As I'm sure the entire world knows by now, I guested last night in The Explainer. The topic was labor. Host Manolo Quezon gave a comprehensive discussion on the labor picture here in the Philippines. Particularly interesting for me was on how the change in work distribution in the last ten years reflect the way the Philippine economy changed. Then I had to come in and ruin the show. My segment dealt on the issue of how globalization affected labor.
Some points I raised during the show and some which I forgot to raise out of sheer nervousness:
- economic studies have indicated that "the countries which find it easier to fire are the same countries which find it easier to hire." In other words, the focus here is on productivity, the ability to engage in business that would succeed. By doing so, such results in the creation of more and better jobs.
- as discussed by Manolo, the make up of labor has changed dramatically over the last ten years. The pie chart exhibited during the show sees the identity of the pie slices (representing the different sectors) changing from 1997 to 2007. What must be pointed out, however, is that not only has the pie slices changed but the pie got bigger as well over the years.
- businessmen, more than lower tariffs (or increasing tariffs, depending on whose side you are on), lowering of taxes, etc., all find secondary to the need to have consistent and stable policies upon which to plan and do business. If you have a country like the Philippines whose policy changes not only from administration to administration but from month to month or on a case by case basis, then you can understand why business finds it hard to do well here.
- business leaders (and even lawyers) must realize that they have to make a more determined effort to understand the intricacies and ramifications of what is going on in international trade. No longer are companies subject to mere national laws alone. Even at this moment, companies are subject to international rules that are either prevailing at the regional level (i.e., ASEAN) or multilateral (i.e., WTO, WIPO, WCO). In short, companies from here on end have to contend with at two sets of rules for each and every transaction: local and international. This will only get worse if the Doha Round fails as it is anticipated that there will be a proliferation of bilateral trade rules (right now, such as ASEAN, ASEAN-Korea, and ASEAN-China; with the following possibles: JPEPA, RP-US, ASEAN-India).
- Business cannot and should not rely on government for information or data or possible planning for the simple reason that it is their business. Instead, it should be the other way around. Business should be quite specific in what they want and, more importantly, be able to intelligently convey what they want in the international trading arena. This won't happen unless they take the time and effort to realize that there is a need to understand or grapple with international trade rules. So far, the only industries I know who are quite consistently successful at this are sugar, cement, tuna, and poultry.
- labor should not blame (or at least not solely blame) globalization and trade for any loss of employment. There are a host of other factors, primary among them are changes in technology, which eliminates the need for certain type of workers. Another could be changes in fashion or taste. If anything else, globalization and increased trade results in more opportunities for job creation. It also generates wealth (see studies by Jeffrey Sachs) that could be used for welfare purposes, such as subsidies for workers or re-training or further education.
- legislating minimum wages and increasing taxes on the rich may not be the most effective ways in which to better the situation of labor. To legislate minimum wages is inefficient, scares off investors, and locks in resources in areas which should not be engaged in. Increasing taxes on the rich (at least to a certain extent) has the same effects. The better way is to give workers more ability to be mobile, and making business have greater productivity (which we sorely need to improve on) and competitiveness and let the benefits follow. Even then, the focus should be subsidizing workers who had to accept lower wages from reasons that could be traced to temporary dislocations caused by globalization, re-training, and better education
- finally, Filipinos should take heart in that the way the global economy is headed, greater education, intuition, language skills, quicker absorption of data, and adaptability seem to be the needed capabilities. All these are areas in which the Filipino is strong at. We should just wake up and realize that, rather than being skeptical of globalization, the Filipino is best positioned to take advantage of the benefits of and succeed in a more open world.
Thank you's to the following for their valuable insights (errors in understanding mine): Bobing Venida, Tong Buencamino, Oswald Lorenzo, Pons Intal, Ciel Habito, Dondi Teehankee, John Avila.
2.5.07
13.4.07
IEL updates
(these updates were taken from various sources)
> the US lost to Antigua and Barbuda at the WTO Panel level regarding US measures affecting the cross-border supply of gambling and betting services.
> China's continuing alleged violation of it's WTO commitments getting to the nerves of US Congressmen, this coming at a time that China has seemed to overtake the US in terms of export growth.
> Nevertheless, the US remains the biggest buyer of the world's goods, with over twice the global share of second-ranked importer Germany.
> Ministers from Brazil, the EC, India, the United States, Australia and Japan met in New Delhi to make a strong push for a successful conclusion to the Doha Round by this year. Still, things hang in the balance.
> "The reduced pace of global economic activity will imply lower trade growth which is expected to average maybe around 6 percent in 2007," the WTO's chief economist Patrick Low said. Pascal Lamy, WTO Director-General, on the other hand, stated that "a successful conclusion to the Doha Round holds great potential for boosting growth and alleviating poverty ... an agreement would also deliver more relevant trade rules, helping to establish a more stable and certain foundation for today's dynamic global marketplace."
> The WTO's Appellate Body issued its report regarding the compliance panel report in the case “United States — Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina”, and recommending that the United States implement fully the recommendations and rulings of the DSB.
* * * * * * * *
This week saw the last of my MCLE lectures on international economic law for the present cycle. Next week, I shall be in Baguio to participate in the Round Table discussion with the Justices of the Supreme Court on various legal issues with economic significance. The Round Table is a culmination of a training program held under the auspices of PhilJA to educate the judiciary on law and economic development.
> the US lost to Antigua and Barbuda at the WTO Panel level regarding US measures affecting the cross-border supply of gambling and betting services.
> China's continuing alleged violation of it's WTO commitments getting to the nerves of US Congressmen, this coming at a time that China has seemed to overtake the US in terms of export growth.
> Nevertheless, the US remains the biggest buyer of the world's goods, with over twice the global share of second-ranked importer Germany.
> Ministers from Brazil, the EC, India, the United States, Australia and Japan met in New Delhi to make a strong push for a successful conclusion to the Doha Round by this year. Still, things hang in the balance.
> "The reduced pace of global economic activity will imply lower trade growth which is expected to average maybe around 6 percent in 2007," the WTO's chief economist Patrick Low said. Pascal Lamy, WTO Director-General, on the other hand, stated that "a successful conclusion to the Doha Round holds great potential for boosting growth and alleviating poverty ... an agreement would also deliver more relevant trade rules, helping to establish a more stable and certain foundation for today's dynamic global marketplace."
> The WTO's Appellate Body issued its report regarding the compliance panel report in the case “United States — Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina”, and recommending that the United States implement fully the recommendations and rulings of the DSB.
* * * * * * * *
This week saw the last of my MCLE lectures on international economic law for the present cycle. Next week, I shall be in Baguio to participate in the Round Table discussion with the Justices of the Supreme Court on various legal issues with economic significance. The Round Table is a culmination of a training program held under the auspices of PhilJA to educate the judiciary on law and economic development.
24.3.07
International Law and Philippine law
A basic but misunderstood area in the study of international law here in the Philippines is the doctrine of “incorporation”. In our Constitution, the Philippines made two important assertions regarding its stand on international law: one is on the duality of international law vis-à-vis local law (sometimes called municipal law) and, secondly, is that we automatically consider international law as part of the law of the Philippines.
The latter assertion has been touched upon in a long line of Supreme Court cases. In practice, however, lawyers are seemingly in disagreement as to the extent to which international law plays a part in local legislation. Much of the belief regarding the position of international law seemingly stems from ideology or emotion, rather than a clear-eyed analysis of what international law is.
This can be seen in the discussions relating to the recent Bar exam on international law and women’s rights by some newspaper commentators. Sometimes, the same can be said for those who locally advocate for international human rights or the environment. Laudable as their advocacies are, however, the same still shouldn’t detract from the fact that international law is a highly fluid and analytical field, requiring precision thinking specially in delineating international obligations in relation to national interests.
One significant fact that must be considered is that international law does not hold a position of primacy in our jurisdiction. In our country, the one standard that embodies the legality of actions and the definition of rights is our Constitution. The Constitution reigns supreme and whenever international law (understood for the moment to be treaties or customary law) is in conflict with the former, then the Constitution will prevail. Without question. This is a legal policy we share with a number of other jurisdictions, such as the United States. In fact, there is only one country I know that expressly stated that international law prevails over its constitution. The Philippines, to be clear, is not that country.
The rank which international law holds in our jurisdiction is equal to that of a congressional enactment (i.e., Republic Acts). Thus, assuming that there is an actual conflict between international law and a Republic Act, then legal techniques on statutory construction (i.e., the tools used by lawyers to determine which law prevails over another in case of conflict between the two) would be employed. Some of such rules say that the “later in time prevails” or that the “specific law prevails over the general”. Depending on the circumstances, local law can and will prevail over international law.
In any event, the point is that international law is merely equal to congressional enactments, nothing more and nothing less. Like any congressional enactment, international law has to comply with the provisions of our Constitution and if it doesn’t then such international law will have no force or effect within our country. The words “within our country” has to be emphasized though, for outside our jurisdiction and within the realm of international law different rules will prevail regarding the operation of international law vis-à-vis local law.
Like any law, international law as a source of rights and cause of action could be restricted or restrained, particularly if required by the State’s police, eminent domain, or taxation powers. The application of a treaty’s provisions within our jurisdiction, again as a source of a cause of action, could be amended by a mere subsequent Republic Act if Congress, in its discretion, decides to do so.
Thus, declarations by officials that the Philippines can’t do a certain measure because its hands are tied by international law are false. Within our borders, the Philippines generally can do what it wants even if such goes against international law: the Congress can enact laws, the Executive branch can issue measures implementing the law, and the Judiciary can rule and uphold such law even if that law conflicts with international law. This is because, as previously stated, within our jurisdiction the one dominant and primary standard is the Constitution. As long as that law is constitutional, then - even if it is “violative” of international law - such law is valid as far as the Philippines (internally) is concerned.
Doubtless there will be some excitable reactions to the foregoing explanations. However, that will not change the fact that within local jurisdictions, the common practice among countries is to treat international law as being regulated by and subservient to their constitutions. To say that international law is to be treated within our jurisdiction as superior to our local law and our Constitution is as misleading as to say that the US embassy grounds on Roxas Boulevard is US soil (it’s not - it’s Philippine territory). As I keep saying, the faster we grasp the concept of confidently asserting our national interests vis-à-vis international law, the better international citizens we’ll be.
The latter assertion has been touched upon in a long line of Supreme Court cases. In practice, however, lawyers are seemingly in disagreement as to the extent to which international law plays a part in local legislation. Much of the belief regarding the position of international law seemingly stems from ideology or emotion, rather than a clear-eyed analysis of what international law is.
This can be seen in the discussions relating to the recent Bar exam on international law and women’s rights by some newspaper commentators. Sometimes, the same can be said for those who locally advocate for international human rights or the environment. Laudable as their advocacies are, however, the same still shouldn’t detract from the fact that international law is a highly fluid and analytical field, requiring precision thinking specially in delineating international obligations in relation to national interests.
One significant fact that must be considered is that international law does not hold a position of primacy in our jurisdiction. In our country, the one standard that embodies the legality of actions and the definition of rights is our Constitution. The Constitution reigns supreme and whenever international law (understood for the moment to be treaties or customary law) is in conflict with the former, then the Constitution will prevail. Without question. This is a legal policy we share with a number of other jurisdictions, such as the United States. In fact, there is only one country I know that expressly stated that international law prevails over its constitution. The Philippines, to be clear, is not that country.
The rank which international law holds in our jurisdiction is equal to that of a congressional enactment (i.e., Republic Acts). Thus, assuming that there is an actual conflict between international law and a Republic Act, then legal techniques on statutory construction (i.e., the tools used by lawyers to determine which law prevails over another in case of conflict between the two) would be employed. Some of such rules say that the “later in time prevails” or that the “specific law prevails over the general”. Depending on the circumstances, local law can and will prevail over international law.
In any event, the point is that international law is merely equal to congressional enactments, nothing more and nothing less. Like any congressional enactment, international law has to comply with the provisions of our Constitution and if it doesn’t then such international law will have no force or effect within our country. The words “within our country” has to be emphasized though, for outside our jurisdiction and within the realm of international law different rules will prevail regarding the operation of international law vis-à-vis local law.
Like any law, international law as a source of rights and cause of action could be restricted or restrained, particularly if required by the State’s police, eminent domain, or taxation powers. The application of a treaty’s provisions within our jurisdiction, again as a source of a cause of action, could be amended by a mere subsequent Republic Act if Congress, in its discretion, decides to do so.
Thus, declarations by officials that the Philippines can’t do a certain measure because its hands are tied by international law are false. Within our borders, the Philippines generally can do what it wants even if such goes against international law: the Congress can enact laws, the Executive branch can issue measures implementing the law, and the Judiciary can rule and uphold such law even if that law conflicts with international law. This is because, as previously stated, within our jurisdiction the one dominant and primary standard is the Constitution. As long as that law is constitutional, then - even if it is “violative” of international law - such law is valid as far as the Philippines (internally) is concerned.
Doubtless there will be some excitable reactions to the foregoing explanations. However, that will not change the fact that within local jurisdictions, the common practice among countries is to treat international law as being regulated by and subservient to their constitutions. To say that international law is to be treated within our jurisdiction as superior to our local law and our Constitution is as misleading as to say that the US embassy grounds on Roxas Boulevard is US soil (it’s not - it’s Philippine territory). As I keep saying, the faster we grasp the concept of confidently asserting our national interests vis-à-vis international law, the better international citizens we’ll be.
24.1.07
Swiss miss NAMA-nam
After articles about Christmas reindeer and frappuccino wimps, I’ve been asked by friends to write again about trade. Thus, as exciting as the US primaries are, I’ll instead discuss the Zen-like world of the Swiss formula. The Swiss formula (and its variants) has taken center stage in the Non-Agriculture Market Access (NAMA) talks in the still ongoing WTO’s Doha Round. As the term indicates, NAMA involves products that are not considered agricultural or services. Interestingly, fishes and fish products, as well as forestry products, are not considered agricultural for the present discussions.
The NAMA negotiations, despite all the attention that the agriculture talks have been getting, are highly important, particularly relating as it does to the export interests of developing countries. At the heart of the NAMA discussions is the mode to be employed for tariff reductions. It must be emphasized that tariff cuts cannot be uniform for all countries, as some (usually the developing countries) still have high tariffs whereas other countries have quite low tariffs already.
The NAMA talks decided to go with a formula approach rather than the linear or product-by-product approach that were adopted in previous Rounds. At this point, it may be useful to remember paragraph 16 of the Doha Declaration (“reaffirmed” in the Ministerial Declaration adopted on 18 December 2005 in Hong Kong), which says in part:
“We agree to negotiations which shall aim, by modalities to be agreed, to reduce or as appropriate eliminate tariffs x x x The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments.”
Eventually, the discussions boiled down to whether to use the "Swiss formula" or another approach altogether. The Swiss formula is a progressive non-linear formula for which high tariffs are cut more than low tariffs. It is called the Swiss formula because it was proposed by Switzerland during the Tokyo Round of the GATT years and is described as follows: tf = ax/(a+x) -- where x is the initial tariff rate; a is the maximum final tariff rate and the coefficient agreed to represent the level of cuts; tf is the final tariff rate that results. Thus, as one illustration puts it, a coefficient of 30 (representing a maximum final tariff of 30%) applied to an initial tariff of 100% would result in a final tariff of roughly 23%. The same cut applied to a tariff of 15% would result in a tariff of 10%. Notably, the country with the higher initial tariff made a cut of 77%, while the country with the lower initial tariff has cut by 33%. The final cut can be phased in over a certain pre-determined number of years.
The Swiss formula, advocated by the developed countries such as the US, EC, and Japan, has been considered "aggressive" in its approach to tariff cuts, in certain instances drastic and definitely deeper particularly for higher tariffs. As such, it has been considered to affect developing countries more and has accordingly been opposed by such countries. These countries, led by Argentina, Brazil and India, argue that the Swiss formula simply does not provide consideration of poor countries’ “development needs”.
Indeed, it must be remembered that in paragraph 14 of the 2005 Hong Kong Ministerial, it was stated that the tariff reduction formula to be adopted shall have “coefficients” at levels which take fully into account the special needs and interests of developing countries.
Accordingly, another non-linear type formula (sometimes referred to as the “modified Swiss formula”), which presents two coefficients that have the effect of softening the tariff cuts for developing countries, have been propounded. It can be described as follows: t1 = (a or b) x t0/(a or b) + t0 -- where t1= final bound tariff; t0 = base rate; a = coefficient for developed countries; and b = coefficient for developing countries.
That, in a nutshell, is the trade negotiators’ world of the Swiss and modified Swiss formula. It must be emphasized that after agreeing on the formula, the actual value of the coefficient must then be determined. Assuming that has been done, it must next be considered, among a heap of others, whether indeed tariff cuts in the export market help developing countries or will the effect of such cuts be mitigated by the erection of non-tariff barriers. NTB’s are actually more pernicious than tariffs for the simple fact that they are harder to identify. Another question is whether protecting domestic industry is helpful at all for the developing country. Taking it all in, one can see how difficult trade and development policy is. That is why, Swiss or modified Swiss formula aside, there is no easy formula for economic success for developing countries. All the more reason for us Filipinos to work harder and smarter.
The NAMA negotiations, despite all the attention that the agriculture talks have been getting, are highly important, particularly relating as it does to the export interests of developing countries. At the heart of the NAMA discussions is the mode to be employed for tariff reductions. It must be emphasized that tariff cuts cannot be uniform for all countries, as some (usually the developing countries) still have high tariffs whereas other countries have quite low tariffs already.
The NAMA talks decided to go with a formula approach rather than the linear or product-by-product approach that were adopted in previous Rounds. At this point, it may be useful to remember paragraph 16 of the Doha Declaration (“reaffirmed” in the Ministerial Declaration adopted on 18 December 2005 in Hong Kong), which says in part:
“We agree to negotiations which shall aim, by modalities to be agreed, to reduce or as appropriate eliminate tariffs x x x The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments.”
Eventually, the discussions boiled down to whether to use the "Swiss formula" or another approach altogether. The Swiss formula is a progressive non-linear formula for which high tariffs are cut more than low tariffs. It is called the Swiss formula because it was proposed by Switzerland during the Tokyo Round of the GATT years and is described as follows: tf = ax/(a+x) -- where x is the initial tariff rate; a is the maximum final tariff rate and the coefficient agreed to represent the level of cuts; tf is the final tariff rate that results. Thus, as one illustration puts it, a coefficient of 30 (representing a maximum final tariff of 30%) applied to an initial tariff of 100% would result in a final tariff of roughly 23%. The same cut applied to a tariff of 15% would result in a tariff of 10%. Notably, the country with the higher initial tariff made a cut of 77%, while the country with the lower initial tariff has cut by 33%. The final cut can be phased in over a certain pre-determined number of years.
The Swiss formula, advocated by the developed countries such as the US, EC, and Japan, has been considered "aggressive" in its approach to tariff cuts, in certain instances drastic and definitely deeper particularly for higher tariffs. As such, it has been considered to affect developing countries more and has accordingly been opposed by such countries. These countries, led by Argentina, Brazil and India, argue that the Swiss formula simply does not provide consideration of poor countries’ “development needs”.
Indeed, it must be remembered that in paragraph 14 of the 2005 Hong Kong Ministerial, it was stated that the tariff reduction formula to be adopted shall have “coefficients” at levels which take fully into account the special needs and interests of developing countries.
Accordingly, another non-linear type formula (sometimes referred to as the “modified Swiss formula”), which presents two coefficients that have the effect of softening the tariff cuts for developing countries, have been propounded. It can be described as follows: t1 = (a or b) x t0/(a or b) + t0 -- where t1= final bound tariff; t0 = base rate; a = coefficient for developed countries; and b = coefficient for developing countries.
That, in a nutshell, is the trade negotiators’ world of the Swiss and modified Swiss formula. It must be emphasized that after agreeing on the formula, the actual value of the coefficient must then be determined. Assuming that has been done, it must next be considered, among a heap of others, whether indeed tariff cuts in the export market help developing countries or will the effect of such cuts be mitigated by the erection of non-tariff barriers. NTB’s are actually more pernicious than tariffs for the simple fact that they are harder to identify. Another question is whether protecting domestic industry is helpful at all for the developing country. Taking it all in, one can see how difficult trade and development policy is. That is why, Swiss or modified Swiss formula aside, there is no easy formula for economic success for developing countries. All the more reason for us Filipinos to work harder and smarter.
17.1.07
ASEAN not so fine
After all the high praises and self-congratulations that our government made relating to the recently concluded ASEAN Summit, it’s time to take stock and get back to earth.
Yes, the blueprint for an ASEAN charter is good and, yes, the call for an acceleration to achieve an ASEAN community could also be good but we do have to remember one essential fact: what may be good for ASEAN may not necessarily be good for the Philippines.
Note that the three countries most enthusiastic for greater integration (i.e., Malaysia, Thailand, and Singapore) have one thing in common: strong economies that keep getting stronger. The Philippines is not in that league. In the end, by allowing ourselves to join in the ASEAN integration hoopla we may, in the end, be just used in preparing a feast that only others could enjoy.
It must be emphasized that the things we signed into last weekend with such enthusiasm are international agreements, meaning international obligations that we need to comply with. The question that we need to ask is: do we have the capabilities in meeting the demands of these obligations and, succeeding this, do we have the capabilities to attain the benefits that we expected to receive when we entered into these agreements? [the recent finding of the Heritage Foundation regarding the Philippines is relevant in this regard: "The Philippines is relatively weak in business freedom, investment freedom, monetary freedom, property rights, and freedom from corruption. The government imposes both formal and non-formal barriers to foreign investment. Inflation is fairly high, and the government subsidizes the prices of several basic goods. The judicial system is weak and subject to extensive political influence. Organized crime is a major deterrent to the administration of justice, and bureaucratic corruption is extensive." - jemy]
Some facts: our utilization of ASEAN-CEPT benefits only amount to around 20% of our trade. This does not provide a pretty picture insofar as our ability to take advantage of international rules considering the fact that we have to concede something in order to qualify for those benefits. Note that ASEAN is not even the biggest destination of our exports. With regard to garments for example, ASEAN only amounts to perhaps half of 1%. Around 80% goes to the US, with substantial exports going to Japan and the EC as well.
It is for the latter reason that I advocate focusing our attention on the WTO and the present Doha Round. There is still a small chance for the Round to be successfully concluded within the next few months. Failing that, we should then focus our attention in building up our institutions: creating a Philippine Trade Representative Office, legislating a competition policy law, and amending some of our trade remedy laws.
We should also develop a more consistent economic and trade policy. One of the things I found baffling over last weekend’s Summit is that our government was enthusiastically lauding the steps towards more integration (which involves the quickening of the lessening of our tariffs) while at the same time, just several months back, our government embarked on a review of our tariff program (with such review resulting in the increase of tariffs). This same lack of consistency can be found with regard to JPEPA: we rejected the Singapore issues in the WTO’s Doha Round (in effect saying no to the US, EC, and Japan), saying that such issues should be left to each countries’ individual discretion, and then we turn around and agree to Japan by including the Singapore issues in JPEPA.
We also have to consider that the idea of a closer ASEAN integration (which apparently is to be modeled somewhat on the EC) would entail that we surrender - again - more of our sovereign rights. This, after all, is the point of a stronger ASEAN organization, with added calls by some quarters for an ASEAN parliament and common currency. Are we really prepared, are our people prepared, to accept the idea of Singaporean, Thai, Malaysian, Indonesian civil servants determining how we run our country? Are we prepared to surrender our prerogative in setting taxes and tariffs? Are we ready to give up the Peso as our currency? Note that the British aren’t ready to surrender the Pound for the Euro. In essence, are we really ready to surrender certain portions of what the Philippines is for benefits we are not really sure we are capable of attaining? That is why we have to get it into our heads that when we think about trade policy (as well as foreign policy), we think about it in terms of decades and generations, not merely a few years. Indeed, less enthusiasm and more restraint is called for on the part of our officials.
Add to all that the fact that our government trade and economic personnel are not exactly underwhelmed by work. Add also the fact that there seems to be something wrong with our trade negotiating process as can be witnessed over the public outrage regarding JPEPA. Take all that and one can really find it strange that our government seems so enthusiastic at the fact that ASEAN is heading towards FTA discussions with Australia/New Zealand, Japan (this is distinct from JPEPA), US, and EC, apart from FTAs discussed with South Korea and China. Add, as well, the really strange fact that our government is vigorously pursuing FTA discussions with the US (after publicly rejecting the notion, to the embarrassment of US trade officials).
In the end, the biggest casualty that all the inconsistencies, lack of thought, lack of consultation, lack of restraint, lack of persistence in following through on policy, and lack of system is the people’s belief in the benefits of freer trade. When one really looks at it, what our policymakers and government officials have been doing for almost the past decade is to say they will engage in free trade, then either executes the policy badly or do the opposite (i.e., revert to protectionist measures), and then blame free trade for the bad things that happened to our economy. In the end, our people suffers, our country suffers.
So, after all the hoopla, praise, and congratulations for a well run Summit (ignoring for the moment the food poisoning that downed nearly a hundred), we should take a step back and re-examine how we proceed on trade, trade in ASEAN and (more importantly) at the WTO.
Yes, the blueprint for an ASEAN charter is good and, yes, the call for an acceleration to achieve an ASEAN community could also be good but we do have to remember one essential fact: what may be good for ASEAN may not necessarily be good for the Philippines.
Note that the three countries most enthusiastic for greater integration (i.e., Malaysia, Thailand, and Singapore) have one thing in common: strong economies that keep getting stronger. The Philippines is not in that league. In the end, by allowing ourselves to join in the ASEAN integration hoopla we may, in the end, be just used in preparing a feast that only others could enjoy.
It must be emphasized that the things we signed into last weekend with such enthusiasm are international agreements, meaning international obligations that we need to comply with. The question that we need to ask is: do we have the capabilities in meeting the demands of these obligations and, succeeding this, do we have the capabilities to attain the benefits that we expected to receive when we entered into these agreements? [the recent finding of the Heritage Foundation regarding the Philippines is relevant in this regard: "The Philippines is relatively weak in business freedom, investment freedom, monetary freedom, property rights, and freedom from corruption. The government imposes both formal and non-formal barriers to foreign investment. Inflation is fairly high, and the government subsidizes the prices of several basic goods. The judicial system is weak and subject to extensive political influence. Organized crime is a major deterrent to the administration of justice, and bureaucratic corruption is extensive." - jemy]
Some facts: our utilization of ASEAN-CEPT benefits only amount to around 20% of our trade. This does not provide a pretty picture insofar as our ability to take advantage of international rules considering the fact that we have to concede something in order to qualify for those benefits. Note that ASEAN is not even the biggest destination of our exports. With regard to garments for example, ASEAN only amounts to perhaps half of 1%. Around 80% goes to the US, with substantial exports going to Japan and the EC as well.
It is for the latter reason that I advocate focusing our attention on the WTO and the present Doha Round. There is still a small chance for the Round to be successfully concluded within the next few months. Failing that, we should then focus our attention in building up our institutions: creating a Philippine Trade Representative Office, legislating a competition policy law, and amending some of our trade remedy laws.
We should also develop a more consistent economic and trade policy. One of the things I found baffling over last weekend’s Summit is that our government was enthusiastically lauding the steps towards more integration (which involves the quickening of the lessening of our tariffs) while at the same time, just several months back, our government embarked on a review of our tariff program (with such review resulting in the increase of tariffs). This same lack of consistency can be found with regard to JPEPA: we rejected the Singapore issues in the WTO’s Doha Round (in effect saying no to the US, EC, and Japan), saying that such issues should be left to each countries’ individual discretion, and then we turn around and agree to Japan by including the Singapore issues in JPEPA.
We also have to consider that the idea of a closer ASEAN integration (which apparently is to be modeled somewhat on the EC) would entail that we surrender - again - more of our sovereign rights. This, after all, is the point of a stronger ASEAN organization, with added calls by some quarters for an ASEAN parliament and common currency. Are we really prepared, are our people prepared, to accept the idea of Singaporean, Thai, Malaysian, Indonesian civil servants determining how we run our country? Are we prepared to surrender our prerogative in setting taxes and tariffs? Are we ready to give up the Peso as our currency? Note that the British aren’t ready to surrender the Pound for the Euro. In essence, are we really ready to surrender certain portions of what the Philippines is for benefits we are not really sure we are capable of attaining? That is why we have to get it into our heads that when we think about trade policy (as well as foreign policy), we think about it in terms of decades and generations, not merely a few years. Indeed, less enthusiasm and more restraint is called for on the part of our officials.
Add to all that the fact that our government trade and economic personnel are not exactly underwhelmed by work. Add also the fact that there seems to be something wrong with our trade negotiating process as can be witnessed over the public outrage regarding JPEPA. Take all that and one can really find it strange that our government seems so enthusiastic at the fact that ASEAN is heading towards FTA discussions with Australia/New Zealand, Japan (this is distinct from JPEPA), US, and EC, apart from FTAs discussed with South Korea and China. Add, as well, the really strange fact that our government is vigorously pursuing FTA discussions with the US (after publicly rejecting the notion, to the embarrassment of US trade officials).
In the end, the biggest casualty that all the inconsistencies, lack of thought, lack of consultation, lack of restraint, lack of persistence in following through on policy, and lack of system is the people’s belief in the benefits of freer trade. When one really looks at it, what our policymakers and government officials have been doing for almost the past decade is to say they will engage in free trade, then either executes the policy badly or do the opposite (i.e., revert to protectionist measures), and then blame free trade for the bad things that happened to our economy. In the end, our people suffers, our country suffers.
So, after all the hoopla, praise, and congratulations for a well run Summit (ignoring for the moment the food poisoning that downed nearly a hundred), we should take a step back and re-examine how we proceed on trade, trade in ASEAN and (more importantly) at the WTO.
1.12.06
Trade notes
Just came from Bangkok in relation to some trade work. Anyway, here are some notes made while bored in the plane:
First, something to raise the hackles of anti-trade people:
"Any discussion of trade and globalization should begin with this fact: Over the last 30 years, world trade has grown twice as fast as output - and the economies that have grown fastest have been those that trade most. Nothing is more important to global economic growth than trade. Far from being a zero-sum game, expansion in trade benefits all countries - big and small, rich and poor.
Citizens of nations that reform their economies and open themselves to trade and competition have better jobs, improved living standards, and greater opportunities. At the same time, nations that try to close themselves off from competition, hinder free markets and fail to invest in their people simply get left behind. Indeed, no country has escaped poverty without opening up trade." (The Case for Free Trade, Gordon Brown and Hank Paulson, 28 November 2006, AWSJ, p.15)
So let the long cranky (and sometimes really bizarre) anti-trade comments come, he-he! But seriously, the simple fact still remains, it is those countries that open their economies and subject local industries to competition that do far better for their citizens in terms of income and standards of living than those who don't. It may be selective, partial, or gradual but the important thing is to open up.
Incidentally, while in Kinokuniya (for which I came out with Morton's "The Rothschilds" and Giddens' "The Third Way") I saw a copy of Jagdish Bhagwati's “In Defence of Globalisation”. I highly recommend readers to buy this book.
Mr Bhagwati is an eminent scholar, author of numerous important works, some with Robert Hudec (one of the acknowledged fathers of international economic law). “In Defence of Globalisation” is one designed for the layman: free of statistics, quantitative economic analysis, and is of simple ambitions. It strives admirably to educate the layman on the issues surrounding globalization and trade, and answers some of the more specious arguments raised by its detractors.
Thus, far from worsening poverty, destroying cultures, abusing the environment, and weakening democracy, Mr. Bhagwati shows the beneficial effects of globalization and the misleading premises (to put it mildly) with which globalization’s critics base their arguments.
Some uncommon wisdom learned from an economist co-lecturer at the Philja lecture series:
"We should stop beating ourselves down. Enough with the lament that 50 years ago we were second only to Japan in terms of GDP per capital and that now other countries have overtaken us from that slot. It must be remembered that 50 years ago, it was rare for a country to actually measure its GDP and the Philippines was one of the few (along with Japan and India) who did.
So if we limit the comparisons at present to the same three countries, we'd still be second to Japan in terms of GDP per capita."
Some additional uncommon wisdom:
"Countries in which it is easy to fire are also those in which it is easy to hire."
Also:
"To those who favor increasing tariffs, it must be remembered that such merely increases the motivation of the unscrupulous to increase smuggling."
Was asked by the Bangkok police to get off the walkway and walk instead on the polluted streets this morning. It appeared that their king would be driving by and the Thais don't like the idea of someone walking above the king's head. Everybody was therefore forbidden to use the walkways over the streets where the king would be passing. Interesting.
Anyway, after Suvarnabhumi Airport, the NAIA really is ... interesting. Well, let's see what happens with NAIA Terminal 3. After all this time it should be really good, considering its been aged to perfection already.
However, just found out that for some reason Thailand does not have Stolichnaya. They have Absolut, Smirnoff, and a host of other vodkas (Kristal, etc.) but no Stolich. Just another reason why I really like Manila.
Anyway, in Bangkok and thirsty for beer. Heineken? Singha? San Mig pale! Chilled to balance my Tabacalera Robusto. Even in another country, Buy Filipino.
First, something to raise the hackles of anti-trade people:
"Any discussion of trade and globalization should begin with this fact: Over the last 30 years, world trade has grown twice as fast as output - and the economies that have grown fastest have been those that trade most. Nothing is more important to global economic growth than trade. Far from being a zero-sum game, expansion in trade benefits all countries - big and small, rich and poor.
Citizens of nations that reform their economies and open themselves to trade and competition have better jobs, improved living standards, and greater opportunities. At the same time, nations that try to close themselves off from competition, hinder free markets and fail to invest in their people simply get left behind. Indeed, no country has escaped poverty without opening up trade." (The Case for Free Trade, Gordon Brown and Hank Paulson, 28 November 2006, AWSJ, p.15)
So let the long cranky (and sometimes really bizarre) anti-trade comments come, he-he! But seriously, the simple fact still remains, it is those countries that open their economies and subject local industries to competition that do far better for their citizens in terms of income and standards of living than those who don't. It may be selective, partial, or gradual but the important thing is to open up.
Incidentally, while in Kinokuniya (for which I came out with Morton's "The Rothschilds" and Giddens' "The Third Way") I saw a copy of Jagdish Bhagwati's “In Defence of Globalisation”. I highly recommend readers to buy this book.
Mr Bhagwati is an eminent scholar, author of numerous important works, some with Robert Hudec (one of the acknowledged fathers of international economic law). “In Defence of Globalisation” is one designed for the layman: free of statistics, quantitative economic analysis, and is of simple ambitions. It strives admirably to educate the layman on the issues surrounding globalization and trade, and answers some of the more specious arguments raised by its detractors.
Thus, far from worsening poverty, destroying cultures, abusing the environment, and weakening democracy, Mr. Bhagwati shows the beneficial effects of globalization and the misleading premises (to put it mildly) with which globalization’s critics base their arguments.
Some uncommon wisdom learned from an economist co-lecturer at the Philja lecture series:
"We should stop beating ourselves down. Enough with the lament that 50 years ago we were second only to Japan in terms of GDP per capital and that now other countries have overtaken us from that slot. It must be remembered that 50 years ago, it was rare for a country to actually measure its GDP and the Philippines was one of the few (along with Japan and India) who did.
So if we limit the comparisons at present to the same three countries, we'd still be second to Japan in terms of GDP per capita."
Some additional uncommon wisdom:
"Countries in which it is easy to fire are also those in which it is easy to hire."
Also:
"To those who favor increasing tariffs, it must be remembered that such merely increases the motivation of the unscrupulous to increase smuggling."
Was asked by the Bangkok police to get off the walkway and walk instead on the polluted streets this morning. It appeared that their king would be driving by and the Thais don't like the idea of someone walking above the king's head. Everybody was therefore forbidden to use the walkways over the streets where the king would be passing. Interesting.
Anyway, after Suvarnabhumi Airport, the NAIA really is ... interesting. Well, let's see what happens with NAIA Terminal 3. After all this time it should be really good, considering its been aged to perfection already.
However, just found out that for some reason Thailand does not have Stolichnaya. They have Absolut, Smirnoff, and a host of other vodkas (Kristal, etc.) but no Stolich. Just another reason why I really like Manila.
Anyway, in Bangkok and thirsty for beer. Heineken? Singha? San Mig pale! Chilled to balance my Tabacalera Robusto. Even in another country, Buy Filipino.
7.10.06
Of trade treaties and multinationals
There are still a lot of interesting issues cropping up regarding the nature and process of trade treaties. One big issue is the difference between treaties and executive agreements, and on this issue hangs the question on whether the legislative branch of government would have a say on whether the Philippines should indeed enter into a new international commitment. In one article of mine, I wrote:
"The Supreme Court also held in Commissioner of Customs vs. Eastern Sea Trading that treaties (which will require Senate concurrence for validity) generally refer to basic political issues, changes in national policy and permanent international arrangements; while executive agreements (which do not require such concurrence) refer to adjustments of detail carrying out well-established national policies, and temporary arrangements."
One reason why these issues keep getting raised is the ongoing confusion on how international law is to be considered in relation to Philippine law (specifically as a basis for a cause of action and not really on the question of effectivity thereof). This is further compounded by the fact that we seem to make no distinction between treaty law and customary international law, and for which we apply in both instances the doctrine of incorporation (rulings of the Supreme Court have indicated this, mostly using as basis Article II, Section 2, of the Constitution).
Other jurisdictions, particularly the US and the UK, have made such distinctions and with regard to treaty law, the transformation doctrine is usually employed and thus their need for an enabling law. The US, it must be noted, also makes a distinction between treaties and executive agreements, and further make distinctions between self-executing and those which are not self-executing. To appreciate the complexity of the US process, it has formulated four methods by which treaties are said to apply within the domestic jurisdiction. Add to this the "TPA" mechanism between the president and Congress. Japan's practice apparently is to constitutionally consider international law as part of the law of the land, with some instances indicating that international law could even be considered of having a status higher than that of its own constitution. The Philippines, the US, the EC, and a host of other countries do not follow this practice and have consistently held, at least as far as within their own particular jurisdictions are concerned, that constitutional provisions apply over and above that of international law.
* * * * * * *
One interesting comment I got from a kind reader was with regard to the power of multinational corporations. This argument - which essentially says that multinational corporations have become more powerful than nation States, thus resulting in the diminishing of State sovereignty - has been raised a long time ago. And has been quickly debunked. I won't take up much space on this but the reasons why such is untrue lies in two words: "government" and "competition".
Note that multinational corporation's wealth, vast as it is, is still subject to territorial constraints in that whatever the business or asset or fund it would still have to land within the jurisdiction of a State. These assets don't just float around, after all, and thus would be subject to State regulation. [Interestingly, an article came out in today's issue of Business Mirror, discussing the issue of corporate nationality in the context of increasing globalization. See the 9 October 2006 issue, page C1, "The Rise of Corporate Nationality" - jemy] Boeing, GE, and Microsoft, no matter how big they are, still has to bow before anti-trust lawyers of the EC and the US. Big multinationals here in the Philippines, believe it or not, are powerless if the government suddenly decides to increase tariffs on an agri product or enters into a trade agreement involving industrial products. Those of you who are familiar with trade know what I'm talking about. Besides, ever wonder why large corporations are into environmental causes, labor development, etc? It's to protect their brand, their reputation. That gives you an indication how fragile corporate power is vis-a-vis that of governments. People (and their governments) can turn against them anytime. Witness what happened a few years back when a clothing/shoe company got charged with employing child labor in another country.
Besides, for those who are concerned with the power of multinationals, the solution is more freer trade and not less of it for the simple reason that they get to be subjected to competition. IBM vis-a-vis Microsoft, or GM vis-a-vis other auto companies are just a few examples. In a situation where freer trade is the norm, it is the consumers (with their power of choice), the people (with their empowerment), and their elected government that rules and not the vested interests of a few. That is not the case in our country, where protectionist policies essentially shield oligarchs and thus result to the detriment of consumers and the general Philippine public.
Contrary to the misconception of many, the Philippine economy is not that open. Liberalized trade does not mean only tariffs but rather a whole range of measures. The ironic thing about it all is that while our governments may mouth free trade slogans it doesn't necessarily mean they follow through. So essentially we still have a not so open economy but with the impression by many (because of the pronouncements) that we are. Hence, we suffer all the ill consequences of protectionist policies and trade liberalization gets the blame. What this country needs really is greater, consistent, and better managed trade liberalization.
Nobody is saying that multinationals are saints and if one is concerned with their power then one should be disconcerted about the possibility - should they so decide - of them tying up with the local oligarchy and exploiting our resources, with the rest of the population having little or no say in the matter. The solution, again, is more transparency and greater trade liberalization. Admittedly, markets could and can go wrong and, yet, supporters of freer trade know this and thus our ongoing and constant campaign for the enactment of competition policy laws in this country. In any event, for anybody who has worked in a corporation, one would know that size and power are all transitory, that such is still in the hands of the consumer and the nature of the competition. Microsoft, Nokia, Yahoo!, Samsung, and a host of others were just small operations until they hit it big. A lot of the giants at the time they were starting out are no longer around or not as big now as they were then (look at IBM, BT, or GM for example). Unfortunately, the benefits of competition and more equal opportunity for wealth access (which results in only a small number of people possessing a greater portion of the country's wealth) is sadly lacking in this country.
Nevertheless, for all the concern regarding multinationals, it must be remembered that they bring in much needed capital, income, and jobs to this country. They are some of the largest taxpayers here and do the country a great deal of good. They are also involved in a lot of governance projects, as well as in charitable works. The training, technology, and exposure that they are giving our citizenry is substantial and beneficial. Which is more than I can say for our oligarchic class.
For those who like numbers, there are a lot of formal published studies (which I noted elsewhere in this blog) that show that the wealth of corporations are not all that it's cracked up to be vis-a-vis the wealth and power of States and their governments.
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