Trade deal to spur Philippine business environment

MANILA, Philippines — The Philippines can expect moderate improvement in its business environment upon joining a major trans-Pacific trade deal that can also help in a post-pandemic economic recovery.

In a report, UK-based The Economist Intelligence Unit (EIU) said the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), one of the largest free trade blocs in the world, can unleash significant changes in various economies.

Last year, the Philippines expressed its intention to join CPTPP, a free trade agreement entered into by Australia, Canada, Japan, Mexico, New Zealand, Peru, Singapore and Vietnam.

It covers market access commitments in trade in goods, services, investments, labor mobility, government procurement, protection of the environment and labor rights, intellectual property and inclusive trade.

A country can join the CPTPP subject to negotiations with the current members and considering certain preconditions.

“EIU’s core assumptions, over our forecast period from 2022 to 2026, assume that an enlarged CPTPP will include the UK, Ecuador and South Korea, as these countries seek to diversify their trade partnerships and economic structures,” the EIU said.

“Membership by other emerging markets, such as Colombia, Indonesia, Thailand and the Philippines, is also likely,” it said.

Based on the EIU’s core scenario with a 65 percent chance of expected outcome, the enlarged CPTPP will include China, South Korea, Thailand, Indonesia and the Philippines.

Taiwan, although a natural candidate for CPTPP enlargement, given its open and trade-dependent economy, will be blocked by China from joining the agreement, according to the EIU.

Under this scenario, the EIU expects the implementation of CPTPP rules to be patchy, partly reflecting China’s diluting influence on the implementation of the trade agreement.

“However, this outcome will still yield moderate improvements to business environments in the Philippines and China, given the enhancement of local regulatory structures, as well as more minor improvements in Indonesia, Thailand and South Korea,” it said.

“This will elevate the competitiveness of their local business environments above India and other South Asian countries that are not party to the agreement,” it said.

Without ambitious reforms, however, the EIU warned that these countries would struggle to position their business environments as being more competitive than China, whose economic weight will preserve its attractiveness to multinational investors.

On the other hand, the think tank‘s second scenario of a full-compliance, limited membership on CPTPP will provide more benefits to the Philippines. But such a scenario has only a 25 percent chance of being realized.

“The strongest of these effects are felt in the Philippines, Thailand and Indonesia, which are able to position themselves as more attractive regional supply-chain hubs – particularly vis-à-vis China,“ it said.

The EIU’s final scenario is the most ambitious for full compliance, full membership but chances are only at 10 percent for an enlarged CPTPP that will include China, Taiwan, South Korea, Thailand, Indonesia and the Philippines.

The EIU emphasized that all new joiners would see marked improvements in their business environments, with the impact of the CPTPP’s stronger regulations and standards very pronounced in the Philippines, Thailand and Indonesia.

Estimates showed that the CPTPP could generate annual global income gains of $147 billion to $1.2 trillion until 2030.