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HomeCustoms & TradeDTI urges immediate Senate nod to RCEP

DTI urges immediate Senate nod to RCEP

  • The Department of Trade and Industry is pushing for immediate Senate approval of the Regional Comprehensive Economic Partnership agreement
  • The agreement is set to take effect on January 1, 2022
  • For the Philippines, RCEP is expected to generate 10.47% increase in exports and 2.02% increase in real GDP, according to a research fellow of the state-run Philippine Institute for Development Studies
  • Non-participation by the Philippines means it would not only miss the forecast growth but also see a 0.26% decline in real GDP

The Department of Trade and Industry (DTI) is pushing for immediate Senate concurrence to ratification of the Regional Comprehensive Economic Partnership (RCEP) agreement, set to take effect on January 1, 2022.

After years of negotiation, the Association of Southeast Asian Nations (ASEAN), Australia, China, Japan, South Korea, and New Zealand in November 2020 signed the RCEP, one of the biggest free trade agreements (FTA) in history, covering a market of 2.2 billion people with a combined size of US$26.2 trillion or 30% of the world’s gross domestic product.

On September 2, 2021, the FTA was ratified by President Rodrigo Duterte and was submitted to the Senate for its concurrence, a requirement for international treaties or agreements entered into by the government.

Six ASEAN member states (Brunei, Cambodia, Singapore, Laos, Thailand and Vietnam) and four ASEAN free trade partners (Australia, China, Japan and New Zealand) have already deposited their respective Instruments of Ratification.

DTI Assistant Secretary Allan Gepty said the gains and opportunities the agreement will create cannot be overemphasized. “The size of the market alone and the extent of economic activities happening in the region demands that the country must be part of this free trade area. This is not to mention that this is an ASEAN led FTA,” he added.

More than being the largest free trade area, RCEP represents 50% of the global manufacturing output; 50% of global automotive output; 70% of electronics; 26% of global value chain (GVC) trade volume; 60% of GVC for electrical/machinery, petroleum/chemicals, textile/apparel, metal and transport equipment; and 35% contribution to global exports of electronics and machineries.

RCEP also represents the main GVC hubs of big economies such as South Korea, Japan, and China.

According to state-run Philippine Institute for Development Studies (PIDS) research fellow Dr. Francis Quimba, among RCEP parties, the Philippines and Vietnam would reap approximately 2% increase in real GDP growth, which may be attributed to lower transaction costs brought by possible wider sourcing of raw materials and inputs for sectors in manufacturing provided in the FTA.

For the Philippines, RCEP is expected to generate 10.47% increase in exports and 2.02% increase in real GDP. Quimba’s analysis was measured against the backdrop of rising trade costs brought about by the COVID-19 pandemic and by establishing the impact on trade should the country fail to timely accede or opt out of the mega free trade agreement deal.

Quimba said non-participation would result in the highest decline for the Philippines and Vietnam in terms of exports and GDP. He noted the Philippines would not only miss the forecasted growth but also see a 0.26% decline in real GDP.

“Economies that fail to ratify the agreement (when the rest of the countries do) will be adversely affected. The Philippines and Vietnam are among the countries that have positive export growths once the RCEP is in effect, and much of the growth is coming from new-product margin where innovations stem,” Quimba said.

He cited a similar study on RCEP conducted this year by Dr. John Paolo Rivera and Dr. Tereso Tullao, Jr. of the Asian Institute of Management and De La Salle University School of Economics, which suggested that the country should use its strengths in business services and professional services to harness market access opportunities in ASEAN FTA partners such as China.

DTI noted that the RCEP is coming into effect at a time when global trade faces many challenges, including the current pandemic.

Gepty said that as part of RCEP, the country will offer a stable and predictable business environment, with trade and investment policies remaining firm regardless of changes in leadership.

“RCEP aims to create an enabling business environment in the region that is conducive to investment. RCEP will also push for a legal framework that is favorable for e-commerce, especially during a time wherein cross-border activities have increasingly shifted online,” he said.

Assuring anxious farmers

Amid opposition to RCEP from a group of farmers, Gepty emphasized the FTA provides vast opportunities for the agricultural sector, ranging from enhanced market access, trade facilitation measures and time-bound consultation in addressing trade issues to more investments in research and development in agricultural sciences and even manufacturing.

He noted highly sensitive agricultural products for the Philippines are excluded from the country’s Schedule of Commitments: “This means that these products are still protected by tariffs.”

Some of these agricultural products are swine meat, poultry meat, potatoes, onions, garlic, cabbages, sugar, carrots and rice.

“Our farmers and producers should view RCEP as an opportunity for them to have a stable access to cheaper farm inputs and implements such as fertilizers, pesticides and farm machineries. They can also export their products to the RCEP region at a preferential and more trade facilitative arrangement, and in the process RCEP will encourage investments in food processing and even R&D in agricultural sciences and technology,” Gepty added.

The Philippines imports 74% of  fertilizers from RCEP parties such as China, Indonesia, and Malaysia, Korea, Vietnam and Japan, and 70% of insecticides from RCEP parties such as China, Malaysia, Indonesia, Japan and Korea. For agricultural machineries, 78% of Philippine importations are from RCEP parties such as Thailand, China, and Japan.

Gepty also rebutted the allegation of some farmers that RCEP restricts the country’s trade remedies, saying RCEP provides more trade remedies and flexibilities to the country.

“Our farmers should bear in mind that the safeguard measure they are referring to in the agreement is an RCEP transitional safeguard measure which a party can impose to prevent or remedy the serious injury to the domestic industry,” he explained.

This prevention or remedy can be done “by suspending further reduction of any rate of customs duty committed under the agreement, or increase the rate of customs duty to a level not to exceed the lesser of the MFN [most-favored nation] applied rate in effect on the day the measure is applied or the MFN rate in effect on the day immediately preceding the date of effectivity of the RCEP agreement.”

He said RCEP parties can still avail of safeguard measures provided under the World Trade Organization agreement, making the RCEP transitional safeguard measure an additional trade remedy for farmers. He added the RCEP even provides a mechanism for modifying concessions if necessary.

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