Shaping up for TPP
IN NOVEMBER, we play host to the presidents, prime ministers and economic ministers of the 20 other economies comprising the Asia Pacific Economic Cooperation (Apec), for the group’s culminating meetings this year. Twelve of them, including four from the Association of South East Asian nations (Asean), have been talking in recent years to set up a new-generation trade agreement called the Trans Pacific Partnership (TPP). Their ministers met last July in Maui, Hawaii, hoping to finally clinch the formal agreement stating the TPP rules of engagement, but again fell short of that goal.
It’s not unlikely that the ministers or even leaders of those 12 economies may take advantage of being together in Manila in November to meet and try to move further toward the TPP agreement that eluded them in Maui. It could be somewhat uncomfortable for us if they do, as we are not part of the TPP—or at least not yet. As a senior Philippine official has put it, it would be like throwing a big party, and half of our guests get together among themselves on the side for a little party of their own, minus the host. For reasons of saving face as host to the bigger gathering, our leaders can’t simply say, “We’d like to join, too.” We need to be able to say something more substantive, one way or the other, about where we stand regarding that “other party” of which we’re not part. But far more important than the optics, there’s a great deal of strategic significance to our joining, or not joining, that party as well.
Indeed, the Philippine government has already signified in no uncertain terms that we want to join the TPP. Most in our business community appear to share that sentiment, seeing significant potential damage and foregone opportunities if we’re out, and substantial opportunity gains if we’re in. To them, it’s to our disadvantage that we missed being among the 12 original founding members now hammering out the formal agreement. Some argue that we should have come in early so that we could have taken part in making the rules, rather than come in when the agreement is in place and we’d have to take it or leave it.
So why didn’t we seek to be a TPP founding member? Among our Asean neighbors, Singapore, Brunei, Malaysia and Vietnam aggressively went ahead, joining Australia, Canada, Chile, Japan, Mexico, New Zealand, Peru and the United States. It’s worth noting that Australia, Canada, Japan and the United States were among the later joiners in a group initiated by much smaller economies that saw the value in synergy and closer integration. It’s particularly remarkable that Malaysia and Vietnam had gone ahead to join, despite having particular authoritarian features in their respective economies that are difficult to reconcile with the demands of new-generation free-trade agreements.
Our own authorities apparently balked at the outset, believing that our constitutional restrictions on foreign investments “disqualified” us from even sitting at the table, even as Malaysia’s and Vietnam’s issues are in fact no less difficult than ours. It subsequently became clear, too late, that we could have joined the table early on, for as long as we had an open mind to work toward clearing policy impediments to full membership. We will thus have to be content with being second-round entrants, along with other aspirants like Colombia, Indonesia, Korea, Taiwan and Thailand—if we are indeed to join.
Why should we join? Or why shouldn’t we? One can start with the textbook consequences, namely, the potential costs of trade diversion (losing some of our export markets to competing TPP members if we don’t join), and the potential benefits of trade creation (expanded exports into more open markets we will gain if we join). For example, Vietnam, which produces many of the same things we export to major TPP markets, could take business away from us if we stay out, as its exports would then enjoy duty-free access while ours would not; but if we were to join, the same duty-free access to TPP markets would likely expand our export industries. The counterpoint is the possibility that more open access to our own domestic market by other TPP members might edge out uncompetitive Filipino producers, leading to short-term job losses. Still, it could well mean lower prices, better quality and wider choices for our consumers.
But the expressed collective intent of the TPP is to push trade that is more complementary (thus mutually beneficial) than competitive, building further on how free trade has fostered cross-border value chains that have proliferated worldwide since the 1990s. The bulk of merchandise trade worldwide is in fact now in intermediate goods, moving around to be assembled somewhere else into final products. Most internationally traded manufactured goods are now the product of combining components and services (our particular strength) sourced from various countries best placed to produce them. It is thus no longer accurate to describe many products as “made in (a particular country)” when they are really “made in Asean,” “made in the TPP,” or “made in the world.”
Beyond free trade, the TPP aims to cover a much wider range of concerns that demand far greater discipline, transparency and an even playing field on matters such as services, investments, government procurement, labor standards, environmental impacts, and dispute settlement. Even as we aspire to join the “club,” much is required of us by way of further policy and institutional reforms, whether we get in or stay out. For these, there is much further shaping up for us to do.
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