Trade agreement is considered a very boring topic for most people; but, the prospect of trade wars especially between the United States and China should make the public aware that trade agreements and trade wars can affect the daily lives of people all over the world including the Philippines.
The primary objectives of trade agreements are usually to reduce tariffs and to make it easier for businesses to export and import. Some treaties go beyond trade and include the free flow of investments and even people across political boundaries as in the case of the European Union. There are three categories of trade agreements: bilateral, regional and multilateral.
Bilateral means the agreement is limited to just two countries. Regional agreements are those involving more than two countries but limited to a specific region like the ASEAN which is limited to Southeast Asia. Multilateral agreements involve three or more countries crossing geographic regions.
Superpowers generally favor bilateral agreements because it allows them to have greater bargaining power over less powerful countries. China and the United States and probably India in the future will generally favor bilateral trade agreements. These three countries have population and economic wealth that allows them to stand on their own even in this rapidly globalized world. Other countries, especially less developed countries like the Philippines obviously do not have the same economic clout and therefore cannot afford to negotiate with these superpowers on their own. Any negotiation between China or the United States and the Philippines, for example, will always be a disadvantage for the Philippines because there would not be equal bargaining power. The Philippines would best be served if it joins other countries and then negotiate with a superpower as a group.
For countries, like the Philippines, there is a need to form alliances with other countries. This is the reason that non-superpowers have turned to forming regional groupings or entering into multilateral trade agreements.
Multilateral agreements are very difficult to negotiate but joining such an agreement would be the most beneficial for emerging market countries like the Philippines. The first benefit is that in a multilateral agreement, all countries – rich or poor – treat each other the same. That means no country can give better trade deals to one country than it does to another. This assures a level playing field which is very critical for emerging market countries which are often less competitive. The second benefit is that multilateral agreements will increase trade for every participant because they will enjoy lower tariffs which will make their goods cheaper. The third benefit is that it standardizes commerce regulations for all the trade partners which will result in companies saving legal costs since they follow the same rules for every country. The fourth benefit is that countries are able to negotiate a trade with several countries at the same time and avoid the arduous process of negotiating a trade deal one country at a time.
Bilateral trade agreements tend to favor the country with the better and larger economy. But in a multilateral trade agreement, no single economy will dominate. This allows the less developed economies to become more competitive.
The global trend, aside from the United States and China, is toward multilateral agreements. Aside from the European Union, initial steps toward multilateral trade agreements are being made in Latin America and Africa. MERCOSUL is a trade bloc composed of five South American countries – Argentina, Brazil, Paraguay and Uruguay. Its fifth member – Venezuela – was suspended in 2016. The African Union is composed of the 55 countries in the continent of Africa. There are talks forming this Union into a free market area with a common currency. However, the more realistic outcome seems to be the formation of several trading blocs – West Africa, East Africa and South Africa.
The Philippines belongs to the ASEAN regional bloc. One of its original goal was to achieve economic integration by 2015. While this vision remains, the timetable apparently has been delayed. Political tensions in the region has also increased as a result of Chinese aggression in the West Philippine Sea.
Trans Pacific Partnership 11
Recently, 11 countries signed a multilateral trade agreement which does not include the two superpowers – United States and China. The signatories – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam include four ASEAN members – Brunei, Malaysia, Singapore and Vietnam. This agreement is known as the Comprehensive and Progressive Trade Agreement for Trans-Pacific Partnership or TPP 11.
These countries have a combined GDP of more than $13.5 Trillion which is 13.5% of global GDP. This is the third largest trade agreement in the world after the North American Free Trade Agreement and the European Union.
The original TPP included the United States and was signed on Feb. 4, 2016 but was never implemented because of the withdrawal of the United States. The remaining 11 signatories agreed on May 2017 to revive the TPP and reached a new agreement on January 2018. The formal signing ceremony was held on March 8, 2018 in Santiago, Chile. Almost all of the original provisions in the first TPP have been retained in the new TPP. Trump expressed interest in rejoining the TPP but officials in Japan, Australia and New Zealand reacted negatively. Australia’s trade minister said: “We’ve got a deal...I can’t see that all being thrown away to appease the United States.”
I believe the Philippines should seriously consider joining the new TPP11. This gives our country economic opportunities in a much bigger and much richer trading area than the ASEAN. At the same time, the absence of superpowers and European countries allows the Philippines to become more competitive in this new union. Finally, there are already four ASEAN members in the TPP11.
I hope our business and government leaders should begin serious discussion on the benefits of joining the TPP11.
Summer creative writing classes and workshop for kids and teens
Young Writers’ Hangout on April 21 and 28, May 12, 19 and 26 (1:30 pm-3 pm; independent sessions); Wonder of Words Workshop on May 7, 9, 11, 14, 16 and 18 (1:30-3:30 pm for 8-12 years old/ 4-6 pm for 13-17 years old) at Fully Booked BGC. For details and registration contact 0945-2273216 or writethingsph@gmail.com.
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Email: elfrencruz@gmail.com.