To move forward – in trade and productivity

The Senate failed to concur with the presidential approval of the Regional Comprehensive Economic Partnership agreement or RCEP before it adjourned its final session.

Sayang na sayang! This inaction is a symbolic confirmation of why we lag behind some of our forward-thinking neighbors on the expansion of opportunities for trade and productivity to accelerate the economy’s growth.

Although the Senate finally delivered on the approval of long-delayed economic reforms to liberalize the laws concerning direct foreign investments into the country, it failed to take action on an instrument that would have attested to a changed vision insofar as economic progress is concerned!

The scope of RCEP

The RCEP went into effect on Jan. 1 this year for the countries that had ratified it.

The 10 initial countries are: Brunei Darussalam, Cambodia, Lao PDR, Singapore, Thailand, Vietnam, Australia, China, Japan, and New Zealand.

South Korea added its ratification this month (Feb. 1) and Malaysia will ratify it on March 18.

Potentially, including our country, RCEP links 15 countries in a free trade area that encompass 2.3 billion people with a combined GDP of $23.4 trillion. This represents by far the biggest free trade bloc in terms of geography, population size, and potential economic clout.

Uniquely, too, it binds China into a multi-country free trade region for the first time. Also, two of East Asia’s largest economies – China and Japan – are part of this trade deal. Moreover, two Pacific countries – Australia and New Zealand – are conjoined within the ASEAN countries, and within the mainstream of the Asian continent.

Voice of reason ignored, hopefully for the time-being

Just before the end of the Senate’s session this year, important groups that supported its final approval by the government expressed their thoughts.

I repeat the detailed pleas of sectors of the economy that should have been heard, but which the Senate failed to heed, as reported in the newspapers during that last week.

Fourteen of the country’s investment promotion agencies (IPAs) – headed by the PEZA (Philippine Export Zone Authority), and the major chambers of commerce in the country joined in unison to express their plea to the Senate, to no avail.

These are the Philippine Exporters Confederation, Inc. (PHILEXPORT), Philippine Chamber of Commerce and Industry (PCCI), Australian-New Zealand Chamber of Commerce Philippines (ANZCHAM), Japanese Chamber of Commerce and Industry of the Philippines, Inc. (JCIPPI), Joint Foreign Chambers of the Philippines (JFC), Garment Business Association of the Philippines (GBAP), Confederation of Wearables Exporters of the Philippines (CONWEP), Coalition of Philippine Manufacturers of PPE (CPMP), Canned Sardines Association of the Philippines (CSAP), Tuna Canners Association of the Philippines (TCAP), Federation of Philippine Industries, Inc. (FPI), and Aerospace Industries Association of the Philippines (AIAP).

Both industry groups and IPAs cautioned that further delay in ratifying the agreement may result to losing growth momentum and cast doubts in the region on the Philippines’ openness to trade and investment.

“The business community hopes that the Senate will immediately concur the ratification of RCEP. We definitely don’t want to be left behind in this area. This is something that we need to take advantage of to help in our much-needed economic growth and recovery,” PCCI president George T. Barcelon pleaded.

“The RCEP region remains to be a strong bastion of economic activities and opportunities as trade and investment shift to Asia. Thus, given the extent of economic activities in the region, the Philippines cannot afford to delay or not participate in this free trade deal when all our neighbors in Southeast Asia are reaping the advantages of the agreement,” thus wrote PEZA Director General Charito Plaza who represents the most substantial of the investment promotion agencies of the government.

The groups asserted that with the enactment of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Act) in March 2021, passage of amendments to the Retail Trade Liberalization Act in December 2021, and ongoing consolidation of the final amendments to the Public Service Act under the Bicameral Conference Committee, RCEP would strengthen domestic efforts to improve the business environment by complementing ongoing legislative reforms.

Ratification would send a strong signal to the international community of the country’s continued commitment to provide a more conducive business environment, strengthen services sector niche, and create employment amidst the ongoing pandemic, the groups said.

By outlining the existing legal regime in the conduct of services trade and investment through Schedules of Specific Commitments and Reservation Lists of Parties, RCEP provides the assurance that the existing rules and disciplines in doing business in the country, including the allowed foreign equity participation (FEP) in various key sectors, would not be changed arbitrarily.

This will help encourage inflow of foreign investments, facilitates an opportunity to partner and form joint ventures within the region, and allows greater participation of more service providers in vital sectors of the country, such as manufacturing, creative sectors, financial services, aerospace and shipbuilding sector, research and development (R&D), IT-BPO, professional services, education services, and energy, among others.

Included in the country’s commitment under RCEP is to promote collaboration between local universities and foreign higher education institutions consistent with the Transnational Higher Education Act (Republic Act 11448) signed into law in August 2019. With RCEP, foreign higher education institutions are thus guaranteed of their investments.

Moreover, market access opportunities, greater openness, and certainty have been accorded under one framework agreement for Filipino businesses and skilled professionals across a number of sectors in other ASEAN member states, Australia, China, Japan, South Korea, and New Zealand. These sectors are R&D services, construction and professional services (engineering and architecture), higher education services, banking services, and game development services, among others.

Crossroads on RCEP

A few days after the approval of RCEP among the treaty-signing countries on Nov. 15, 2021 in Vietnam, I wrote the following essay in my “Crossroads”column entitled, “East Asia & Pacific-wide free trade area: the RCEP.”

I recommend this column for the concerned reader to get a broader and historical background to the RCEP.

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/