To maximize gains from economic partnership: Phl needs policy shakeup, says report

MANILA, Philippines - By pursuing key reforms, the Philippines has the opportunity to give the economy a big push and maximize potential gains from the proposed Regional Comprehensive Economic Partnership (RCEP).

The 10-member Association of Southeast Asian Nations (ASEAN) is looking to forge the region-wide free trade agreement (FTA) with six other Asia-Pacific free trade partners Australia, China, Japan, South Korea, India, and New Zealand.

Current negotiations are expected to conclude by the end of 2015. If these are successful, the RCEP will create the world’s biggest trading bloc covering at least 40 percent of world trade and producing an estimated gross domestic product of $26.2 trillion, according to a recent research paper from think tank Philippine Institute for Development Studies.

However, initial estimates show that the potential gain accruing to the Philippines is “much smaller than the benefits to be realized by other countries” unless needed structural and institutional reforms are applied, said the paper titled “Key Reforms for an Effective Regional Comprehensive Economic Partnership.”

These constraints include low use of FTAs largely as a result of an information gap among local companies, investment and growth hindrances arising from inadequate infrastructure and low investor confidence, and restrictions to trade facilitation, customs administration and services liberalization.

Another major challenge, said co-author Gilberto Llanto, is a complicated investment incentive system that has resulted in “inefficiencies and overlapping promotional efforts” that keep foreign direct investment inflows relatively low.

Llanto urged policymakers to encourage more widespread use of FTAs through information dissemination on the implication of FTAs for business, the upgrade of technical standards and quality, and the provision of financial support for upgrading technology and skills.

Growth and investment barriers can be leveled down with substantial funding for infrastructure projects and improvements to the regulations governing ports and shipping.

These actions will facilitate connectivity, reduce transaction costs, promote greater competition, and enhance the accessibility of goods and services by the population, said co-author Kristina Ortiz.

Trade and customs facilitation can be achieved with transparency, standardization, and harmonization. Fast-tracking of electronic processing of customs requirements, especially of an efficient national single window, likewise needs to be a priority.

To liberalize the services sector, the paper called for a review of all constitutional and legal barriers to investments and trade, particularly the limitation on foreign equity in the ownership and operation of corporations.

And investment incentive packages can be made simpler and more appealing by reforming redundant or overlapping incentives laws. – Philexport