Restrictive economic provisions of the Constitution once again

The report that Speaker Feliciano Belmonte of the House and Senate President Juan Ponce Enrile will revive discussions to amend the restrictive economic provisions of the Constitution brings back to life an important issue of economic policy. It had been completely eclipsed when political theater got dominated by the impeachment of the Chief Justice.

Such an initiative will gain force if embraced further by a popular president. The amendment of restrictive economic provisions could be a manageable change agenda so long as it is not complicated by broader political questions.

“Additional arguments in favor of amending the restrictive economic provisions.” This column has devoted space on the subject because of its importance in tilting the nation’s potential for economic growth. The reader can consult the archives of The Philippine Star. (For those using the internet, go to: GERARDO P. SICAT Articles|philstar.com).

Below are additional arguments that I offer to persuade President Aquino to include such reforms in his agenda so that he can move camp and give the marching orders to the legislative leaders:

• The right time to undertake reforms is when economic expectations are low;

• The nation’s mindset should gear toward regional rather than insular economic outlook;

• The advantages offered by the TPP (Trans Pacific Partnership) within the Asia-Pacific network of economic cooperation in trade could be lost by default without constitutional amendments; and

• The restrictive nationalism indicated by the constitutional provisions has encouraged extractive economic institutions to dominate the country’s development effort and do not encourage inclusive economic development prospects.

“The right time for reform.” World economic conditions are relatively difficult at the moment. Expectations are low. The economies of the United States, Europe, and Japan – three important regional engines of world economic growth – are still in a troublesome state.

The right time to undertake reforms is when expectations are low. When the prospects turn brighter, the proper policies are already in place and the country can reap the benefits. Thus, we do not miss the boat.

Moreover, even as Philippine economic assessments have improved, which give the country much notice as a “comeback” and “rising” economy, undertaking the reforms will add more positive factors. This will create more momentum for economic growth.

“The change in mindset from domestic to regional and international.” It’s time to change the nation’s mindset and those of the country’s business leaders. They should now be encouraged to view the domestic market as something beyond that the Philippine market. It adds the potential market of the other ASEAN member countries.

The ASEAN Free Trade Area widens the boundaries of our national market. Thus, our outlook as a nation should embrace a larger economic market and business plans of our larger enterprises should be encouraged to widen their outlooks.

So should our domestic policies in encouraging economic growth. This should make us more into a regional and international competitor rather than an insular market that is concerned alone with a limited economic market.

Our high-growth neighbors think regional and their economies are further outward looking. That makes their enterprises competitive regionally and internationally.

Foreign direct investments located in our country have long adjusted their economies on a regional footing. When they make investment plans, they factor in regional considerations within the ASEAN. A recent example of this was the Ford closure of its manufacturing plant in the country (which I discussed recently in this column).

If we change our mindset as a nation, we can adjust more quickly to our needs to stay highly competitive. We will then be able to rearrange our investment incentives pattern so that we do not simply direct them toward developing the domestic market for local businesses.

Incidentally, the old mindset is still behind the investment incentives laws under the Board of Investments. Yet our export incentives under the PEZA are geared toward international markets.

There is a link that is missing in these two incentives laws. The supply networks essential to support the industrial supply base of our export manufacturers in the PEZA do not exist within our boundaries as a result. The reason is that the domestic market has been nurtured by restrictive economic policies.

“The opportunities to move to higher trade agreements are beneficial.” The constitutional provisions on restrictions extend to prohibitions on the practice of the professions by foreigners.

Our human resources — professionals and skilled labor – have roamed the world for a living. At home, we practice protectionism that would have blocked such sources of livelihood for our OFW citizens who work abroad.

The TPP (Trans Pacific Partnership) agreement is emerging as a comprehensive free trade arrangement that includes all the major countries of the Asia-Pacific Region and a few developing countries. (Remember how South Korea and Taiwan in decades past have reaped the benefits of their rapid economic growth by tapping onto the US market?)

The agreement covers freer trade in goods and services, affecting rules of origin, trade remedies, barriers to trade, intellectual agreement, and government procurement and competition policy. In all negotiations, there are gives and takes. However, the benefits for membership of the few developing countries that are likely to be part of this pact are expected to be enormous.

TPP began as an agreement among four small Asia-Pacific countries (Brunei, Chile, New Zealand and Singapore) in 2005. As of June 2012, the following countries are now part of this agreement and they are negotiating the master agreement among themselves before closure: Australia, Malaysia, Peru, Japan, United States, Vietnam, Canada, and Mexico.

It will be a great pity if the Philippines were to miss out during the formative stage of this new international arrangement. Yet Philippine protective policies on a number of critical economic issues are precisely the factors that prevent us from entering this new club.

Thus, our country is not even yet likely to become a member of this negotiating agreement because of its constitutional situation.

“Move from extractive to inclusive nationalism.” The final argument is related to the notion of nationalism which is often used as the argument for protection. These policies have favored producers at the expense of consumers who have been forced to buy the produce at higher prices. Moreover, the limited impact on economic growth has led to small employment effect that we now know to have happened.

It will take more space to explain why the high objectives of promoting a wrong brand of nationalism in our laws have only led us astray in economic accomplishments. This is an indication of national frustration, that today our economic development has been eclipsed by the accomplishment of neighbors that used to look up to us as a model nation. –Gerardo P. Sicat (The Philippine Star)

My email is: gpsicat@gmail.com. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/