IN 1995, the Philippines formally joined the World Trade Organization (WTO). After years of nego-tiations and debate, about a hundred forty countries finally agreed to have an international treaty that will govern the cross-border exchange of goods and services. The WTO instrument, however, involves several agreements covering a wide array of trade and trade-related activities. Of particular significance to the international trading community are the covenants pertaining to customs valuation, tariff restructuring, dumping, countervailing, safeguards, rules of origin, and the intellectual property rights. At the regional level, the implementation of the ASEAN Free Trade Area (AFTA) Common Effective Preferential Tariff (CEPT), the ASEAN Industrial Cooperation (AICO), and the ASEAN Investment Area (AIA) agreements has been ongoing.
For companies engaged in cross border transactions, how will these developments impact on their trading businesses? Will it create more business? What are the possible risks and threats involved?
RP’s Bilateral and Regional Trade Agreements. To date, the Philippines has entered into at least 38 bilateral and regional free trade agreements (FTAs) and memorandum of understanding (MOUs) with various countries and regional groups with the view of expanding the country’s trade and economic relations. In addition, the country is directly or indirectly engaged in various stage of negotiation or implementation of the following bilateral and regional (and cross regional) agreements:
ASEAN+3. Still in the formation stage, the establishment of an ASEAN, China, Japan and Korea free trade area will accordingly create the largest free trade area in the world. The agreement will also cost the US economy billions of dollars, while netting a much larger gain for Asian economies.
ASEAN Economic Community (AEC). AEC, a European-style single market with free flow of goods, people and services among the ten-member countries, is being accelerated towards full implementation by 2020, or earlier as some members want.
ASEAN-China Free Trade Area (ACFTA). Under this agreement, tariffs on some 4,000 type of goods will be reduced between 0 and 5% by 2010 for the six most advanced ASEAN members, with tariffs for certain sensitive goods (sugar, iron, steel and car) not subject to steep reductions. This free trade has a combined population of 1.7 billion.
ASEAN-India Partnership for Peace. The framework agreement plans to establish a free trade area by 2011 for the five most advanced ASEAN members, with the Philippines moving the date to 2016.
Japan Philippines Economic Cooperation Agreement (JPEPA). Originally scheduled for implementation last year, negotiations have hit a snag with regard to the migrant sector (workers) of the agreement. The Philippines has likewise been lobbying for improving market access of its agricultural products to Japan.
Enterprise for ASEAN Initiative (EAI). EAI is a US initiative to forge direct bilateral trade agreements with individual members of ASEAN. Singapore has entered into a bilateral agreement while Thailand and Malaysia are currently negotiating. Indonesia and the Philippines will reportedly soon follow. A US-RP agreement should accordingly benefit the agriculture (sugar, fresh and canned fruits), electronics, garments and textile and BPO industries.
There are gainers and losers in free trade agreements, with the consumers generally benefiting the most. For the least-developed countries, the agreements have not spurned the growth of the country’s exports, as compared to imports. With regard to the ASEAN-China free trade area, there are fears that inexact statistics and economic figures as to the Chinese economy may mislead ASEAN countries into making decisions as to the implementation of the agreement. For one, illegal economic activities involving widespread smuggling may indicate higher trade figures for imports from China (e.g. textiles and clothing, high-tech gods, shoes and toys). A free trade area with China will definitely flood the ASEAN countries with Chinese goods, to the detriment of industries (and countries) that are incapable of generating the skills and technology necessary to compete with developed industries of China and the more developed economies of ASEAN.
Risks and Threats to a Free Trade Market. Initial studies have also shown that AFTA has mainly benefited inter-industry trade arising from out of the vertically-integrated network of multinational corporations. This is probably evidenced by the fact that many of the top Philippine importers are transnational companies with a regional manufacturing network. Many of these companies are in the consumer goods, telecom, automotive, chemicals, electronics, processed foods and pharmaceutical industries. With an expanding market, the concern for these companies is the protection of the market and the supply chain. In a free trade environment, what are the threats to ensuring the supply of goods to the market?
For one, the increasing use or misuse of valuation rules for imported goods has become the bane of many importers. In the Philippines, local industry representatives are allowed by customs to get involved in the valuation process of imported good. Second, domestic industries affected by sudden import surges have increasingly turned to the application of safeguard duties as a trade remedy against imports (e.g. cement, tiles, glass, etc.). Third, some government agencies have issued stringent rules for the issuance of import permits and licenses which effectively create technical barriers to trade. Lastly, labeling, marking and rules of origin of imports are likewise being questioned by domestic industries.