AFTA tariff reductions fail to draw investments to Asean - Tañada

Former Senator Wigberto Tañada, lead convenor of the Fair Trade Alliance (FTA), said yesterday that the tariff reductions under the Asean Free Trade Area-Common Effective Preferential Tariffs (AFTA-CEPT) did not cause significant inflow of foreign direct investments to AFTA countries, contrary to claims of the US Asean Business Council and some local economists.

Tañada cited recent studies, commissioned by the Japan Center for Economic Research which concluded that trade and foreign investment effects of AFTA "have not been as strong as the theory of a free trade area predicts."

The study, authored by Tran Van Tho, professor of economics at the Waseda University in Tokyo, noted that while intra-Asean trade has expanded, Asean trade with non-partner countries in East Asia has expanded at a higher rate.

The paper entitled "AFTA in the Dynamic Perspective of Asian Trade," also presented foreign investments figures that show that AFTA is not the decisive factor that determines foreign direct investments flows. "In fact, foreign direct investments expanded in Asean before the establishment of AFTA and turned out to be stagnant in the late 1990s, the period characterized by both substantial implementation of the CEPT scheme and the financial crisis," the paper said.

Ernest Bower, president of the US Asean Business Council, and local economist and former National Economic Development Authority (NEDA) head Cayetano Paderangga earlier claimed that the reduction of tariffs pursuant to AFTA-CEPT schedules will increase foreign investments.

"On the contrary, the accelerated AFTA-CEPT tariff reductions coupled with the NEDA’s unilateral MFN tariff reduction program deters investments in the Philippines. Why will local or foreign capital invest billions of pesos in the Philippines if it will just be undermined by unfairly traded imports that are really excess goods exported to the Philippines at artificial prices that do not reflect their true costs?" Tañada said. "The current tariff reduction programs, that do not enhance but destroy the productive capacity of the Philippines, are anti-investment, anti-manufacturing, anti-labor and anti-Filipino. It benefits only a small group of traders who do not always pass on the benefits to consumers."

Also, he said that the impression made by Bower and Paderangga that the Philippines was reneging on its AFTA-CEPT commitments are even incorrect. "They are definitely out of line because the previous administrations have in fact over-committed to AFTA-CEPT. Unlike other AFTA countries that have 9,000 to 10,000 tariff lines that differentiate between locally produced and not locally produced goods, the Philippines has only about 5,700 tariff lines."

"So while other AFTA countries had the flexibility to only reduce tariffs on non-locally produced goods, the Philippines has been slashing tariffs even on locally made goods! Also, since the AFTA now wants to eliminate tariffs on 60 percent of all tariff lines, Malaysia, Indonesia and Thailand will have more goods that will have tariffs than the Philippines. Certainly, 40 percent of Malaysia’s 10,000 tariff line that will retain tariffs is higher than 40 percent of the Philippines’ 5,700 tariff lines," Tañada added.