Make international trade an election issue

my Trade Tripper column in the 15-16 April 2016 issue of BusinessWorld:

International trade in what is practically wholly an election year for the United States (and the Philippines) remains an uncertainty. Trade growth is expected to shuffle along at 2.8% this 2016, thus representing no movement at all from last year while at the same time hardly giving confidence as to the direction for this year.

World Trade Organization Director-General Roberto Azevêdo admits to the “disappointing rate.” Such will “be the fifth consecutive year of trade growth below 3%. Moreover, while the volume of global trade is growing, its value has fallen because of shifting exchange rates and falls in commodity prices. This could undermine fragile economic growth in vulnerable developing countries. There remains as well the threat of creeping protectionism as many governments continue to apply trade restrictions and the stock of these barriers continues to grow.”

Nevertheless, the WTO is hopeful that “imports of developed countries should moderate this year while demand for imported goods in developing Asian economies should pick up.”

Such should be good news for the Philippines, which needs it. Exports went down 3.9% (year-on-year) to $4.19 billion as of January this year, representing the lowest value in three years and the 10th consecutive month of decline.

That amidst a record trade deficit, with January 2016 posting $2.64 billion shortfall vis-à-vis 2015’s $40.86 billion. Place that within the context that our imports are at highest levels for the past five years.

A substantive reason for the trade deficit is China.

Despite increased trade to the US, EU, and Japan, the Philippines suffered a decline of $405.65 million (8.6%), to a country that represents 9.7% of our export trade. ASEAN sales went down as well by $630.02 million (9.5%), which hurts as it represents 15% of our export destination.

Couple the foregoing with the fact that the Philippines placed only 7th among ASEAN countries in foreign direct investment (at least for the first half of 2015). The country was able to grab only a 6% share of the FDI’s for the region, with nearest competitor Vietnam achieving almost triple (17%) that. The top FDI getter for that same period was Indonesia (31%). In effect, the Philippines was able to edge out only Cambodia, Laos, and Brunei (with a total share of 3%).

Now, a trade deficit alone doesn’t necessarily mean a bad economy (with the concomitant unemployment). But the other factors that should compensate for it aren’t kicking in as well. The low FDI level is therefore significant (mirrored in our atrociously pathetic tourism rate). Another is this government’s inability to jack-up infrastructure spending.

But this being an election year, the villain inevitably becomes international trade. One sees this, for example, in Mar Roxas’ rejection of the Trans-Pacific Partnership (TPP), which he goes to the extent of calling “dead.” But that position, at least as reported in the newspapers, is a bit simplistic.

First of all, the TPP is not dead (all political rhetoric to the contrary).

While it may not take precedence this year in the US (all normal politicians predictably avoid honestly talking about trade during campaign seasons), the fact is that the member countries signed it and just duly biding for the opportunity for their domestic constitutional processes to confirm it.

And while the TPP may pose problems for the Philippines, it’s not with agriculture. If there is something in that area to worry about, it’s Vietnam (a TPP member) pulling past the Philippines on agri exports.

No. The big problem with the TPP is its Investor-State Dispute Settlement System. Add to that our long refusal to be competitive. Both of which I wrote about previously.

The fact that the TPP has been put on hold, specially for the US, should make us think that it gives us time to better prepare for it but not to dismiss it.

As for competitiveness, one big area that really needs reform is the rule of law. The 2016 Index of Economic Freedom rates us quite low in that regard (property protection is 30/100; corruption at 38/100).

The other is “ease of doing business,” which deteriorated in the past year. The World Bank Group report for 2016 sees the Philippines ranked 103 (from a previous 97) out of 189 countries. In terms of ease of starting a business, we ranked 165. Which isn’t surprising as our government requires at least 16 major steps and around 30 days to legally create a start-up.

To sum: voters would do well to demand from the candidates their honest views on international trade.

Rather than pandering to the old mercantilist/protectionist view, we should encourage and support politicians that take the mature position of leading the country towards a system proven to be the best at generating income for all, as well as being an important factor in removing domestic inequalities.

Provided, of course, that the necessary competitive measures within the country are not hindered by petty politics or leftist ideologies.