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.