FREE TRADE PACTS WITH CHINA, JAPAN TO FURTHER WEAKEN RP ECONOMY

Philippine trade deals with Japan and China , which President Gloria Arroyo recently urged Association of Southeast Asian Nations (ASEAN) members to act on, will further weaken the country’s already damaged domestic economy.

According to IBON research head Sonny Africa, any benefits the Philippines may gain from a pact with these economies are doubtful while more liberalization will further weaken the local agriculture and industry sectors.

Taking alone the ASEAN Free Trade Agreement’s Common Effective Preferential Treatment (CEPT) scheme as an example, the Philippines’ average applied preferential tariff rate as of 2001 is only 3.87%, lower than the 6.7% average applied tariff rate under the World Trade Organization. Roughly 99% of the country’s tariff lines are already included in the CEPT scheme.

Tariff reduction under the CEPT scheme allowed cheap imported vegetables from the US , Australia , New Zealand , the Netherlands , Singapore and China to flood the Philippine market, growing from 42,000 metric tons in 1995 to 115,000 MT in 2000. More liberal import policies also resulted in thousands of metric tons more smuggled into the country.

The petrochemical, cement, steel, garments/textile, footwear and ceramics/tiles industries have also felt the adverse effects of liberalization. For example, many footwear manufacturers, overwhelmed by cheap imports from China , have now become mere assemblers of imported shoe parts or shifted to trading. Shoe industry workers have thus been laid off or forced to go on rotation status.

Meanwhile, Africa pointed out, the country’s attempts to penetrate the markets of these major economies are uncertain. The government is banking on electronics, which is considered as one of the economy’s “strengths” due to export revenues from this sector. Electronics products are also the country’s top exports to China and Japan , which on the other hand are among the Philippines ’ top ten trading partners.

But electronics components are also among the country’s top imports from these countries, reflecting the inherent lack of technology to support production and the assembly-type nature of the industry.

According to Africa , the motivation of China and Japan in pushing for regional free-trade initiatives is their rivalry for economic leadership in the region. As an underdeveloped country, the Philippines should not seek to fruitlessly “compete” in the free trade arena but rather to undertake initiatives that would protect and develop its agricultural and industry sectors for the benefit of its people, Africa said.

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