One of the priorities that Senate President Juan Miguel “Migz” Zubiri announced is the ratification of the Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trade agreement that can potentially enable more access to export markets, investments, and create millions of jobs for Filipinos.
After eight years of negotiations, the 10 member states of the Association of Southeast Asian Nations (ASEAN) plus Australia, Japan, South Korea, New Zealand, and China have signed on to RCEP in November 2020.
It envisions closer integration of economies in a business-friendly environment and a stable, rules-based system of trade.
The Philippines has deferred ratification because of safeguard concerns particularly in the troubled agriculture sector.
According to the November 2022 data from the Philippine Statistics Authority, the country’s total external trade, exports and imports, grew to US$17.88 billion, a 3.6 percent growth compared to 2021.
However, imports account for 60.3 percent while only 39.7 percent were exports.
This dominance of imports resulted in a trade deficit of US$3.68 billion.
Relating this to Philippine trade balance of goods from 2011 to 2021,
Online platform Statista data show the country has been in negative territory.
The RCEP is an opportunity to reverse the trend of increasing trade deficit as participation will enable our export manufacturers to gain access to a wider market.
This will encourage more investments in manufacturing and develop the stronger position for the sector to access the trading universe of the RCEP.
The enhanced trade framework of RCEP covers a wide range of sectors such as trade in goods, services, and intellectual property, and eliminates trade barriers thereby creating opportunities for local companies to break into the markets of participating countries.
So, it is not just the manufacturing industry that will be given a boost.
Our rich pool of talented human resources in the technical and creatives industries, which is already well recognized and sought after all over the world, is a great and renewable asset that will no longer be limited to local demand.
There are two schools of thought debating on the merits and risks of participating in RCEP.
The strong proponents from economic thinkers, the government like NEDA, the DTI, the private sector, international business groups, and President Marcos Jr’s economic team all see that delaying involvement in the RCEP will be a policy blunder that will result in the country missing out on the new export and employment potential of 15 participating economies.
To put this potential in a global perspective, according to 2020 data from the World Bank, ITC Trade Map, and UNCTAD World Investment Report, the economies of RCEP has a total population of 2.3 billion people and produced a total of US$25.8 trillion or 29 percent of the global total Gross Domestic Product (GDP).
It captured 29 percent of total trade amounting to US$10.1 trillion.
These countries attracted 47 percent of Global foreign direct investments and 33 percent of global inward FDI.
The critics of RCEP, on the other hand, are taking the protectionist path, fearing that the reduction of tariffs will further increase imports and lead to even higher trade deficit.
They fear that the country is not ready to compete with foreign manufacturers that can flood the market with cheaper goods and kill domestic enterprises unable to compete because of high cost of inputs, labor, and operations.
The readiness of a largely unmodernized agriculture sector is also a clear and present concern.
The Philippine Institute for Development Studies 2021 discussion paper says that “not implementing the agreement will have a cost to the country.”
The paper recommends that Philippine businesses should reduce trade costs and that innovation is important.
“Support for private sector innovation and exploration of new products and new markets should be optimized. Sectoral and geographical orientation of Philippine trade shows there is a concentration of Philippine exports and there is a need to improve the variation of Philippine exports.”
Meanwhile, given the recent economic liberalization reforms in the Philippines such as the amendments to the Public Service Act, the ASEAN-Australia-New Zealand Free Trade Area upgrade provides yet another valuable opportunity for the Philippines to demonstrate to the business community across the region that it is open to investment.
Being part of RCEP will need a paradigm shift that would take on a more open, aggressive, can do, state of mind that would drive all sectors to pursue the opportunities presented by the many advantages of a more accessible market in the Asia Pacific region which for the first time will establish a simplified, unified, trade regime.
RCEP already went into force on January 1, 2022 for 10 original signatories: Australia, Brunei Darussalam, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand, and Vietnam.
Republic of Korea followed on February 1, 2022, Malaysia on March 18, 2022, and Indonesia on January 2, 2023.
Hopefully, the Philippines will ratify RCEP ASAP.