PH needs to exploit regional trade pacts

(Last of two parts)

Trade officials believe that reinforcing and innovating existing industries in the Philippines would eventually lead to a more competitive export market. According to Aldaba, the argument in response to a declining trade reliance is having stronger and more competitive industries.

“Given our trade liberalization episodes since the 1980s, one important lesson is for us to align our trade policy with our industrial policy and ensure that both are implemented simultaneously. By increasing capacity of our industries to produce high value goods and services both for domestic and global markets, we can improve our trade openness,” Aldaba explained.

There are mechanisms in place that would help the country boost its trade openness, paving the way for the Philippines to benefit more from the global market. These include the maximization of free trade agreements (FTAs). The problem, however, is that studies show that such trade deals still have low utilization rates.

This can partly explain why intraregional trade is not moving fast enough, or at least “not as what we want to be,” according to Trade and Industry Secretary Ramon Lopez.

Trade in Southeast Asia is still growing, nevertheless. In 2009, Asean countries signed the Asean Trade in Goods Agreement (Atiga), which consolidated and enhanced the provisions under relevant Asean economic agreements and instruments.

With Atiga in place, Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand have eliminated intra-Asean import duties on 99.65 percent of their tariff lines. Cambodia, Lao PDR, Myanmar and Vietnam have reduced their import duties to 0-5 percent on 98.86 percent of their tariff lines, according to the official Asean website.

The share of the Asean to the Philippines’ total trade has been growing since 1990, when it was only 9.29 percent of the entire pie, said Aldaba. This later reached 15.6 percent in 2000, before increasing to 19.71 percent in 2014, “indicating the growing importance of the Asean region as a trading partner for us.”

Major exports to Asean included electronic products and other manufactured goods, which mostly mirror what the Philippines imports from the bloc as well. This, according to Aldaba, shows that the Philippines is participating as parts supplier in the regional and global production networks of multinational companies engaged in these industries.

Likewise, the region has been trading more among themselves for nearly the past three decades. According to Aldaba, intraregional trade in relation to the total trade of the Asean region grew from 16.97 percent in 1990 to 22.74 percent in 2000, then to 24.22 percent 14 years after.

But the pace of growth is another story. “It could grow much more if we are able to address other efforts like trade facilitation and nontariff measures. The intra-Asean trade could be stronger,” DTI’s Lopez told the Inquirer.

Other than FTAs, the government is also pursuing other policies that will help in the long run and make the country more competitive. In order to become an export platform, Aldaba said the country should have a local production base that serves the domestic market.

“This implies that policies that are biased against domestic market production should be removed, including maybe opening up export zones to the domestic market and encouraging more linkages with the domestic economy by creating a domestic parts and intermediate components supplier base, which is currently a missing gap in the value chain,” she explained.

One of the measures that the government has been forwarding—not only under the present administration—is the manufacturing resurgence program. This does not only include the AEC, but the entire global arena as well, taking into consideration FTAs being pursued outside of Asean, along with global trends such as automation, robotics and internet of things.

The advent of the AEC in December 2015 brought in two different sides of the same coin: Competition and cooperation at the regional level. While there is great potential to reap benefits from Asean’s market of more than 600 million people, this also means the Philippines is “currently under pressure” to keep on innovating, Aldaba said.

“Regional competition has become more intense, countries have become more aggressive in terms of providing support (fiscal and nonfiscal) for their industries and attracting more foreign direct investments,” she added.

Complementation, not competition

Experts and public officials often frame the Asean as if it were one big country.

Had Asean been one country, these officials claimed, it would have been considered the sixth-biggest economy in 2016. Similar achievements are bragged about in other milestones such as market size, level of foreign direct investments and the like.

But while regional integration is important, the Philippines still wants to stay ahead of its Asean peers. Business groups do not celebrate when the country falls behind, even if this means a gain for a fellow Asean member-state.

Such competition includes how the Philippines can benefit from increasing its trade with the rest of the Asean, and the rest of the world. Moreover, such benefit has to reach an extent that will be felt on the ground, such as with the case of a growing trade reliance.

“Hopefuly, we are able to maximize trade concessions in the Asean so we can really export more to Asean countries,” DTI’s Lopez said. “But the point is we have to find complementation, rather than competition.”

The comments of Ortiz-Luis and DTI officials show different, if not conflicting, perspectives on the state of the country’s trade relationship with the international community. While they differ in terms of their bullishness on what trade can do given current capacities, they all agree on one thing: Current efforts are still not enough.