is my Trade Tripper column in this weekend issue of BusinessWorld:
It will be likely correct to say that when it comes to international trade, the Philippines essentially relies on “road maps.” And indeed we do have one, particularly to “eliminate” poverty by 2016, which coincidentally is the year the term of the present administration ends. Usually, our road maps focus on certain “key sectors,” such as agriculture, business process outsourcing, road infrastructure, power infrastructure, manufacturing, mining, and tourism.
The question, really, is how effective those road maps are. Any good plan goes beyond concrete goals to include possession of necessary information grounded in experience and real world circumstances. And, at present, the issue for the Philippines (and study after study confirms this) has to do with competitiveness. Because no matter how many trading partners we have or trade agreements signed, the same would still not matter when brought alongside demands of competitiveness.
A significant area of our competitiveness issues goes beyond that of red tape (though indeed a huge problem) and corruption (which still needs to be actually addressed). Equally as important are management practices and productivity. When one looks at the world competitiveness surveys, these are the usually overlooked areas where the Philippines lags behind its competitors. This is a real issue, with quite actual, quantitative consequences.
Unfortunately, it has to be said as well, our response to international trade seems to be stuck in the 1990s. We fail to realize, as William H. Overholt (“It’s time to update our thinking on trade”) ably pointed out, that the “GATT and the WTO were devised for a simpler era, when it was possible to think about world trade in the way Ricardo taught -- namely that a good is produced in one country and consumed also in a single country. That two-country model worked relatively well until about 1978, when China started opening its economy by establishing special economic zones across the border from Hong Kong. By the last decade of the 20th century, production had become a complex global process. The logic of increasing efficiency by reducing trade barriers remained completely valid, but policy adaptation of that logic to a new era has faltered.”
This inability to recognize how trade evolved also feeds our continuing incapacity to measure it properly. An idea of this can be taken from Stephen Grenville (“Are we measuring international trade correctly?”): “Perhaps the most fundamental change in international trade in recent decades has been the development of multinational ‘supply chains.’ The production process has been ‘unbundled,’ with different stages of production taking place in different countries. An iPad is assembled in China, but only $10 of the total production costs takes place in China; most of the total cost comes from inputs made in other countries, including the intellectual property and design input from Apple in California. In conventional trade statistics, exports are counted in gross terms, so the cost of the assembled iPad (including those elements imported into China) is counted in China’s export figures.”
Essentially, what he suggests is to examine “value-add” statistics, which provides a perspective on the value of services. Admittedly, “value-add statistics don’t replace the conventional gross statistics, which are available more quickly and don’t rely on so many assumptions. Nor are they the last word in the ongoing process of refining statics to reflect a changing world. But they provide a valuable alternative perspective, sometimes with policy implications. At the very least, they are a reminder of the complexity of international trade.”
And these complexities increase exponentially with free trade agreements (FTAs). And I have long bemoaned our inability to take advantage of the FTAs we joined. Studies have shown (and confirmed) that Philippine use of the FTAs, particularly that of the 1992 Asean Free Trade Area, have consistently lingered in the region of 20-25%.
Of course, trade officials keep underscoring initiatives to increase awareness of the said preferential trade provisions available to our businessmen. But, frankly, I’ve been dealing in international trade for more than a decade now and I know that it would definitely take more than seminars or workshops to address this perpetual utilization issue. And our products’ competitiveness is still paramount: even assuming that markets are indeed opened, that does not necessarily mean that the consumers in those markets will buy our products or services. The Japan-Philippines Economic Partnership Agreement is a good example of this.
Overall, there has to be a greater degree of calculation relative to our trade policy. This is all the more compounded by our lack of governmental resources and the obsessive insistence that our trade policy research and negotiations work be kept within a small pool of bureaucrats.
And while ideally, multilateralism remains the best avenue for the Philippines, nevertheless, I encourage waking up to reality. The options open to us -- multilateral, regional, bilateral -- all require a tight balancing of priorities and a refusal to think in dichotomies.
But ultimately, it requires from our leadership a keen concrete sense of what the Philippines’ place in the world is.
27.11.14
The WTO's faded glory
was my Trade Tripper column in the past weekend issue of BusinessWorld:
To say that the World Trade Organization (WTO) is struggling is an understatement. Particularly regarding relevance, the WTO is grappling with a global economy that currently seems to have no use for it. That may not seem like the case here, with law schools in the Philippines still treating it (i.e., “international trade law” or “international economic law”) as some sort of prestige program. But the truth is that local “trade lawyers” today are merely living off faded glory.
It doesn’t mean that the WTO is dead and should stay dead. But it would have to take a fair amount of change at profoundly varying levels for it to recover its significance.
And the stakes are worth it. As I wrote previously, the best way to ensure “developmental” success for developing countries is through multilateralism. But that requires the developed countries to practice what they preach. Instead, the tact of the developed countries is to break up developing country positions through regional or bilateral trade agreements.
Though the United States is more successful than the European Union in that aspect, yet, as seems systemic in anything having to do with international affairs today, the US’ (more specifically, the Obama administration’s) lack of leadership in this area is calamitous.
Melbourne economics professor Peter Lloyd more descriptively states: “The US has joined the EU in preferring improved market access through preferential trade agreements with small groups of countries over general multilateral trade liberalization. Now in the WTO few members seem convinced of the gains from multilateral trade liberalization. After a session of negotiations relating to industrial goods in 2009, the chair likened himself to ‘the captain of a boat no one seemed to want to board.’”
Obviously, there is a need to “fix” the WTO. But how? Most blame the “consensus”-driven system of the WTO, as Emily Jones reported: “The World Trade Organization’s (WTO) director-general, Roberto Azevêdo, has called for an urgent shake-up of his institution. Last week, he declared the WTO to be in ‘the most serious situation [it] has ever faced,’ and now he is convening crisis talks with member countries. One of the main reform proposals, reportedly advocated by the United States and the European Union, is to move away from consensus-based decision making -- one of the WTO’s founding principles. That might boost efficiency, but it also could jeopardize one of the WTO’s greatest assets: its legitimacy.”
However, such presents an irony. Developed countries only resorted to that reasoning simply because of Doha.
Doha’s unintended importance is that it publicly revealed developed country calculations: launch a round with some nice motherhood statements, let the developing countries flounder in their under-resourced and unorganized way through the talks, conclude like Uruguay, and developed rich countries happy again. Unfortunately, the developing countries were apparently not given copies of the script. Learning from the Uruguay Round and gaining further experiences from Cancun and Hong Kong, the poorer countries learned to stand their ground and maintained focus.
Hence, a further aspect of developed country efforts to “fix the WTO” and that is free trade agreements. As Jones puts it: “These efforts include the US-EU Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership. The US and the EU are also leading the charge on the Trade in Services Agreement (TiSA), assembling a coalition of like-minded WTO members for closed-door negotiations on further liberalization and new rules for their mutual trade in services. To date, none of these non-WTO talks include the other major players in global trade -- China, India and Brazil. The reason most of the large ‘plurilateral’ negotiations are taking place outside of the WTO is simple: agreements within the WTO need the approval of all members to proceed. But unanimous approval is likely only when the content of agreements is not controversial -- hence the proposal to abandon the rule.”
Which leads to the second irony: that the trading system is stuck due to the developed countries’ inability to recognize fundamental developments. As Fung Global Institute William H. Overholt writes: “We must begin addressing the world as it is and will be, not the world of generations past. Ironically, in the process the WTO remains crucial to a vibrant world economy. Without the WTO’s dispute settlement mechanism, trade wars will ignite everywhere. By allowing the WTO system to decay, and by blaming globalised trade for problems that are unique to the past generation, we risk going back to pre-World War II trade wars. We need a modern, multilateral structure that updates the WTO, not a degeneration of the global trade and investment system based on a failure to recognize the shape of the new world we are entering.”
Unless that happens, the likely probability is that the WTO remains sidelined. And with that, the interests of developing countries.
To say that the World Trade Organization (WTO) is struggling is an understatement. Particularly regarding relevance, the WTO is grappling with a global economy that currently seems to have no use for it. That may not seem like the case here, with law schools in the Philippines still treating it (i.e., “international trade law” or “international economic law”) as some sort of prestige program. But the truth is that local “trade lawyers” today are merely living off faded glory.
It doesn’t mean that the WTO is dead and should stay dead. But it would have to take a fair amount of change at profoundly varying levels for it to recover its significance.
And the stakes are worth it. As I wrote previously, the best way to ensure “developmental” success for developing countries is through multilateralism. But that requires the developed countries to practice what they preach. Instead, the tact of the developed countries is to break up developing country positions through regional or bilateral trade agreements.
Though the United States is more successful than the European Union in that aspect, yet, as seems systemic in anything having to do with international affairs today, the US’ (more specifically, the Obama administration’s) lack of leadership in this area is calamitous.
Melbourne economics professor Peter Lloyd more descriptively states: “The US has joined the EU in preferring improved market access through preferential trade agreements with small groups of countries over general multilateral trade liberalization. Now in the WTO few members seem convinced of the gains from multilateral trade liberalization. After a session of negotiations relating to industrial goods in 2009, the chair likened himself to ‘the captain of a boat no one seemed to want to board.’”
Obviously, there is a need to “fix” the WTO. But how? Most blame the “consensus”-driven system of the WTO, as Emily Jones reported: “The World Trade Organization’s (WTO) director-general, Roberto Azevêdo, has called for an urgent shake-up of his institution. Last week, he declared the WTO to be in ‘the most serious situation [it] has ever faced,’ and now he is convening crisis talks with member countries. One of the main reform proposals, reportedly advocated by the United States and the European Union, is to move away from consensus-based decision making -- one of the WTO’s founding principles. That might boost efficiency, but it also could jeopardize one of the WTO’s greatest assets: its legitimacy.”
However, such presents an irony. Developed countries only resorted to that reasoning simply because of Doha.
Doha’s unintended importance is that it publicly revealed developed country calculations: launch a round with some nice motherhood statements, let the developing countries flounder in their under-resourced and unorganized way through the talks, conclude like Uruguay, and developed rich countries happy again. Unfortunately, the developing countries were apparently not given copies of the script. Learning from the Uruguay Round and gaining further experiences from Cancun and Hong Kong, the poorer countries learned to stand their ground and maintained focus.
Hence, a further aspect of developed country efforts to “fix the WTO” and that is free trade agreements. As Jones puts it: “These efforts include the US-EU Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership. The US and the EU are also leading the charge on the Trade in Services Agreement (TiSA), assembling a coalition of like-minded WTO members for closed-door negotiations on further liberalization and new rules for their mutual trade in services. To date, none of these non-WTO talks include the other major players in global trade -- China, India and Brazil. The reason most of the large ‘plurilateral’ negotiations are taking place outside of the WTO is simple: agreements within the WTO need the approval of all members to proceed. But unanimous approval is likely only when the content of agreements is not controversial -- hence the proposal to abandon the rule.”
Which leads to the second irony: that the trading system is stuck due to the developed countries’ inability to recognize fundamental developments. As Fung Global Institute William H. Overholt writes: “We must begin addressing the world as it is and will be, not the world of generations past. Ironically, in the process the WTO remains crucial to a vibrant world economy. Without the WTO’s dispute settlement mechanism, trade wars will ignite everywhere. By allowing the WTO system to decay, and by blaming globalised trade for problems that are unique to the past generation, we risk going back to pre-World War II trade wars. We need a modern, multilateral structure that updates the WTO, not a degeneration of the global trade and investment system based on a failure to recognize the shape of the new world we are entering.”
Unless that happens, the likely probability is that the WTO remains sidelined. And with that, the interests of developing countries.
18.11.14
Submission to the Ad Hoc Committee on the Bangsamoro Basic Law, House of Representatives Congress, 18 November 2014
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