Philippines urged to view free trade as opportunity to increase FDI

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UPCOMING free trade agreements (FTA) are viewed mainly as opportunities to expand foreign direct investment (FDI), economists said.

Ser Percival K. Peña-Reyes, an economist at Ateneo de Manila University, said in an interview that an FTA with South Korea will help strengthen the government’s infrastructure program.

“I think (an FTA) would benefit us in tourism, in investments especially in infrastructure. We’re undergoing “Build, Build, Build” — and who has a lot of resources to spend? (South Korea) has a lot of know-how on infrastructure.”

South Korea last year pledged $355 million to support green infrastructure in Southeast Asia. The country also committed $1 billion in 2018 to help fund Philippine infrastructure projects.

He said South Korea tends to favor investing in Singapore and Malaysia.


“If they really want a new industrial policy, they should invest in all (of Southeast Asia),” he said.

University of Asia and the Pacific economist and former tariff commissioner George N. Manzano said securing export access requires investment.

“The primary motive would be to secure (export) access to markets, particularly large markets,” he said, but added that the agreements increase the comfort level of partner countries and make the Philippines more attractive to FDI.

The Philippines this year is taking on new free trade agreements (FTAs), including the Regional Comprehensive Economic Partnership (RCEP) among Southeast Asian countries and their major trade partners, amid continued negotiations with South Korea. Trade talks with the United States may be delayed following the termination of the Visiting Forces Agreement.

The conclusion of RCEP talks, which was expected at the ASEAN Summit in Bangkok last year, was delayed to 2020 after resistance from India. The Thai government said in November that the signing is expected to take place this month.

The economists said FTAs improve resilience in the face of geopolitical shifts, with Mr. Manzano saying that the agreements increase certainty.

“In light of changes in the world economy, an FTA assures you of continued access to a partner’s economy,” Mr. Manzano said, describing the agreements as insurance policies.

“FTA insulates a partner country in the sense that the tariff concessions negotiated before would have to be respected regardless of economic conditions.”

Mr. Peña-Reyes said global trade tensions and the introduction of artificial intelligence threatens the country’s main revenue sources — remittances and outsourcing.

“We cannot just be relying on these sources for consumption,” he said. “We need to find a way to attract more FDI — the long-term stake used to build capital goods.”

Mr. Manzano said that agreements like the RCEP may have an incremental effect on exports as the country already enjoys market access to many of the countries in the partnership.

Industries also face risks as the Philippines allows more imports.

Mr. Manzano said it is possible some part of the agriculture sector may be subject to more competition from the US, challenging the government to improve competitiveness.

Both economists said that opportunities and risks are in the details — industries will discover how they will fare only after the details of the agreements are released.

But they are concerned about whether the Philippines makes full use of the concessions and opportunities made available in the agreements.

“It’s not automatic that just because you joined it, you’ll benefit,” Mr. Peña-Reyes said. — Jenina P. Ibañez