WHEN they meet next week, senators are expected to prioritize ratification of the Regional Comprehensive Economic Partnership (RCEP). This trade agreement already entered into force in January 2022, but despite approvals from the previous government, as well as warnings of lost opportunities, the Philippines has yet to do so.
Fortunately, Secretary Alfredo Pascual of the Department of Trade and Industry (DTI) reaffirmed the new government’s commitment to RCEP. His predecessor argued that he could sustain gross domestic product (GDP) growth by two points. The GDP growth target for the year has been lowered to between 7 and 8%.
Secretary of Trade and Industry Alfredo E. Pascual. PHOTO J. GERARD SEGUIA
The Management Association of the Philippines (MAP), whose president was Mr. Pascual prior to his appointment to the DTI, also recommended ratification to President Ferdinand “Bongbong” Marcos Jr. “Exclusion from RCEP would be extremely costly to our economy. and our people,” MAP said in a joint statement with the Makati Business Club and the Financial Executives Institute of the Philippines.
“We can anticipate a significant drop in our exports to RCEP countries, which now account for nearly two-thirds (64%) of our total exports, as trade with us will logically be diverted to other members. This would also make us still less attractive to job-creating investment than we already are, as these would do better to locate in RCEP member countries to enjoy free access to its vast market.”
Once ratified by all 16 member countries, RCEP will be the largest free trade area in the world. This will cover half of the world’s population and contribute 30% of global GDP, as well as 25% of total global exports. These figures suggest that the Philippines cannot afford to miss out.
In fact, the Philippines is already behind in trade pacts compared to other ASEAN countries. This is the Association of Southeast Asian Nations, a regional bloc of 10 countries including the Philippines. At a recent MAP meeting, Pascual said the Philippines had only 10 free trade agreements, while Singapore had 27, Malaysia 17 and 15 each for Thailand, Indonesia and the Vietnam. He noted that without RCEP and other trade agreements, the Philippines would not be an attractive location for export-oriented businesses.
change of mind
Resistance to RCEP and free trade seems misplaced. Some fear that lowering trade barriers will open the floodgates to imports and ruin domestic industries. But they fail to realize that RCEP and bilateral trade agreements are also opening up markets for Filipinos, especially micro, small and medium-sized enterprises (MSMEs) looking for new opportunities.
For now, the country’s main export is electronic products. But it is above all products assembled locally by large companies that use imported raw materials that are re-exported in the form of finished products. There are better opportunities that can be explored, such as the export of agricultural products, such as mangoes and coconuts, as well as locally made items, such as furniture and the like. Many of the businesses supplying them are MSMEs, which make up 99.6% of all registered businesses in the Philippines.
Certainly, RCEP and commerce alone are not enough to unlock untapped potential. The country must also solve many other problems. For example, the Philippines needs more infrastructure like farm-to-market roads, seaports, cold chain facilities, among others. In addition, existing laws, such as the Magna Carta for MSMEs, should be reviewed, to ensure that provisions, such as those facilitating access to capital, are better implemented. But above all, policymakers and business leaders need to change their mindset and focus on exporting.
Unfortunately, importing is a default option for most Filipinos. But these are, in economic terms, leaks. Exports, on the other hand, are injections into the economy, as they bring in income from abroad. With the country’s trade balance negative and worsening, increased exports not only fill the trade deficit, but also increase the GDP.
Naturally, importing goods seems easier for those with money to spend. Manufacturing or sourcing products locally can be difficult in any developing country. Yet, the Philippines has abundant natural resources and talented Filipinos, who have proven their competitiveness in various fields abroad when given the chance.
We just have to believe in ourselves. If we can handle that, opportunities like RCEP would be a no-brainer.