RP-US bilateral trade agreement

"We were the last to escape from the cocoon of economic colonization."


As the Philippines is about to renew its bilateral trade agreement with the US, President Duterte has expressed concern that concluding a free trade agreement with the US might jeopardize our bilateral relations with China and with the Asean where we currently enjoy robust trade relations.

President Duterte’s apprehension is based on the country’s past experience in trading with the US, and could see that the trade war initiated by President Trump against China is likely to have a fallout on our trade ties which is crucial at a period when the two countries is about to review the Trade and Investment Framework Agreement (TIFA) that began in 1989.

Compared to other countries in the region, our economy has been assessed to have performed fairly. We were the last to escape from the cocoon of economic colonization. Many economists failed to see that it was only in 1974 when the country began the process of decolonization to unshackle our economy from our dependency on selected agricultural exports like sugar. Other economists look in our economic transition as one of double time effort to diversify our economy while racing to achieve a degree of industrialization.

It was an unrecognized economic heroism we achieved that most Filipinos never realized or much more appreciated. Our economic managers through the years navigated the country from the storm of uncertainty that blocked our way. First, we were prevented from cutting the umbilical cord that tied us with our former colonizers, and second, hampered by the numerous stringent economic measures imposed for us to remain under the yoke of poverty and economic dependency.

The TIFA is a remnant of that desperate effort to keep the economy within the US orbit. The period of the so-called “democratic renaissance” saw untold sufferings to our people. The budding industries that bloomed during the initial pace of the post-parity rights period and considered the harbinger of our quest to become a manufacturing state were easily wiped out. The dreamers of that democratic nostalgia, however, failed to fill in the vacuum left by those industries that could have served as microcosm to our quest to industrialize.

Admittedly, the economy suffered during that interlude of economic vandalism of wanting to replace the so-called cronies of Marcos with the present oligarchs whose wealth was generated by the system of economic colonialism. But the economic transition moved on to crunch that attempt to restore the old glory of US economic hegemonism coming from other countries in Asia led by China.

The region was soon awakened to the reality that they were producing an avalanche of manufactured goods at much cheaper price which the US could never compete. TIFA was in place but acted more as a watchdog against our exports. Foreign investment concentrated on capital investment rather than in creating industries. They focused on interest rate, usury and currency manipulation with specialty of engaging in capital market investment.

President Duterte is right because the Philippine-US bilateral trade pact would no longer work under the present set-up. The country is now preoccupied with wanting to cushion the economy from vicissitudes of boom and bust and from the whims of political arbitrariness that could derail our roadmap to economic independence in an instant.

In 2017, the Philippines had 15 trading partners that imported the most of our goods as follows: 1. Japan: US$10.2 billion (16.2% of total Filipino exports); 2. United States: $9.2 billion (14.6%); 3. Hong Kong: $8.6 billion (13.7%); 4. China: $7 billion (11.1%); 5. Singapore: $3.9 billion (6.1%); 6. Thailand: $2.6 billion (4.2%); 7. Germany: $2.6 billion (4.1%); 8. South Korea: $2.5 billion (4%); 9. Netherlands: $2.5 billion (3.9%); 10. Taiwan: $2.3 billion (3.6%); 11. Malaysia: $1.6 billion (2.5%); 12. Vietnam: $867.2 million (1.4%); 13. France: $791.5 million (1.3%); 14. Indonesia: $702.1 million (1.1%); and, 15. Malta: $685.6 million (1.1%).

If we are to combine our trade with Hong Kong and China, which should be the case that would represent $15.6 billion or 24.8%, and that could make China on top of the US. The only advantage in our trade relations with the US is we enjoy a trade surplus of $1.3 billion as against China of US$10.8 billion trade deficit as of 2017.

Nonetheless, we can console ourselves with a variety of manufactured and semi-manufactured goods we have been exporting, indicative that we have succeeded in diversifying our exports. They are as follows: Electrical machinery, equipment: US$28.4 billion (44.8% of total exports); Machinery including computers: $9.4 billion (14.8%); Optical, technical, medical apparatus: $2.6 billion (4.1%); Copper: $2.1 billion (3.2%); Ships, boats: $1.7 billion (2.7%); Animal/vegetable fats, oils, waxes: $1.6 billion (2.6%); Wood: $1.4 billion (2.2%); Gems, precious metals: $1.4 billion (2.1%); Fruits, nuts: $1.2 billion (1.9%); and, Vehicles: $1.2 billion (1.8%).

With modest diversified exports and with our sugar now completely eliminated, maybe the US is likely to put pressure and influence to redirect our export to adjust to its current protectionist policy vis-à-vis President Trump’s attempt to single out China. The US has raised many issues detrimental to the image of China that so far have not been verified and proven. Currently, the US is insisting that Chinese exports be “curtailed,” it being a non-market economy, a euphemism of that Cold War classification of a socialist economy that is controlled by the state.

Another is the outdated gambit of giving exports to developing countries’ preferential treatment under the general system of preference (GSP) which is a non-reciprocal concession under which developed countries are allowed entry at low or duty-free based on quota. But GSP has proven to be a failure. The economic miracle that happened in Asia, more particularly in China, was the result of import substitution carried through a system of maintaining the value of the yuan to provide them the magic of competitiveness.

Capital accumulation through successive trade surplus, not unfair competition, was the magic that allowed China to recycle its capital to build newer and more modern industries. It is this pattern that now threatens the US and is making the GSP an outmoded way to induce trade from developing countries like the Philippines.

The same can be said of the “Multifiber” Arrangement (MFA) we entered into with the US. Under that arrangement, the US and the European Union (EU) restricted imports from developing countries on textile and garments in an effort to protect their domestic industries. Signatory countries were given quotas of specified items. The GSP did not work because both refused to lift the subsidy on most of its agricultural exports and the MFA arrangement was overtaken by the consignment of production to countries in Southeast Asia and Latin America, thereby forcing the US to abandon its export quota that only earned marginal profit for developing exporting countries and even loss due to whimsical cutback on imports.

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Topics: Rod Kapunan , RP-US bilateral trade agreement , Trade and Investment Framework Agreement , TIFA
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