Philippine trade

[ANALYSIS] Debunking government claims on RCEP

Joseph Purugganan
[ANALYSIS] Debunking government claims on RCEP
'[T]he burden of proof lies with the executive to present the clear basis of their assertions and claims of benefits and not present motherhood, and triumphalist statements on the benefits of free trade'

The Senate began deliberations last October 29 on whether to give concurrence to the Regional Comprehensive Economic Partnership Agreement (RCEP), a comprehensive trade and investment deal that the Duterte administration signed onto in November 2020.

No rush

At the hearing called for by the Senate Foreign Relations Committee chaired by Senator Aquilino Pimentel III, Trade Justice Pilipinas asked the Senate to take the time to scrutinize the RCEP and not to rush concurrence to the agreement.

We are living in extraordinary times rife with uncertainties, where greater flexibility is needed to use all the policy tools to respond to the continuing challenges brought about by the COVID-19 pandemic.

Due diligence is an important duty of government officials; this means taking a more precautionary approach in government deals, especially those that could have long-term negative implications. Exercising due diligence is also important in order to ensure the protection of public interest at all times, but most especially in times of crisis and emergency.

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EXPLAINER: What RCEP means for Philippines

EXPLAINER: What RCEP means for Philippines
COVID-19

Last year, Trade Justice Pilipinas and other civil society organizations from the Philippines signed together with around 400 CSOs from across the globe a statement calling on trade ministries and the (WTO) to stop all trade and investment treaty negotiations during the COVID-19 outbreak.

Many groups have raised the concern that RCEP – the negotiations for which, for all intents and purposes, were concluded in 2019, before the pandemic – could severely constrain policy space needed to effectively address the health and economic crisis brought about by COVID-19. It is important therefore that the government clarifies the impact of rules under RCEP on these concerns.

Given the fact that it’s the executive department, led by the DTI who negotiated the deal, with very little information on the contents of the agreement made available to the public, the burden of proof lies with the executive to present the clear basis of their assertions and claims of benefits and not present motherhood, and triumphalist statements on the benefits of free trade.

At the hearing we heard two main claims on how the Philippines will benefit from RCEP. We offer here our rebuttal to these claims.

Claim 1: Enhanced market access

Market access gains are those obtained from reduction of tariffs in other countries for Philippine exports. But if we look at the pre-RCEP tariff rates across all the parties, you will see that these tariff rates are considerably low already owing to ASEAN FTAs with these countries. 

In fact the only country where considerable market access gains for the Philippines could have been achieved is in India, where the level of liberalization is lowest among all ASEAN FTAs. Which means it is India that could have offered more market access openings to the Philippines. Unfortunately, India withdrew from RCEP, mainly because of their own concerns over the possibility of worsening balance of trade deficits with China in particular.

Balance of trade

RCEP’s impact on our Balance of Trade must be seriously considered.

A new report from Boston University’s Global Development Policy Center on Market Access Implications of RCEP on ASEAN, finds that most ASEAN nations will see rising imports and declining exports in the wake of RCEP.  

ASEAN will be a net loser in balance of trade post RCEP, as its balance of trade declines by 6% per annum even considering sensitive list and tariff rate quotas. According to the report “ASEAN countries together will lose around USD8.5 billion per annum post RCEP in their goods trade balance.” Furthermore, with respect to the Philippines, the projections show that the country will lose around $260 million or P13 billion in its goods trade balance.

Losing P13 billion can hardly be considered enhancing market access. It is incumbent on the DTI to explain to the Senate how it plans to address the further deterioration of our trade balance.

Imports

Furthermore, the study shows that the Philippines will experience a fall in imports from all ASEAN countries but a rise in imports from China and Korea. Philppine imports are expected to rise in arms and ammunition, electrical machinery and equipment and plastics from Korea, and plastic, rubber, and clothing and textiles, footwear, glassware, machinery and mechanical appliances, and electrical machinery from China.

Our import bill could rise by $148 million.

Exports

With respect to exports, only three countries would experience a marginal rise in exports post RCEP. Exports post RCEP rose by 1% for Indonesia and Thailand, and 0.07% for Brunei. Based on the projections, the Philippines could see a 0.20% decline in exports resulting in a loss of export revenues amounting to over $100 million.

Tariff revenue loss

Tariff liberalization can lead to substantial tariff revenue losses. The report estimates that the Philippines will lose around $58 million or P2.9 billion.  This money could support the vaccination of around 2 million more Filipinos or additional 1 million more PPEs for medical front liners. That money could be used to purchase new smartphones to support online learning for 725,000 students.

Claim 2: Platform for more investments

The government will make the claim that RCEP could serve as a platform for more investments. We caution the government from making overly rosy projections, and point to the need to ground these claims in objective realities.

We should consider for example the impact of the pandemic on business operations. A survey conducted by Economic Research Institute for ASEAN and East Asia (ERIA) and the American Chamber of Commerce in Indonesia in September 2020 on 264 firms that have operations in the ASEAN region found that 11% of foreign firms in the Philippines plan to reduce operations or production, more than other countries included in the scope of the survey.

We question the myth that FTAs like RCEP would automatically bring about investments. What other measures, policies, conditions are necessary to increase investments especially in this time of economic crisis? How will RCEP address these other concerns? These are some questions demanding answers from government.

Opportunity to transform a broken system

The pandemic has magnified structural problems and weaknesses in our economic system. For example, on the issue of vaccines, we saw clearly how our dependence on imported vaccines and therapeutics in the time of an unprecedented health crisis weakened our ability to respond effectively to the crisis. 

There have been renewed calls for the revival of our manufacturing capacity, a capacity that we used to have decades ago, but sadly lost due to myopic economic policies that favored the opening up of markets to imports rather than providing support for the development of local industries.

RCEP would further lock us into this trade regime that is already facing a lot of scrutiny. Institutions like UNCTAD have pointed out the fundamental problems with existing trade rules highlighting – the corporate bias underpinning the rules, how the system has driven rising inequality, and the climate crisis – and the urgent need for substantive, systemic reforms. 

The COVID-19 pandemic could be an opportunity to move towards transforming the system.

UNCTAD for example has reiterated the call for greater south-south cooperation around three broad objectives of scaling up financial resources, enhancing policy space, and building resilience.

A key point in the COVID-19 era trade agenda for developing countries is the adoption of strategic trade and industrial policies to support essential sectors and preserve jobs.

As Trade Justice Pilipinas articulated in an earlier statement: “RCEP will further prop up a broken economic model that we need to radically transform in favor of one that is more resilient.” 

We urge the Senate not rush these proceedings and seriously consider these concerns and possible long-term consequences arising from the agreement. – Rappler.com

Joseph Purugganan is the Head of the Philippine Office of the progressive policy think-tank Focus on the Global South, one of the convenors of the Trade Justice Pilipinas Network.