APEC in Manila’s missed opportunities

my Trade Tripper column in this 27-28 November 2015 issue of BusinessWorld:

Probably it’s just me.

But try as I might, it’s really difficult to justify the hardship that our Metro Manila people went through by weighing it against the supposed benefits of hosting the Asia-Pacific Economic Cooperation (APEC) Summit in Manila. Granted that hosting it is by country rotation. And there was really no reason to refuse hosting duties. Still, effort (or pain) should match the result. And hence understandable why people are still scratching their heads, muttering “what was that all about?”

Of course, the government touts the fact that the number of “tourists” that visited the country during APEC week (around 11,000) exceeded government expectations. But how many of them actually spent money on our establishments, as opposed to us spending on them via taxpayer money?

Then there were the bilateral deals signed at the sidelines of APEC. But even that does not give comfort.

Most of those supposed agreements are like the promises people make to newly met friends at a party: all exuberance and best wishes but as to whether they actually amount to anything concrete is another thing.

The US gave us a couple of ships: a research vessel and a coast guard cutter to repel any Chinese intrusion against our waters. There was the Russian deal to explore a possible trade agreement. A memorandum of agreement with Vietnam regarding rice. The rest were technical agreements on drugs, crime, double taxation, and expressions of support.

The thing is: all of those bilaterals could have been signed without APEC and certainly not at the cost (direct and economic) of P40 billion.

On the other hand: what was hoped that APEC could have done, which was expression of unity against Islamic radicalism, fell again increasingly weak. Aside that is, from the petulant answers of President Obama at his press conference here.

There was, of course, the small and medium enterprises (SME). Which was a decided emphasis that the Philippines chose (as host) for the APEC meeting. Thus, the drumbeat was that APEC could spur SMEs to innovate and be more participative in global trade.

Which is all well and good. Were it not for this: trade agreements don’t really provide innovation or any form of assistance (unless funds for capacity building or special/differential treatment are placed in the mix, which nowadays would be minimal at best).

Trade agreements give competition and the markets to compete in. That’s it.

And if the SMEs are hobbled by high taxes, unproductive or untrained workers, high transportation and power costs, high legal wages, unreliable infrastructure, and unreliable legal protection then the chances of them benefiting from global trading arrangements is illusory.

What SMEs need, particularly Filipino SMEs, are not trading arrangements but rather internal Philippine measures that would enable them to unleash their potential. Which is something they’re not getting due to the quality of the politics we have here.

In fact, more and more regional trading arrangements could actually be harmful for SMEs. Particularly for developing countries like the Philippines.

Bilateral and regional trade deals tend to benefit richer countries at the expense of poorer ones. The Economist, a staunch advocate of liberalized trade, way back in 2004 (“Trade Policy: Not All Trade Agreements Are Good”), also took note of the darker side of free trade agreements: “Most bilateral agreements are far from ideal. Those between poor countries often exist more on paper than in practice. Bilateral deals between rich and poor tend to be better implemented, but are marred by restrictive rules of origin and by the routine exclusion of important agricultural products... Bilateralism may be a route to freer global trade, but it is, at best, a risky one.”

This seeming disparity between the benefits going to richer countries as opposed to that going to poorer countries is affirmed, for example, by a United Nations University working paper (“North-South vs. South-South Asian FTAs: Trends, Compatibilities, and Ways Forward”; 2010). The paper’s empirical analysis do reveal “that several incompatibilities exist between N -- S (North -- South) and S -- S (South -- South) FTAs (Free Trade Agreements) in core areas including tariff liberalization, rules of origin, liberalization of services trade.”

Which leads to the other thing that the APEC meeting here in Manila could have done but didn’t: really (rather than issue mere motherhood statements) renew commitment to multilateral trade and revive the World Trade Organization.

Jack Ma of Alibaba was correct: “Let’s agree on something that will really help the small guys,” he said (referring to SMEs) and that is a “WTO 2.0” is important. “In the past 20 years, WTO (World Trade Organization) did for big companies. In the next 20 years, we should use WTO to support small guys because if we cannot change it, it will be a disaster for everybody.”

While FTAs and regional agreements tend to be discriminatory, confusing, and even divisive, a strengthening (“rebooting,” to imitate Ma’s analogy) of the WTO would give businesses of poorer countries greater certainty, simplified (due to unified) trade rules, as well as mitigation of risks.

Well, there’s always next time.