Government gung-ho on RCEP. But is Philippines ready for it?

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Business Mirror | 22 March 2018

Government gung-ho on RCEP. But is Philippines ready for it?

by Elijah Felice Rosales

Manila’s aggressive stance to push the immediate conclusion of the China-led Regional Comprehensive Economic Partnership (RCEP) has left local stakeholders—especially exporters and consumers—wondering if the Duterte administration is walking the talk in the form of safety nets and capacity-building programs.

Positioned as the counterpart of the now US-less Trans-Pacific Partnership (TPP), the RCEP members account for almost half of world population, at least 30 percent of global GDP and over a quarter of world exports. In 2016 RCEP negotiating-countries combined for a population of 3.53 billion people, GDP of $23.8 trillion and GDP per capita of $6,759. With the TPP signed on March 8, negotiators of the China-ledRCEP are now pressured to conclude their own trade deal this year—if and only if they can resolve contentions on the proposed agreement.

Trade Undersecretary Ceferino S. Rodolfo Jr. said complications can be owed to the six non-Asean negotiating countries—Australia, China, India, Japan, New Zealand and South Korea—because they do not have existing bilateral free-trade agreements (FTAs). The Asean-led RCEP is aimed at consolidating the FTAs of its negotiators and create a multilateral trade deal.

“If it is just us [Asean countries], we have no problem concluding the RCEP because we have existing FTAs with the other six negotiating countries. The problem is with China, New Zealand, Japan and India because they have no FTAs among them,” Rodolfo earlier said.

The Philippines is ready to remove import duties on 92 percent of all tariff lines under the RCEP.

The expected gains

And, as the RCEP’s fate continues to hang in the balance, some business leaders are now sharing their uncertainty over what future the trade deal holds for domestic industries. This includes Sergio R. Ortiz-Luis, president of the Philippine Exporters Confederation Inc.

In an interview with the BusinessMirror, Ortiz-Luis said that as far as exporters are concerned, the RCEP should be considered as an opportunity for local businesses to expand their market. “Well, it will definitely help,” he said in Filipino and English.

This, Ortiz-Luis said, is what excites exporters—the potential of the RCEP to open new markets, if not strengthen their capacity in existing markets. The trade deal will erase almost all tariff lines implemented by negotiating countries, which is theoretically beneficial for the economy.

“It should help, especially in the complementation of products here in the region,” Ortiz-Luis said. He pointed to the “problem” of Southeast Asian countries producing the same raw materials and products, thus forcing them to compete with each other.

Ortiz-Luis said the RCEP might shun competition in favor of complementation. He believes once the proposed agreement is enforced, it will harmonize not only the free flow of goods and services, but also the products manufactured by RCEP negotiating countries.

The domestic industry that will benefit the most under complementation is the electronics and semiconductors sector, the Philexport chief said. He explained that once the RCEP is implemented, it will streamline the importation of parts needed to assemble electronic products. The electronics and semiconductor industries have been delivering the biggest export revenues of the Philippines for decades now.

Ortiz-Luis added that the country has a competitive advantage in terms of mass-producing electronics and semiconductors that will put it ahead of its fellow RCEP negotiators. Last year five RCEP economies were among the top 5 importers of Philippine-made electronic products, namely China, Singapore, Japan, Thailand and South Korea.

But is PHL really ready for RCEP

Still, for Ortiz-Luis, these questions remain: Are we really ready to enter into another trade deal if the government cannot provide well for its small and medium enterprises? How can SMEs compete with larger multinational firms that are capable of dominating the market? Are SMEs even aware of how they can utilize the RCEP to their advantage?

“The reality is our SMEs are the most financially starved, and they are not given proper service by the government. Yes, there are programs for them, but those programs just scratch the surface,” he said.

Appearing to be an irony, the country can be considered as last in terms of SME development when it was one of those that pioneered it in the region, Ortiz-Luis noted. He added that its allocation from the national budget is indicative of how neglected it is as a sector.

Walk the talk

The Philexport chief brought up once again his suggestion to take a chunk from the government’s Conditional Cash Transfer program and recalibrate it to financing SMEs. Under the General Appropriations Act of 2018, the government allocated P89.41 billion to the CCT program, but only P5.18 billion to the Department of Trade and Industry (DTI), which is tasked to develop the small businesses.

Of that allocation, the DTI assigned P2.25 billion of its purse for the development of SMEs. This is unbelievable for Ortiz-Luis, as SMEs make up a huge portion of businesses in the country.

In 2016 the Philippine Statistics Authority listed a total of 915,726 business enterprises operating in the country. SMEs account for 911,768, or 99.57 percent, of that number, with most of them involved in wholesale and retail trade; repair of motor vehicles and motorcycles; accommodation and food-service activities; manufacturing; and financial and insurance activities.

“What about sharing? What if the government reallocates 20 percent of the CCT to lending for SMEs with rules on not how much you can collect back, but by how many jobs were created and how many of them graduated from being micro to small, from being small to medium? SMEs should be the backbone of our economy, but right now, they are very weak,” Ortiz-Luis lamented.

He added that, without substantial financing for SMEs, the potential of the RCEP to improve domestic industries might just remain a potential. He also said he hopes the upcoming Asean summits this year will provide the government a wider perspective on how important SMEs are to the economy.

Ortiz-Luis’s concern about the future of local sectors under the RCEP is not new, as it was raised vehemently last year by Ibon Foundation. In a statement last November, the think tank told the government to only enter into the proposed agreement if it is based on equal footing and mutual cooperation that will benefit the people and the economy more than multinational firms.

The vow

For his part, Trade Secretary Ramon M. Lopez said the DTI is doing its duty of educating SMEs how they can utilize multilateral FTAs, including the RCEP when it reaches conclusion. “In all the seminars we conduct around the country, [we have them] doing business in FTA, like [the] RCEP,” Lopez told the BusinessMirror.

He also said local enterprises should not worry about being defeated by multinational firms in the market, as the Philippines will retain agricultural products under its sensitive list in the RCEP. With this, tariff on the country’s sensitive products, such as rice, sugar and garlic, will not be removed immediately once the trade deal is enforced.

Consumers worried

On the other hand, Laban Konsyumer Inc. President Victorio A. Dimagiba said the country should also push forward consumer rights in RCEP negotiations and Asean discussions. “When the country hosted the Asean summit last year, the main activity was the micro-entrepreneurship mentoring, but the Asean has more than 600 million consumers that deserve recognition of their rights and availability of redress for substandard and defective goods and services,” Dimagiba told the BusinessMirror.

With trade ministers eyeing to finalize the RCEP this year, the trade official-turned-consumer-rights activist urged the government to take a bold stand by promoting the welfare of the buying public in the talks. He said this should be a crucial subject now for the region, especially with the rise of the e-commerce industry.

Dimagiba also suggested the Asean Committee on Consumer Protection be democratized and opened to consumer groups from the Asean member-states. “There exists an Asean Committee on Consumer Protection that is largely a cooperation among government regulators,” he said.

“The Asean should open up membership to consumer organizations in the region. The Asean should follow the lead of the Consumers International, where both government and consumer organizations collaborate and cooperate,” he added.

Leaders of the regional bloc are scheduled to gather in Singapore from April 25 to April 28 for the 32nd Asean Summit to discuss regional and international issues.

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source: Business Mirror