Call for China-Asean FTA suspension grows

A clamor is growing in the business sector primarily among small entrepreneurs for the next government to review the open trade policy adopted under President Gloria Arroyo, including free trade agreements signed under her administration that would result in marginalizing local industries.

Because of government’s misplaced priorities which resulted not only in insufficient investment in basic public physical infrastructure like seaports, storage facilities, all-weather road systems and bridges, but also in the crafting of policies—such as the bias towards a strong peso which has through the years placed our export industry at a disadvantageous position—the smaller enterprises are essentially placed at the mercy of foreign competition.

At present we have no textile industry to speak of.

From a historical perspective, the hasty opening of a country’s economy to the world could do more harm than good. Failure to strengthen homegrown industries first has proven to be disastrous to many countries in the long term. In fact history is replete with examples of those countries whose economies have literally been taken over by multinational corporations and foreigners. Populations have become virtually employees and workers of these corporations—their entrepreneurial spirit dashed. The Banana Republics of Latin America are some examples.

Other sectors look at free trade as a failure in eradicating massive poverty, unemployment and migration of Filipinos. A private group, the Fair Trade Alliance, for instance, noted that the erosion of the country’s agro-industrial base was due mainly to the reckless and mindless manner by which the government has embraced and implemented a one-sided program of trade and economic liberalization, such as the free trade agreements.

Other countries—such as the US, European Union, China, India, and Indonesia—are moving towards supporting their industrial and agricultural sectors; the reason for the huge subsidies inserted in the trillions of dollars worth of stimulus packages being implemented in these various countries. A number of countries also have gone into reverse. Venezuela under Hugo Chavez, and Bolivia under Evo Morales have taken the extreme path of nationalizing a number of industries they have identified to be vital to their countries’ economies.

Free trade pacts have noble visions on regional economic integration and improving the quality of life of member-countries’ population. The China Asean Free Trade Agreement, which came about because of the initial successes of the European Union (EU), also has lofty visions. The hasty implementation of the agreement however has posed serious questions on its impact on local industries. After all our memories are still fresh on the collapse of our textile industry and steel, and the near collapse of the furniture industry due to cheap imports caused by a variety of factors like a strong peso and lack of policy support from government, among other reasons.

The Asean Free Trade Agreement (AFTA), which took effect at the start of this year reduced the tariff on commodities traded within Southeast Asia to no more than five percent with several items traded tariff-free. The agreement had long gestated under the Association of Southeast Asian Nations (Asean), which now comprises 10 countries and has the Philippines as its founder, in its bid to become an economic bloc similar to the EU.

The agreement recently included China, the world’s biggest consumer market and the fastest growing economy globally, which also has the capability of flooding the local market with cheap products particularly as a result of the free trade environment. One of the reasons of China’s competitiveness is their “weak” yuan—one reason why the US and EU have been urging Beijing to float and allow the Chinese currency to strengthen.

Small entrepreneurs remain mostly in the dark on the provisions of the agreement and the benefits they may derive from it. An Asian Development Bank (ADB) study made recently on 156 local export firms indicated that less than 28 percent of respondent companies in the Philippines were aware of AFTA and had availed of the benefits it provides. This may actually be higher in the rural areas. The ADB study covered companies in the electronics, food and machine parts industries.

The study noted that the low awareness in the Philippines on the trade agreement contrasted with the 45 percent in China. The ADB study showed that only 16 percent of small firms know of the AFTA and 24 percent of large firms are willing to exploit the agreement.

Our Rural Economy—where rural banks are front-liners in providing financial assistance to the marginalized sectors—is not ready to compete within the ambit of China-Asean FTA. We need an even keel, an even playing field where our farmers and small businesses can compete with their international counterparts who have been properly nurtured and are highly subsidized by their governments.

Allowing China-Asean FTA to be hastily implemented when the countryside is not ready to compete only creates more imbalance in the Philippine economy. It discourages investments on certain sectors because it is no longer profitable to do so.

The reason why our enterprises at this time are not yet ready to compete is not because they are lazy and complacent. Our enterprises have become inefficient because of the many years of government neglect (compared with the full support given by other countries to their local industries) and because the regulatory environment and the economic policies have given them a raw deal and prevented them from implementing the necessary changes.

Omar Andaya is the president of the Rural Bankers Association of the Philippines. –JOSEPH OMAR ANDAYA, Manila Times