THE Philippines may lose $100 million worth of exports within the Regional Comprehensive Economic Partnership (RCEP) region with the implementation of the mega trade deal, said a report by the United Nations Conference on Trade and Development (Unctad), which nonetheless said the gains from joining it far outweighs the losses.
While RCEP will boost trading among signatories in general, the Philippines — along with Cambodia, Indonesia and Vietnam — may be drawing the short end of the stick as some trade activities are expected to be transferred to other territories with better tariff concessions.
“The reason for this is the negative trade diversion effects,” the UN committee said, even as it clarified that all things considered, this does not mean that RCEP members are better off opting out of the trade deal.
“Some of the exports of these economies are expected to be diverted to the advantage of other RCEP members because they obtained relatively higher tariff concessions,” it said by way of explaining the trade diversion effect. A tariff concession eliminates tariff duties, making trading among RCEP members cheaper.
Based on Unctad’s computation, the impact of the trade pact on Philippine exports to the RCEP region translates to 0.1-percent decline.
This is lower compared to other affected countries. Unctad sees a decrease of 0.3 percent for Indonesia, 1.2 percent for Vietnam and 3.9 percent for Cambodia.
Lopez disputes claim
Trade Secretary Ramon Lopez, however, deems Unctad’s claims “unlikely.”
“Will have the team recheck. It [RCEP] should have the new concessions for Philippines,” he told the BusinessMirror.
He reiterated his point in earlier congressional hearings that the Philippines will lose a lot if it is late in joining the trade deal, which takes effect in January 2022.
“We lose the gains moving forward. It is not just trade but investments. And to note, trade in services which is our strength,” he told BusinessMirror in a text message.
He added, “and again, Agri has the necessary exclusion. Walang nabago [Nothing changed] And yet they even gained more market access.”
Despite the negative impact on exports, Unctad said RCEP members are better served by joining the trade deal.
“Even without considering the other benefits of the RCEP agreement besides tariff concessions, the trade creation effects associated with participation in RCEP softens the negative trade diversion effects,” it explained. The trade creation for the Philippines, for example, is seen to reach $200 million within RCEP region.
The trade among the 15 signatories already reached about $2.3 trillion in 2019, but the economic deal is expected to hike the overall exports within RCEP by 1.8 percent or $41.8 billion moving forward.
“This would result from trade creation – as lower tariffs would stimulate trade between members by nearly $17 billion – and trade diversion – as lower tariffs within the RCEP would redirect trade valued at nearly $25 billion away from non-members to members,” the UN group said.
Japan is seen as the biggest winner, with Unctad computing a 5.5-percent increase in exports to RCEP, mostly due to trade diversion effects. This translates to a $20.2-billion rise in exports.
Following Japan, Unctad also projects “substantial positive effects” of the trade deal on exports to RCEP by Australia, China, Korea and New Zealand.
Eliminating tariffs
The regional bloc’s agreement covers several areas of cooperation, including tariff concessions; the RCEP seeks to eliminate 90 percent of their tariffs.
“Under the RCEP framework, trade liberalization will be achieved through gradual tariff reductions. While many tariffs will be abolished immediately, others will be reduced gradually during a 20-year period,” Unctad noted.
The report said the “tariffs that remain in force will be mainly limited to specific products in strategic sectors, such as agriculture and the automotive industry.”
Under RCEP, the percentage of tariff lines with zero tariff in agriculture, natural resources and manufacturing stand at 75 percent, 90 percent and 91 percent, respectively.
Unctad, as a result, computes an average reduction in tariffs for agriculture by 12.8 percentage points, natural resources by 4.8 percentage points and manufacturing by 8 percentage points.
RCEP signatories include the 10 Association of Southeast Asian Nation (Asean) member states and their free trade agreement partners: Australia, China, Japan, Korea and New Zealand. The pact was signed in November last year.
One of the world’s biggest economic deals, RCEP covers roughly a third of the global gross domestic products and international trade.
It is set to enter into force by next month but the Philippines has yet to ratify this deal to allow participation.
Image credits: Bloomberg