Crafting beneficial trade agreements

Published by rudy Date posted on April 24, 2009

Free trade agreements or FTAs usually strike people, even many businessmen, as unfathomable or disjointed jargon because of its complicated language. Not surprisingly, the very bedrock on which FTAs are founded is in itself very much cause for debate.

FTAs in principle subscribe to the notion that trade among the countries of the world must not be subjected to unequal barriers, where one nation or more nations should not receive preferential treatment over another or others.

But the concept of free trade has become almost like a distant star, something to aim at, but quite unreachable – at least in the near future. The most recent testimony to this is the bogged down Doha talks of the World Trade Organization because countries have not been able to agree on equitable trade platforms.

WTO prides itself as being the world’s forum on trade discussions. Lately though, partly because of the stalled Doha talks, bilateral and regional free trade agreements have grown in number. This is especially true in Asia which has been least affected by the ongoing global financial crisis.

Japan, and lately, China and India have been proactive in initiating trade agreements with their neighboring emerging economies. These are mostly aimed at breaking down preferential trade barriers, and the number of signed agreements has been growing.

Making use of trade agreements

In the region, while the Philippines is not laggard in terms of the number of agreements closed, it falls behind Thailand, an economy that is often benchmarked against ours. But – as one of the issues in the unresolved debate goes – is it good to take the regional trade agreement (RTA) route, and consequently have more?

The Philippines is signatory to five RTAs, four of which are under the Association of South East Asian Nations or ASEAN. The last one is the controversial Japan-Philippines Economic Partnership Agreement (JPEPA) signed in December last year.

Thailand has three more than us. Three are under ASEAN and the remaining are preferential trade agreements with Laos, China, Australia, New Zealand and Japan.

Benefits and costs

From the point of view of most Philippine-base businesses, as gleaned from a new survey conducted by the Asian Development Bank, there are benefits to having RTAs, including more export sales that come from wider market access and cheaper intermediate inputs from preferential tariffs.

There are admittedly costs involved when plumbing through the myriad of terms and agreements, and more so, the fine-line and in-between-line nuances of such contracts in order to avail of the benefits.

Most of the cost starts with hiring a specialist team that will translate in more understandable English what the RTAs mean, and eventually redirect or retool business plans. The costs, however, are generally seen as manageable, and often are overshadowed by the eventual benefits.

Among those businesses that utilize the regional trade accords, the experience seems to have been positive. In fact, the ADB study penned by Masahiro Kawai and Ganeshan Wignaraja shows an eagerness among the firms included in the survey to exploit the trade preferences.

Low utility

While the absolute numbers of FTA users from the country are diminutive (compared to the number of potential users), this does not show averseness to availing of preferential trade benefits, but rather reflects a lack of awareness and government support in hurdling and understanding the often complex legal trading documents.

Thai companies, on the other hand, are perceived to have strong institutional support from their government agencies, which is regarded as a reason for the high level of use of trade agreements, and consequently resulting in better access in overseas markets.

Clearly, there is scope for our respective government agencies to guide and assist more Filipino firms in looking beyond the local market for their products. And this does not just pertain to new large Filipino companies like Pascual Laboratories.

More than 90 percent of registered Philippine firms are SMEs, and an expanded market outside our territorial boundaries would help in raising our national productivity levels as well as provide much needed jobs to millions of our countrymen.

Expanding trade

Lastly, our bureaucrats would do well to look at other markets other than Japan, such as China, India and Australia where their respective governments could see opportunities for preferred trade agreements.

Given the general distrust of Filipinos, whether because of a lack of information or a residual distaste from earlier WTO agreements that had left our agriculture sectors disadvantaged, care must be exercised such that any agreements are not lopsided against us.

For trade agreements to work well for all concerned parties, there must be better consultation. Not surprisingly, the ADB survey points to a low participative process, with only a fifth saying they were consulted by the state in drafting and finalizing the trade agreements.

Currently, there are a number of FTAs (with the US, China, India, Korea) under negotiation or proposed for the Philippines, and it would do well for government to be as exhaustive as possible in conducting consultations and dialogues.

This would not only ensure a less controversial agreement, but could lead to a higher utilization by the respective industrial enterprises or sectors of the trade benefits.

After all – unless proven inimical to the interest of the whole country – if Filipino business is amenable to the terms agreed in the trade documents, then it should be a good starting point for a mutually beneficial trade expansion.–Rey Gamboa, Philippine Star

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.

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