Stepping back, moving forward

is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:

(Excerpts of remarks delivered at the 7th Asian Law Institute Conference, Kuala Lumpur, Malaysia, May 25-26, 2010.) The Philippines, like any country the past two years, has not been spared the anxiety of a depreciated global economy. At the same time, neither has it been spared from indulging in exuberant optimism due to certain developments that the recent months had presented.

After reaching record lows, 2010 expects global trade growth at 9.5%. Developed-country exports should increase in volume terms by 7.5%, while developing-country exports should grow by 11%. Philippine manufactured goods exports rose by a healthy 42.3% (year-on-year) last February (with a slight .4% contraction month-on-month though). This marked a fourth consecutive month of growth.

For my part, I would like to tamper down any undue enthusiasm that developing countries may have and instead suggest that a more reflective, even cautious approach, be taken in facing the global trading system under the context of the recent difficulties just surmounted.

The paper I presented to the conference, "The Global Crisis and Suggested Philippine Responses To Protectionism," discussed three areas of concern, which I believe could be representative of the concerns (at least on a limited level) of other developing countries. These three areas are trade remedies, the creation of a trade representative office, and the development of competition policy. These areas need not be discussed again in these notes I made for today. However, I do would like to add certain related concerns that developing countries like the Philippines may need to think about in the coming days.

The first is the clear and obvious push, specially from developed economies for developing countries to engage in bilateral or regional trading arrangements (particularly, I would guess, with developed countries). This initiative should be met with caution. And, indeed, even with skepticism.

A recent working paper released by the ADBI ("FTAs and Philippine Business: Evidence from Transport, Food, and Electronics Firms") had confirmed something that only government bureaucrats long knew: that only around 20% of the companies surveyed in the Philippines had ever taken advantage of AFTA preferential rates. Aside from all previously discussed reasons is the developing countries’ private corporations capability to match competition domestically and to meet the demands of the export market. This is aside from the fact that a lot of developing-country corporations, such as in the Philippines, are still baffled by the mechanics of FTAs.

To the foregoing must be added the seeming disparity between the benefits going to richer countries as opposed to that going to poorer countries, which is affirmed in a recent UN University Working paper ("North-South vs. South-South Asian FTAS: Trends, Compatibilities, and Ways Forward"). The paper’s empirical analysis do reveal "that several incompatibilities exist between N-S and S-S FTAs in core areas including tariff liberalization, rules of origin, liberalization of services trade, compliance with World Trade Organization (WTO) notification requirements, and deep integration."

Another area that needs further stressing is competition policy. For a developing country like the Philippines, I would suggest that the focus of discussions on that area be competition policy viewed from an international perspective, particularly when monopolies or cartels reach across borders and where price-fixing is done not within a single country but in a number of such. The problem of the Philippines is not the huge and competitive Philippine company that is really doing well. The probability that the concept of "natural monopolies," considering the small size of our domestic market, is applicable is with merit. The concern should be about the possibility of foreign corporations sneaking up in acquiring Filipino companies or influence to the point that monopoly powers are exercised from beyond Philippine jurisdiction, constricting Filipino entrepreneurial efforts, and damaging local consumer interests. The problem faced by Philippine regulators in this regard (aside from the fact that there is no central antitrust body existing) is that local laws on the matter are either outdated, ambiguous, or narrow in scope.

Finally, having assisted as counsel for the Philippines in its cases before the WTO has confirmed in my mind the need for a well-established Philippine Trade Representative Office. Unfortunately, recent versions in our Congress on the matter have emphasized a necessity of reviewing pending legislation on the same. At worst, the system envisioned under House of Representative Bill versions I saw could in practice evolve in such a manner that may render the Philippine trade representative vulnerable to "policy capture" by certain narrow or specialized sectors.

In fine, rather than mechanically demanding increased tariff protection (or agreeing to rich countries’ self-serving suggestions to charge ahead and sign into every available FTA), it would be better for developing countries like the Philippines to examine their domestic laws to ensure that industries, properties, jobs, and beneficial product prices that should be for their citizens remain so. Electing experienced, trained, stable people to high government positions would not hurt as well.