Scratching one’s head not the way to deal with RCEP

AFP PHOTO/TED ALJIBE

In a recent opinion piece, Mr. Cielito Habito complains that we wasted seven months and gained nothing by delaying Philippine membership in the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement (FTA) among Association of Southeast Asian Nations (Asean), China, South Korea, Japan, Australia and New Zealand. The Philippines and Indonesia have not ratified the treaty.

Mr. Habito argues that worries about a surge in agricultural imports following RCEP membership are misplaced because our commitments in RCEP are not much different from those in our current trade pacts with RCEP member-countries, either bilaterally or through Asean. He says that sensitive products , like rice, will continue to be protected under the agreement. Habito adds that not joining RCEP will deprive us of many trade benefits, particularly for sectors in the economy aside from agriculture.

While many of Mr. Habito’s premises are valid, his conclusions are not.

Indeed, RCEP is primarily a compilation of tariff and other commitments that have been in place under pre-existing trade agreements between Asean and its FTA partners for over 10 years now. The Philippines made few additional concessions, and did not offer tariff reductions on selected sensitive products like rice, meat and vegetables. Hence, Mr. Habito concludes, RCEP membership should not increase threats to our agricultural sector.

This would be true—if our competitiveness and trading position remains the same relative to other RCEP countries. But if we sit still or, worse, retrogress, while our competitors move forward, then things can change dramatically and we could indeed be swamped by even more imports.

We cannot just dismiss this possibility, which Mr. Habito calls an “imagined ghost”.

Our country was a net agricultural exporter when we joined the World Trade Organization (WTO) in 1995. In 2021, our agricultural trade deficit ballooned to US$9 billion, the biggest within Asean. Over the years, our deficits increased even though our tariff commitments under the WTO and subsequent FTAs did not change much. Imports of rice, meat and vegetables continued to rise, despite the relatively high tariff protection that we preserved under the FTAs. If we do not act, this trend will go on and worsen once we join RCEP.

Because other countries also did not go much beyond their prior commitments under existing FTAs, new trade opportunities under RCEP are actually very limited. For instance, RCEP proponents highlight China’s offer to drop its tariffs on canned pineapples to zero. What they do not say is that China’s current tariff is already a low 5% and that the zero tariff will take effect only in the 20th year of RCEP.

We should also understand that any trade opportunity under RCEP will be available to all our competitors inside RCEP. If we do not do our homework, we will not be able to take advantage of these opportunities, and we might even lose the markets we currently supply.

The Philippines is among the least attractive investment destinations in Asean. It is hard to see how RCEP membership by itself will result in more foreign investments while our problems with poor basic infrastructure, high power and utilities costs, graft and corruption, and red tape, are not addressed.

Nor is there any guarantee that sectors other than agriculture will benefit significantly from RCEP. The agreement’s legal text on micro, small and medium enterprises (MSMEs) delves only on information sharing and cooperation among member-countries — and not much else.

It is unclear how MSMEs will thrive under RCEP where our tariffs on 83% of industrial tariff lines will immediately drop to zero, while full or partial tariff elimination will be undertaken for almost all others. Less than half a percent of tariff lines have been exempted, and this will benefit only a few traditionally protected sectors like automobiles, air conditioners, plastics, batteries, and guns and ammunition. RCEP rules also do not offer anything much more than what is already found in existing FTAs regarding the temporary movement of natural persons, such as overseas Filipino workers (OFWs).

Proponents contend that RCEP membership will force our government to install the necessary adjustment measures and programs to enhance our competitiveness. This same argument was used to justify WTO membership in 1995 and the adoption of subsequent FTAs. But the promised remedies never materialized. Our competitive position actually deteriorated over time.

We must learn from this experience and prepare ourselves first before, and not after, we jump into new agreements like RCEP. We will not lose much, contrary to what Mr. Habito claims, because the existing FTAs will continue to provide us essentially the same trade opportunities that RCEP offers. We will also be in a much better position to gain not only from RCEP, but also from pre-existing and future FTAs, if we prepare ourselves properly.

Clearly, Mr. Habito strongly believes in free trade and the power of markets and will therefore vigorously defend trade liberalization initiatives like RCEP. He is of course entitled to his opinion. Unfortunately, he may have developed a habit of “scratching his head” every time somebody disagrees with him, and condescendingly treating those who see things differently as “foolish” or out of their minds.

It might be good for Mr. Habito to step down from his pedestal from time to time, so that he can understand better what is actually happening on the ground. Otherwise, he may end up not only hairless, but deaf and blind to reality.

TSB