Conclusion
The establishment of the Free Trade Area in the Asia Pacific (FTAAP)—either via the US-led Trans-Pacific Partnership (TPP)or the China-initiated Regional Comprehensive Economic Partnership (RCEP)—became a hot topic at the recent Asia-Pacific Economic Cooperation (Apec) Leaders’ Week in Manila.
But while other countries have started to take sides on which path is more viable, the Philippines continues to shuffle its feet and has yet to make any bold step, except to repeatedly say that it is interested in joining the TPP.
In 2014 Beijing leveraged its position as a country-host to launch a collective strategic study on realizing the FTAAP— a move interpreted by the US as an aggressive effort to create a more liberalized trade environment in the region, but via the RCEP. The RCEP is a proposed free-trade bloc among Asean member-states plus those that the Asean has existing FTAs with—Australia, China, India, Japan, South Korea and New Zealand.
During the Apec Manila meet, member-economies have pledged to make progress on the FTAAP collective strategic study draft. The final version of the study and recommendations are due at the end of 2016, when Apec economic leaders and ministers will meet in Peru.
The US, throughout 2015, responded in kind—accelerating negotiations on the TPP and winning the confidence of the Pacific Rim countries by hurdling the fast-track authority in its own Congress.
Despite the Philippines’s participation in Apec efforts for the China-initiated FTAAP study, it has been more vocal on the TPP‚ a rational choice as it is led by its longtime ally.
This is amid the escalating tension between the Philippines and China on the long-standing territorial dispute.
But, even if the Philippines has been enthusiastic in expressing its intention to join the TPP, observers noted a significant hurdle—certain economic provisions in the Constitution have to be amended in order to meet the standards of the TPP.
The Department of Trade and Industry (DTI), in a report prepared before the visit of US Secretary of Commerce Penny Pritzker last year, said that “the Philippines need not amend its Constitution immediately, as flexibilities are allowed in the TPP. However, at a certain point, the Philippines may have to amend selected economic provisions of the Constitution.”
This is because the DTI expects that the highly ambitious TPP will require a broad and demanding set of commitments from the Philippines, such as liberalizing restrictions on foreign-equity ownership and government procurement, and adopting zero tariffs for all products with sensitivities to agriculture and industrial products.
The country continues to give mixed signals on the trade deal, which represents 40 percent of global GDP and one-third of world trade.
President Aquino stated the country’s desire to join the TPP, saying the deal “makes sense” as several of the Philippines’s major trading partners, including the US and Japan, are already part of it.
In a section commenting on the TPP, the report noted that of the total 2,212 tariff lines of Philippine exports to the US in 2012, about 677 lines, or 30.6 percent, were given duty-free access, while 1,535 lines, or 69.4 percent, still had positive tariffs, citing data from the Tariff Commission.
In a recent news conference with foreign and local media, Assistant Secretary for Industry Development and Trade Policy Ceferino S. Rodolfo underscored the importance of the TPP for the garments sector as the main avenue to secure preferential trade terms with the US.
“The United States accounts for 15 percent of exports. But if you look at the specific details, over 70 percent of Philippine exports to the US already enter that market duty-free, either through the US-Generalized System of Preferences, or through zero-percent duty under the most favored nation treatment. So there is just the focus 30 percent that has positive duties when we enter the US market. Half of the 30 percent is in terms of garments,” said Rodolfo during a recent news conference.
Rodolfo pointed out that the Philippine garments industry stands to be the most disadvantaged sector if the country fails to gain entry into the megatrade deal.
“When the TPP comes into force, we would know which sectors would have some disadvantage in entering the US market, which is in garments. The Philippines has already undertaken six technical consultations with respect to the TPP. We are carefully studying the TPP text as it was released two weeks ago and we are also looking at the accession provision of the TPP,” Rodolfo added.
A silver lining in this situation is that the Philippine garments and textile sector has long been left behind, as the country has increasingly become reliant on imports of raw material, combined with China’s rise as a manufacturing giant in the region.
Rajiv Biswas, chief economist at IHS Global, a marketing and consultancy firm based in the US, acknowledged this disadvantage, highlighting a trade-diversion effect from the Philippines to Vietnam.
“The impact of the TPP deal is likely to have some trade-diversion effect on the Philippines electronics sector and textiles and apparel sector, as the improvement in Vietnam’s competitiveness may result in some switching of new investment plans away from the Philippines toward Vietnam,” Biswas earlier noted.
Newly installed European Chamber of Commerce of the Philippines President Guenter Taus, in an e-mail interview with the BusinessMirror, also acknowledged the hurdle that the constitutional limitations pose on the country’s TPP eligibility.
“As a business organization we welcome free-trade agreements in general, as this also means that the somewhat restrictive economic provisions in the 1987 Constitution have to be amended, to further open the country to more participation in the global market. At the end of the day this serves the Filipino people as prices of quality products and services are kept to a minimum,” Taus said.
On the coexistence of the TPP and RCEP, Taus sees a more positive outcome, saying:
“Malaysia, Brunei, Singapore and Vietnam have shown that being part of TPP doesn’t exclude a membership in RCEP, hence this model can also work for other countries,” Taus said via e-mail.
The DTI is dispelling the notions that the limitations in the Constitution will become significant barriers, implying that the TPP allows some flexibilities.
While not expounding on the matter, the DTI maintains its high interest in the deal and is said to be still “studying” the eligibility of the country to the pact.
“We are carefully studying the TPP text as it was released two weeks ago and we are also looking at the accession provision of the TPP,” Rodolfo said.