By Jenina P. Ibañez and Denise A. Valdez
THE EMERGING 15-country Asia-Pacific mega-trade deal can be expected to boost Philippine trade and investment prospects amid global trade tensions, economists and business leaders said last week.
The Regional Comprehensive Economic Partnership (RCEP) is an emerging trade pact covering the 10 Association of Southeast Asian Nations members as well as Australia, China, Japan, New Zealand and South Korea. The 15 countries on Nov. 4 agreed to sign the trade deal in 2020.
Prospective signatory India has for now opted out due to concerns about the deal’s potential repercussions on vulnerable sectors like farmers and small businesses. But the door remains open until participating countries resolve such issues in a “mutually satisfactory way.”
The prospective free trade area has more than 3.5 billion people, or almost half the world’s population, and a third of global trade. Without India, the population represented is reduced to an estimated 2 billion people. Talks on the partnership began in 2012.
SHOT IN THE ARM
The extent of any gains and risks for the Philippines will depend on the final details and products included in the trade deal, University of Asia and the Pacific economist George N. Manzano, a former tariff commissioner, said in a telephone interview on Tuesday.
With the US-China trade war weighing on global trade, Mr. Manzano said that RCEP could turn out to be a shot in the arm. “This [partnership] could jump-start trade in this corner of the world,” he said, adding that the new arrangement can be expected to add impetus to further open up the Philippine economy.
Trade and Industry Secretary Ramon M. Lopez said in a telephone interview on Thursday that ASEAN’s deals with each major trading partner currently benefit around 80% of products in the Philippines’ tariff and customs code. RCEP would open markets for 92% of the country’s products.
Philippine companies that have moved to expand beyond the country’s borders are generally optimistic about RCEP.
Aboitiz Equity Ventures, Inc. Chief Finance Officer Manuel R. Lozano said in an interview on Wednesday that the emerging new trade agreement will give the region “a little more power or leverage when we deal with other countries.”
He said aside from tax advantages, having RCEP in place will also pool the strengths of component economies.
“By having presence across (the region) and being able to cross-pollinate ideas and opportunities, I think it helps grow and diversify business for sure,” Mr. Lozano said, citing AEV’s plans for Indonesia, Malaysia, Vietnam and Myanmar.
Mr. Lopez said that the new trade pact will integrate Philippine businesses in the regional supply chain, enticing potential investors to consider investing in Philippine-based production.
Ayala Land, Inc. Chief Finance Officer Augusto Cesar D. Bengzon said on Wednesday that RCEP will help the company’s plan to tap opportunities in neighboring markets.
“As a company, we’ve decided that, in terms of our international strategy, we will be focusing on the ASEAN region. So clearly, free trade zone benefits as well as integration have played into that decision of ours to focus on the ASEAN region,” he said in an interview.
Ayala Land forayed offshore when it bought into Malaysian firm MCT Bhd in 2015, growing its stake to 72.31% today.
Mr. Bengzon said the company continues to look for opportunities to expand within Southeast Asia and that RCEP will hone that focus.
For Metro Pacific Investments Corp. Chairman Manuel V. Pangilinan, RCEP will be a good opportunity to kick-start strengthening the Philippines’ position in regional trade.
“That agreement is a start, with the integration that will happen. It will take time, but we need to start. So I think it’s good,” Mr. Pangilinan told reporters on Wednesday.
“I think, economically, we should respond to the economic partnership… Sabi nila [They said the prospective new free trade region will have] 48% [of the world’s] population, so much of the trade, so much of the GDP (gross domestic product) of the world. So it is a major economic bloc if we can make it work.”
Metro Pacific is one of three key Philippine units of Hong Kong-based First Pacific Co. Ltd., the others being Philex Mining Corp. and PLDT, Inc. It also has presence in Indonesia, Thailand and Vietnam through its toll road unit, Metro Pacific Tollways Corp. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls.
WINNERS AND LOSERS
At the same time, Philippine businesses that are not globally competitive could find it difficult to thrive under RCEP, Epictetus E. Patalinghug, an economics and finance professor at the University of the Philippines-Virata School of Business and former tariff commissioner, said in an e-mailed response to questions.
“Domestic high-cost industries that are protected by tariffs and safeguards like the domestic cement, steel and construction industries will not survive against RCEP competition,” Mr. Patalinghug said.
He said advantages and risks to Philippine industry will depend on which sectors are finally included in the trade agreement, but surmises that inclusion of more service sectors would be an advantage.
“If trade in services will not be restricted, PH[ilippine] will benefit like in labor-intensive BPO (business process outsourcing), while China will benefit in high-tech industries,” Mr. Patalinghug explained.
“On the other hand, PH[ilippine] service workers like seafarers, teachers, ICT (information and communication technology) programmers and engineers can benefit [due to] the demand from labor-scarce Japan, Korea and, soon, China.”
Philippine telecommunications services, he added, would improve if businesses elsewhere in RCEP were allowed to compete with local players.
Agriculture could also benefit from RCEP.
Rolando T. Dy, executive director of Center for Food and Agri-Business of University of Asia and the Pacific (UA&P), said the trade pact may reduce barriers abroad for Philippine agricultural products, even if the country will also have to open its doors to foreign produce.
He specifically mentioned how RCEP may help the government in its efforts to reduce Japan’s tariffs on Philippine bananas. Lower tariffs will also help Philippine fruits tap other markets like Indonesia and South Korea, he added.
To offset risks to Philippine businesses, Mr. Lopez said that the Trade department is helping them be more competitive.
“For us, we’re improving competitiveness. That’s why there are many programs on many aspects of product development, financing and marketing being done,” he said.
The Philippines also excludes certain products — its “sensitive list” — from the trade deal to protect vulnerable sectors. For instance, Mr. Lopez said, the country will not be reducing tariffs on rice and sugar.
The withdrawal of India from RCEP, said Mr. Patalinghug, is an advantage for the Philippines.
“We do not have much trade (exports or imports) with India, and India is our major competitor within RCEP in terms of BPO… as well as OFW (overseas Filipino worker) services and… labor-intensive manufacturing,” he explained.
Mr. Manzano, however, said that India’s exit “takes the shine off” the mega trade deal as it was an enticing market for RCEP countries that did not have direct access to the Indian market.
For Mr. Lopez, however, the emerging trade deal would be a net positive for the Philippines.
“Think of it the other way around — if we don’t participate, we will be left behind.”