Philippine trade with US and China

was my Trade Tripper column in the 5-6 June 2015 issue of BusinessWorld:

While everybody is fixated on United States and China movements in relation to the Pacific, another set of maneuverings is happening practically unnoticed by most, and that is in the area of trade. And the effects of these could be equally significant in the longer run. It also would be a good opportunity to determine Philippine strategic thinking on such issue, particularly if there is an effective inculcation of the truism that foreign relations is but an extension of domestic policy.

The Trans-Pacific Partnership is an expanded version of the 2005 Trans-Pacific Strategic Economic Partnership Agreement and currently includes as parties Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States. The TPP is said to expand provisions of the North American Free Trade Agreement that favor US domestic industries, as well as borrowing heavily from the US-Korea Free Trade Agreement (FTA) template.

The TPP, however, is not without further controversy: the negotiations have been so secretive that many in the US complain about being in the dark regarding its contents. Zero Hedge, one of the more colorful financial blogs available online, had this interesting May 22 article en route to President Obama’s getting Trade Promotion Authority for the TPP: “While the actual contents of the TPP may be highly confidential, and their public dissemination may lead to prison time for the ‘perpetrator’ of such illegal transparency, we now know just how much it cost corporations to bribe the Senate to do the bidding of the ‘people.’ In the Supreme Court sense, of course, in which corporations are ‘people.’”

Hence, “using data from the Federal Election Commission... shows all donations that corporate members of the US Business Coalition for TPP made to US Senate campaigns between January and March 2015, when fast-tracking the TPP was being debated in the Senate. The result: it took a paltry $1.15 million in bribes to get everyone in the Senate on the same page.”

The Regional Comprehensive Economic Partnership (RCEP), on the other hand, is 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 lineup 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.

A meeting at the ministerial level is supposed to take place in July in Kuala Lumpur, with discussions ranging from goods, services and investments, all with an eye to concluding the RCEP by 2015.

However, as East Asia Forum’s Sanchita Basu Das (“Is RCEP just the same old trade paradigm?”, Dec. 6, 2014) points out: “The RCEP agreement is plagued by the fact that participating countries are at different stages of development. Concerns have been raised that any kind of deeper economic integration could lead to huge social costs incurred by the less developed member economies. This could be due to structural adjustments and the risks of falling into a low-cost labor trap, where there is little incentive for domestic industries to move up the value chain.”

The point is that a fundamental change in thinking about economic and trade policy is sorely needed. Unfortunately, our response to international trade seems to be stuck in the 1990s. We fail to realize, as William H. Overholt ably pointed out, that the General Agreement on Tariffs and Trade and the World Trade Organization “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.” However, “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: “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.”

Aside from the US-China dynamic, the complexities brought up don’t even approximate the intricate effects that global finance has on trade. As well as the forgotten area of culture.

Though your friendly neighborhood Trade Tripper still believes in multilateralism, nevertheless, the Philippines needs to wake up to realities and muster capabilities for greater degrees of calculation.

It would be useful therefore knowing what our presidential aspirants’ (and their possible economic teams) thinking on the matter.