The case for a special trade negotiator

Trade Secretary Jesli Lapus was quoted by the media recently as saying that it is now timely for the Philippines to negotiate a free trade agreement with Taiwan following the warming of its relations with China and the imminence of an Economic Framework Agreement (ECFA) between the two. A Philippine-Taiwan FTA may be on hold for some time because of certain political complexities, but the Lapus statement suggests that government policy makers are cognizant of the growing global trend for bilateral and regional FTAs, of which East Asia accounts for the majority of those negotiated in the last decade. Our country has not been as forthcoming as some of our ASEAN neighbors in joining this trend. We have been content to follow the lead of ASEAN and have not struck out on our own. Thus, there is a danger that we we could be left out and face discrimination in those markets where we are not a participant in the preferential agreement.

It is too early to tell what direction the new administration’s trade policy will take – whether to pursue a more pro-active foreign trade and investments strategy or not. Whatever the case, existing commitments to realize the goal of ASEAN Community, complete negotiations of the ASEAN+3, enhance multilateral agreements like the WTO and regional agreements like APEC – with the possibility of a Free Trade Area of the Asia Pacific (FTAAP) in the offing – all this underscore more than ever the need for our government to develop a coherent trade policy and implement this through negotiations.

The time has come for the Philippines to approach foreign trade and investments in a new key.

Creeation of new office

Back in June 2007, I advocated in this column the creation of an office dedicated to strengthening our negotiating capacity for trade and investment agreements. I wrote then:

“It is important that we have the internal capacity to develop negotiating positions that would yield maximum gains for the widest cross-section of our people through the broadest possible consultations with all Filipino stakeholders. The present informal arrangement, where various government agencies get together to draw up basically ad hoc interagency positions, will no longer be effective for the economic diplomacy that will be required if the Philippines is to truly deepen its external engagement through bilateral and regional FTA arrangements.

“More often than not, such a haphazard approach, when translated into negotiating positions, places the country on the defensive, by either protecting certain narrow domestic interests from foreign competition, or by reducing national positions to the lowest common denominator “don’t rock the boat” postures which hold the country back from being able to take bold and visionary decisions.

“Forgotten in the process are the consumers and jobseekers, which never have a domestic lobby, as well as the more competitive sectors of the economy that can really take the ball and run in this era of globalization. Economic inefficiency and the misallocation of scarce productive resources are other byproducts of this unfortunate situation. For example, it would make better sense to massively support our people to prepare for stiffer market competition through education and training, rather than to subsidize industries that we all know are fated to become dinosaurs in the new global economy.

“Co-equal government agencies cannot make objective decisions on every question. Each agency has its own official mandates, bureaucratic turf and domestic constituencies, as perhaps should be the case. What they need is an objective primus inter pares that can make the decision on what is good for the most number of people based on accurate analysis and on intensive consultations with stakeholders.”

Today, a full year later, I am convinced that strengthening by merely upgrading existing trade negotiating capabilities under the supervision of DTI will no longer suffice if we are to avoid repeating the mistake made in the negotiation of JPEPA and the spectacle of certain sectors of our manufacturing sector screaming bloody murder as commitments made eight years ago under the ASEAN-China FTA kicked into play in 2010. Creating an independent agency – with Cabinet rank – that centralizes trade policy making and negotiations is now vital and necessary.

A holistic view of trade policy making – one that integrates it with national economic development policy – is now required in order for us to have effective negotiating objectives. Too often in the past we entered into negotiations – whether in the WTO or in ASEAN or ASEAN+3 – without a clear idea of what we wanted and what we could offer in return. This is only possible if we have the proper appreciation of the consequences of alternative positions through proper research and consultations and dialogue with industry.

USTR Model

In the creation of such an independent trade policy agency, we find an instructive model in the Office of the United States Trade Representative (USTR). The US agency has been responsible for some time now for developing and recommending US trade policy to the US President, for conducting trade negotiations at bilateral and multilateral levels, and for coordinating trade policy within the government through the interagency Trade Policy Staff Committee (TPSC) and Trade Policy Review Group (TPRG). A cabinet-level position, the USTR has the sole power to negotiate trade agreements for the US. It is organized along functional and geographic lines, has a liaison office to the US Congress and its own research arm. It prepares the US President’s annual trade policy agenda which outlines the objectives and action plans for the year.

The US is not alone in realizing benefits from such an approach. The EU has its 250-strong Trade Directorate, which has produced leaders and negotiators like current WTO head Pascal Lamy. Canada has its ITCan, which was taken out of the Department of Foreign Affairs and Trade (DFAT) and made into an independent agency. Here in Asia, Taiwan and Thailand have created their own Office of Foreign Trade Representative.

If we were to create such a special agency, the Office of the Philippine Trade Representative should be staffed by trade policy experts taken from DTI, DFA, DA and NEDA. I was reminded by Dondi Teehankee, our permanent representative in WTO, that Sen. Mar Roxas has filed a priority bill in the Senate proposing the creation of such an agency. I submit that it is timely to take a long, hard look at this policy proposal.

Qualifications of RP Trade Representative

The requirements of the job of special RP trade representative are a cut above the usual executive qualifications. In trade negotiation, securing market access for goods and services where we are competitive may require opening our market for those where we are not competitive and where it results in a net gain for national welfare – through cheaper prices and the freeing up of resources to those sectors where we are competitive. Securing that consensus is a tough job. In many instances negotiating with domestic interests are more difficult than with foreign governments. The responsibilities of the position will require a businessman conversant with the domestic market situation and has experience in dealing with the various stakeholders.

One CEO who comes immediately to mind is former Trade Secretary Johnny Santos, who prior to serving in that position was the head honcho of Nestle. He spearheaded the multinational’s multiple presence in ASEAN countries to take advantage of the opening up of intra-ASEAN trade by basing its product location decisions on the distinct advantage provided by each country offered for its product. Such decisions required closing some plants which were not as competitive and moving those to its other plants where it had comparative advantage to supply not only the domestic market but primarily the regional market. An appreciation of such dynamics is crucial for the TR post. Likewise, Johnny’s effectiveness in dealing with unions, distributors and suppliers would be an asset.

Other individuals with strong international/multinational business and government background are former DTI secretaries Rizalino S. Navarro   and Cesar B. Bautista. There are others in our business community, but my point is this: the person selected should have the qualifications.

One great plus for the incoming administration of president-elect Noynoy Aquino is that he can start afresh. He has an unequivocal mandate to eliminate the baggage of bureaucratic turf wars within departments and the executive branch of government. And he can push for both effectiveness and transparency in the process of reform. In the area of foreign trade and investments, decisive action and reform at this time will prevent the entrenching of narrow interests and raise our trade and investment strategy to a more competitive level in the world. –Roberto R. Romulo (The Philippine Star)