Philippine trade: identity as strategy

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.