After joining RCEP, needed critical reforms must follow

Now that the Senate has ratified the RCEP (Regional Comprehensive Economic Partnership), let us be ready for the hard work that follows.

Let us not think the job is done, that we can simply wait for the benefits to be reaped.

What is RCEP?. Essentially, RCEP expands our ASEAN free trade arrangement involving 10 Southeast Asian countries (the original five members: Indonesia, Malaysia, Philippines, and Thailand and the later members: Brunei, Cambodia, Laos, Myanmar, and Vietnam) into a much larger grouping of economies that includes three of the biggest East Asian trading nations (China, Japan and South Korea) and two other Pacific countries (Australia and New Zealand).

The initiative to enlarge the trading area came out of a series of strategic meetings of ASEAN with these other trading economies. This will become the biggest economic trading bloc in terms of population and geographic area encompassed. A wide range of capacities in the production of goods and services combine together to engage in a larger trading framework.

The potential for an even larger internal economic integration through open trade becomes possible with the coming into being of RCEP.

Benefits from RCEP for the Phl. The RCEP had come into being as an organization in January this year because the required number of countries has already been reached. We are only the last signatory to ratify membership.

The government had argued many benefits from membership. For instance, here is a list that the Department of Finance gave.

(1) The RCEP provides enhanced trade facilitation provisions that make cross-border trade simpler and more efficient.

(2) A stable and predictable business environment will come out of the rules and guarantees provided for in the RCEP principles, resulting in a stable and predictable business environment to attract more investments in the Philippines and safeguard the country’s investments abroad.

(3) The development of MSME (small and medium scale industries) in the country to participate in the global value chain will be encouraged by membership.

(4) The Philippines will benefit from economic and technical cooperation support in order to strengthen its competitiveness.

(5) Zero and lower import tariffs for Philippine exports to other member countries will stimulate domestic industries by expanding their markets. Competition with foreign imports will energize domestic industries to improve their competitiveness.

(6) Philippine producers will benefit from wider sources of raw materials due to zero or lower import duties on their inputs as well as more flexibility in the rules of the free trade agreement on product manufacturing.

(7) Skilled Filipino professionals and business persons in legal, construction, engineering, and banking services will be given preferential treatment to practice their professions in participating nations.

(8) Finally, Philippine intellectual property rights will be upheld and given stronger protection to ensure the interests of Filipinos.

Focus on more economic reforms to realize the benefits. By ratifying and entering RCEP, we become party to the risk of potential failure to realize and maximize the attainment of these benefits.

It is good that the country ratified the RCEP treaty. Otherwise, we would become a bigger economic loser by keeping existing policies and being less competitive.

In joining the RCEP, we have to work hard to maximize our gains from it. We have to strengthen our economic muscles by reforming the basis of our competition – by bringing in more economic players who have more capital, more technology, and more management capabilities, so that we can employ more of our countrymen in good and highly productive jobs.

In 1994 when we joined the ASEAN Free Trade Agreement, the government practically did little to improve the economic policies to improve domestic international competitiveness. Many foreign investments in the country rationalized their production and marketing plans. They closed some of their Philippine plants and transferred to lower cost ASEAN neighbors, but retained their market sales in the country. (Ask Procter and Gamble; ask Colgate; ask other foreign companies with substantial sales in the country!)

Many Philippine producers moved also to lower ASEAN neighbors to produce the products. Of course, they kept their Philippine sales. (Ask the heads of Philippine conglomerates why they have plants in other ASEAN countries!)

Our policy-makers were making slow, incremental improvements in overall policies. With neighbors that had lower labor costs, cheaper electricity, lower logistical problems, such strategies fail to catch up to the modernizing requirements of rapid changes in the rules of trade.

My priorities for game-changing reforms. If I had the political clout of the majorities that our president obtained in the last election and if I were president, I would simply focus all my attention this year to the following economic reform: Amend the restrictive provisions on foreign investments in the Philippine constitution!

I would ask Congress to proceed with amending the restrictive economic provisions through a constituent assembly. Do not spoil the effort with any political amendments and it will get through.

The other reforms can simply follow the development plan’s directions as recently published.

I believe there is more agreement on this issue of amending the restrictive economic provisions of the Constitution than many people realize. All we need is the proper education of the general public on its positive impact on jobs and national prosperity.

Let other political issues concerning constitutional reform wait and do not spoil the atmosphere for economic change.  These political concerns could reawaken two or three years down the road perhaps. But to amend the restrictive economic provisions and giving way to a wider participation of foreign direct capital in the economy will make the Philippines the star for development change in the whole of RCEP. Many of our countrymen who are afraid that foreign entry in the economy will limit economic opportunities for Filipinos will discover that the opposite outcome – improved opportunities for all – will result.

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/