Rice is what we make of it

my Trade Tripper column in this 1-2 October 2016 issue of BusinessWorld:

If there is ever a product that most profoundly shaped Philippine politics, economic policy, and international trade, rice (along with sugar) would have to be it. Yet most policy initiatives dealing with rice are sadly defensive. Such, despite the fact, that most Filipinos implicitly profess heavy emotional investment in that little grain.

The Philippine Rice Research Institute, for one, considers “zero rice importation or self-sufficiency has always been the elusive goal of Philippine agriculture policies regardless of political dispensation. Any inferior goal is unpatriotic and criticized as a failure of the government and the nation as a whole.”

Strong stuff.

Pons Intal and Marissa Garcia (in a 2005 PIDS study) discussed the magnitude of rice’s political clout in this way: “the price of rice has been a significant determinant in election results since the 1950s.” That includes the Martial Law years. A possible exception is Estrada’s 1998 popular runaway election.

The problem is basic: we only have around 4.7 million hectares of land suitable for rice. Compare that with 7.8, 10.8, and 13.8 million hectares of Vietnam, Thailand, and Indonesia respectively. Those millions of hectares are irrigated well and fully by natural large river systems.

The Philippines does not have an equivalent inherent irrigation source and the man-made ones are poorly maintained. Ironically, the modern rice breeds we use (same with Vietnam, Thailand, and Indonesia) for greater yields and to survive require heavy amounts of water. Unfortunately, our incoming water flow is almost appallingly nil compared to the aforementioned three countries.

Thus, rice yields are at 5.75 tons per hectare (t/ha)., 3.1 t/ha., and 5.13 t/ha. for Vietnam, Thailand, and Indonesia, respectively. The Philippines does have a respectable 4 t/ha. but for an area less than half of its competitors.

Add the fact that Vietnam (land area of 332,698 sq. km.) has a population of roughly 92 million. Thailand 513,120 sq. km., for a 67 million population. Indonesia 1,904,569 sq. km., for a 255 million population.

The Philippines (area 300,000 sq. km.) needs to feed a population of 100 plus million. Rice consumption, incidentally, means not only as food but also as seed, animal feed, or other non-food uses.

The population increase also relates to the need to convert arable land for residential, commercial, or industrial purposes.

And yet, to add to the fundamental disadvantages that the Philippines has regarding rice production, is the inability of the rice industry to accept and adjust to the same: “farmer interest in rice farming has diminished through the years due to the increasing cost of rice cultivation brought about by the rising opportunity cost of labor and land and the availability of lower priced imported rice, which further dampened incentives for rice production.” Then, also “the lack of proper maintenance of irrigation facilities has meant the deterioration of these systems and the reduction in the effective life of these investments and area coverage.” (Intal and Garcia)

The issue of rice protection has cropped up (pun intended) as a decision is being made to lift WTO quantitative restrictions. When that happens, cursing and gnashing of teeth will be predictably heaped on the WTO, the multilateral trade system, globalization, and the free market.

But then: while protected industries welcome quantitative restrictions or high tariffs, the un-talked about logical unwelcome offshoot is smuggling.

So, despite the Philippines being among the world’s top importers of rice, we still had a rice smuggling problem amounting to almost 50,000 metric tons weekly (as reported by The Diplomat in 2014).

The problem is not the WTO nor smuggling; it’s the inability to feed the huge demand. An inability existing even before the Republic was born.

We’ve practically been a net importer of rice since the 1870s. Except for a small window in the early 1970s, we’ve never achieved rice self-sufficiency. And our insistence in becoming so only resulted in rice prices amongst the most expensive in Asia. Place that within the context of a poverty rate of around 25%.

The Foundation for Economic Freedom’s position calling for the removal of the quantitative restrictions is, I think, the right one: it will “lower rice prices, reduction in hunger, and lower inflation”. In the end, the poor benefits.

And food security should be better defined as managing our food stocks rather than insisting on production self-sufficiency.

Finally, we need to explore other options aside from mere restrictions, importation, and greater budgetary outlay.

One way of thinking about it: do we view local rice production as a means of feeding our citizenry or can it be shifted for cultural, social, tourism, and heritage purposes?

In short, retain the lands most suited for rice, employ willing and able farmers, yet without the pressure of rice production as the source of staple for the whole country.

By reframing rice’s importance, not necessarily now but thinking long term, we can then limit and put focus regarding people, land, money, and effort (including training and regulation) to a rice production that is doable and reasonable.

Trump and the continuing ignorance on trade

my Trade Tripper column in this 9-10 July 2016 issue of BusinessWorld:

You know how messed up the Left is when it’s getting what it wants and yet remains angry.

After all, last week brought forth finally a global figure willing to say what Leftists have been saying for so long:

“We do not need to enter into another massive international agreement that ties us up and binds us down.” We have a “leadership class that worships globalism.” And finally, “globalization has made the financial elite who donate to politicians very, very wealthy... but it has left millions of our workers with nothing but poverty and heartache.”

This personality promises to keep jobs domestically (rather than being shipped abroad), to apply protective tariffs so that local industries are freed from foreign competition, and to keep his country away from signing into new trade agreements.

And yet the Left has been strangely silent as far as Donald Trump’s trade policies are concerned.

After railing for so long against international trade, globalization, and multinational corporations, one would think that Donald Trump is the change the Left has been looking for -- the one who speaks truth to power.

It’s an interesting study in politics and psychology really.

In the end, there’s the bind, with the Left forced to contradictorily respond to Trump’s trade pronouncements by relying on the fallacy of lack of charity (akin to ad hominem): since Trump said it, then something must be wrong.

But the thing is, no matter who said it, such criticisms of trade (and globalization) are just plain mistaken. Period.

Such ignores the benefits of trade in a globalized economy: lower prices, improved quality products, greater transparency in government procurement and investment rules, increased resources for environmental protection, better labor standards, as well as larger market access for developing countries (like the Philippines), thus translating to higher incomes and more jobs.

And Trump is utterly ignorant, as David French (Free trade isn’t a burden, March 17, 2016, National Review) points out, of the fact that the US “largely embraced free trade not for the sake of the few but because it has benefited the many. Families benefit from less expensive goods. We enjoy affordable access to technology unthinkable ten short years ago, with even poor families owning smartphones and televisions that couldn’t be bought for any sum of money even last decade. By virtually every measure of material progress, we have access to more for less than ever before -- so much so that our primary national spiritual challenges include consumerism and materialism.”

The great thing about trade is the utter democratic attitude behind it: people run trade, not governments. Governments rarely buy and sell with each other. If ever, governments buy from the private sector, whether local or foreign. And international trade helps put a spotlight on such transactions by applying transparency rules present in most trade agreements.

It’s the people themselves that trade: from the multinational to the local cooperative to the small home business, exercising their freedoms to buy and sell goods and services with each other, except this time the exchange is done not merely amongst neighbors within a village but on a much bigger scale.

And the benefits of trade are enormous, extending beyond the simple numbers of economics. Countries get to know other cultures, bring peoples together, and -- quite notably -- provide a disincentive for resorting to armed conflict.

But sadly, if it can get away with it, government hinders trade through tariffs, quotas and non-tariff measures.

As I pointed in a previous column, Jonah Goldberg (Arguments against Free Trade are Deeply Flawed; April 2016) nails it: protectionists are “wrong philosophically. Countries don’t trade with other countries; businesses and consumers transact with other businesses and consumers. Protectionism is corporate welfare by other means.”

What it means is that every time regulations are imposed on trade, it is never the ordinary citizen that benefits. Prices go up (because tariffs and license fees essentially make up additional costs), the choices (and quality) amongst available products go down, and the incentive to create and produce is dissipated (thus lessening opportunities for more jobs).

Instead, who benefits are government bureaucrats squeezing businesses and consumers to shell out more money, entrenched interests (including elite families) that can now do whatever they want because they are babied away from competition, and the corrupt because regulations strongly provide incentives for those cheating the system.

In short, stopping international trade helps the old rich, prevents the creation of new wealth, and hurts the poor.

Arguably, there would be some dislocations or problems that accompany trading between countries but “the solution isn’t to rip up trade agreements or impose barriers that could trigger a trade war. The solution is to help workers maintain their standard of living through retraining, relocation or retirement if necessary.” (Counting the Ways That Trump Is Wrong on Trade; Paula Dwyer, Bloomberg, March 23, 2016).

Hopefully, the new Duterte administration brings a consistent, effective policy on international trade.

For a Philippine policy of greater international trade

my Trade Tripper column in this 4-5 June 2016 issue of BusinessWorld:

In news that quite likely caused the Left to undergo gleeful paroxysms (rather than their usual outraged convulsions), the IMF was said to report (via a paper, “Neoliberalism: Oversold” by Jonathan Ostry, Prakash Loungani, and Davide Furceri; June 2016) that “instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion.”

At a time when socialist and “progressive” ideas are poised to dominate the world, for the IMF -- which the British newspaper The Independent labeled as “one of the key international proponents” of neoliberalism -- to admit the foregoing seems to have put the proverbial final nail upon the hated free market.

However, closer study reveals the IMF’s verdict as narrower than publicized. The “assessment of the [neoliberal] agenda is confined to the effects of two policies: removing restrictions on the movement of capital across a country’s borders (so-called capital account liberalization); and fiscal consolidation, sometimes called ‘austerity,’ which is shorthand for policies to reduce fiscal deficits and debt levels.”

To emphasize: the point being made very clearly here is that at a time when protectionism is being lauded, international trade was not the actual target of the IMF’s confessional.

This is important because with a new Philippine government set to come in, the temptation to reverse policies on trade liberalization will predictably be there.

This amidst the bizarre politics within the very country everyone is looking for leadership in relation to trade and that is the United States. As described by Daniel Ikenson (“Trade on Trial, Again”; June 2016), its thinking on trade seems to have taken a turn to the surrealistically unfortunate:

“To cheering crowds, Donald Trump promises to slap duties on imports from China and Mexico and to use the tax code to punish US companies that outsource parts of their operations abroad. Bernie Sanders vows to tear up NAFTA and other free trade agreements, calling them ‘a disaster for American workers.’ Hillary Clinton, a co-architect of the Trans-Pacific Partnership trade agreement (TPP), now opposes that deal, while promising to disregard certain US treaty obligations with China.”

Nevertheless, if Filipino demagogues against trade are correct, then they should be very happy right now.

Philippine trade performance so far has been dismal: preliminary figures as of March, our exports went down by 4.5% (to $4.61 billion), while our imports went up by a whopping 11.71 or $6.36 billion. This represents a trade deficit of $7.1 billion.

The foregoing within the context of final trade figures for 2015 of $58.83 billion, with imports at $71.07 billion, resulting in a trade imbalance of $12.24 billion. That amidst a foreign direct investment performance averaging for the past five years (ending 2015) at P41129.66 million.

Most of our imports come from Japan: $12.4 billion (21.1% of total Filipino exports), United States: $8.8 billion (15%), China: $6.4 billion (10.9%), Hong Kong: $6.2 billion (10.6%), and Singapore: $3.6 billion (6.2%).

Top export partners (using the 1st semester of 2015 as basis) are Japan (at top spot), followed by China, US, Singapore, and Hong Kong.

The problem here is that our trade -- both in terms of goods and identity of our partners -- is narrow in breadth, with 82.7% of our exports revolving merely around ten product groups, while our trading partners list is dominated by Asian countries (the latter accounting for 60% of our total trade). APEC itself constitutes 80%. On the other hand, trade with the EU hovers merely around 11%. And business with Australia and New Zealand leaves a lot of room for improvement.

But we know the protectionist lobby (i.e., the Left backed up ironically by the oligarchs) by railing against trade merely ensures the continued poverty of 51% of Filipinos (who think themselves poor), 26 million Filipinos (that are actually below the poverty line), and at least 12 million of our citizens (sadly living in “extreme poverty”).

The problem, as Ikenson himself admits, is that “the case for free trade is not obvious. The benefits of trade are dispersed and accrue over time, while the adjustment costs tend to be concentrated and immediate. To synthesize Schumpeter and Bastiat, the ‘destruction’ caused by trade is ‘seen,’ while the ‘creation’ of its benefits goes ‘unseen.’”

Indeed, trade, whether in the form of exports (whose benefits should be obvious) or imports (which “deliver more competition, greater variety, lower prices, better quality, and new incentives for innovation”) can only be good for a still economically developing country like the Philippines.

Global inequality there may be, along with domestic inequalities. But such could certainly be mitigated by rising incomes: poorer countries that traded saw per individual incomes rise 3.6% higher than closed economies; and Jeffrey Sachs and Andrew Warner (1995) found that poor countries with more open trade grew six times faster than those resorting to protectionism.

In sum, the incoming Duterte administration would certainly do well to continue the trade liberalization policies that have helped sustain our drive for economic progress.

For a strategic, coherent Philippine foreign policy

my Trade Tripper column in this 28-29 May 2016 issue of BusinessWorld:

For foreign policy, perhaps it’s time for a reset. And resets need a plan. And plans involve a consideration of where one is and going to. That is why international relations fundamentally should be conducted in complete unity with the identity and values of the Philippines.

Or put another way, our foreign policy should be but the mere extension of our domestic, also recognizing that these are matters strategically, patiently, and deliberately played out in decades, and that there is more to foreign relations than just facilitating the documentation and regulation of our overseas workers.

For a start, this means a healthy regard for the rule of law. This is particularly true as we are pushing that principle in relation to China and the West Philippine Sea. If extra-judicial measures are resorted to, even de facto, as domestic policy, we can’t reasonably expect the Chinese to do the same.

It also means respecting human rights, particularly freedom of expression and religion. Considerably so, when there’s around 2.5 million of our countrymen abroad who we do not want discriminated against for being Filipinos (or acting or speaking or believing as they do).

This includes not raising the issue of the death penalty at this time, with about 80 Filipinos on death row overseas. It’s simply incongruous to request clemency for fellow Filipinos when we are putting them to death ourselves.

Going back to China, the incoming administration’s declared policy of reaching out and focusing on the positives of our relationship with it is the correct step.

Discussions and agreements should be hashed out allowing for mutual exploration and use of the disputed areas and resources, without necessarily prejudicing sovereignty claims at a more opportune future time.

Enhanced trade arrangements should be raised, particularly with the Philippines supporting and joining the Regional Comprehensive Economic Partnership agreement led by China. Along with the Silk Road aspirations of the latter.

Preferably, all that be at least initiated before the Hague arbitral tribunal releases its decision in our case against China.

As for Mindanao and the ongoing Bangsamoro issue, one fundamental change that should definitely be done is to overtly and declaratively categorize the same as a domestic matter. This includes having the Department of the Interior and Local Government leading negotiations from now on.

Further on that: revival of the BIMP-EAGA is a definite priority, along with a viable transport system among the trading countries. Long-term investment and tax incentives should be given, encouraging Filipino businesses from all over the country and overseas to set up in the area.

We need to strengthen our relationship with Russia. Trade between our two countries hovers around $1 billion, with around 4,500 overseas Filipinos working there (mostly in Moscow). Even adding tourism in, the economic aspect of the relationship is quite anemic considering that we are the closest tropical country to Russia (at least its eastern part) and pales in comparison with other APEC countries (of which Russia is a part of).

Nevertheless, the Philippines and Russia have always been generally in good terms: the former being the first democratic country to reach out to the then Soviet Union during the Cold War (the effort led by then Executive Secretary Alex Melchor and then Major Joe Almonte). In 2012, Russian naval vessels made a goodwill visit to the Philippines, signifying the potential for a deepening of relations between the two countries.

Also suggested are acquiring defense pacts with our longtime trading partners: Japan, Australia, New Zealand, and South Korea.

The Philippines and Australia already have a working arrangement on protection of our transport systems; we have an understanding with Japan on maritime security; and our military history with South Korea peaked with the 1950’s Philippine Expeditionary Forces to Korea.

Incoming president Duterte did well to reiterate the strong relationship the Philippines has with the United States. The shared political and cultural values are too embedded for us not to do so.

Though we should definitely join the Trans-Pacific Partnership, we must also encourage the US to commit itself to leading a revived multilateral trading arrangement through the World Trade Organization.

Furthermore, we should also realize that historically and geographically, we have the potential to play a significant role similar to that of Great Britain vis-à-vis the US and Europe. Perhaps more so.

Our location in the Pacific is not only strategic but also freed us from the various intra-continental conflicts between Vietnam, Thailand, Malaysia, Singapore, and Indonesia. This makes us not only the perfect conduit for the US towards Asia but also a pragmatically objective mediator for our neighbors.

Finally, even in diplomacy, talk is futile unless one has the muscle and will to back it up. Our foreign policy must be partnered with a strong, robust military.

Indeed, increasing defense spending and reviving mandatory military service for all college-age students is ironically a good first step towards a coherent, strategic foreign policy.

Making ASEAN our neighborhood and our business

my Trade Tripper column in the 21-22 May 2016 issue of BusinessWorld:

The best thing we could do now really is to set our sights a little bit closer to home. And our home is in ASEAN.

At the outset, let me explain that there is a difference between our government entering into further trade agreements without adjustment on the capacity of the bureaucracy (and by extension, the private sector) and private sector initiative to take advantage of already opened markets.

The latter is what we should be doing.

Most of our population isn’t even aware of the developments in ASEAN, much less their overall significance. So enmeshed are we with domestic politics that we fail to give proper focus to a region that forges on regardless of what happens in the Philippines internally but definitely significant impact the lives of its citizens.

ASEAN constitutes almost 20% of our trade: with exports at least $9 billion, while imports around $15 billion. The trade deficit of $6 billion should be seen as an opportunity for the Philippines and not a minus for ASEAN. Thirty-five percent of our ASEAN trade is interestingly with Singapore, a country of minimal resources but maximum talent.

As I’ve said before, trade may be perceived as global but geography is still paramount. Around 60% of our total trade is with Asian countries, with Japan and China leading the pack.

Competition from the other ASEAN countries shouldn’t even make Filipinos hesitate. ASEAN products have not obliterated Philippine business. And this is so even though tariffs for almost all products (except sugar and rice) have been down to nothing, true even way before the touted 2015 ASEAN integration.

If ever there’s a hurdle that needs to be overcome is the need to diversify Philippine product offerings.

If one looks at the top products traded within ASEAN, they consist almost of the same products that the Philippines primarily offers: mineral fuels and oils, electrical machinery, sound and television equipment, precious metals and jewelry; rubber and plastics; and chemicals.

Aside from foreign direct investment, tourism is positively one area for improvement, considering that the top five country visitors to the Philippines (i.e., South Korea, US, China, Japan, Australia), none are from ASEAN. Singapore comes in at 8th and Malaysia at 10th.

Another significant hurdle deals essentially with mind-set: that we do not consider ASEAN as “domestic.”

By this, I mean that we have not imbibed the thinking that ASEAN is our neighborhood, that we are part of this community.

This should change.

In terms of job opportunities, our co-ASEAN members should open doors for Filipinos. Consider that Singapore’s jobless rate is at less than 2%. Malaysia’s at around 3.4%, with a poverty rating of less than 1%. Indonesian unemployment is less than 6%, with poverty 11.3%. Even Vietnam registered unemployment of less than 2.5%, with poverty at above or high 12%.

The point is that the Filipinos, confronted with an unemployment rate of around 6.5%, (SWS surveys peg it somewhat at 22%) and poverty above 25%, could certainly do with a little bit more opportunities and those opportunities perhaps lie with ASEAN.

Furthermore, there is also the matter of taxes, with the income tax regimes generally amongst other ASEAN countries certainly more desirable now than that of the Philippines.

So with regard to Filipino employment, particularly with a population whose average age is around 23-years old, ASEAN could be key.

Most people look to Central Asia, Europe, or the US for work when ASEAN has an array of Mutual Recognition Agreements for licensed physicians, dentists, nurses, architects, engineers, accountants, surveyors, and tourism professionals that pass certain conditions.

With their talent, creativity, and training, comparative advantage of Filipinos seemingly lead to skilled or managerial positions, rather than the unskilled (of which there is an abundant competition right now admittedly from other ASEAN countries).

And quite excitingly, the opportunities don’t end with ASEAN but actually could be said to begin with it.

ASEAN already has free trade agreements with South Korea, Japan, Australia, New Zealand, China, and India. Combined, ASEAN and its trading partners offer Filipino products and services a market the size of almost half of the world’s population.

The trick though is not to think in terms of capturing the market singularly but rather in recognizing that international trade patterns have changed, and that Filipino companies have greater chances of slipping in the production chain rather than being the primary manufacturer of a finished product.

For Filipino companies in a position to be that kind of manufacturer, then a familiarity with ASEAN’s various offerings should allow for a more diverse sourcing of raw materials and talent.

It would definitely benefit Filipinos to learn more about ASEAN, the provisions and intricacies of the various agreements surrounding it, as well as the differing political and legal systems of each of the members.

Indeed, it is ironic that Filipinos pride themselves in being cosmopolitan yet are quite unfamiliar with the possibilities in their very own neighborhood.

The elections are over, thank God! Now let’s pay attention to international trade

my Trade Tripper column in this 13-14 May issue of BusinessWorld:

Well, back to regular programming.

You may not have heard of it but May is World Trade Month, with LA Area Chamber’s 90-year-old initiative World Trade Week happening this 21-26 May. The annual Trade Winds Forum, meanwhile, is from 14-22 May, where US companies will be able to network on investment opportunities in Singapore, Malaysia, Indonesia, Thailand, and Vietnam.

Unavoidably, politics has a way of tarnishing the optimism that people would like to attribute to international trade.

Talk of walls, of bringing jobs back, and stronger enforcement of trade remedies signal a return to protectionism. Ironically, while serving as sop for the populist brigade, experience has shown it has always made life harder for the poor rather than bettered it.

A lot of the criticism against trade runs on false logic.

“International trade is often blamed for the economic disparities and dislocations”, according to Dan Ikenson (“Crucifying Trade For The Sins Of Domestic Policy”; May 2016), that the US (and a lot of other countries, including the Philippines) are experiencing. “One reason for the connection is that trade is falsely portrayed, and easily perceived, as a contest between nations.”

For leftists, the “narrative” (a word that should really be banned) is that the domestic team (i.e., Team Philippines) “must outscore the foreign team.” Exports (or sales) are points for us, while imports (purchases) are points for the other team.

Only, the real world doesn’t work that way. Not everything boils down to a “we win-you lose situation.”

Look: when you bought this newspaper, you engaged in a trade: money for newspaper. Who lost? Neither. Both BusinessWorld and you won because each got what it wanted.

If international trade were indeed a zero-sum game of “one up thus the other goes down”, then there wouldn’t be much trade going on sustainably to begin with.

Which leads to a point by Jonah Goldberg (“Arguments against Free Trade are Deeply Flawed”; April 2016): “protectionists are also wrong philosophically. Countries don’t trade with others countries; businesses and consumers transact with other businesses and consumers. Protectionism is corporate welfare by other means.”

In other words, international trade is the great leveler: it bypasses the power of State planners and oligarchs by allowing even the smallest of businesses to transact with one another directly.

Make no mistake, there is competition between countries as to who can sell to who. But that’s going to a different category of discussion. And the response to that is better expressed by Ikenson:

“Trade enables each of us to focus our productive efforts on what we do best. Instead of allocating small portions of each day to producing everything we want to consume, we specialize in an occupation and exchange the output we produce most efficiently (monetized in the form of wages and salaries) for the goods and services we produce less efficiently.”

“Under that arrangement, we are able to produce and consume more than we could without specialization and trade. We are freed from performing tasks that we are less well-suited to perform, yet we can consume the fruits of those foregone tasks through exchange. That specialization changes the composition of the types of value-added activities performed in the country, as well as the types of jobs.”

One popular argument against trade liberalization is that it poses risks for the environment, that increased manufacturing and commercialization pollutes at far higher levels.

The same goes for product standards and for labor.

But in order to protect the environment and labor, and uphold product safety, a State needs more money. And international trade has proven to be the most successful in generating income for developing countries:

“There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction. On average, those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not.” (Global Trade Liberalization and the Developing Countries; IMF Staff, 2001).

Not to mention closer partnerships amongst countries to monitor and uphold such standards, as well as exchange of best practices.

Unfortunately, the WTO projects that “growth in the volume of world trade is expected to remain sluggish in 2016 at 2.8%.” This amidst a several months slump for the Philippines in terms of exports.

And people still have to detach analysis from income inequality with international trade. This confuses a lot of people, particularly when brought up by way of political rhetoric. But they have to be discussed separately: the former involves domestic structures, the latter on international relations, with competitiveness as the main link.

A lot of work clearly needs to be done.

Perhaps one good thing about the recent national elections is that it’s finally over and we can focus now on matters that are really more important.

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.

The day after the WTO’s tomorrow

my Trade Tripper column for the 29-30 January 2016 issue of BusinessWorld:

It’s fair to say that international trade, as well as its main institutional engine -- the World Trade Organization (WTO), is at a crossroad. Not necessarily as dramatic as existence or oblivion but quite significant all the same. The ensuing outcome ultimately would be felt more by the developing countries, particularly whether the benefits of trade could help them sooner or much much later.

Certainly, many in the developed world would be happy to see Doha dead and buried.

But some, albeit qualifiedly, still see the value of Doha’s ambition. EU commissioner for trade Cecilia Malmström, writing for Politico (“Doha may be dead. Long live free trade”, 21 January 2016):

“First, since the Doha Round was launched in 2001, the world has changed economically, politically, and as the theme of this year’s Davos conference makes clear, technologically. Second, many of the issues at the heart of the Doha talks, which aim at improved trade rules focused on development and growth, remain essential. Third, the structures of the DDA [Doha Development Agenda] have not allowed us to reach a comprehensive agreement on most of these issues. We have had all the time in the world but have not managed to do it. Fourth, the WTO is still vital. Its comparative advantage is the most favored nation principle, which means each member should treat all others the same. This allows the WTO to set rules that apply everywhere. And these rules [are] upheld by a strong dispute settlement system.”

Setting Ms. Malmström’s conditions aside, I still say developing countries, like the Philippines, would do well to keep pushing for Doha. It would allow smaller countries valuable time to gather the ability to integrate better, with less pain as possible, into the multilateral trading system. It would also be an exercise in trust that the WTO membership is not engaged in a zero-sum game.

And particularly for the Philippines, this much is true: we need to develop an overarching national vision on international trade. The same, by the way, goes for defense. Our country’s development should not be made to depend on external motivation, spurred by international agreements rather than self-initiated legislation, as our more experienced policy makers advocate. No. We must develop our own strategy, for the long haul, drawing from our unique culture, situation, and history, formulated and then implemented in our own, our Filipino way. Regardless of any grad school gibberish, foreign relations will always be an extension of a country’s domestic policy, of its beliefs and values as a people.

Thus, while this column will not profess enthusiasm for special and differential treatment (both for developing countries and least developed countries), nevertheless, the Philippines should insist that development be the underlying theme of the WTO, at least for the remainder of this decade: capacity building, transparency, and market access (including, of course, the elimination of domestic farm subsidies).

It is there where developed countries should exert their focus on, rather than antagonizing poorer countries with constant demands for stricter and binding rules on trade facilitation, competition policy, investment, intellectual property, e-commerce, and digital trade. These should wait. There should be enough policy space to instead encourage countries to unilaterally do what’s best for their specific circumstances, while solidifying any further development gain that could be achieved under Doha.

Only after Doha has been achieved should the WTO move on from it. And only then will it be proper to agree to a practical (rather than theoretical) acceptance of the fact that international trade is different now than a decade ago.

Aside from goods (and even services) no longer following the one country-selling/one country-buying model, more tellingly (as Jon Huntsman, “The Future of Global Trade”; Wall Street Journal April 2015, relates):

“Trade flows will reflect the realities of global power as well as demographics. The Pacific will no longer be the dominant trade hub. Instead, the focus will shift to the Indian Ocean region, which upward of eight billion people -- mainly in China, India, and Africa -- will call home. The US may not be in a position to influence trade the way it did. For the past 200 years, Britain, after the Industrial Revolution, and the US after the two world wars, fought for an open trading system to promote growth. None of the emerging countries have thus far shown that same commitment, even though they -- particularly China -- are increasingly setting the pace in world trade.”

In the meantime, studies should be made -- with a view to minimizing the trade distorting effects -- of domestic regulations that remain to operate beyond the pale of international trade agreements: burdensome language issues, inconsistent rules between one local government unit to another, and local corruption.

Finally, and this with the Philippines specifically in mind, the WTO should learn to assist countries get rid of smuggling. This has politically (illogical, I know) resulted in local citizenry’s distrust of international trade, as well as rendering inutile trade remedies such as anti-dumping or safeguards.

WTO’s Doha Round: Dead and Alive

my Trade Tripper column in the 8-9 January 2016 issue of BusinessWorld:

There’s this marvelous scene in the movie Top Secret where an East German General (played by Jeremy Kemp) waited for news about one of his soldiers shot by Val Kilmer’s Nick Rivers. Answering the phone, the General asks the doctor grimly: “What is the condition of Sergeant Kruger?” A pause, then: “Very well, let me know if there is any change in his condition.” Hanging up, he tells his aide “He’s dead.” Simply one of the funniest moments in cinema.

Which reminds me of the WTO’s Doha Round. People have used many words for it: “catatonic,” “comatose,” “moribund.” But now, is it just “dead?” And if so, will there be any change in its condition?

Hence, why I again completely rue the wasted opportunity of Manila’s recent APEC (Asia-Pacific Economic Cooperation) hosting. Attempting so many things but on that one thing most truly important, renewing commitment to multilateral trade and revive the World Trade Organization, it did not do.

Yeah, yeah, the APEC produced the expected Statement on Supporting the Multilateral Trading System and the 10th World Trade Organization (WTO) Ministerial Conference, whereby the members declared that they “are committed to working together for a successful Nairobi Ministerial Meeting that has a balanced set of outcomes, including on the Doha Development Agenda, and provides clear guidance to post-Nairobi work.”

The Statement would have had more punch (despite the bland generalities) had the host country, the Philippines, not spent most of its time pushing for regional trade deals. Particularly, its very public courtship of the Trans-Pacific Partnership.

What could have been done was to pronounce a very specific and categorical “live or die” deadline for the Doha Round (post-Bali) and -- should the deadline be unmet -- to commit to launching a whole new Round with an updated trade agenda.

What happened instead was an energetic rich countries’ call for the Trade Facilitation Agreement (TFA) to be signed and implemented. Utterly ironic considering that the TFA has always obviously been a developed country matter of interest incongruous to a Doha Round of “developmental” aims for developing countries.

And one such interest of developing countries that has been completely set aside due to the bait and switch played by the developed countries is that of agricultural subsidies.

While indeed agreement was reached on banning export subsidies, agricultural subsidies by developed countries in the meantime have increased exponentially and continue to block market access of developing country agricultural exports. And developed countries want to increase the obstacles by pushing for labor and environmental standards alongside the agricultural negotiations.

Ultimately, the acquiescence by developing countries to the TFA in Bali 2013, without demanding that it be locked up with agriculture issues, was a strategic mistake that still affects the WTO today. Interestingly, the Philippines chaired the WTO’s Preparatory Committee on Trade Facilitation.

This has led the developed countries to stick to its guns and deprive developing countries the benefits that a successfully concluded Doha Round could have brought.

And in the end, Doha was eagerly proclaimed dead by Western media, which -- if true -- was death by whimper: the WTO members simply not voting unanimously to “reaffirm” Doha.

It also signaled, at least to the Financial Times (“Trade talks lead to ‘death of Doha and birth of new WTO,’” December 2015), that Doha’s demise “marked a victory for the US and EU (European Union), who alongside other developed economies have argued that clinging to the long-stalled Doha negotiations was making the institution irrelevant in a changing global economy.”

Nevertheless, the continued existence of the multilateralism embodied by the WTO is essential.

As Harvard’s Asia Center’s William Overhold points out (“It’s time to update our thinking on trade,” August 2014), 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 globalized 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.”

For now, where to WTO?

German Development Institute’s Clara Brandi (“The Doha Round is dead -- long live the WTO?” December 2015), noting that “the WTO should also be used as a negotiating forum in the future, not least because it is more inclusive than the bilateral and regional forums,” helpfully (actually, hopefully) suggests: “The end of the Doha Round could also serve to inject fresh dynamism into the WTO as more states opt for plurilateral approaches. At the same time, the global trading system is becoming increasingly confusing as the number of bilateral, regional and plurilateral agreements grows. This makes it particularly difficult for smaller enterprises in developing countries to navigate the ever more complex regulatory frameworks. The WTO should use transparency initiatives to bring more light into this jungle.”

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.

Do presidential candidates’ qualifications matter? Have you seen the Philippines lately?

my Trade Tripper column in this 6-7 November issue of BusinessWorld:

By coincidence (or not), the questions asked of me by news outlets last week were my views on the qualifications of the presidential candidates. Or, put another way, how important are qualifications in choosing our president? And do our voters even care about these things?

My response was that qualifications do matter.

But sometimes the “qualifications” sought by our voters are of a different nature, for a different purpose, and occasionally without any relevance whatsoever to the position being voted for.

In 2010, our country had the following to choose from as president:

> Richard “Dick” J. Gordon (1971 Constitutional Convention delegate, lawyer, Procter and Gamble executive, Subic Bay Metropolitan Authority Chairman, Tourism Secretary, and Senator);
> Gilbert C. Teodoro, Jr. (Bar topnotcher, Harvard graduate, Congressman, Defense Secretary); and
> Manuel “Manny” B. Villar (UP Business Administration, self-made successful businessman, House Speaker, Senate President).

Instead, we chose Noynoy Aquino III (son of Cory and Ninoy Aquino).

Forget surveys and government statistics.

Just look out the window and commonsensically see the consequences of that 2010 vote: Filipinos paying among Asia’s highest income tax with the world’s lowest wage rates for the longest work hours; world’s worst traffic, world’s worst airports (with bullet planting), slowest Internet speed; 23.2% unemployment, nearly 26% poverty incidence; 3.5 million families hungry, deteriorating education; increased crime, increased smuggling, 1.3 million illegal aliens, China’s territorial grab, Quirino Grandstand massacre, Yolanda rehabilitation, Bangsamoro, Mamasapano.

All messes left to the next president to clean up.

And it comes with a further asking price of a proposed P3-trillion 2016 budget, amidst a nearly P6-trillion national debt.

All this because people got weepy in 2010.

Now with a 2016 vote just a few months away, some are toying with the idea of letting those who got us into this humongous wreck to fix it. That’s lunacy.

Others, meanwhile, are under the insane delusion that we’re currently doing fine and that previous governments are to be blamed for whatever problems there are.

The president elected in 2016 faces incredibly complicated international security and economic problems.

Aside from the West Philippine Sea, there’s a possible oncoming global recession, trade deals like the Trans-Pacific Partnership and Regional Comprehensive Economic Partnership, and overseas Filipino workers.

So, quite reasonably, we should be concerned that the person we choose to represent us can at least match up with the following:

> Prayut Chan-o-cha (Thai prime minister; Chulachomklao Royal Military Academy, former Army chief of staff);

> Joko Widodo (Indonesian president; successful businessman, former Governor of Jakarta);

> Najib bin Tun Haji Abdul Razak (Malaysian prime minister; University of Nottingham, corporate executive, former deputy prime minister, as well as former minister for defense, education, finance, and culture);

> Lee Hsien Loong (Singapore prime minister; Trinity College, Cambridge, a Brigadier General, and former minister for trade, finance, and defense, and deputy prime minister);

> Hassanal Bolkiah Mu’izzaddin Waddaulah (Sultan of Brunei; Royal Military Academy Sandhurst);

> Xi Jinping (Chinese President; Tsinghua University, multiple government posts);

> Shinzo Abe (Japanese Prime Minister; Seikei University, University of Southern California, Kobe Steel executive, and a number of government positions, including executive assistant to the Minister for Foreign Affairs);

> Narendra Damodardas Modi (Indian prime minister; Delhi University, and Gujarat University MA in political science.

> Malcolm Bligh Turnbull (Australian prime minister; Oxford, Rhodes scholar, journalist, lawyer, investment banker, and former environment minister.

Now the point of looking at the academic credentials and work experience is not for some sort of mathematical process, of whoever has most is best qualified.

What a lengthy resume does is to allow our people to get to know the candidate more and somehow gauge from past performance how that person will be as president.

The problem with a slim resumé’d candidate is that such person is practically an unknown, a risky investment for a logical people. Such a person would not make sense in a field of experienced candidates.

Objectively, what our people should be looking for in a candidate’s past are clues as to judgment, humility, and the ability to get things done.

Judgment: because a president needs to be steady (not prone to emotional hysterics under stress or tactless insensitivity); and the ability to make right decisions, quickly if need be and, as if often the case, with imperfect information.

Humility: because a president needs to be able to form a good working relationship with the other co-equal branches of government. A politician who ends up unnecessarily having to bully others is simply not presidential material.

And finally, the ability to deliver.

Of what use is a lengthy resume, great speeches, and charisma if that person only ends up botching every assignment he (or she) took over?

Yes, integrity is an indispensable trait.

But additionally the Philippines also needs (specially after the last five years) a president in whose hands things flourish, people perform better, and with a clear sense of correct direction.

In short, a president who obeys his oath and can get the job done.