The clock is ticking away for the Philippines to ratify its participation in the Regional Comprehensive Economic Partnership, or RCEP. In a recent Management Association of the Philippines (MAP) general membership meeting, the merits of ratifying RCEP were explained quite thoroughly by very credible speakers, namely Trade Secretary Ramon Lopez, Agriculture Secretary William Dar, senior research fellow Dr. Ramonette Serafica of the Philippine Institute of Development Studies, the government’s think tank, and Arthur Tan, the CEO of the Ayala Group’s Integrated Micro-Electronics, the leading electronics manufacturer in our country.
I walked away from the meeting quite convinced that the arguments in favor of RCEP were sound and should be a no-brainer that it makes sense for us to sign up.
So, what’s the fuss? The MAP’s focus on RCEP was prompted by the Senate’s recent inability to sign on our participation in the largest trade agreement in our part of the world, representing one-third of global economic output and population before it adjourned last February for the election break. Apparently, in response to the intense anti-RCEP lobbying of several farming organizations, our good senators saw fit to defer approval in order to conserve their energies instead on their reelection campaign in the upcoming elections. After all, why risk alienating a few million voters with a potentially political hot potato that could spell the difference in their prospects in what seems to be a not too clear scenario evolving in the Senate race? With the never-ending shifts in political faction allegiances or posturings as an independent candidate, the rankings, inclusions and exclusions in the magic 12 have been shifting like sand every time a new survey comes out or proclamations of supposed presidential endorsements are touted.
What is RCEP all about, and why do we need to be part of it? RCEP is a free trade agreement 10 years in the making between the 10-member ASEAN countries and its neighboring Asia Pacific economic giants China, Japan, South Korea, Australia and New Zealand. Notably, emerging economic powerhouse India and the United States are not part of RCEP. Perhaps, India because of the country’s significant agricultural sector (18 percent of GDP versus ours of 10 percent), and the US for its view of RCEP’s disregard for human rights and sustainability issues, but more likely for geo-economic-political positioning against China, which is viewed to be the country that could stand to benefit the most from RCEP.
The agreement essentially scraps tariff duties, about 90 percent, on the intra-regional trade of manufactured products, services and commodities and establishes common rules on intellectual property and e-commerce among the RCEP participants. By 2030, RCEP’s impact is estimated at annual increases in global income of $230 billion, exports of $493 billion and employment of 2.6 million.
The Philippines trade with the RCEP bloc is equivalent to 50 percent of our exports and 68 percent of our imports. This translates to being able to trade sans the tariffs and trade costs we would be faced with for our imports and higher factory gate prices for our exports we would be enjoying if we are part of RCEP. According to a study by Dr. Caesar Cororaton, senior research fellow of the Virginia Polytechnic and State University, the Philippines stands to gain by 2030 about $52 million in trade balances, lower poverty incidences by 5 percent, increase in overall welfare by $573 million, or for an overall increase of 0.874 percent in real GDP growth rate.
The GDP growth may not look like a very significant number, but I believe this does not yet take into account the potential for new initiatives for the exports of higher value processed agricultural products, improvement in the global value supply chain, particularly of our electronics industry, and the enhanced market opportunities for the business processes and financial services sectors.
The concerns, of course, of the agricultural sector are real, but the solutions lie elsewhere. As eloquently emphasized by Secretary Dar, the government will have to do the heavy lifting by providing far greater resources to the industry.
Until next week… One big fight!
