street Journal was intriguing:
"Many believe globalization will create a firebreak against inflation, but trade barriers have been in a steady descent for more than 70 years with no consistent bearing on U.S. inflation rates." (A Hard Landing, AWSJ, 3 Feb. 2006, p.13)
So there it is, a country as sophisticated and as developed as the US and still with an infrastructure not good enough for trade liberalization to substantively affect its inflation rate. If the US has been found wanting, then what country wouldn’t? Is trade liberalization indeed that powerful a force that could benefit countries and their peoples? There now seems to be a creeping doubt that it is.
Finally, there is also the refusal of the developed countries to practice what they preach. For but the most recent examples, witness the national furor that erupted when a foreign company signaled its intention to purchase a European manufacturing company, a similar national outrage when a foreigner bought a local European football club, when the lifestyle of a country’s farmers are given greater consideration than the lives of starving farmers in least developed countries.
All of these do not bring much confidence in the world trading system. Thus, if we could not find that confidence elsewhere, we should ensure that we instead develop that confidence in ourselves.
Moving forward
Here, then, are some suggestions:
First is the review of our trade related legislation, particularly seeking to remove any ambiguities in them and ensure that they serve national interest. Among such laws suggested to be reviewed are: RA 8752 (the anti-dumping law), RA 8800 (the safeguards law), Section 304 of the TCCP, Sections 401/402 of the TCCP, and RA 9135 (the customs valuation law).
Second is the institutionalization of private sector participation in the formulation of positions and the conduct of negotiations. The appointment of a Special Envoy for Trade Negotiations, the expanded inclusion of private sector parties into the trade delegation to the Hong Kong Ministerial, and the establishment of UACT (with its appreciably defined objectives) are good first steps in this direction.
Third is the institutionalization of hearings and proceedings that would lead to greater transparency and accountability in the conduct of trade negotiations. Among such would be the conduct of periodic and regular hearings in Congress to determine the state of our trade activities.
Included with this suggestion is the refinement of our rules to remove any ambiguity as to the need for our elected representatives to have a say in our entry into any trade agreement. This is specially with regard to the ongoing confusion regarding the classification of trade agreements into “treaties” (which need Senate concurrence) and “executive agreements” (which do not). Thus, new rules could be issued clarifying this matter so that any substantive agreement (and most trade agreements are substantive) will have to be submitted to the Senate for its concurrence. This is but right as our elected representatives need to have a say as to whatever trade commitment the Philippines is entering into.
Another is for the government to lay down publicly, in writing, a detailed draft of what our trade policy actually is. Not only would it result in informing the public as to where the government intends to bring us in terms of trade, it would also give the most affected stakeholders (which is us, the private citizens) the opportunity to speak out on the wisdom of such policy.
Fourth is the creation of the office of the RPTR. This should not necessarily be a huge bureaucratic creation, at least at the outset. When the USTR was created in 1962, its legal counsel’s office was composed only of two men (one of whom happened to be Robert Hudec, one of the acknowledged fathers of international economic law). Incidentally, when the USTR was created, the reasoning of the US Congress that created it in 1962 was that trade policy should not be entrusted to the State Department (which it is said looked out for the interests of foreigners or broad foreign policy goals) or the Commerce Department (which always looked out for narrow domestic political interests) but rather to have an office that would take the middle and have trade as its only mission. For the RPTR, it is ideal that the same be peopled with professionals of diverse backgrounds: diplomacy, law, economics, finance, etc. Such an office would have the function of taking the lead in dealing in matters involving Philippine engagement in the WTO, AFTA, APEC, and UNCTAD, as well as dealing with issues brought about by prospective or probable bilateral or regional trading arrangements. It has to be the primary source of information on matters dealing with international trade and, at least with regard to issues arising principally from trade negotiations, be responsible directly to the President.
Finally, there is the need for the enactment of an effective competition policy law. Competition policy, in its simplest form, primarily deals with the state of competition internally, that is, with regard to the state of competition within a country’s borders and seeks to rid of harmful monopolies, cartels, and other anti-competitive practices. Furthermore, in a country where it is commonly acknowledged that the nation’s wealth is concentrated only in the hands of a very few, a robust competition policy would be one way of ensuring a more equitable distribution of wealth and, perhaps, a more meritocratic society. Competition policy can help in ensuring greater competition, efficient market conditions, more adaptable industries, promote the easier and more effective entry of new players in the market, greater quality goods entering that market, and price stability.
In fine, considering, the present state of the multilateral trading system, it is suggested that we prioritize in employing our public and oft-times called for united energies and efforts towards reorganizing and making our house in order. This is not a call for us to be isolationists or protectionists. Rather, it is so that we can develop a strong and deliberate base within which to move out and confidently engage our trading partners.
Thank you and I think I shall stop here.
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