Lower take ADB says PH to earn ‘only’ $3-B from RCEP pact photo BusinessWorld Online
Philippine Economy

Lower take? ADB says PH to earn ‘only’ $3-B from RCEP pact

Nov 23, 2021, 7:26 AM
Rose De La Cruz

Rose De La Cruz

Writer/Columnist

The Asian Development Bank is echoing the Department of Trade and Industry’s claim that ratifying the Regional Comprehensive Economic Partnership would be good for the Philippines. Much like WTO and other trade deals that failed, the Senate is being urged by several civic groups not to ratify the agreement, which the DTI negotiated before COVID-19.

WHILE $3 billion is already a huge amount, the Asian Development Bank (ADB) however, said it was still the lowest projected income among other members of the

Regional Comprehensive Economic Partnership (RCEP), a trade bloc just like World Trade Organization.

RCEP is expected to take effect on January 1, 2022.

The economists said the regional trade pact will take effect after at least six Asean members and three non-Asean countries ratify it.

The ADB noted that the increased income of $3 billion or 0.39 percent in 2030, is still very small when compared with other signatories to the RCEP.

Smallest increase

In an ADB blog, economists led by Cyn-Young Park who is the Director for Regional Cooperation and Integration for ADB’s Economic Research and Regional Cooperation Department said that compared to the Asean-5 economies, the Philippines will see the smallest increase in income while Malaysia and Thailand will see the highest increase at $7 billion each.

China, Japan, and Korea will see the largest increase in incomes by 2030.

$245- B

“By 2030, RCEP will increase the income of member economies by 0.6 percent while adding $245 billion and 2.8 million jobs to the regional economy,” the economists said. “This is especially welcome given the pandemic has dampened economic growth and caused job losses in many countries.”

As of November, six Asean members have already ratified the agreement namely Brunei Darussalam, Cambodia, the Lao People’s Democratic Republic, Singapore, Thailand, and Vietnam.

Further, four non-Asean countries—Australia, the People’s Republic of China, Japan, and New Zealand—have also ratified the agreement.

“While further work is needed to match its potential, RCEP holds promise if participating economies are motivated to undertake greater economic liberalization to support the post-pandemic recovery. As the pandemic dissipates, RCEP may well act as a catalyst for greater regional cooperation,” the economists said.

Farm sector

Earlier, the Department of Trade and Industry (DTI) warned that the local farm sector, which has opposed the RCEP, may miss out on the opportunity to export more products via the world’s biggest trade pact.

Trade Secretary Ramon M. Lopez said in a virtual event on Wednesday that RCEP, which accounts for about 30 percent of the global GDP, will provide the agriculture sector “good market” access for their products.

In a recent position paper, representatives of farmers, fishers, workers, civil society organizations and private sector said they were against the ratification of RCEP saying the trade deal was finalized without consultations with the agri-fisheries stakeholders and now, there is “no more opportunity” to possibly suggest revisions.

World trade

The RCEP accounts for 29 percent of the world’s trade, 29 percent of world’s GDP, 33 percent of global inward Foreign Direct Investments (FDI), 47 percent of global outward FDI, and 2.3 billion population (29 percent of the world’s population). The Agreement also represents 51 percent of the Philippines’ exports, 68 percent of the country’s imports, and 58 percent of FDI source in 2020.

Lopez highlighted the crucial role of RCEP in boosting equitable economic growth, including for MSMEs, through the expansion of regional trade, services, and investments linkages.

As several of the country’s key trading partners are present in the Agreement, he also emphasized that the benefits to the country far outweigh the cost of not joining and called for the timely completion of domestic procedures within the year.

RCEP benefits

“The benefits of the RCEP Agreement to the Philippines far outweigh the cost of not joining. We urge for the Senate’s concurrence of RCEP within the year to allow the country to be a part of this largest free trade area and to ensure that we take advantage of this mega deal to facilitate post-pandemic economic growth,” Lopez added.

RCEP Lead Negotiator, Assistant Secretary Allan Gepty stressed the 4Cs in benefits RCEP will give to the Philippines: 1) cheaper costs for sourcing key inputs of the manufacturing sector; 2) convenience for businesses in trading with key FTA partners; 3) competitiveness for Philippine industries; and 4) complementation of existing government support programs.

Alternative views

Last year, Trade Justice Pilipinas and other civil society organizations from the Philippines signed together with around 400 civic groups 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, reported Rappler’s columnist Joseph Puruganan.

Many groups have raised the concern that RCEP – the negotiations for which ended 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.

They rebutted the DTI’s claims on a) enhanced market access, b) RCEP being a platform for more investments, and c) impact on balance of trade (imports, exports and tariff revenue losses).

Claim 1: On 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 (free trade agreements) with these countries.

Truth is, 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.

On 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 percent yearly even considering sensitive list and tariff rate quotas. According to the report “ASEAN countries together will lose around $8.5 billion per year 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.

On 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. Philippine 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.

On export

With respect to exports, only three countries would experience a marginal rise in exports post RCEP. Exports post RCEP rose by 1 percnet for Indonesia and Thailand, and 0.07 percent for Brunei. Based on the projections, the Philippines could see a 0.20 percent 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 claims 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 percent 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 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, Puruganan added.

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

Tags: #RCEP, #DTI, #ADB, #moreincomeforPhilippines, #benefitsversuslosses, #economy


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