A tall order for trade

Here's an article, containing portions of an interview I gave to BusinessWorld, on the effect of free trade agreements to local business:

Assimilating free trade agreements (FTA) into mainstream policy has been a work in progress for an outward-oriented nation like the Philippines--a process certainly not without its fair share of roadblocks. A paper published by the Asian Development Bank Institute (ADBI) projects the utilization rate of FTAs to double in the future. But at present, a whopping 80% of firms in the country opts against taking full advantage of them. The paper points to several reasons, chiefly a lack of updated and comprehensive information on the inner workings of these complex trade pacts among trade officials and local merchants alike.

Last July, local imports showed some midyear promise when it grew by 16.2% to $4.68 billion while exports rose by 35.9% to $4.5 billion. According to the National Statistics Office, the country clocked in a trade deficit of $173 million, a much-tapered gap next to the $713 million shortfall last year. This speaks of a strong domestic demand for consumer goods raw materials and capital goods: specifically, nearly all of the country's oil products are sourced from imports, as are most materials it uses in electronics manufacturing, ultimately amounting to over a third of the total import bill.

In the past, the 1997 Asian financial crisis--coupled by stalled progress in the Doha Development Round’s global trade negotiations--have kept the US and Europe out of the Asian trade loop. But these days, the foundations are already being laid for a bilateral Philippines-European Union FTA. Such bilateral contracts between poor and wealthy countries have been pegged by The Economist as ones that are better executed while often suffering under limiting rules of origin, but Ateneo Professor for International Economic Law Jeremy Gatdula notes that the underlying problem doesn’t rest solely on economic inequality. "In the end, whether or not [an] economy complements our own is a better standard rather than the size of that economy," he said. "An FTA results in something more than mere economics; it has an effect on how countries actually relate to each other as a whole."

In expanding their trade zones, sociocultural gaps between nations may also lead to certain economic concepts becoming lost in translation. “This is not relativism, but due to cultural or historical differences, a more precise understanding of what we're negotiating and agreeing to would definitely be needed,” Mr. Gatdula said.

But this is not to say that there’s any lack of trade struggles within one’s own region. For one, the widespread smuggling of Chinese goods has permeated nearly all Asian nations; the local shoe and vegetable industries, in particular, were dealt a serious blow. In light of these, suspicions loom over the recently-approved China-ASEAN Free Trade Area short of legalizing smuggling, to the detriment of adjacent economies.

"[It's more a matter] of taking away the reason for the smuggling. Tariffs are low enough as it is," weighs in Mr. Gatdula. In the absence of trade duties, the more pressing concern would be for vigilant customs authorities to guard against the easy entry of defective products into the country. "Historically, [barriers have] contributed to delaying or making moot any motivation on our industries to be competitive," he said. For importers, however, FTAs are something of a double-edged sword—the lowered tariffs can also mean cheaper raw materials and the drop in construction costs for finished goods may be a boon that could help steer the local economy back on a more aggressive track.

But the Ateneo professor also observed how Philippine businesses have been “incredibly stubborn in getting help,” saying that many have shunned innovative methodologies in which they feel they may have to “surrender some form of control, which is mostly imaginary anyway.” Plus, the prevalent turf mentality that persists among government offices has long limited trade agreements to be made on a piecemeal basis overseen by various agencies, impeding the development of clear-cut commerce policies in the country. “In more recent negotiations, transparency and accountability had been demonstrated to be wanting,” said Federation of Philippine Industries (FPI) president Jesus Arranza in a previous interview.

Mr. Gatdula believes that the focus should be on strengthening local institutions, particularly in creating a trade representative office. In fact, the proposal of such a centralized body is already making some headway: The FPI has actively lobbied for House Bill 5971, which, when passed, would finally see a consolidated Philippine Trade Representative Office realized. Ideally, this permanent trade negotiating office would take after those of the United States and the European Union, said Asian Development Bank (ADB) trade facilitation consultant Atty. Dorotea Lazaro, one that should offer background studies and support services following trade negotiations.