The rise of China’s economy and its growing geopolitical assertiveness has changed the dynamics of what was once just a cozy mutually beneficial economic engagement with its trading partners. For many economies, it has become a fine line between maximizing economic benefits while minimizing geopolitical threats. The concern arises from China’s translation of its economic strength to political influence and the pursuit of its geostrategic intentions particularly in the East and South China Sea. This concern was expressed by Australian PM Malcolm Turnbull who said in the ASEAN Security Conference held in Singapore June 2017: “China (may be) isolating those who stand in opposition to or are not aligned with its interests, while using its economic largesse to reward those toeing the line.” It may be noted that China is Australia’s largest trading partner (30 percent of its exports).
The same is true for Japan and a number of other countries in the region that are torn between enjoying the benefits of trade with China and leaving themselves vulnerable to pressure, or inhibiting them from taking a contrary stance on non-economic issues. For middle powers like Japan, India and Australia, who have in addition shared democratic values, it makes a lot of sense to diversify their trade while at the same time building other economic alliances. Japan and Australia were instrumental in the establishment of the Comprehensive and Progressive Trans Pacific Partnership (CTPP), which is the TPP minus the US.
Japanese Prime Minister Shinzo Abe has been promoting his Indo-Pacific strategy but aims to broaden regional alliances to include India and the Pacific, but at the same time does not specifically reference the East and South China Sea mindful of China’s sensitivity. This has found resonance in India with Indian PM Mahindra Modi touting his “Act East” initiative prompting Abe to say after meeting with the former: “ I (am) steadfastly convinced that the Japan-India relationship is blessed with the largest potential for development of any bilateral relationship anywhere in the world.”
What these countries are doing can best be described as an amalgam of two sayings for which I apologize for bastardizing: “There are no permanent friends, only permanent interests. So don’t put all your eggs in one basket.”
It behooves the Philippines to pursue such a strategy, and the timing seems right for it – if our government is prepared to seize it. First, let’s get the most out of our economic engagement with China since we have chosen to put economic gains above all other considerations and China has promised to live up to it. While China is our largest trading partner in 2016, we buy more than we export, resulting in a trade deficit of $9.192 billion or about 42 percent of our total deficit with the world. This is obviously an area that needs our government’s attention. Tourism is expected to be the area where this improved relations will immediately prove itself. Indeed Chinese tourists grew from 665,663 in 2016 to 968,447 in 2017 – a huge 43.33 percent rise, but still less than the 1.5 million Filipinos that visited China last year. Presidential spokesperson Harry Roque said we could expect up to five million tourists arrivals in the future. Huge numbers of committed investments and financing for infrastructure have also been touted following high-level visits between our two sides. Those are all awesome numbers that we hope will be realized. But we must note from experience though that China can turn on or off depending on the state of our diplomatic relationship.
So secondly, we must not forget our old reliable economic trading partners. ASEAN provides the Philippines the opportunity to benefit from an integrated economic community providing us a market of scale and a strong bargaining chip when dealing with the large economies or other trading blocs. We should exert serious effort to bring the ASEAN Economic Community into full reality. As I often hear from businessmen, much more has to be done, particularly in the services area to make the AEC meaningful to business. Then there is the Regional Comprehensive Economic Partnership (RCEP), which brings together ASEAN plus China, India, Japan, Korea and Australia/New Zealand into a mega-regional free trade agreement.
The European Union ranked as the Philippines’ fourth largest trading partner, fourth export market and fifth import supplier. EU member-states have the largest share of foreign direct investments (FDI) in the country, supporting over 500,000 local jobs. It also ranks fourth among sources of official development assistance grants.
Two recent developments promise to take this historically important economic partnership to new heights: 1) The announcement the EU will continue to provide GSP+ treatment to the Philippines, which give our exporters a leg up on competing suppliers. And, 2) The ratification of the EU-Philippine Partnership and Cooperation Agreement (PCA) which covers a broad area of cooperation and serves as a prelude to an FTA.
More recently, the US-Philippine Society (USPS) held their annual meeting in Manila. They met with legislative and business leaders. They also had a one hour and 50 minute meeting dialogue with President Duterte covering bilateral and regional issues. Both USPS chairman John Negroponte and US Ambassador Sung Kim took the opportunity to affirm that Philippine-US ties are in good shape. During meetings with the Makati Business Club, Ambassador John Negroponte expressed the hope that a Free Trade Agreement would be pursued since both presidents expressed support for such a pact during the Trump visit in Manila.
The Duterte administration has, for its part, expressed its commitment to making the AEC a reality and to completing RCEP negotiations during our chairing of ASEAN. Let’s hope they follow through on this. The President has good rapport with PM Abe and has visited India recently. But one wonders why he will not go to the ASEAN-Australia Summit and the ASEAN-EU Summit both important and reliable economic partners, and a good hedge for other trading partners where the relationship is based not just on business grounds, but on political factors as well.