By Caesar Vallejos
Eagle News online correspondent
(Eagle News) — Because of its economic readiness, the Philippines is poised to benefit from the impact of participating in larger international trade agreements including the ASEAN Economic Community (AEC), Regional Comprehensive Economic Partnership (RCEP), Trans-Pacific Partnership (TPP) and the Free Trade Area of the Asia-Pacific (FTAAP), experts told a recent forum in Makati.
“Rather than fear the tsunami of ASEAN products that will flood the market, we must be pro-active in taking advantage of the opportunities from these wider trade agreements,” Dr. Cielito F. Habito, Ateneo Professor and Chief of Party, Trade-Related Assistance for Development Project said at the media briefing on “Pressing the Agenda: The Philippines and International Trade Agreements” hosted by the Makati Business Club last December 5, 2015.
Habito, the country’s former chief economic planner and Dr. Ceferino S. Rodolfo, Assistant Secretary of the Department of Trade and Industry shared the approaches, benefits and implications of these regional trade agreements.
Free trade is the exchange of goods and services between and among economies without restrictions from tariffs or taxes; quota or the limit on the amount of goods and services entering the country; and other barriers to trade that may include bureaucratic red tape and corruption.
Using his yardstick of P-T-K which stands for Presyo (Price Stability), Trabaho (Jobs) and Kita (Incomes), Habito stressed that the Philippines passed on all counts. Inflation rate of 1.4% in 2015 is down to record lows. Unemployment rate is also down by to 6.5% creating 1.01M jobs last year while the country’s 6% GDP growth is among the fastest in the ASEAN and the world.
Cross-border value chains changing global trade patterns
“The global trade patterns have changed. With the development of cross-border value chains where the components of a product are completed from various countries, it is no longer appropriate to say that a certain product is made in the US, China or Philippines. It should be ‘Made in the World’.” Habito cited the American brand of Boeing jets where the Philippines is part of the global value chain for aerospace. “The flaps of Boeing’s wings are made by a company called Moog, Inc. in Baguio,”Habito mentioned.
Moreover, Asst. Secretary Rodolfo shared that the backpacks supplied to American and Swiss militaries and mountain climbers in Switzerland are also Philippine-made.
“A good number of Philippine companies including Jollibee and ICTSI have long been well-entrenched in cashing in on the regional economic integration.” Habito emphasized. But he stressed that even micro entrepreneurs can engage in the economic inclusion.
Habito also cited a micro enterprise composed of a group of women loom weavers in Tubigon, Bohol whose raffia and abaca fibers are bought by a Cebu business enterprise, transforming the produce into high-end products sold in luxurious Malaysian hotels.
To address inclusive growth, rather than building its own source of raw materials, Jollibee partnered with Nueva Ecija farmers as part of their value chain to address their onion market requirements.
The Philippines largely trades products within the same industries in the ASEAN with electrical and electronic equipment as our top export and import. Trade relationships are increasingly complementary rather than competitive.
Philippines to benefit from TPP
One of the biggest international trade agreements that the Philippines is currently negotiating is the Trans-Pacific Partnership (TPP) which is expected to be completed in two years.
It is an ambitious, high standard trade agreement currently participated by 12 APEC economies.Aside from the removal of tariffs, the deal addresses 21st century issues including intellectual property, environmental protection, regulatory coherence and electronic commerce.
If the Philippines will not join TPP, it stands to lose about US$ 10 million in 2015 increasing up to US$ 400 million in 2024 as a portion of the country’s trade with economies which are part of TPP may be diverted away.
The MBC primer also states that Philippine key sectors that will be negatively affected with our non-joining will be textile and wearing apparel, petroleum products, construction services and equipment.
The Philippine economy is projected to benefit US$ 3 billion in 2024 in terms of trade from the TPP. The 2014 Clarete (UP School of Economics) Study also notes that it can increase exports by 42% and raise GDP by up to 59%. “Non-membership is not an option,” Habito stressed.
ASEC Rodolfo illustrated the positive updates of Philippine negotiations in getting zero duties from the Most Favoured Nation (MFN) and Preferential Tariffs either through Free Trade Agreements or the General System of Preference. Tariffs are taxes or duties levied on imported products. They make imported good more expensive, protects locally-produced goods and raises revenues for the government.
Our car imports from Japan, Indonesia and Thailand have zero duties compared to the tariff rate of 30% from the US. For garment exports, the EU, Indonesia and Australia impose zero tariffs compared to 5-20% rate of the US.
In spite of the promise of these international trade agreements, Habito cited the high poverty and unusual inequality as the persistent challenges in the Philippines where the richest one percent (1%) control 60% of our GDP.
MSMEs as key drivers of inclusive growth
The large corporations are not the drivers of inclusive growth. The key driver remains to be the micro and small and medium enterprise development, which was the Philippine APEC Agenda. Habito said that there is a need for the government to address the following: expand MSME access to finance (financial inclusion); strengthen technology assistance through public R&D and shared service facilities; foster MSME clustering, inclusive value chains; and improve market access (infrastructure, e-commerce and trade facilitation).
To avail of the opportunities of the ASEAN Economic Community (AEC), Habito challenged the MSMEs to do their homework. This includes efforts to strengthen and professionalize financial and overall business management; study AEC opportunities and requisites for availment (only 40% of PH firms use FTA perks) and shun the “kanya-kanya” attitude.
“The MSMEs must start teaming up into clusters and be united to gain larger market opportunities and embrace ‘coopetition’,” Habito stressed.