On the road to free trade, think Filipino
The Philippine Star
September 09, 2002

The road towards free trade is not going to be easy for a developing economy like the Philippines.

By next year, the Philippines is expected to be in full compliance with the ASEAN Free Trade Agreement (AFTA) stipulating import tariffs of zero to five percent within the year for some 6,000 product lines.

AFTA also aims to have 60 percent of some 70,000 ASEAN products tariff-free by 2003. And by 2010, all six original member countries of ASEAN – including the Philippines – will scrap import duties of all products, with flexibility only for certain agricultural products such as sugar, corn, and meat.

It can be said that the Philippines is faring decently well, with 96 percent of its products now within the required zero to five percent range of the agreed effective preferential tariff schedule.

The fact that we have kept up with the thrice-shortened deadline for a one-ASEAN market should make Filipinos even prouder. The Philippines was signatory in 1992 to the 4th ASEAN Summit in Singapore pledging support to regional free trade by 2008; this timetable was shortened to 2003, and again to 2002. And we’ve managed to keep up.

Theoretically, this should be welcome news.

Regional trade realities debunk initial expectations

We were told right from the start that freer movements of goods to and from the Philippines would trigger inflow of investments, create job opportunities and spur the lethargic economy.

The Americans also consistently applauded AFTA. The region, it said, would benefit from greater intra-regional trade with the reduction of dependence on major export markets in the highly-developed Asian and Western economies. There would be greater choice and lower prices for ASEAN consumers. An integrated market with a population exceeding half a billion people vis-à-vis a collection of relatively small, segmented markets would make ASEAN more attractive to large-scale investment.

Theoretically, this would have made us clap in anticipated glee. Until we realized that AFTA will only work if all member-countries were melded into a truly single market. And that China, acting on its own, is single-handedly getting the lion’s share of direct foreign investments to Asia.

Our meekness makes us weak

While AFTA’s 10 members say "Full speed ahead," actions belie talk. For one, Thailand seems to be lagging behind in its commitment to reduce tariffs. They have an average 6.02 percent tariff rate, while all other original member-signatories have reduced their tariffs below or exactly at five percent as per agreement.

Likewise, two of the founding AFTA members – Malaysia and Brunei – continue to have the largest number of exempted items in the tariff list.

So we get good grades for compliance. But are we losing our shirt by being meek and compliant?

Conflicting rumblings

In the domestic environment, the approaching AFTA deadline is also cause for heartburn particularly of upstream industries. The steel firms are requesting for steel tariffs to be raised to 10 percent. The aluminum companies want tariffs hiked to 20 percent on aluminum foil and 40 percent on other aluminum products.

Similar pleas have been entered on behalf of the petrochemical palm oil, pigments and paint preparation, footwear, steel varieties, soap and other personal care, electrical and transport equipment, textile and clothing, and fertilizer sectors.

The threat to survival for these industries is real. Already, a baseoil refinery of a multinational oil company in Rizal had closed shop adding hundreds more to unemployed Filipinos. Why? Because our government is not willing to adjust its tariff schedule despite a lower level adopted by its ASEAN neighbors. Similarly, the local footwear industry is at the throes of extinction.

To be expected, local downstream industries that have benefited from low taxes on raw materials are not happy with the tariff protection petitions of the upstream industries.

The Alliance of Concerned Downstream Industries argues that a return to high tariff for items such as steel, aluminum and plastic resin would hurt consumers, end-product manufacturers, and ultimately the country. Local manufacturers that will be forced to use expensive raw materials would do better to just trade or import finished goods.

Rethink commitments

All told, there are some very clear lessons to be learned.

Huwag tayong pa-iisa. With regards to AFTA, we could adjust to a liberalized regional trade regime at comparatively the same pace as our competitors. It simply starts with the question: Are we committing too much, too soon?

With respect to our own industries, let us be selectively protective. We need to prioritize our industries in the over-all context of globalization. If we give up the footwear industry, let’s make sure that we’re sacrificing it for something bigger and much, much better.

We must learn to look at industries in terms of the net value to the country. Our electronic exports, for example, is a top grosser in terms of revenue amount. But comparatively of little added value. Agriculture and fisheries on the other hand, are sectors with high added value and, therefore, should be aggressively promoted.

Lastly, in the international arena, we must learn to negotiate well and bargain hard.

In agriculture for instance, developed economies like Australia are pursuing special treatment on their own products in spite of having agreed to eliminate all export subsidies. Recalcitrant behavior such as Australia’s necessitates tough action. Boycott Australian meats!

Let us exercise the right to compete against developed markets on fair, if not equal terms. We go back to the original argument: There simply is no need to blindly comply. Let’s open up and develop our competitiveness, and in doing so, let’s not forget to think Filipino.

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