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No Free Lunch

From AEC to TPP

/ 12:32 AM October 13, 2015

EVEN BEFORE the Asean Economic Community (AEC) reaches full realization on Dec. 31, 2015, now comes the Trans-Pacific Partnership (TPP), an even wider and more ambitious trade agreement that we still aren’t part of. We missed the boat of first-round joiners because our constitutional restrictions on certain foreign investments (in public utilities, advertising, mass media and education) were deemed an impediment. Even then, Malaysia and Vietnam, with some authoritarian domestic policies seemingly even more difficult to give up, forged ahead and joined Brunei and Singapore to be the only four Asean member-countries that are part of the TPP so far.

There should be no doubt that Asean membership has served the Philippines well, just as it has the other member-countries. One of its important advantages is that there is much more to the AEC than Asean itself. Membership in Asean has opened up to its members an aggregate market far bigger than its 600-million-strong consumer base. This is because collectively, Asean has entered into bilateral free trade agreements with six “dialogue partners,” all relatively large economies. Since the establishment of the Asean Free Trade Area (Afta) in 1992 that turned the region into a formidable economic powerhouse, the large economies around it have sought trade deals with the group. Korea was first to finally forge one, with the Asean-Korea FTA signed in 2007. This was followed in quick succession by Japan (2008), Australia and New Zealand (2009), China (2010) and India (2010). In combination with those six large economies, Asean member-economies now have easy access to an aggregate market that is 3.45-billion-strong, nearly six times the size of the combined Asean market alone.

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Meanwhile, Asean and AEC 2015 (along with other trade agreements we have entered into) have pushed us to do the right things. Here I refer to important economic reforms that would serve the greatest good for the greatest number, yet require great political will to push through because of resistance from strong or vocal interest groups. In a country where political will is a scarce commodity and policymakers seem to respond to whomever has the loudest voices or deepest purses, it’s no surprise that sustained and inclusive economic development and poverty reduction have eluded us. To do the right things, often belatedly, it took outside pressure from our peers in collective trade agreements for our leaders to muster the political will to finally do them. This is what has again happened with the reform commitments we made under the AEC. What are some of these “right things” that we have been led into doing by the collective commitment to the AEC Blueprint?

Liberalizing trade and investment policy is fundamental, and is what any trade agreement is all about in the first place. Economic liberalization will always have its opponents, but after all these years, few could deny that more open trade and investment regimes have helped countries achieve dynamic growth along with significant poverty reduction, especially in Asia. It has built inherent competitiveness in domestic producers forced to shape up under competition. It has widened the scope for growth for progressive domestic firms, with newfound international competitiveness opening a vastly expanded market beyond a limited domestic consumer base. It has benefited all of us consumers with lower prices, better quality and wider choices than would otherwise prevail without the competition from overseas.

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We have also been led to open our skies to greater competition from foreign (especially Asean) air carriers, at least in our airports outside of Manila (“pocket open skies,” as they call it). We have yet to comply fully with our Asean commitment to further open primary gateway Ninoy Aquino International Airport as well. But more open skies have clearly helped us attract much more foreign tourists in recent years, apart from government’s successful “It’s more fun in the Philippines” campaign.

As for Naia, we have heard, for at least eight years now, the convenient excuse that our facilities there are not ready for open skies. Yet little has been done these past years to prepare adequately to make good on our AEC commitment to ratify the Asean Multilateral Agreement on Air Services. Now that the deadline is upon us, we’re finally rushing on long-needed upgrades of Naia’s facilities. Even so, we are late, but at least the AEC (and our Apec hosting as well) has again given the push for us to finally do the right thing here.

We finally enacted the Philippine Competition Act last July, after nearly three decades of waiting. Part of the impetus that finally got our lawmakers to act, in the face of stiff resistance from the traditional opponents of wider competition, was the embarrassing realization that we were the only original Asean-5 member who did not have one. We have been mouthing inclusive growth for many years now, and this law has always been critical to attaining it; but it took the peer pressure from Asean to get us to muster the political will to finally get it in place.

The Philippine Competition Act, along with other reforms to further widen competition in our economy with outside players, is also crucial to membership in the TPP. Fortunately, we can tick that one off our list, along with other reforms we’ve done because of the AEC. The AEC has been for us a good stepping stone to the newer generation trade agreements like the TPP that are now upon us. But I hope we will not have to wait for the TPP to push us to do even more right things for ourselves that we ought to have done long ago.

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TAGS: AEC, Asean, Asean Economic Community, Investment, opinion, partnership, TPP, Trans-Pacific Partnership
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