TPP beneficial for Philippine economic progress

Last week , I gave a backgrounder on the Trans-Pacific Partnership (TPP) (Crossroads, Oct. 14, 2015). I continue the discussion and move on to the important and inevitable question. Should we join TPP and what benefits are we likely to reap?

“More on the magnitude of TPP.” The TPP covers a wider range of trade issues compared to those covered by existing free trade agreements. The elements of the partnership extends beyond the trade in goods.

After several rounds of multilalteral negotiations, there are still many areas of trade disputes that are not resolved under the World Trade Organization (WTO).  TPP settles these issues among the members, a subset of the world’s trading nations.

In its early form, the principal members of the group have referred to TPP as the “gold standard” among trade agreements. It is a “mega-trade agreement” compared to smaller regional trade agreements like the ASEAN, NAFTA (North American Trade Agreement involving US, Canada and Mexico), and other regional groupings.

The twelve nations composing TPP account for 40 percent of the world’s total GDP and undertake almost half of the global trade in merchandise. The US and Japan together, the most important trading nations in the group, account for 30 percent of world GDP.

When we review trade in services (known as invisibles like shipping, telecommunications, banking etc.), the TPP countries again dominate. They account for one-half of the total trade in services.  These magnitudes are massive.

This week, South Korea, another major trading nation, through its President Park spoke, announced that it will join the TPP. South Korea avoided joining the TPP negotiations but now realizes that there are big gains to obtain from joining TPP.

“ASEAN and TPP.” TPP is a giant compared to ASEAN, which is a grouping of smaller and relatively poorer countries. ASEAN countries together account for 3.2 percent of the world’s GDP.

Even so, the share of ASEAN in global trade volume is 6.8 percent of the world’s trade in goods and 6.3 percent of the trade in services.

Membership in ASEAN and membership in TPP are not exclusive. ASEAN countries can remain within their grouping and still join TPP. In due time, however, the TPP could dominate the smaller grouping in terms of the size of the benefits gained.

Each country relies on its own unique position and competitive advantage in wanting to join the TPP. This depends on its own expectations about its ability to compete, its trading position and specific gains that it tries to seek from the TPP.

Among ASEAN members, Indonesia and Thailand have expressed hesitation concerning their position regarding membership in TPP.  While the TPP negotiations were going on, there was time to tarry in the belief that the agreement would not pull through.

However, with the conclusion of the TPP among twelve members, the idea that being left out could spell some loss of competitive position in the future. One fear is the possibility of “trade diversion.”

An ASEAN country that is already a member (Vietnam), could make enormous trade gains at the expense of non-members whose trade might suffer losses. The idea of TPP membership has therefore become a major issue of importance.

The three large ASEAN members in the position of wanting to get in are Indonesia, Thailand and the Philippines.

Indonesia and Thailand could become members of TPP relatively more quickly if they decide to do so. If any laws and regulations on trade and industry as well as in other economic sectors affected by TPP concerns were to be in conflict with membership, all that they would have to do is alter those policies through legislation or regulatory fiat by government.

The steps in doing this would not be very complicated. Adjusting the policies might require managing debate and dissent within, but the mechanisms of achieving the change in policies to become members of TPP would be relatively easy.

In contrast, undertaking the required changes in the Philippines would be much more difficult to do. Most of the changes in laws and regulations come from having to amend the basic law of the land – the Constitution.

To make the country achieve a bigger opening of the economy, the restrictive provisions of the Constitution have to be amended.

“TPP membership for the Philippines.”  Recently, Philippine officials were quoted to say that the country will join TPP. Some private sector groups have also advocated that we join TPP.

The Makati Business Group, for one, undertook a study of the potentials of TPP membership for the country and it recommends that the country join the TPP. It recognizes however that major policy changes concerning protectionist provisions in the Constitution will have to be amended.

The secretary of Trade and Industry Gregory Domingo has been quoted as saying that there is no doubt that the country will join TPP. This is an encouraging statement.

In the course of five years, however, the Trade and Industry Department has timidly failed to stress the need to overhaul the country’s protectionist policies that are embedded in the Philippine constitution. The amendment of these provisions is essential to enable the country to compete better and to allow more foreign capital into the economy.

The failure to advance on this critical front is all the more striking in view of the efforts of the Congress to amend the constitutional provisions. Support of these measures from the trade and industry department is essential because it is its mandate to expand trade and investments.

If there is a department of government that could help to sway the president’s aversion toward dealing with the amendment of the restrictive provisions in the Constitution, it must be this department.

The reforms on this front are more difficult for the Philippines because they require constitutional amendment. In the case of Indonesia and Thailand, there are no constitutional barriers, only legal and regulatory barriers , that could be dealt with by law or executive action.

“Benefits of Philippine membership in TPP.” Many studies suggest that joining the TPP could bring immense gains for the country. Not joining the TPP has major costs.

The Makati Business Group policy report concerning TPP cites a study of the effects of membership and non-membership in TPP. In particular, it mentions the findings of one study that examined what the Philippines stood to lose by not joining TPP and how much it would gain from joiningTPP along with an expanded membership. The gains for the Philippines would be substantial.

My email is: [email protected]. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

Reference: Makati Business Club, “TPP, the (Secret) Deal of the Centure,” MBC Research Report No. 111, August 2013.