Confronting

Trade & Development

Dr. Rene E. Ofreneo
Professor
University of the Philippines
&
Convenor
Fair Trade Alliance
 What we learned from Cancun, HK &
Copenhagen?
Trade is war, globalization is war
Trade negos intense „coz war of national interests
Examples: US, Europe on agri (want trade lib but
refuse to give up subsidies $1B/day)
Brazil w/ DCs but not on agri exports
US/EU vs. China
2003 – collapse of WTO talks in Cancun
2005 – no agreement in HK
2010 – still no DDR

 Big powers pushing for „coherence‟ – WTO, IFIs, UN

bodies – in accordance w/ their interests
example: liberalization on NAMA, AoA, GATS but
protection on TRIPs

Even on Climate Change in Copenhagen, US, China,

India, Russia, etc. refuse to commit due to growth
issues
 What other countries are doing?

Unified approach to trade, e.g., USTR, EU‟s Trade

Commission, Canada‟s ITCan, Japan‟s MITI, etc.

Strong industry/labor/CSOs consultations, e.g., USTR has

2,000 sub-industry committees and strong industry
representation in trade talks – US w/ 250-500
private sector reps in WTO talks

Strong research back-up (with researches funded by their

own government & private sector)

strategizing coupled with endless capacity building for

trade negotiators and preparations (for
potential losers and winners)
 But what’s happening in RP?
Battle for information (people kept in the dark).
Example: JPEPA text a battle of 2+ years to get

No unified approach to trade. DTI? NEDA? DA? DFA?

Malacanang? TRM? BITR? Embassies in Geneva
(WTO), Jakarta (ASEAN), Tokyo (JPEPA), etc?

Minimal industry consultation, e.g., AFTA 2010, CAFTA

2012. -- Minimal industry coordination

Minimal PO/NGO consultation & coordination.

No clear agro-industrial visioning & framework. Ex.:

Tariff Commission has no guiding framework in
hearings. TC initiated ATIGA formulation?

No clear research back-up, strategizing, etc. (except

studies funded by foreign agencies)
 RP: No clear answers on
strategic trade policy issues
• Defining national interests? WB? FDIs? Locals? CSOs?

• Identifying winners, losers?

Potential gains, potential losses?

• Examining structure of economy vis-à-vis those of

other contracting parties? Why not normal trade
relations instead of “free trade” agreement?

• Strategic concerns (e.g., employment loss), strategic

industries (e.g., rice industry)?

• Defensive programs? Offensive programs?

• Conduct of trade talks? Flexibility clauses?

 Biggest RP trade problem:
no trade-agro-industrial policy harmonization

Trade an instrument to
-- promote more markets,
strengthen national industries and
create more jobs and welfare

And yet, trade policy in place has been successful

in wiping out many industries and jobs
in eroding nation’s industrial base, agricultural base
in setting back economic growth
 What happened?

In l957, World Bank says:

RP second to Japan in Asia

But now RP is an industrial laggard in Asia

Many explanations – historical, political, cultural and economic

Economic explanations by those at the economic policy helm

Sicat-Virata (1970s) – economy not open enough
others (today) – transactional economics,
interventionist government

FairTrade Thesis: RP’s growth stunted by

absence of clear and coherent trade-agro-industrial
development framework
aggravated by neo-liberal dogma on liberalization
 RP economy to soar
under liberalization, and yet…
Josef Yap of PIDS wrote (2003) that three
decades of „mainstream economics‟ have not
produced „economic transformation‟ for RP

RP left behind
1970s – by the Asian NICs
l980s – by Malaysia and Thailand
l990s – by China and India
today -- by Vietnam
tomorrow – by Bangladesh & Cambodia?
Tale of three economic policy regimes
19th century to l950 -- Colonial free trade
(with Spain and later, US, interrupted by WWII)

1950s-60s -- Import-substituting industrialization(ISI)

1970s-present -- Export-oriented industrialization (EOI)

a. 1970s – LIEO
b. l980s-present – Structural Adjustment Program or SAP

ALL-OUT ECONOMIC LIBERALIZATION:

Trade lib (removal of import restrictions/tariff reduction)

Investment liberalization [short negative list)
Deregulation (forex, agriculture, etc.)

Privatization (GOCCs, assets, BOT, services, etc.)
 Unilateral Total Disarmament
RP vis-a-vis Thailand under WTO, 2004
RP Thailand
Average bound tariff rates
Agriculture 34.7 % 35.5%
Industry 23.4 24.2
Average applied MFN tariff rates
Agriculture 8 29
Industry 4.3 14.2
Ratio of exports to GDP
45 56

-------------
Source: Notes of RP Ambassador in Geneva
 What went wrong under SAP?

No spiral of growth for industry

Assembly, subcon orientation -- l970s, 1980s, 1990s, 2000s (assembly
forever). No graduation from assembly to OEM to ODM to OBM

Locals neglected, discriminated – no consultation on SAP, tariffs lowered ahead of

others, smuggling proliferated, no safety nets/R&D/capacity blg., high cost
of doing business, full brunt of taxation

No agri transformation, no clear agri directions

l970s – Green Revolution (self sufficiency in rice & corn) but in
l980s -- agri infras & support services neglected
1990s – AFMA enacted but unfunded, CARP poorly implemented,  & RP joined
WTO w/o preparedness (tarrification of agri)
Today: RP world’s biggest rice importer, agri imports to agri exports now 2:1
ratio, CARP unfinished, land leases to foreigners
 Share of manufacturing to total output
(per cent)

Year Indonesia Mlaysia Thailand RP

1980 15.2 19.6 23.1 27.6

2002 26.6 30.0 37.1 24.1

 Industries on the brink or have collapsed
Domestic Industries
• Textile industry (comatose, from 250+ to 5)
• Shoe industry
• Rubber/tire industry
• Vegetable industry
• Fishery industry
• Poultry (saved by avian flu) and livestock
• Chemicals (organic and inorganic chemicals, fertilizers,
petrochemicals)
• Cement, tiles and ceramics
• Processed foodstuff
• Pulp and paper,
• Wood, etc.

Export Industries
• Garments, Footwear, Leather, Furniture, e.g., rattan, etc.
Overall scorecard under SAP
FDIs came but not in a big way to effect major transformation of
economy. Overall outcomes:
Enclave industrialization based on FDIs
De-industrialization (collapse of local industries)
De-agricultural development (eroded base)

But RP surviving – BAKIT?

OFW phenomenon (10 % of population, $16B-21B
remittances/yr)
Call center/BPO ‘accident’
government borrowings ($53 B foreign debt)

Those who can not get jobs in shrinking formal sector or
overseas labor market, join growing informal sector
 Relationship of Remittances to Other
Philippine External Income
Remittances All Other Income

25 Tourist Receipts

Portfolio Investments
20
FDI's

15 Net BPO Income

10 Net Exports

Remittance Informal
5
Remittance Formal

0
*2008 2008
 Other catch basin:
Informal Economy
1999 2006 Difference

No. of Workers % to total No. of % to total

employed Workers employed

Labor Force 30,758,00

Total Employed 27,742,000 32,636,000 +4,894,000

Formal Sector 6,013,688 21.68 4,894,883 15.27 -1,028,805

Informal Sector 20,492,312 65.13 25,151,117 77.06 +4,795,015

Wage & Salary 4,156,312 14.98 7,563,117 23.17 3,456,429

Own-account 10,792,000 38.90 11,950,000 36.61 1,745,000

Domestic Helpers 1,498,000 5.40 1,626,000 5.00 128,000

Unpaid workers 4,046,000 14.58 4,012,000 12.59 237,000

Source : ECOP
Overall trade-dev’t problems
ISI period (1950s-mid-70s)
no industrial deepening
no export orientation

EOI period (mid-70s-present)

no learning
limited linkages
poor entrepreneurship, national champions
market development
balancing protection and liberalization

‘managing’ or ‘directing’ the TNCs
etc., etc.
For both regimes – no clear agro-industrial vision
 Scenario for 2010 & beyond?
Agriculture. Deeper crisis. Food crisis looming.
Hunger looming in the countryside itself.

Industry. Deeper crisis too. AFTA now, CAFTA

coming, ANZ-FTA coming, others coming

Services. Formal Sector – depends on growth of

remittances. CC-BPO’s growth slowing down

Informal economy. Will continue to grow.

Elections coming? Stability coming?

More confusion:
Asian noodle bowl of economic integration
(as seen by ADB)
Fair Trade‟s 5-point econ road map
•
 balanced approach to trade, growth & agro-industrial devt

 strengthening “nation‟s fences” vs. smuggling & unfair

trade practices & leveling tariff/NT fences w/ others

 building up nation‟s productive capacity, e.g., mobilizing

domestic investments, capacity building (not debt
repayment), & re-building eroded agro-industrial base

 unleashing people‟s creative/productive capacity through

asset reforms (e.g., land reform, urban reform), HRD;
and
developing culture of industrialism, excellence, solidarity
&economic nationalism.
•

Walang sasagip sa Pilipino sa

dagat ng globalisasyon
kundi Pilipino rin!