is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:
In the olden days it used to be that a trade
lawyer had to grapple with only one set of initials: WTO. Of course, if
you’re in Europe you add EU, in the States it was NAFTA, and if you’re
from the Philippines you also had the AFTA. But all that is gone now.
What with the moribund Doha Round and leftist groups celebrating the
comatose state of the WTO, international trade has become a far more
confusing, difficult place.
All who follow this column knows that your friendly neighborhood
“Trade Tripper” has never been a big fan of FTAs. And try as he might
encouraged all to work for and support Doha and for forward movement for
the WTO. To no avail. The anti-trade types got what they wanted, to the
disadvantage and detriment of our economy.
As I wrote many, many times previously, FTAs are never easy. Increasing
their number merely results in an incredibly complex international
trading system. Considering that local businessmen have continuously
raised concerns regarding the Philippines’ capacity to keep up with its
multilateral trading commitments, this obviously would be multiplied in
view of the proliferation of FTAs. This complexity can be seen on the
surface alone: the rules of origin, dispute settlement jurisdictions,
non-tariff subjects such as market access and trade facilitation,
sanitary and phytosanitary measures, technical barriers to trade, and
(as always) the issue of smuggling. And the foregoing doesn’t even
approximate the intricate effects that global finance has on trade.
Now, the Philippines need to confront this word: “adverse selection.” It
refers -- roughly -- to a situation where a wrong decision is made due
to the asymmetric information or even possession of wrong information by
the parties. Adverse selection usually comes with another concept,
“moral hazard”: which is the undue taking of risks and even repeating
hazardous behavior due to the fact that the costs or potential costs or
damages will be borne by others anyway.
The reason I say this is that the Philippines, despite most of its
citizens not even aware of the existence of these negotiations, sooner
or later would need to make a decision: to go with the Trans-Pacific
Partnership or the Regional Comprehensive Economic Partnership?
The TPP is an expanded version of the 2005 Trans-Pacific Strategic
Economic Partnership Agreement and currently includes as parties or
potential parties Australia, Brunei, Chile, Canada, Malaysia, Mexico,
New Zealand, Peru, Singapore, the United States, and Vietnam. Japan and
China are also considering or being considered for TPP membership.
The TPP, however, is not without controversy: the negotiations have been
so secretive that even US members of Congress complain about being in
the dark regarding the contents thereof. This is interesting because US
President Barack Obama will need to have the good graces of Congress
anyway considering that he has to have trade promotion authority to
enter the US into the TPP.
In any event, the secrecy resulted in many criticisms about the TPP the
validity of which is hard to evaluate. Thus, comments have been made
about the TPP’s damaging effects on medicine prices, on intellectual
property interests, and non-tariff matters such as environmental and
labor rights. Most interesting is the criticism that the TPP empowers
multinational corporations to the extent of allowing them to sue States
directly (overriding State immunity).
The RCEP, on the other hand, is a proposed FTA between the ASEAN members
(Philippines, Indonesia, Malaysia, Singapore, Thailand, Brunei, Burma,
Cambodia, Laos, Vietnam) and Australia, China, India, Japan, South
Korea, and New Zealand. It was seen as combining two prior trade
proposals: the East Asian Free Trade Agreement (that had ASEAN, China,
Japan and South Korea) and the Comprehensive Economic Partnership (same
line-up as EAFTA but with the addition of Australia, India and New
Zealand). Like the TPP, it is seen to be an FTA of high standards and
comprehensiveness, including provisions that make for deeper integration
between the parties. Expected to be concluded by 2015, the RCEP also
has the added benefit of having an “open accession clause,” whereby
participation by a country can come at a later date at the option of
Both the TPP and the RCEP claim to provide stability and momentum for
international trade. Both also claim to remove the problems that a
“noodle bowl” of trade agreements brings. However, such assertions need
further examination, particularly as to how the depth and complexity of
the said agreements will allow full Philippine utilization and benefit,
considering that up to now we haven’t even come close to attaining the
rewards promised by AFTA.
But the more important consideration for us perhaps lies beyond merely
trade and the bigger picture: the TPP has the US in it (and perhaps
Japan) but not China, while the RCEP has both China and Japan but not
And anybody who believes that both the TPP and RCEP can survive together is simply living in a fool’s paradise.