Rift between PH, China threatens trade, tourism ties — Global Source

MANILA, Philippines — Prolonged diplomatic chill between the Philippines and China risks reversing the trend of “mutually beneficial” trade and travel ties that have been growing rapidly over the years, according to the New York-based think tank Global Source.

In an April 11 special report titled “Challenging Goliath,” Global Source economists Romeo Bernardo and Marie-Christine Tang noted that Philippine-China relations had sunk to a new low following the Philippines’ filing of a memorial or pleading before a United Nations Convention on the Law of the Sea arbitral tribunal. Citing the view of “cooler” heads who have said that the Philippines should “dial down the rhetoric,” the research noted that President Aquino’s comparison of China’s actions to Hitler’s occupation of Czechoslovakia in the period leading up to the Second World War seemed unnecessary.

“Rather, more calibrated and thought through pronouncements would enable the country to keep the moral high ground,” it said.

As it is, the research noted that given China’s non-participation in the arbitration case, the Philippines realizes that even under the best case where the tribunal accepts jurisdiction and substantively rules in its favor, the ruling may be “unenforceable” and China will still have effective control of the disputed areas.

“Needless provocation would likely serve to harden China’s position, which may prove unhelpful in achieving the Philippines’ desired outcome,” it said.

The hope is that despite China’s current insistence in claiming everything within its nine-dash line, an opinion from an impartial international tribunal that is favorable to the Philippines will lead to some softening in China’s stance and allow the Philippines to explore areas that it is entitled to, the commentary has noted.

Notwithstanding the apparent overwhelming desire among Filipinos for its government to see the case through, the economists said “not a few local thinkers are dismayed that relations with a neighboring economic powerhouse have deteriorated to such an extent.”

The memorial filed by the Philippines was in connection with the arbitration case it initiated against China early last year over disputed areas in the South China Sea (referred to as West Philippine Sea by local authorities) in which it sought to defend its rights under the 200- nautical mile exclusive economic zone of the UN Convention on the Law of the Sea (UNCLOS).

In assessing potential economic costs, Global Source noted that Philippine-China exports and imports had grown at a compounded annual growth rate (CAGR) of 17 percent between 1999-2013 compared with the 4 percent CAGR in trade between the Philippines and the rest of the world.

It also noted that Chinese tourists, whom the World Tourism Organization tagged as the largest source market for outbound tourism in terms of expenditures since 2012, have only recently started to come to the Philippines and, despite bilateral tensions, grew by 70 percent to over 420,000 visitors in 2013.

“China demonstrated during the April 2012 standoff that at a minimum, it can bar Chinese tourists from coming to the Philippines and apply stricter phytosanitary standards on Philippine agricultural exports,” the research said, noting that about 30 percent of Philippine exports to China was estimated by analysts to be intended for domestic demand and that this share might grow as China shifts towards a consumption-led economic growth strategy.

With a pending court case, the research noted that China may be expected to deploy its huge foreign exchange reserves and continue its “charm offensive” to win over other members of the Association of Southeast Asian Nations (ASEAN). “This would not only isolate the Philippines in its continuing efforts to push for a binding Code of Conduct in the South China Sea among ASEAN members but would also give the latter the edge in attracting fast growing Chinese outward investments ($84 billion in 2012 from less than $3 billion a decade ago, mostly in Asia),” the research said.

At present, the research noted there’s very little by way of Chinese foreign direct investments (FDIs) in the Philippines, noting that its one large stake in the electricity transmission sector was even “being eyed locally with deep suspicion.”

With this political tension, Global Source also said it has become “highly unlikely that the Philippines can undertake any oil and gas exploration in the West Philippine Sea.”

Global Source said it would likely take anywhere from two to four years for the tribunal to decide on the case, assuming it would not junk it immediately for lack of jurisdiction (take China’s position).

Even if the decision comes before 2016, the research said there’s not much optimism among local China experts that bilateral relations would thaw under President Aquino. “The hope now is that in the interim, more pragmatic minds on both sides of the disputed seas will be able to work on preserving and growing economic ties,” the research said.

Global Source said the Philippine government’s confidence was “understandable as, legal arguments aside, the case has ignited latent nationalistic emotions.” It added that the country was enjoying broad international backing, not least from the U.S. given its pivot to Asia, and countries with similar disputes with China, including Japan and some members of the ASEAN, notably, Vietnam and Malaysia.

“To be sure, the Philippines’ leaning on US support in its maritime disputes has drawn strong reactions from China. It has said that it opposes these attempts to draw a third party into the dispute. But it is precisely the belief in US support – the two countries hold periodic war games, including near the South China Sea – that is propping up Philippine confidence to stand up to China,” Global Source said.

“Lacking any credible military defense capability, the Philippines is currently locked in negotiations with the U.S. on a defense treaty that it expects will be signed during the US President’s scheduled visit to the country this month,” it said.

RELATED STORIES

PH case vs China a model for int’l sea disputes

US to China: We will protect Philippines