Rappler | 09/03/2012

Free trade agreements ’more political than economic’

by Cai Ordinario

MANILA, Philippines – State-owned think tank Philippine Institute for Development Studies (PIDS) said Free Trade Agreements (FTAs) are only political agreements more than economic.

In an interview with Rappler, PIDS President Josef Yap said pursuing FTAs at this time will not help the Philippines see rapid investments growth.

The government is aiming to increase its investment rate to 25% to place it at par with its ASEAN neighbors who have been attaining this level of investment rate growth and more in the past few years.

"We can go slow [with] FTAs. They are ’trade-light’ [so they are] more of a political signal [that] we are willing to cooperate with [them and] we don’t want to be left behind," Yap said. "So [we shouldn’t] aggressively seek to enter FTAs with other countries. [We have to] focus more on our domestic issues, supply side constraints."

FTAs ’trade-light’?

Yap said the main reason why FTAs are considered more political is because they are trade-light. He said this means that FTAs carry too many exemptions when it comes to trade.

In the case of the Philippines, if it undertakes an FTA that is ’trade-heavy,’ he said the country would liberalize commodities such as rice and sugar. Liberalizing means bringing down tariffs to zero.

"The agreements are not very extensive, you don’t really liberalize. To give you an example, if the FTA were trade heavy, we would liberalize rice, we would liberalize sugar, (and) there will be very, very few exemptions. But since FTAs always give you, as they are currently structured, a lot of leeway for exemptions then they are trade-light," Yap explained.

Under the World Trade Organization (WTO), the Philippines slaps a tariff of 40% for rice that comes in within the so-called Minimum Access Volume (MAV) pegged at 350,000 metric tons. Outside of this MAV, imports are slapped a duty of 50%.

MAV is the minimum volume for specific agricultural products that members of the WTO have agreed to allow to enter their borders at lower-than-regular tariff rates.

Under the ASEAN Free Trade Area (AFTA) agreement, tariff rates for imported sugar into the country are scheduled to go down to 18% next year, 10% in 2014, and 5% in 2015. The tariff for sugar has started to decline to 28% this year from 38% last year.

The Department of Trade and Industry (DTI) said that in the case of the Philippines, tariffs for rice and sugar will be reduced but will not fall to zero by 2015.

"For the Philippines, too, tariffs on rice and sugar have been maintained at previous levels of 40% and 38%, respectively as a result of the waiver for the special consideration for rice and sugar. As agreed, rice tariffs will be unified to 35% in 2015 while sugar tariff will be reduced to 5% in the same year," the Trade Department noted.

Maximizing FTAs

Yap said that this, however, does not discount the fact that FTAs are a great source of technological know-how for the Philippines. He said this is one of the ways by which FTAs can help local firms become competitive.

He explained that many FTAs are focused on technical cooperation. This means countries who engage in these agreements can get assistance in obtaining new technology or knowledge about a certain technology or skill that its partner country has a competitive advantage over.

The PIDS official said technical assistance would greatly contribute to the country’s goal of increasing firm’s competitiveness and should be maximized by the Philippines.

He said that to maximize FTAs, especially the Philippine-Japan Economic Partnership Agreement (PJEPA), there should be more information on what these FTAs contain so that firms nationwide would be able to know how they can benefit from these agreements.

"The advantage of these FTAs, especially PJEPA, they contain technical cooperation which can help with our firm level competitiveness. There are a lot of areas where you can cooperate. There’s infrastructure, sophisticated technologies. That’s where we have to use the FTAs. That’s where we have to exploit the FTAs," Yap said. – Rappler.com