is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:
As reported by BusinessWorld, APEC leaders have decided to accelerate activities on developing free trade deals. As provided in its communiqué, APEC "believe[s] that a Free Trade Area of the Asia Pacific (FTAAP) should be pursued ... by developing and building on ongoing regional undertakings, such as Association of Southeast Asian Nations+3, ASEAN+6, and the Trans-Pacific Partnership, among others."
The foregoing immediately followed the so-called "first ever TPP summit" held at the APEC sidelines. The TPP has Singapore, New Zealand, Chile, and Brunei as members, with the US, Australia, Peru, Vietnam, and Malaysia in negotiations to join, while Japan and Korea are mulling over whether to indeed join or not. The TPP’s goal is to eliminate all tariffs by 2015. The Philippines has also been encouraged by certain sectors to join the TPP.
As anybody who’s read this column would know, I’m not exactly the biggest fan of FTAs. They’re difficult to follow, bureaucratically a nightmare, and promise benefits that in reality have yet to be met. For a country in which only a handful (at best) actually understand the operation of the rules of origin, sovereignty and its implications, dispute settlement and the problems of forum-shopping, classification and valuation rules, sanitary and phytosanitary measures, and technical barriers to trade (plus the all important issue of smuggling), our enthusiasm for FTAs is truly baffling.
And recent studies have not done anything to assuage my wariness of FTAs. A working paper released by the ADBI ("FTAs and Philippine Business: Evidence from Transport, Food, and Electronics Firms") found that only around 20% of the companies surveyed here in the Philippines have taken advantage of the AFTA preferential rates (pretty much the same figure that your friendly Trade Tripper suspect all these years). As discussed by the ADB working paper, a lot of Philippine firms are still baffled by the mechanics of FTAs. Other reasons have to do with "delays and administrative costs and the use of export incentives other than FTA preferences." Also, "arbitrary classification of product origin, product exclusions, and the confidentiality of information required in origin applications, [as well as] small margins of preference and non-tariff barriers employed by FTA partners." Finally, a UN University Working paper confirmed the disparity in benefits between rich and poor countries partnering up in FTA’s.
Besides, going back to the TPP, if Australia, Japan, and Korea do join, with their adeptness in protecting their agricultural sectors, how would such benefit the Philippines, struggling as it is with its agricultural products? Our agri sector contracted by 2.62% in January to September, with all the DA could be confident about is ending the year with "at least zero" growth.
As for the FTAAP, it is a free trade agreement that is far more complex and ambitious than the Philippines has ever seen. And a very good reason to be cautious about it can be summed up in one word: JPEPA. Up to now, it is still unclear whether JPEPA actually brought the benefits it promised. And note that this is an agreement that opened up our domestic market to Japanese steel, auto parts, and electronics at low or zero tariffs. This is in exchange for our nurses being able to work in Japan. Reportedly, however, the Japanese made their domestic rules (not covered under JPEPA) so stringent that so far only one Filipina nurse was able to get employment there (apparently, the Indonesians fared better, as they allegedly had two nurses able to work in Japan). So much for balanced trade.
Or perhaps the Indonesians are just being smarter than us over this. Their trade minister, Mari Pangestu, declared that their priority, rather than the FTAs, is to wrap up Doha. And her reasoning is so simple and correct that it’s a mystery why we can’t think the same: "At the moment, the deadlock or problems that we face in negotiating the WTO is the same as what you are going to face in FTAAP negotiations or TPP negotiations, and maybe even more because TPP is what’s called a very comprehensive or high-standard trade agreement. So if you cannot solve it in the WTO, it will be difficult to solve it in FTAAP or TPP. So for a smallish country like Indonesia with limited resources for negotiations, let’s prioritize the multilateral negotiations first."
Spot on. With all the currency and capital inflow issues, the uncertainty that a jobless US economic recovery brings and a China that showed a willingness to stop vital mineral exports to a trading partner for political ends, to make one’s country’s life more complicated by FTAs is inexplicable.
Besides, if WTO DG Lamy is correct, Doha could be a done deal by next year. This time, he may well be right and our country should focus on that rather than mucking around with FTAs. That and on building more efficient Philippine trade institutions (i.e., the Philippine Trade Representative Office) and capabilities.