Last February 21, 2023, the Philippine Senate ratified the Regional Comprehensive Economic Partnership (RCEP), the largest free trade agreement (FTA) to date. The agreement involves all the ASEAN members plus Australia, China, Japan, New Zealand and South Korea. It covers 30% of the global GDP and one-third of the world’s population.
RCEP is effectively a consolidation of all the FTAs between ASEAN and its trading partners. It covers trade in goods, services, investments, economic and technical cooperation and dispute settlement. For Philippine policy-makers, RCEP is seen to promote the country as an ASEAN investment hub and a gateway to the ASEAN region. Based on recent studies, it is estimated that the country’s exports could increase by at least 3% by 2030 and the GDP by 2 percent. RCEP should also be able to maximize the unrealized export potential of Philippine goods and services due to liberalized rules of origin and simplified trading rules.
The Philippine electronics and semiconductors industry and the business process outsourcing sector are expected to be the biggest beneficiaries of this agreement. Studies have also shown RCEP will have minimal impact on the agricultural sector. Accordingly, roughly 15% of agricultural commodities will have reduced tariffs and most of these commodities are not produced locally.
RP’s Bilateral and Regional Trade Agreements. In 1995, the Philippines formally joined the WTO. After years of negotiations and debate, about 140 countries agreed to have an international treaty that will govern the cross-border exchange of goods and services. The WTO instrument also 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 Trade in Goods Agreement (ATIGA), the ASEAN Industrial Cooperation (AICO), and the ASEAN Investment Area (AIA) agreements would later be negotiated and implemented.
Post-WTO, the Philippines has entered into at least 40 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 the implementation of bilateral and regional and cross regional agreements such as: ASEAN+3 (China, Japan and Korea), ASEAN-China Free FTA (ACFTA), ASEAN-Korea FTA (AKFTA), ASEAN-India partnership, ASEAN-Australia/New Zealand FTA (AANZFTA), Japan Philippines Economic Cooperation Agreement (JPEPA), European Free Trade Association– Philippines FTA (EFTA) and many others.
Opportunities and Risks in a Free Market. Studies have shown that FTAs have mainly benefited inter-industry trade arising from 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 and global manufacturing network. Many of these companies are in the consumer goods, telecom, automotive, chemicals, electronics, processed foods and pharmaceutical industries. With an even more expanding market, the challenge for these global companies is the protection of their markets and the supply chain. For these global companies, 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 dumping or safeguard duties as a trade remedy against imports (e.g., cement, flour, 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 local authorities.
Winners and Losers. For companies engaged in cross border goods transactions, how will these developments impact their trading businesses? Will they create more business, what are the possible risks and threats involved? In theory, these FTAs should offer trade and investment opportunities for the country and allow deeper economic integration among trading partners. On one hand, there are fears again that by increasing the available goods traded with no tariffs, local businesses particularly small businesses will be further affected by increasing competition.
Obviously, there will always be gainers and losers in free trade agreements, with the consumers generally benefiting the most. For the least-developed countries, the FTAs may not necessarily spur the growth of the country’s exports, as compared to its imports. With all these FTAs, there are fears that inexact statistics and economic figures related to the Chinese economy may mislead countries in making decisions as to the implementation of these agreements. For one, unfair trading activities involving widespread undervaluation may not indicate actual trade figures for imports from China (e.g., textiles and clothing, high-tech gods, shoes and toys). RCEP will definitely bring about more cheaper imports to our country to the detriment of industries that are incapable of generating the skills and technology, or do not have the economic scale, necessary to compete with the more developed industries and economies within RCEP.
Agaton Teodoro O. Uvero is an international trade lawyer and a logistics and supply chain consultant. He previously served as Deputy Commissioner for Assessment and Operations at the Bureau of Customs and later, as Legislative Liaison of the Department of Finance. For questions, please email at agatonuvero@yahoo.com.
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