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Philippines: No systematic framework for FTA negotiations yet

Today | Manila | 28 October 2004

RP has no systematic framework in FTA negotiations, economists say

TODAY Reporter

The Philippines has yet to adopt a systematic framework that would govern its negotiations for bilateral free-trade agreements (FTAs) with other countries, according to two economic analysts.

In their paper titled “Exploring the Philippine FTA Policy Options,” Erlinda M. Medalla and Dorothea C. Lazaro, senior research fellows at the Philippine Institute for Development Studies, said the government has no concrete strategies or deliberate policies toward FTAs.

A bilateral FTA is a trade agreement between two countries, which have agreed to allow their products, services and investments to freely flow between their markets. The Philippines has initiated efforts to forge FTAs with Japan, China and the United States.

“The Philippines appears to be more of a passive negotiator or participant in FTAs. This position is not necessarily disadvantageous since there are potential risks in engaging in FTAs,” they explained.

However, they warned: “In the long run, not having a systematic framework in FTA negotiations would result in what Jagdish Bhagwati refers to as the spaghetti bowl effect.”

In describing the spaghetti bowl effect, Bhagwati, a famous modern-day economist from the Columbia University, warned that bilateral FTAs could create regulatory complexity and confusion in trade policy, particularly in the administration of overlapping, contradictory and mind-boggling complicated rules.

Medalla and Lazaro said that while there is no template for an ideal FTA strategy, the country should at least be able to have a clear objective with respect to the elements of an FTA, the scope and institutional framework, the assurance that the FTA is a mechanism toward achieving a stronger purpose and the criteria for choosing a partner to the FTA.

“The country could benefit from the different models of FTAs entered into by the prospective partners,” they said. “There has to be an explicit adherence to and consistency with the World Trade Organizations thrusts.”

Also, the two researchers said the government must map out industry-by-industry adjustment and competitiveness strategies with industry leaders in order to maximize the potentials of the FTA and manage the challenges of integration of economies.

“Another important task for the government, apart from determining what the country wants, is the identification, specifically of its sensitive products. Prior to the start of the negotiation, there must already be a classification of what products are negotiable and nonnegotiable,” they said.

“This is especially relevant if FTA partners are to adopt a negative listing approach. Otherwise, there might be a scenario where a prospective partner will make reservations on all products covered, thereby reaching a point where all the products seem to be excluded or protected from that country’s perspective,” they added.

They said that other possible issues that the government needs to address would be in services liberalization. Also, attention should be given to the so-called enhancing features of new-age FTAs, including rules on investments, competition policy, government procurement, transparency and trade facilitation measures.

“Finally, institutional mechanisms, such as trade remedies and dispute-settlement mechanisms, should put emphasis on mutually agreed solutions and take into consideration other existing mechanisms like that of the WTO and other FTAs which may have proper concurrent jurisdiction,” they said.

In choosing an FTA partner, the researchers asked the government not only to focus on what type of preferential treatment to give, but also have an established set of criteria in choosing an FTA partner.

“For the Philippines, engaging in bilateral agreements with its largest trading partners could maximize the potentials of its trading relationship. However, an important but sometimes neglected query is whether it will also be advantageous to enter into potential bilateral FTAs with countries where the Philippines has negligible trade,” they said.

According to them, these criteria are important because the extent and magnitude of the winners and losers on the FTA will depend on the choice of a partner or partners.

“As a whole, the welfare effect of the FTA is the paramount consideration in choosing a partner. Thus, factors, such as economic preconditions, size of the partner, potentials for bilateral trade expansion and those beyond static gains should be taken into consideration,” they said.

Erlinda M. Medalla and Dorothea C. Lazaro
"Exploring the Philippine FTA Policy Options"
PIDS Policy Notes
September 2004 (No. 2004-09) 8pp
available in PDF (147kb) here

 source: ABS-CBN