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.
Showing posts with label fta. Show all posts
Showing posts with label fta. Show all posts
12.9.16
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.
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.
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 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.
2.6.16
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.
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.
11.4.16
Hold the TPP? What is this ISDS?
my Trade Tripper column in the 26-27 February 2016 issue of BusinessWorld:
Lost amidst in what essentially was the Manny Pacquiao non-issue and the death of legal giant Antonin Scalia, the Trans-Pacific Partnership (TPP) was signed almost without fanfare last Feb. 4 in New Zealand. With Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, it’s a humongous agreement representing 10% of the world’s population, covering 40% of global GDP, and 13% of international trade.
And yet, the TPP is confronted with profound obstacles.
Current internal politics from both the US (key Republican and Democratic leaders, of the latter notably Hillary Clinton, are against it) and Japan (its TPP ratification momentum encountering a bump after the resignation of economic minister Akira Amari), and the new Canadian government’s seeming lukewarmness towards the deal, make the odds of the TPP coming into effect this year miniscule.
One reason for the continued reluctance on the TPP has to do with the Investor-State Dispute Settlement system (or the ISDS). Though a set of provisions that are present in other trade deals, most notably the North American Free Trade Agreement (NAFTA), the TPP’s ISDS has set off alarm bells due to its reach and possible consequences to a country’s sovereignty.
The US Trade Representative Office described the TPP’s ISDS as that which “deters foreign governments from imposing discriminatory or abusive requirements on American investors, and protects the right to regulate in the public interest.”
Such sounds neutral but note that it works both ways.
Essentially, the issue is this: if a government decides, for example, to enact a measure designed for the public interest (i.e., the environment, health, morals, etc.), a foreign investor disagreeing with that local law can sue that government under the provisions of the TPP before an international TPP arbitral tribunal, and have such law overturned and compensation paid.
Columbia University’s Lise Johnson, Lisa Sachs, and Jeffrey Sachs (“The real danger in TPP,” February 2016) put it this way: the “investor-state dispute settlement (ISDS) gives multinational companies outlandish sway over regulatory policies, including environmental protection.”
With the ISDS, “the arbitrators have the authority to review the President’s decision, give their own opinion on what the appropriate course of conduct should have been, and order the US government to compensate the investor if they believe a different decision should have been made or if they disagree with the policy rationale for the decision.”
Note that what Johnson, Sachs, and Sachs say is applicable to all TPP members.
If the Philippines for example, is a member of the TPP then it’s possible that while our “citizens must play by the rules established by Congress,” with limited rights to sue our government, “foreign companies don’t have to follow those rules” because they are afforded different rights under the TPP.
Related to the foregoing is the fact that, under the TPP, foreign companies can sue a government on the ground that the latter violated the “minimum standard of treatment.” This is the standard applied to the “treatment of aliens” to be “afforded to covered investments.” This includes situations relating to “criminal, civil or administrative adjudicatory proceedings” and “the level of police protection required under customary international law.”
Now, “minimum standard of treatment” is lackadaisically defined in the TPP as that which is “in accordance with ‘Customary International Law,’” which is then further unhelpfully described as “a general and consistent practice of States that they follow from a sense of legal obligation. The customary international law minimum standard of treatment of aliens refers to all customary international law principles that protect the investments of aliens.”
The width of its coverage but the ambiguity of its content should be obvious. And in terms of managing compliance, that there will be differences of interpretation as to what is the applicable minimum standard between a developed country and a developing country (such as the Philippines) is reasonably expected.
Finally, there is the issue regarding “technology transfers.”
For a developing country like the Philippines, which is supposed to permit the entry of foreign goods and services that will undoubtedly compete with domestic products, the possibility of attaining technology transfer is a good motivation for agreeing to such.
That is why even under the WTO’s Trade-Related Investment Measures (TRIMs), government mandated technology transfers were not prohibited. And in the specific instances where it was, like the membership condition imposed on China for entry into the WTO, such were not strictly enforced.
The TPP, on the other hand, frowns explicitly against mandatory technology transfers: “Article 9.9 -- No Party shall, in connection with the establishment, acquisition, expansion, management, conduct, operation, or sale or other disposition of an investment of an investor of a Party or of a non-Party in its territory, impose or enforce any requirement, or enforce any commitment or undertaking: x x x to transfer a particular technology, a production process or other proprietary knowledge to a person in its territory.”
Clearly, a more profoundly comprehensive study has to be done regarding the TPP.
Lost amidst in what essentially was the Manny Pacquiao non-issue and the death of legal giant Antonin Scalia, the Trans-Pacific Partnership (TPP) was signed almost without fanfare last Feb. 4 in New Zealand. With Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, it’s a humongous agreement representing 10% of the world’s population, covering 40% of global GDP, and 13% of international trade.
And yet, the TPP is confronted with profound obstacles.
Current internal politics from both the US (key Republican and Democratic leaders, of the latter notably Hillary Clinton, are against it) and Japan (its TPP ratification momentum encountering a bump after the resignation of economic minister Akira Amari), and the new Canadian government’s seeming lukewarmness towards the deal, make the odds of the TPP coming into effect this year miniscule.
One reason for the continued reluctance on the TPP has to do with the Investor-State Dispute Settlement system (or the ISDS). Though a set of provisions that are present in other trade deals, most notably the North American Free Trade Agreement (NAFTA), the TPP’s ISDS has set off alarm bells due to its reach and possible consequences to a country’s sovereignty.
The US Trade Representative Office described the TPP’s ISDS as that which “deters foreign governments from imposing discriminatory or abusive requirements on American investors, and protects the right to regulate in the public interest.”
Such sounds neutral but note that it works both ways.
Essentially, the issue is this: if a government decides, for example, to enact a measure designed for the public interest (i.e., the environment, health, morals, etc.), a foreign investor disagreeing with that local law can sue that government under the provisions of the TPP before an international TPP arbitral tribunal, and have such law overturned and compensation paid.
Columbia University’s Lise Johnson, Lisa Sachs, and Jeffrey Sachs (“The real danger in TPP,” February 2016) put it this way: the “investor-state dispute settlement (ISDS) gives multinational companies outlandish sway over regulatory policies, including environmental protection.”
With the ISDS, “the arbitrators have the authority to review the President’s decision, give their own opinion on what the appropriate course of conduct should have been, and order the US government to compensate the investor if they believe a different decision should have been made or if they disagree with the policy rationale for the decision.”
Note that what Johnson, Sachs, and Sachs say is applicable to all TPP members.
If the Philippines for example, is a member of the TPP then it’s possible that while our “citizens must play by the rules established by Congress,” with limited rights to sue our government, “foreign companies don’t have to follow those rules” because they are afforded different rights under the TPP.
Related to the foregoing is the fact that, under the TPP, foreign companies can sue a government on the ground that the latter violated the “minimum standard of treatment.” This is the standard applied to the “treatment of aliens” to be “afforded to covered investments.” This includes situations relating to “criminal, civil or administrative adjudicatory proceedings” and “the level of police protection required under customary international law.”
Now, “minimum standard of treatment” is lackadaisically defined in the TPP as that which is “in accordance with ‘Customary International Law,’” which is then further unhelpfully described as “a general and consistent practice of States that they follow from a sense of legal obligation. The customary international law minimum standard of treatment of aliens refers to all customary international law principles that protect the investments of aliens.”
The width of its coverage but the ambiguity of its content should be obvious. And in terms of managing compliance, that there will be differences of interpretation as to what is the applicable minimum standard between a developed country and a developing country (such as the Philippines) is reasonably expected.
Finally, there is the issue regarding “technology transfers.”
For a developing country like the Philippines, which is supposed to permit the entry of foreign goods and services that will undoubtedly compete with domestic products, the possibility of attaining technology transfer is a good motivation for agreeing to such.
That is why even under the WTO’s Trade-Related Investment Measures (TRIMs), government mandated technology transfers were not prohibited. And in the specific instances where it was, like the membership condition imposed on China for entry into the WTO, such were not strictly enforced.
The TPP, on the other hand, frowns explicitly against mandatory technology transfers: “Article 9.9 -- No Party shall, in connection with the establishment, acquisition, expansion, management, conduct, operation, or sale or other disposition of an investment of an investor of a Party or of a non-Party in its territory, impose or enforce any requirement, or enforce any commitment or undertaking: x x x to transfer a particular technology, a production process or other proprietary knowledge to a person in its territory.”
Clearly, a more profoundly comprehensive study has to be done regarding the TPP.
8.12.15
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.
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.
26.11.15
The Trans-Pacific Partnership as a presidential campaign issue
was my Trade Tripper column in the 30-31 October 2015 issue of BusinessWorld:
Just to continue the point made in my previous article on the Trans-Pacific Partnership (TPP; “Should The Philippines Join The TPP?” Oct. 16), what is to be emphasized -- ironically, despite the title -- is not whether the Philippines should indeed join (we should, clearly) but the conditions in which the Philippines does so.
On the former, online publication The Establishment Post (“The TPP Impact On ASEAN,” Oct. 12) has this to say: “The TPP’s impact is just as significant for the ASEAN (Association of Southeast Asian Nations) countries not in the agreement. Indonesia, Thailand and the Philippines in particular will feel the competitive disadvantages for their exports (Myanmar, Cambodia and Laos still being able to use Generalized Scheme of Preferences [GSP] privileges). This will definitely put more pressure on the countries to complete the Regional Comprehensive Economic Partnership (RCEP) talks, which in turn will mean convincing India and Indonesia to be more flexible on their bargaining positions. The three large ASEAN countries might also try to reinvigorate their FTA (Free Trade Agreement) talks with the EU (European Union). Strengthening the AEC in the post-2015 era will also become more important.”
The matter, really therefore, is not “should we?” but “how?”
And as I previously noted: yes, the TPP covers almost 40% of the global economy. And indeed it affects not only tariffs but also services, investment rules, patents (including, quite ominously for many, over pharmaceuticals), agriculture, the environment, and government procurement. But of the 12 TPP members, the Philippines already has free trade relationships with seven: aside from the World Trade Organization (WTO), there is ASEAN Common Effective Preferential Tariff, ASEAN-Australia and New Zealand, ASEAN-Japan, Philippines-Japan Economic Partnership Agreement, and the (unfortunately expired but with possibility of renewal) GSP relationship with the US.
And, then, there is the Asia-Pacific Economic Cooperation (APEC).
While not an FTA, it does constitute a coverage that the TPP can only dream of. Unlike the TPP’s 12-country membership covering only 11% of the world’s population, APEC’s 21-country membership constitutes more than half of the total global population. And while everyone is agog at TPP’s being 40% of the world gross domestic product (GDP), APEC has 54%.
And this can be emphasized more when an FTA of the Asia-Pacific does become a reality.
The same thing goes for the RCEP, which has a 16-country membership, constituting (like APEC) also half of the world’s population. While its GDP coverage is scoffed at for being a mere 29%, nevertheless, one has to remember that FTAs are about trade and not GDP. In which case, the TPP’s 13% of world trade is not much of an advantage over RCEP’s 12%.
And speaking geographically, which is still an important factor in international trade, the RCEP does have India and China. And quite significant as well is the fact that TPP’s countries are not growing as fast as RCEP ones.
So there is time for the Philippines to be deliberate and more calculating about our entry into the TPP. The TPP members themselves will give us that. Canada voting a lukewarm Justin Trudeau into its premiership is one, another is the US’ quite divided hostile political environment.
As Foreign Affairs magazine (“Free Trade and the TPP,” Oct. 7) describes it: “When, after five years of talks, an agreement was finally announced on October 5, neither a single Republican leader in Congress, nor any broad business federation could be found to support it. Republican support for the TPP is indispensable since most congressional Democrats oppose it and former Secretary of State Hillary Clinton has just come out against it.
Consequently, ratification is both a question of when and if. Without ardent efforts by GOP leaders to move some of their reticent rank-and-file, the TPP cannot be ratified. Legally, Congress cannot even vote until the February primary season at the earliest and, in an election year, ratification will be an uphill climb even under the best circumstances.”
And the reason for all this wariness is something that the Wall Street Journal incisively explains (“TPP is Surprising Vote of Confidence in Globalization,” Oct. 21), of which our present political and bureaucratic leaders are strangely unconcerned about but definitely should -- the possible danger that the TPP might pose to our national sovereignty:
“‘Behind the border’ barriers are politically more sensitive than tariffs because they affect domestic policies, from human rights to how much public health systems pay for drugs. Classical arguments for free trade are also less relevant: a country that grants foreign drug companies longer patent protection is raising prices for its own consumers, and more restrictive labor laws erode its competitive advantage of cheap labor. Yet these sorts of rules are the conditions the US and other advanced countries insist on if developing countries are to have access to their markets. This is why TPP’s significance lies not in its economic impact -- modest for most signatories -- but how it restricts its members’ domestic sovereignty.”
Hence, why I repeat: the TPP (and WTO, APEC, RCEP) is not as simple as ABC.
Just to continue the point made in my previous article on the Trans-Pacific Partnership (TPP; “Should The Philippines Join The TPP?” Oct. 16), what is to be emphasized -- ironically, despite the title -- is not whether the Philippines should indeed join (we should, clearly) but the conditions in which the Philippines does so.
On the former, online publication The Establishment Post (“The TPP Impact On ASEAN,” Oct. 12) has this to say: “The TPP’s impact is just as significant for the ASEAN (Association of Southeast Asian Nations) countries not in the agreement. Indonesia, Thailand and the Philippines in particular will feel the competitive disadvantages for their exports (Myanmar, Cambodia and Laos still being able to use Generalized Scheme of Preferences [GSP] privileges). This will definitely put more pressure on the countries to complete the Regional Comprehensive Economic Partnership (RCEP) talks, which in turn will mean convincing India and Indonesia to be more flexible on their bargaining positions. The three large ASEAN countries might also try to reinvigorate their FTA (Free Trade Agreement) talks with the EU (European Union). Strengthening the AEC in the post-2015 era will also become more important.”
The matter, really therefore, is not “should we?” but “how?”
And as I previously noted: yes, the TPP covers almost 40% of the global economy. And indeed it affects not only tariffs but also services, investment rules, patents (including, quite ominously for many, over pharmaceuticals), agriculture, the environment, and government procurement. But of the 12 TPP members, the Philippines already has free trade relationships with seven: aside from the World Trade Organization (WTO), there is ASEAN Common Effective Preferential Tariff, ASEAN-Australia and New Zealand, ASEAN-Japan, Philippines-Japan Economic Partnership Agreement, and the (unfortunately expired but with possibility of renewal) GSP relationship with the US.
And, then, there is the Asia-Pacific Economic Cooperation (APEC).
While not an FTA, it does constitute a coverage that the TPP can only dream of. Unlike the TPP’s 12-country membership covering only 11% of the world’s population, APEC’s 21-country membership constitutes more than half of the total global population. And while everyone is agog at TPP’s being 40% of the world gross domestic product (GDP), APEC has 54%.
And this can be emphasized more when an FTA of the Asia-Pacific does become a reality.
The same thing goes for the RCEP, which has a 16-country membership, constituting (like APEC) also half of the world’s population. While its GDP coverage is scoffed at for being a mere 29%, nevertheless, one has to remember that FTAs are about trade and not GDP. In which case, the TPP’s 13% of world trade is not much of an advantage over RCEP’s 12%.
And speaking geographically, which is still an important factor in international trade, the RCEP does have India and China. And quite significant as well is the fact that TPP’s countries are not growing as fast as RCEP ones.
So there is time for the Philippines to be deliberate and more calculating about our entry into the TPP. The TPP members themselves will give us that. Canada voting a lukewarm Justin Trudeau into its premiership is one, another is the US’ quite divided hostile political environment.
As Foreign Affairs magazine (“Free Trade and the TPP,” Oct. 7) describes it: “When, after five years of talks, an agreement was finally announced on October 5, neither a single Republican leader in Congress, nor any broad business federation could be found to support it. Republican support for the TPP is indispensable since most congressional Democrats oppose it and former Secretary of State Hillary Clinton has just come out against it.
Consequently, ratification is both a question of when and if. Without ardent efforts by GOP leaders to move some of their reticent rank-and-file, the TPP cannot be ratified. Legally, Congress cannot even vote until the February primary season at the earliest and, in an election year, ratification will be an uphill climb even under the best circumstances.”
And the reason for all this wariness is something that the Wall Street Journal incisively explains (“TPP is Surprising Vote of Confidence in Globalization,” Oct. 21), of which our present political and bureaucratic leaders are strangely unconcerned about but definitely should -- the possible danger that the TPP might pose to our national sovereignty:
“‘Behind the border’ barriers are politically more sensitive than tariffs because they affect domestic policies, from human rights to how much public health systems pay for drugs. Classical arguments for free trade are also less relevant: a country that grants foreign drug companies longer patent protection is raising prices for its own consumers, and more restrictive labor laws erode its competitive advantage of cheap labor. Yet these sorts of rules are the conditions the US and other advanced countries insist on if developing countries are to have access to their markets. This is why TPP’s significance lies not in its economic impact -- modest for most signatories -- but how it restricts its members’ domestic sovereignty.”
Hence, why I repeat: the TPP (and WTO, APEC, RCEP) is not as simple as ABC.
15.7.15
The Trans-Pacific Partnership’s far-reaching strategic significance
was my Trade Tripper column in the 10-11 July issue of BusinessWorld:
Several developments happened almost simultaneously in the international trade world, and amusingly they all involve just three letters: T, P and A. US President Barack Obama got his Trade Promotion Authority, albeit with much acrimony, and then accordingly set his sights set on the Trans-Pacific Partnership (TPP). Around about that time, the Philippines gave the clearest declaration yet that it wants to join the TPP. Naturally, without a word if the United States wants the Philippines.
On record, what needs to be done is the Philippines being able to comply with certain requirements for member countries: rule of law, opening up to foreign ownership of businesses or property, addressing State ownership of certain industries, intellectual property, and the like. The fact that the Philippines is requesting for “flexibilities” in dealing with TPP obligations isn’t also helpful.
But history is also against the Philippines, what with how we reacted in the immediate aftermath of the Cancun World Trade Organization ministerial debacle of 2003. Jubilant about the negotiation’s collapse rather than commiserating with our trade partners, particularly the US, we immediately followed this by quite unsubtly publicly rebuffing US invitations to enter into a trade partnership with it. Expectedly, the US has a long memory regarding insults.
Incidentally, the TPP currently includes as parties Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the US.
It can’t be denied that the TPP is important, at least as far as Mr. Obama’s foreign policy is concerned. As CNN points out, without the TPP “Obama’s entire Asia pivot strategy is in jeopardy. While Obama has struggled to stamp his authority on the globe, his Asia policy had until now been seen as a bright spot given the fracturing of nations in the Middle East, the rise of extremist groups such as ISIS and the return of Cold War-style hostilities with Russia. His promise to channel power and resources toward Asia was widely welcomed in the region as an antidote to China’s rising might among allies deeply concerned about Beijing’s territorial ambitions on the East and South China seas. Japan, for instance, was deeply appreciative of Obama’s forceful statement in April 2014 that US treaty commitments to its ally were ‘absolute’ amidst rising territorial tensions between Tokyo and Beijing.”
Unfortunately, despite this, the Philippines has absolutely no leverage with the US to gain admission to the TPP. Philippine policy regarding China and the West Philippine Sea, for example, is so obsequiously in line with US interests (some say, more American than the US position) that Mr. Obama would rightly see no point in even considering it. Gratitude has no place in foreign relations and no country in its right mind would pay for something it already has.
The other thing that the Philippines perhaps failed to take into account in its wishing is how dysfunctional ASEAN really is. Milton Friedman’s 1997 remarks was recently quoted in relation to the Greek financial crisis but the words practically apply to our region (just change the word “Europe” for “ASEAN”):
“Europe’s common market exemplifies a situation that is unfavorable to a common currency. It is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of ‘Europe.’ Despite being a free trade area, goods move less freely than in the United States, and so does capital.”
Hence, why Cambodian Prime Minister Hun Sen’s lament against the TPP seems spot on. Reported by The Diplomat, he blames “the TPP for leaving half (or, more accurately, six out of 10) ASEAN countries outside of it. ‘We should review again... why the Trans-Pacific Partnership did not include 10 ASEAN members,’ Hun Sen said. “What is the purpose, real intention of establishing [the] Trans-Pacific Partnership... that they include half of ASEAN to be partners... and leaving half of ASEAN outside.”
This is despite the praises that economic commentators (and even Singapore Prime Minister Lee Hsien Loong) have heaped on the TPP. But Hun Sen’s criticism may ultimately be correct, if not for what he actually said.
The TPP is divisive not because it intentionally excludes certain countries but because, as I alluded above, it offers a divided ASEAN of differing interests an avenue to expand trade individually rather than as one. And the nature of the TPP further exacerbates these differences.
Gone are the days when trade negotiations meant the lowering of tariffs and the ridding of quotas. Right now, these are shallow considerations, and for a country like Singapore already mean nothing. But for countries like the Philippines, these will mean copyright and pharmaceutical-related measures, investment regimes, property ownership, and -- most significantly -- investment disputes. The latter effectively transfers to a foreign body the power to hold back health, sanitary, or environmental measures that the Philippines may deem necessary.
Not to be flippant, but the TPP clearly is not as easy as ABC.
Several developments happened almost simultaneously in the international trade world, and amusingly they all involve just three letters: T, P and A. US President Barack Obama got his Trade Promotion Authority, albeit with much acrimony, and then accordingly set his sights set on the Trans-Pacific Partnership (TPP). Around about that time, the Philippines gave the clearest declaration yet that it wants to join the TPP. Naturally, without a word if the United States wants the Philippines.
On record, what needs to be done is the Philippines being able to comply with certain requirements for member countries: rule of law, opening up to foreign ownership of businesses or property, addressing State ownership of certain industries, intellectual property, and the like. The fact that the Philippines is requesting for “flexibilities” in dealing with TPP obligations isn’t also helpful.
But history is also against the Philippines, what with how we reacted in the immediate aftermath of the Cancun World Trade Organization ministerial debacle of 2003. Jubilant about the negotiation’s collapse rather than commiserating with our trade partners, particularly the US, we immediately followed this by quite unsubtly publicly rebuffing US invitations to enter into a trade partnership with it. Expectedly, the US has a long memory regarding insults.
Incidentally, the TPP currently includes as parties Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the US.
It can’t be denied that the TPP is important, at least as far as Mr. Obama’s foreign policy is concerned. As CNN points out, without the TPP “Obama’s entire Asia pivot strategy is in jeopardy. While Obama has struggled to stamp his authority on the globe, his Asia policy had until now been seen as a bright spot given the fracturing of nations in the Middle East, the rise of extremist groups such as ISIS and the return of Cold War-style hostilities with Russia. His promise to channel power and resources toward Asia was widely welcomed in the region as an antidote to China’s rising might among allies deeply concerned about Beijing’s territorial ambitions on the East and South China seas. Japan, for instance, was deeply appreciative of Obama’s forceful statement in April 2014 that US treaty commitments to its ally were ‘absolute’ amidst rising territorial tensions between Tokyo and Beijing.”
Unfortunately, despite this, the Philippines has absolutely no leverage with the US to gain admission to the TPP. Philippine policy regarding China and the West Philippine Sea, for example, is so obsequiously in line with US interests (some say, more American than the US position) that Mr. Obama would rightly see no point in even considering it. Gratitude has no place in foreign relations and no country in its right mind would pay for something it already has.
The other thing that the Philippines perhaps failed to take into account in its wishing is how dysfunctional ASEAN really is. Milton Friedman’s 1997 remarks was recently quoted in relation to the Greek financial crisis but the words practically apply to our region (just change the word “Europe” for “ASEAN”):
“Europe’s common market exemplifies a situation that is unfavorable to a common currency. It is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of ‘Europe.’ Despite being a free trade area, goods move less freely than in the United States, and so does capital.”
Hence, why Cambodian Prime Minister Hun Sen’s lament against the TPP seems spot on. Reported by The Diplomat, he blames “the TPP for leaving half (or, more accurately, six out of 10) ASEAN countries outside of it. ‘We should review again... why the Trans-Pacific Partnership did not include 10 ASEAN members,’ Hun Sen said. “What is the purpose, real intention of establishing [the] Trans-Pacific Partnership... that they include half of ASEAN to be partners... and leaving half of ASEAN outside.”
This is despite the praises that economic commentators (and even Singapore Prime Minister Lee Hsien Loong) have heaped on the TPP. But Hun Sen’s criticism may ultimately be correct, if not for what he actually said.
The TPP is divisive not because it intentionally excludes certain countries but because, as I alluded above, it offers a divided ASEAN of differing interests an avenue to expand trade individually rather than as one. And the nature of the TPP further exacerbates these differences.
Gone are the days when trade negotiations meant the lowering of tariffs and the ridding of quotas. Right now, these are shallow considerations, and for a country like Singapore already mean nothing. But for countries like the Philippines, these will mean copyright and pharmaceutical-related measures, investment regimes, property ownership, and -- most significantly -- investment disputes. The latter effectively transfers to a foreign body the power to hold back health, sanitary, or environmental measures that the Philippines may deem necessary.
Not to be flippant, but the TPP clearly is not as easy as ABC.
9.6.15
Philippine trade with US and China
was my Trade Tripper column in the 5-6 June 2015 issue of BusinessWorld:
While everybody is fixated on United States and China movements in relation to the Pacific, another set of maneuverings is happening practically unnoticed by most, and that is in the area of trade. And the effects of these could be equally significant in the longer run. It also would be a good opportunity to determine Philippine strategic thinking on such issue, particularly if there is an effective inculcation of the truism that foreign relations is but an extension of domestic policy.
The Trans-Pacific Partnership is an expanded version of the 2005 Trans-Pacific Strategic Economic Partnership Agreement and currently includes as parties Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States. The TPP is said to expand provisions of the North American Free Trade Agreement that favor US domestic industries, as well as borrowing heavily from the US-Korea Free Trade Agreement (FTA) template.
The TPP, however, is not without further controversy: the negotiations have been so secretive that many in the US complain about being in the dark regarding its contents. Zero Hedge, one of the more colorful financial blogs available online, had this interesting May 22 article en route to President Obama’s getting Trade Promotion Authority for the TPP: “While the actual contents of the TPP may be highly confidential, and their public dissemination may lead to prison time for the ‘perpetrator’ of such illegal transparency, we now know just how much it cost corporations to bribe the Senate to do the bidding of the ‘people.’ In the Supreme Court sense, of course, in which corporations are ‘people.’”
Hence, “using data from the Federal Election Commission... shows all donations that corporate members of the US Business Coalition for TPP made to US Senate campaigns between January and March 2015, when fast-tracking the TPP was being debated in the Senate. The result: it took a paltry $1.15 million in bribes to get everyone in the Senate on the same page.”
The Regional Comprehensive Economic Partnership (RCEP), on the other hand, is between the ASEAN members (Philippines, Indonesia, Malaysia, Singapore, Thailand, Brunei, Burma, Cambodia, Laos, Vietnam) and Australia, China, India, Japan, South Korea and New Zealand. It was seen as combining two prior trade proposals: the East Asian Free Trade Agreement (that had ASEAN, China, Japan and South Korea) and the Comprehensive Economic Partnership (same lineup as EAFTA but with the addition of Australia, India and New Zealand). Like the TPP, it is seen to be an FTA of high standards and comprehensiveness, including provisions that make for deeper integration between the parties.
A meeting at the ministerial level is supposed to take place in July in Kuala Lumpur, with discussions ranging from goods, services and investments, all with an eye to concluding the RCEP by 2015.
However, as East Asia Forum’s Sanchita Basu Das (“Is RCEP just the same old trade paradigm?”, Dec. 6, 2014) points out: “The RCEP agreement is plagued by the fact that participating countries are at different stages of development. Concerns have been raised that any kind of deeper economic integration could lead to huge social costs incurred by the less developed member economies. This could be due to structural adjustments and the risks of falling into a low-cost labor trap, where there is little incentive for domestic industries to move up the value chain.”
The point is that a fundamental change in thinking about economic and trade policy is sorely needed. Unfortunately, our response to international trade seems to be stuck in the 1990s. We fail to realize, as William H. Overholt ably pointed out, that the General Agreement on Tariffs and Trade and the World Trade Organization “were devised for a simpler era, when it was possible to think about world trade in the way Ricardo taught -- namely that a good is produced in one country and consumed also in a single country.” However, “by the last decade of the 20th century, production had become a complex global process. The logic of increasing efficiency by reducing trade barriers remained completely valid, but policy adaptation of that logic to a new era has faltered.”
This inability to recognize how trade evolved also feeds our continuing incapacity to measure it properly. An idea of this can be taken from Stephen Grenville: “Perhaps the most fundamental change in international trade in recent decades has been the development of multinational ‘supply chains.’ The production process has been ‘unbundled,’ with different stages of production taking place in different countries.”
Aside from the US-China dynamic, the complexities brought up don’t even approximate the intricate effects that global finance has on trade. As well as the forgotten area of culture.
Though your friendly neighborhood Trade Tripper still believes in multilateralism, nevertheless, the Philippines needs to wake up to realities and muster capabilities for greater degrees of calculation.
It would be useful therefore knowing what our presidential aspirants’ (and their possible economic teams) thinking on the matter.
While everybody is fixated on United States and China movements in relation to the Pacific, another set of maneuverings is happening practically unnoticed by most, and that is in the area of trade. And the effects of these could be equally significant in the longer run. It also would be a good opportunity to determine Philippine strategic thinking on such issue, particularly if there is an effective inculcation of the truism that foreign relations is but an extension of domestic policy.
The Trans-Pacific Partnership is an expanded version of the 2005 Trans-Pacific Strategic Economic Partnership Agreement and currently includes as parties Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States. The TPP is said to expand provisions of the North American Free Trade Agreement that favor US domestic industries, as well as borrowing heavily from the US-Korea Free Trade Agreement (FTA) template.
The TPP, however, is not without further controversy: the negotiations have been so secretive that many in the US complain about being in the dark regarding its contents. Zero Hedge, one of the more colorful financial blogs available online, had this interesting May 22 article en route to President Obama’s getting Trade Promotion Authority for the TPP: “While the actual contents of the TPP may be highly confidential, and their public dissemination may lead to prison time for the ‘perpetrator’ of such illegal transparency, we now know just how much it cost corporations to bribe the Senate to do the bidding of the ‘people.’ In the Supreme Court sense, of course, in which corporations are ‘people.’”
Hence, “using data from the Federal Election Commission... shows all donations that corporate members of the US Business Coalition for TPP made to US Senate campaigns between January and March 2015, when fast-tracking the TPP was being debated in the Senate. The result: it took a paltry $1.15 million in bribes to get everyone in the Senate on the same page.”
The Regional Comprehensive Economic Partnership (RCEP), on the other hand, is between the ASEAN members (Philippines, Indonesia, Malaysia, Singapore, Thailand, Brunei, Burma, Cambodia, Laos, Vietnam) and Australia, China, India, Japan, South Korea and New Zealand. It was seen as combining two prior trade proposals: the East Asian Free Trade Agreement (that had ASEAN, China, Japan and South Korea) and the Comprehensive Economic Partnership (same lineup as EAFTA but with the addition of Australia, India and New Zealand). Like the TPP, it is seen to be an FTA of high standards and comprehensiveness, including provisions that make for deeper integration between the parties.
A meeting at the ministerial level is supposed to take place in July in Kuala Lumpur, with discussions ranging from goods, services and investments, all with an eye to concluding the RCEP by 2015.
However, as East Asia Forum’s Sanchita Basu Das (“Is RCEP just the same old trade paradigm?”, Dec. 6, 2014) points out: “The RCEP agreement is plagued by the fact that participating countries are at different stages of development. Concerns have been raised that any kind of deeper economic integration could lead to huge social costs incurred by the less developed member economies. This could be due to structural adjustments and the risks of falling into a low-cost labor trap, where there is little incentive for domestic industries to move up the value chain.”
The point is that a fundamental change in thinking about economic and trade policy is sorely needed. Unfortunately, our response to international trade seems to be stuck in the 1990s. We fail to realize, as William H. Overholt ably pointed out, that the General Agreement on Tariffs and Trade and the World Trade Organization “were devised for a simpler era, when it was possible to think about world trade in the way Ricardo taught -- namely that a good is produced in one country and consumed also in a single country.” However, “by the last decade of the 20th century, production had become a complex global process. The logic of increasing efficiency by reducing trade barriers remained completely valid, but policy adaptation of that logic to a new era has faltered.”
This inability to recognize how trade evolved also feeds our continuing incapacity to measure it properly. An idea of this can be taken from Stephen Grenville: “Perhaps the most fundamental change in international trade in recent decades has been the development of multinational ‘supply chains.’ The production process has been ‘unbundled,’ with different stages of production taking place in different countries.”
Aside from the US-China dynamic, the complexities brought up don’t even approximate the intricate effects that global finance has on trade. As well as the forgotten area of culture.
Though your friendly neighborhood Trade Tripper still believes in multilateralism, nevertheless, the Philippines needs to wake up to realities and muster capabilities for greater degrees of calculation.
It would be useful therefore knowing what our presidential aspirants’ (and their possible economic teams) thinking on the matter.
8.4.15
Interview on ASEAN integration
My December 2014 (well, i think it was December) Eagle News PH interview on ASEAN integration and competition policy, that for some reason then shifted to a discussion on the 'effects' doctrine in international law. View here.
Improving thinking on Philippine trade policy
my Trade Tripper column in the 20-21 March issue of BusinessWorld:
Despite the extremely parochial topics with which Philippine national discussions have been confined to (a situation that will most likely remain until well after the 2016 elections), international trade goes on. Naturally, movement in this area has unsurprisingly stagnated, particularly the continued simplistic binary way of thinking that divides policy lines into that of protectionism and liberalization. Incidentally, this passé kind of analysis also dominates how we look at competition policy.
However, as Simon Lester of the International Economic Law and Policy Blog points out, in the area of free trade agreements, the analysis has moved beyond such bleak duality: “What is the core purpose of trade agreements? [Some simply explain that] governments make trade agreements to reduce protectionism. That is the story most people are familiar with, and take for granted. We’ve all heard of protectionism; we all have a sense of what it is, although definitions may vary.”
There is another view: “Trade agreements will never reduce protectionism as we normally understand it. Rather, the sole function of trade agreements in the Bagwell-Staiger/Grossman-Helpman model is to eliminate terms-of-trade manipulation, unilateral trade policy that aims at improving the home country’s terms of trade. Terms-of-trade manipulation is a completely distinct phenomenon from protectionism, reflecting a different governmental motivation.”
Mr. Lester further states that “there are actually some additional theories about the purpose of trade agreements. There’s the domestic commitment theory (a trade agreement ‘can serve as a commitment device for a government to close the door to domestic lobbies’), and several new theories: ‘firm-delocation’ externalities in the presence of free entry, ‘profit-shifting’ externalities, and trade-volume externalities when prices are determined by bilateral bargaining.”
The distinction in perspectives is subtle but utterly significant: “With anti-protectionism as its goal, the system can use traditional and familiar provisions... to identify and prohibit protectionist measures.”
“By contrast, with terms of trade manipulation, the scope of the system is a lot less clear... Keep in mind, the optimal tariff... is not the only measure the proponents of this view have in mind. They also envision that domestic laws and regulations could be used for terms of trade manipulation. So how would the trading system address such measures through specific legal obligations? How would the Seal Products measure, or the Tuna-Dolphin measure, or plain packaging laws be examined if the issue was whether they constitute terms of trade manipulation?”
The foregoing lays the ground for reminding us of a misunderstood (hence oft abused) reality of international trade. This is best described by former World Trade Organization Director-General Pascal Lamy when he visited the Philippines: for a country to do well in the international trade system it must have, “first, the importance of national vision -- backed by a comprehensive strategy for getting there. No one can tell a country how to trade or become more competitive. The only successful export-led growth strategy is one which countries want themselves -- that they design and implement on their own -- and that remains on course over the long term.”
Verily, the overriding context is always national interest. Which a country formulates on its own and by itself.
Regarding the foregoing, one can’t help but be further reminded of a memorable “white paper” issued by the Australian government that analyzed Australia’s place in a future Asia: “There was acceptance that the big changes that had to be wrought in the Australian economy and society to manage a world in which the new Asian powers will be a dominant force in the global order was a task beyond the capacity of government or policy alone. It required participation from across the community -- including business, educational institutions, community leaders, unions -- and nothing less than a change in national mindset. There was no quick policy fix to the problem. It was a long-term task on which a national consensus had to be patiently forged, and an ongoing national conversation must be had.”
Notably, “an important element was the priority of building deeper, more comprehensive relationships with the three big new emerging powers in the region -- China, Indonesia and India. These relationships were still significantly underdone. Getting it right with China, Indonesia and India was not just a matter of tweaking established arrangements at the edge of economic, political and security exchanges. It was a far bolder ambition that required energies and talents not confined to government and shifting the culture in which these exchanges were conducted.”
Nevertheless, care must be taken that we ourselves not fall into the policymaker’s or economist’s obsession with numbers. In the end, trade agreements begin and end with people. And the Philippines has not been ideal in properly caring for the senior population and the youth. Finally, like any discussion involving law, we must recognize trade’s effect on a country’s morals, values, and culture.
Despite the extremely parochial topics with which Philippine national discussions have been confined to (a situation that will most likely remain until well after the 2016 elections), international trade goes on. Naturally, movement in this area has unsurprisingly stagnated, particularly the continued simplistic binary way of thinking that divides policy lines into that of protectionism and liberalization. Incidentally, this passé kind of analysis also dominates how we look at competition policy.
However, as Simon Lester of the International Economic Law and Policy Blog points out, in the area of free trade agreements, the analysis has moved beyond such bleak duality: “What is the core purpose of trade agreements? [Some simply explain that] governments make trade agreements to reduce protectionism. That is the story most people are familiar with, and take for granted. We’ve all heard of protectionism; we all have a sense of what it is, although definitions may vary.”
There is another view: “Trade agreements will never reduce protectionism as we normally understand it. Rather, the sole function of trade agreements in the Bagwell-Staiger/Grossman-Helpman model is to eliminate terms-of-trade manipulation, unilateral trade policy that aims at improving the home country’s terms of trade. Terms-of-trade manipulation is a completely distinct phenomenon from protectionism, reflecting a different governmental motivation.”
Mr. Lester further states that “there are actually some additional theories about the purpose of trade agreements. There’s the domestic commitment theory (a trade agreement ‘can serve as a commitment device for a government to close the door to domestic lobbies’), and several new theories: ‘firm-delocation’ externalities in the presence of free entry, ‘profit-shifting’ externalities, and trade-volume externalities when prices are determined by bilateral bargaining.”
The distinction in perspectives is subtle but utterly significant: “With anti-protectionism as its goal, the system can use traditional and familiar provisions... to identify and prohibit protectionist measures.”
“By contrast, with terms of trade manipulation, the scope of the system is a lot less clear... Keep in mind, the optimal tariff... is not the only measure the proponents of this view have in mind. They also envision that domestic laws and regulations could be used for terms of trade manipulation. So how would the trading system address such measures through specific legal obligations? How would the Seal Products measure, or the Tuna-Dolphin measure, or plain packaging laws be examined if the issue was whether they constitute terms of trade manipulation?”
The foregoing lays the ground for reminding us of a misunderstood (hence oft abused) reality of international trade. This is best described by former World Trade Organization Director-General Pascal Lamy when he visited the Philippines: for a country to do well in the international trade system it must have, “first, the importance of national vision -- backed by a comprehensive strategy for getting there. No one can tell a country how to trade or become more competitive. The only successful export-led growth strategy is one which countries want themselves -- that they design and implement on their own -- and that remains on course over the long term.”
Verily, the overriding context is always national interest. Which a country formulates on its own and by itself.
Regarding the foregoing, one can’t help but be further reminded of a memorable “white paper” issued by the Australian government that analyzed Australia’s place in a future Asia: “There was acceptance that the big changes that had to be wrought in the Australian economy and society to manage a world in which the new Asian powers will be a dominant force in the global order was a task beyond the capacity of government or policy alone. It required participation from across the community -- including business, educational institutions, community leaders, unions -- and nothing less than a change in national mindset. There was no quick policy fix to the problem. It was a long-term task on which a national consensus had to be patiently forged, and an ongoing national conversation must be had.”
Notably, “an important element was the priority of building deeper, more comprehensive relationships with the three big new emerging powers in the region -- China, Indonesia and India. These relationships were still significantly underdone. Getting it right with China, Indonesia and India was not just a matter of tweaking established arrangements at the edge of economic, political and security exchanges. It was a far bolder ambition that required energies and talents not confined to government and shifting the culture in which these exchanges were conducted.”
Nevertheless, care must be taken that we ourselves not fall into the policymaker’s or economist’s obsession with numbers. In the end, trade agreements begin and end with people. And the Philippines has not been ideal in properly caring for the senior population and the youth. Finally, like any discussion involving law, we must recognize trade’s effect on a country’s morals, values, and culture.
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