Make free trade agreements benefit us

BIZLINKS - Rey Gamboa (The Philippine Star) - September 5, 2013 - 12:00am

As 2015 draws nearer, the Philippines, one of the original founding members of the presently 10-member Association of Southeast Asian Nations (ASEAN), once again finds itself fretting about the many possible pitfalls of totally eliminating import duties.

(The Philippines is committed to the ASEAN Economic Community or AEC whose objectives are to create a single market and production base in the region to make it stronger and more competitive in the global economic arena.)

The Philippine agriculture sector, for example, has been heard once again asking for a deferment in further trade liberalization, fearing that the influx of lower-priced agricultural products from its neighboring countries would deal a death blow on local production.

This is not just about rice, but also chicken, pork, and other commodities that benefit a sizeable number of Filipinos and also comprise a substantial contribution of the country’s gross domestic production.

Toss in to this lot also budding small and medium enterprises of the country that deal with furniture, handicrafts, fashion accessories, and manufactured foods – growing sectors that could face sudden death given the superiority of their ASEAN competitors.

Altogether, this could deal a major blow to the current government’s push for inclusive growth, i.e., a reduction in poverty levels and the regeneration of wealth among the country’s struggling low and middle income classes.

Not all bad

The ASEAN free trade agreement (AFTA), though, is not all that bad. Ever since member countries had agreed to bring down tariff restrictions of more than 90 percent of its products since 1992, countries like Thailand and Malaysia, and even Vietnam recently, have been able to capitalize on the agreement.

In fact, even some Philippine-based companies have said that the AFTA has helped improve their competitiveness and business growth. Most of them have relied on the economic robustness of other ASEAN members as a platform for expansion, and not just being content on relying on local growth.

FTAs per se are not instruments of tyranny as some critics have pointed out. In today’s international trade patterns, governments are being forced to acknowledge that tariff barriers are not necessarily beneficial to their respective economies.

Taking full advantage

The Philippines is learning this, albeit slower than most of its neighbors in the region. In the export of bananas to wider and farther markets, for example, it is now accepted that the key to success is to find a technical solution that can extend the fruit’s life while being transported.

In an Asian Development Bank paper published in 2010, interviewed AFTA users in the Philippines said that they were still ahead in business after using cheaper imported intermediate inputs due to preferential tariffs because they experienced increased export sales in other markets.

But the study points out that only 20 percent of respondents were using FTA mechanisms to improve and expand their business. For the remaining 80 percent, hesitation springs from a general ignorance of how FTAs can work to their benefit.

Businesses, mostly small- and medium-sized enterprises, are daunted by the perceived bureaucratic red tape they could face when importing inputs for their business or selling produce in other countries. This is an area that the Philippine government could very well intervene in.

Going global

There is no stopping the further liberalization of global trade, and while the World Trade Organization still faces major problems in its push to bring down world trade barriers, regional platforms like the AFTA are forging ahead with more success.

But ASEAN members have to work harder if all the work that they’ve been doing during the past 40 years will not be overshadowed by other more aggressive trade agreements, notably overlapping agreements with China, Korea, Japan, India, EU, and even the US.

Weak links

And the weakest links that have emerged so far have been the Philippines and Indonesia, who have not only raised the most number of issues supporting the move to further delay compliance, but have also chalked the least benefits to date from the AFTAs.

Let us take advantage of all those technical aid programs that purport to assist developing economies like the Philippines to truly benefit from the impending breakdown of global trade barriers.

Building blocks

If the Philippines wants to capitalize on the continued economic growth that the country is experiencing, it will have to seriously look to expanding its business activities firstly to areas within the ASEAN borders and then to other fast-growing economies like China and India.

The strength of current local consumer spending relies largely on the continued high levels of salary remittances by Filipinos working overseas. While this has buoyed the country through the biggest economic crisis the world has experienced in recent decades, we should not let this be the only touchstone of the country’s future.

The Philippine government must seriously consider a true roadmap for our agriculture and tourism sectors, both of which have the potential of providing employment and a better life for majority of our countrymen who do not earn enough.

And while we look at protecting our industries and sectors that are not yet quite ready to face the full impact of trade liberalization, let us be wary of being overprotective to the point that we are never able to take off.

“Globalization and free trade do spur economic growth, and they lead to lower prices on many goods.” -- Robert Reich

Collegiate basketball ongoings

At CESAFI-Cebu competitions, the Southwestern University Cobras is headed for another seeded position in the Champions League 2013 National Collegiate Championship as the defending southern Islands champion swept the first round.

Also making a strong bid to be part of the seeded teams are the perennial CESAFI champions, University of Visayas Green Lancers, San Carlos University and University of San Jose-Recoletos.

Visit www.CollegiateChampionsLeague.net for more collegiate hoopla news and join for free the ongoing contests and win surprise gifts from PCCL sponsors.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.

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