Thursday, February 27, 2014

Free Trade 34: ASEAN's Bilateral and Regional FTAs

There are a number of good trade data on Asia-Pacific free trade agreements (FTAs), from an Economic Research Institute for ASEAN and East Asia (ERIA), Discussion Paper ERIA-DP-2013-02,  “Taking ASEAN+1 FTAs towards the RCEP:  A Mapping Study” by Yoshifumi FUKUNAGA and Ikumo ISONO . Thanks to Aiken Tafgar for the heads up.

One such data is this. 

Where: FTA - free trade agreement;
CEP - comprehensive economic partnership
Thus, AANZFTA - ASEAN-Australia-NZ FTA

So aside from ASEAN + 3 (CJK) and ASEAN + 6 (CJK + I, A, NZ) multilateral FTAs, there are bilateral FTAs with ASEAN taken as a bloc or one economy.

Indonesia protectionism is still high; India too, and surprisingly, Malaysia too. Here's another table, when or what year they intend to have zero tariff (ie, 100% trade liberalization with their bilateral partners). CLMV means Cambodia, Laos, Myanmar, Vietnam, considered 4 "laggards" in trade liberalization, although Vietnam does not appear to be a trade "laggard" these days.

Below, more revealing data on protectionism hidden under "depends on FTA" Case example is Indonesia. Wow! It should be CLMI (cambodia-laos-myanmar-indonesia) instead of CLMV. Not to mention the many non-tariff barriers.

Many protectionist groups often cite the north-south or rich-poor countries divide in opposing free trade policies, but what if the trade issues concern our neighbors in the ASEAN? Or other Asia-Pacific countries like India, Korea and Australia?

See also:
Free Trade 30: BIPOR and APTIR, January 03, 2013
Free Trade 31: FTAs, EPAs and the Heckscher-Ohlin Theorem, January 10, 2014 

Free Trade 32: Hong Kong's Unilateral Trade Liberalization and John Cowperthwaite, February 12, 2014 

Free Trade 33: ASEAN Economic Community 2016, February 16, 2014

Saturday, February 22, 2014

Energy Econ 14: Power Rate Hike, Who Colluded?

In a fb group, Government and Taxes, Freedom andResponsibility, I had a debate with Troy ZD last February 5 this year. He posted this news report from the Inquirer, 

and commented that 
 If this and other admissions by Meralco, the ERC etc are not an evidence of collusion that would make the SC strike down the price increase and to force the re-evaluation of EPIRA and particularly the WESM then the SC has sold us out.

I replied that an electricity distribution utility (DU) like Meralco, Batangas Electric Coop, Cagayan Electric Coop, etc., distributes electricity from two sources: (a) from bilateral contracts for its basic, non-peak electricity demand, and (b) from WESM or spot market for its peak demand period (say 5-7am, 6-8pm). In the case of Meralco-TMO bilateral contract, the contract price was P6.20/kwh in Oct 2013 and P8.65/kwh in Nov. 2013. See Table 3, Government and Taxes: Fat Free Econ 51: Ten Things About the Meralco Rate Hike

Of the 286 GWH that Meralco bought from WESM in Nov. 2013, it is not clear how much of it came from TMO at P62/kwh, how much from other diesel power plants at P25 or P40 or 50 or 62. I have not seen the numbers yet.

It is possible that Meralco told TMO and other diesel plants to bid at P62 so that not a single DU, Meralco included, would buy at that max price so that the clearing price would be at a lower amount.

The term "collusion" has been over-used and may be even abused. Who colluded? Meralco and TMO? Meralco and who else? At what volume (in GWH) at what price and when did the collusion happen?

Could it be that a DU bought from a generating company (GenCo) at the max bid price of P62/kwh but only for 2 or 3 GWH volume? If this is the case, can this still be considered as collusion considering the very small volume of electricity involved?

I will be very glad to see explicit answers from those who endlessly suggest there was collusion, like Troy, Bayan Muna, other groups and individuals.

The average clearing price for November 2013 at WESM was P33.22/kwh. Answer the 4 questions above.
1. Who colluded?
2. At what volume (in GWH),
3. At what price the collusion happened?
4. At what days and hours the collusion happened?

Troy replied that it’s what they are trying to find out in the senate and in the SC

Can you beat that? People have been using that term “collusion” since 3 months ago, and until now there is zero proof of collusion? Puro allegation and ngaw ngaw lang? Hoping that endless allegation becomes an accepted "truth"?

If people are honest, they should shut their mouth from endless accusations because they have zero proof. If they are dishonest, they will retain the accusation even if proof is zero.

Troy posted this  quote, no source given:
the assertions from both Meralco and TMO that only 100 MW of capacity have been provided are quite odd. At the beginning of June, Aboitiz Power announced it had completed the rehabilitation of the four power barges, and that they were fully operational at their 242-MW rating. Even as early as September, 2012 TMO informed the ERC that rehabilitation of two of the units had been completed. The claim that only 100 MW has been provided so far (100 MW is, coincidentally, roughly the effective net capacity of the two smallest barges, rated at 57 MW and 52 MW, respectively) begs the question whether the TMO facility may have been another of those supposedly “unplanned” plant outages that forced Meralco to buy higher-priced power from the spot market.

Malaya 1 has been on technical shutdown since July 2013. Even if one DU will beg at P100 or P200/kwh, that plant will never be able to produce electricity. Malaya 2 has been on scheduled maintenance shutdown since late October 2013. See chart 4,

And even assuming that NPC or PSALM (whoever operates Malaya power plant) could produce magic last November and make it run, its generation cost that will be passed to consumers would be something that will make the activists curse and howl. It is an inefficient, costly government power plant that can save us more money if it is not running than it is operating.

So people really point at Meralco-TMO collusion, somehow question #1 is answered, fine. Questions 2 to 4 must be answered to substantiate that there was indeed Meralco-TMO collusion.

People were so hooked on their conspiracy theory. Even if a power plant is 100% incapable of producing electricity, they will say that there is magic somewhere (by Batman? Superman? Spiderman?...) to make it run and save us from the Meralco-TMO-other GenCos collusion conspiracy theory.

I think this is a good explanation why a DU like Meralco with an existing contract to a GenCo like TMO told the latter to bid at the max rate of P62/kwh -- because it does not intend to buy significant volume at that price on non-peak hours. It turnedout that Meralco did buy from TMO at P62 -- at a monster volume of 0.5 kwh! Total purchase of Meralco from WESM in Nov 2013 was 286,000,000 kwh, 0.5 kwh of which was purchased at a "collusion" price of P62/kwh. Nice joke on collusion.

There are at least two lessons here. (1) Remove the "must offer" rule for all GenCos. If they do not want to be dispatched at particular hours because its power supply is already fully contracted, or it wants to do emergency repair on a minor mechanical problem that can become a big problem if not acted upon, then ERC should not compel them to offer.

Or (2) Retain the "must offer" rule but remove the P62/kwh max bid price. Make it indefinite. So that a GenCo that does not want to be dispatched for a particular hour can price its power at P1,000/kwh or P5,000 or higher, precisely so that NO ONE will buy from it.

Nice quote. People will always think the problem is with electricity distribution and the monopoly DUs, when the clear problem facing them is the lack of power generation.

Government is a major contributor to high electricity prices in this country. Aside from VAT and other taxes, it also slaps various mandatory fees under "universal charges."

Malaya power plant can greatly help in this power rate hike debate if it is privatized soon, two benefits: (a) money from privatization proceeds be used to pay back some of the stranded cost so that universal charges will decline. And (b) private operator can make it run more efficiently, more frequently, add to more power supply, while paying taxes to the government. A seldom-operating, government-owned Malaya plant is a costly elephant that adds to more costs than benefits to electricity consumers.

See also: 

Friday, February 21, 2014

Climate Tricks 26: CO2, Pollution and Climate Junkets

A friend working at the House of Representatives posted the other day photos of a forum on climate change, sponsored by the House Committee on Ecology, Senate Committee on Environment, British Embassy Manila, and Global Legistors Organization – Philippines. In this photo, crying climate negotiator Yeb Sano speaking. Yeb was a former WWF activist then migrated to become a government official, one of the commissioners at the Climate Change Commission (CCC) and does frequent global travels to “save the planet.”

I commented that many if not all of the speakers may have argued that "CC is happening now" which is partly true. But I doubt that anyone say that "CC has happened in the past, naturally, with or without humans",

The author of that article is a world known climatologist. They are analyzing global temp data of the air/lower troposphere and ocean temp as gathered by satellites 24/7, 365 days a year. See the graph, actual global temp vs projections and guesses of global temp, 13 pages long,

My friend commented that no one disputes that CC is natural and cyclical but one variable is the amount of human activity that may contribute to the change. “Now, do we continue consuming our natural resources and exploit the resources of other developing countries just because we believe that climate change is a natural evolution of things?”

This is one of the very few instances were campaigners of “man-made” or anthropogenic global warming (AGW) and ACC recognize that GW and CC are also nature made. This could be another indicator that the AGW hypothesis and religion is indeed crumbling.

Now If CC is accepted as nature-made and not man-made, what is the point of using our tax money to pay for the endless junkets of climate negotiators for many years, the creation of various climate bureaucracies, the enactment of a Renewable Energy (RE) law that will make already expensive electricity become even more expensive through feed in tariff (FIT) and RPS?

With or wthout humans and their SUVs, global cooling will still happen. With or without humans and their bicycles, global warming will still happen.

UHC 23: Orthopedic Hospital Corporatization, Not Privatization

There have been a number of political noise about the corporatization and modernization of the Philippine Orthopedic Center (POC). Many groups are opposing its “privatization” with lots of street rallies and the petitioners going to the Supreme Court opposing the said “privatization.”

This is a typical disease of confusing and equating corporatization as privatization. The former means the government will just create a board relatively (but not fully) independent of Malacanang and Congress, with private sector presence in the board as they will inject their own money. The DOH Secretary or his/her representatives will still be on the board.

Here is one news report, more objective and non-emotional.
 The Orthopedic Center PPP,,, involves the construction as well as operations and maintenance (O&M) of a new 700-bed-capacity tertiary orthopedic hospital in the National Kidney and Transplant Institute compound in Quezon City.
It is a 25-year contract with construction is expected to take two and a half years, and the remaining 22.5 years allotted for O&M.

Nine firms have so far expressed interest in bidding for the multi-billion peso ...See More

POC will move out of its Banawe location to the Kidney Center, still in Quezon City. In exchange, the government and DOH will:
(a) get new, modern hospital at no cost to taxpayers,
(b) bigger hospital with 700 beds (vs current ____ beds),
(c) poor and sponsored PhilHealth members will get 420 beds under no balance billing (NBB) while 70 beds for indigents, non-PHIC members, and
(d) after 25 years, DOH will own this hospital and may choose zero private sector participation, back to nationalization/centralization.

The POC private sector partner will make money from (a) the land to be vacated by the current POC in Banawe, and (b) operating the POC for 22.5 years, particularly on the remaining 200 beds that are not for (i) PHIC NBB and (ii) indigents, full charity patients.

This is not a bad deal, unless there are other hidden arrangements. As a taxpayer, this is favorable to me. DOH will have a new hospital at no extra cost to me. If the bidder will put up a residential condo in the current POC in Banawe, that means additional housing units, less squatters or less rentiers in non-high rise houses. When more demand is met by more supply (of houses, etc.), then the price of that commodity will stabilize.

Corollary situations:

1. The Philippine Children’s Medical Center (PCMC, aka "Children's Hospital"), currently a government corporation,  to be corporatized modernized too, its current two-storey structures be demolished and a new, high rise hospital be constructed, to accommodate more children patients, at no substantial cost to taxpayers.

2. AFP headquarter with golf course to get out of its prime location in QC, they sell or privatize the land, AFP gets the money and move elsewhere cheaper with lots of extra money for AFP modernization, at no extra cost to taxpayers. Win-win condition.

Two news stories below:

Tuesday, February 18, 2014

Globalization, Mobility and Inequality

Yesterday, I gave a talk at 4th year high school students, Honors Class, of La Salle Green Hills (LSGH). Thanks to former UPSE batchmate Malou Roa for inviting me, her son, Mike Roa, is the Class President. Thanks also to Popo Suanes, another batchmate and the first summa cum laude of UPSE, who also came from LSGH, who referred me to Malou.

Some 40+ students attended. They have regular guest speakers for their high school economics class.

My outline was simple:
I. Definition, Theory of Globalization,
II. Goods and Services Mobility
III. Inequality, and
IV. Concluding Notes.

I started with some definitions of globalization, from the generic to leftist to my own. That globalization and exploration of other lands outside one's birth place seems to be part of human nature, but the more pronounced area was the "silk road".

Then some theories on international trade, I showed (a) Commodity price equalization, (b) Factor price equalization, (c) Consumer surplus under free trade and under protectionism.

Sunday, February 16, 2014

Big Infrastructure Projects, Metro Manila, 2014-2016

Some big infrastructure projects in Metro Manila will start tomorrow, especially the extension of the skyway  that will connect the South Luzon Expressway (SLEX) to North Luzon Expressway (NLEX). Our house is not far from this project, so somehow we will be affected by the heavy traffic, but am not complaining.

That map is from Copied from MMDA I think. Here are the details of those projects. I re-arranged the list starting with Makati, where I live :-)

Impacted Cities
Impacted Streets
Buendia Underpass
Makati City
Buendia, Makati Avenue and Paseo de Roxas
Magallanes Flyover Repair
Makati City
SLEX, EDSA, Pasong Tamo Ext.
Lawton - Sta. Monica Bridge
Makati City
Lawton, Kalayaan, JP Rizal
Pasig City
Sta. Monica
Taguig City
8th Ave.
NLEX - SLEX Skyway
Quezon City
NLEX, Balintawak, EDSA, A. Bonifacio, Sgt. Rivera, G. Araneta, Del Monte Ave, Quezon Ave, E. Rodriguez Sr., Aurora Blvd.
Manila City
Paco de. Sta. Mesa, Quirino Ave., Pedro Gil
Makati City
San Andres, Ocampo, Buendia, Pasay Road, Skyway, SLEX
C5 McKinley On-ramp
Taguig City
C5 Northbound through Upper McKinley Road
NAIA Skyway
Pasay City
NAIA Road, Roxas Blvd., Old Domestic Road, Andrews Ave., Aurora Blvd., Sales, SLEX
EDSA - TAFT Flyover
Pasay City
FB Harrison, Roxas Blvd., Taft Ave., EDSA
LRT/MRT Common Station
Quezon City
EDSA, North Ave., West Ave., Mindanao Ave.
EDSA / North Ave. / Mindanao Ave. / West Ave. Interchange
Quezon City
EDSA, North Ave., West Ave., Mindanao Ave.
ITS North Terminal (TriNoMa)
Quezon City
EDSA, North Ave., Mindanao Ave.
ITS South Terminal (FTI)
Taguig City
East Service Road, FTI Area
LRT East Extension
Marikina City
Marcos Highway, Imelda Ave., Sumulong Highway

These infra projects are important. They should have been started yesterday, not today. The traffic congestion will worsen. I remember when the Ortigas interchange was being constructed, about two  decades ago. Lots of whining, complaints from the public, some even suggested not to pursue it because of the heavy traffic that was created, up to 4 or 6 lanes were affected. We have benefited, greatly, from that infra since then. The huge infra projects starting tomorrow will definitely reduce our productivity somehow, with more time spent on the road than in the offices or factories or schools, but the increase in productivity by 2016 or 2017, when they are done, will be tremendous. Tiis lang tayo sa ngayon.

I also support the plan to collapse school sked to only four days a week, at least in Metro Manila. With a resident population of about 12 million, becomes 13-14 million on weekdays as some people who live in nearby provinces (Bulacan, Rizal, Laguna, Cavite) would troop to the metropolis to work or study or for entertainment, there is no other sustainable choice for public infra but go vertical: more skyways, more tunnels, more interchange, more elevated U-turns. Traffic is an engineering problem with engineering solutions.

One implication here is that the Metropolitan Manila Development Authority (MMDA) and the Department of Public Works and Highways (DPWH) should shrink their manpower, or at least stop further hiring. Any rise in their budget should be used only for actual infra projects, things which do not need 13th month pay, sick leave and vacation leave with pay, holiday leaves, even threat of labor strikes, to continue functioning.

What about the people currently working in those government agencies, or other people aspiring to work with them? Faster mobility of people and goods would mean more business activities, more job creation and expansion in many private enterprises.

Good thing about the skyway is that it is privately-funded and hence, will not require more tax money to be constructed. When the project is done, maintenance will also not come from taxes but from tollway revenues. Government can actually shrink in certain infra projects. Government will refocus its resources, to protect contracts between and among people and enterprises, enforce the rule of law. 

See also:

Free Trade 33: ASEAN Economic Community 2016

The ASEAN Economic Community (AEC) will materialize by December 31, 2015. Of course there are no business transactions on a new year, so AEC will start on January 1, 2016 or nearly two years from now. The original target of AEC was January 01, 2015 but since some country-members of ASEAN are "not yet ready" in some sectors, a one-year postponement was the compromise move.

Last Thursday, February 13, I attended a forum on "In Sync: An Evaluation of the ASEAN 2015 Integration" at my alma mater, the UP School of Economics (UPSE), organized by my student organization then, the Economics Towards Consciousness (UP ETC). Speakers were Dr. Josef "Jop" Yap, a Professor at the school and past President of the Philippine Institute for Development Studies (PIDS), and Dr. Lei Lei Song, Principal Economist at the Office of Regional Economic Integration (OREI), Asian Development Bank (ADB).

Below are three of the many slides presented by Jop.

The Philippines lacks more capitalism. Even socialist and late-comer Vietnam is more integrated with global business and capitalism than the Philippines. Of course socialist China is even more integrated with global capitalism with exports of more than $2 trillion in 2012.

This table affirms what Jop has been trying correcting one urban legend, that after WW2, the 50s and 60s, Philippines was "2nd only to Japan" economically, referring to per capita GDP. That is wrong. At least four neighboring countries have larger per capita GDP than the Philippines -- HK, Singapore, S. Korea, Malaysia.

Another table showing that the Philippines is not able to optimize its integration with global business and capital. Even socialist Vietnam has more than double foreign direct investment (FDI) that we got in 2012.
The AEC will have a combined consumer base of around 670 million people, twice the US population. The common market (but no common currency like the EU, thanks) will be composed of three major components:
* ATIGA – ASEAN Trade in Goods Agreement
* AFAS – ASEAN Framework Agreement on Services
* ACIA – ASEAN Comprehensive Investment Agreement

Some key policy measures to be prioritized by 2015 are:

S  Tariff and Non-Tariff Measures;
S  Trade facilitation;
S  Services liberalization and domestic reform;
S  Investment liberalization and facilitation;
S  Connectivity and transport facilitation;
S  Regional Comprehensive Economic Partnership

Then after 2015, the priority measures will be:

S  standards and conformance
S  capital market development and financial market integration
S  MRAs on professional services and labor mobility
S  ICT, energy
S  Intellectual property rights (IPR)
S  competition policy
S  agriculture liberalization
S  others (consumer protection, taxation,…)

Before the forum started, photo with Jop and his wife, Dr. Ermi Figueroa-Yap. Ermi was my roommate along with Dr. Butch Lanzona of Ateneo Economics Department, in one room at the school when I was the research assistant of Dr. Florian Alburo in the mid-80s. Jop was finishing his PhD Econ at that time, I think.

The two speakers. A third speaker, Dr. Rafaelita Aldaba of PIDS and also recently appointed as DTI Assistant Secretary, failed to come.

Some of the early birds at the forum.

A common question that free marketers and free traders must grapple: should they support government-initiated free trade agreements (FTAs) or economic partnership agreements (EPAs)?

Some say No, that international trade should be kept out of government hands. This looks sensible because in reality, neither governments nor countries trade with each other. People do, and when people engage in trade and voluntary exchange, the requirements and specifications are simple and unique to their specific needs. When governments come in, some less relevant factors are brought into the equation.

But I recognize that a "zero government in trade" (anarchist position) is impossible, next year or next 20 years or beyond. Having FTAs and EPAs are the second-best choice that free marketers can support.

See also:
Business 360 8: TPP, RCEP, SAARC and Free Trade, June 17, 2013 
Free Trade 30: BIPOR and APTIR, January 03, 2013 

Free Trade 31: FTAs, EPAs and the Heckscher-Ohlin Theorem, January 10, 2014 

Free Trade 32: Hong Kong's Unilateral Trade Liberalization and John Cowperthwaite, February 12, 2014

Thursday, February 13, 2014

Energy Econ :13: Universal Charges and Thin Power Reserves

A friend posted today in his fb wall,

DOE Ssec. Petilla reportedly told the supreme court that the implementation of the Epira law is a learning process. Fine, if that is how this govt wants it. However, we, the consumers, do not have to pay for your lessons.

I commented that the main problem is the lack of power generation, lack of power plants, and not on power distribution or transmission. If you have only 200+ MW of excess reserves, and one 300 MW power plant will suddenly conk out (especially if it is 20+ years old), brown out is the logical thing to happen.

Someone suggested that the problem is the off take provision in the IPP contracts. Government guaranteed a certain volume of power to be purchased from IPPs whether it is needed or not, and the cost of unneeded power is passed on to consumers

That was correct… many years ago. The cost of that provision is now in the NPC stranded contract cost, passed on to us electricity consumers at P0.19/kwh, reflected in the universal charges. See illustration from NPC, right.

The bulk of our monthly electricity bill, more than half of total, is from generation charges by the power plants. For instance, for the December 2013 bill, in P/kwh:

a. generation charge 7.67
b. distribution charge (meralco) 1.22
c. transmission charge 0.97
d. system loss charge 0.80
e. supply charge 0.60
f. metering charge 0.41
taxes not included yet.

The "off take provision" that was earlier mentioned refers to NPC stranded contract cost, being passed to us at P0.19/kwh.

We lack cheaper power plants like natural gas, geothermal, hydro and coal. If government royalties from natural gas field in Malampaya (now the famous Malampaya fund scandal by the previous and current administrations, along with pork barrel scandal) is absent, natural gas should cost only about P2/kwh or less. With government royalties, nat gas is about P4/kwh.

To prevent brownouts, distribution utilities (DUs) like Meralco, Pangasinan Electric Coop, Batangas Electric Coop, Cagayan Electric Coop, etc. must buy from diesel power plants to plug power deficit and hence, prevent brownouts. These diesel plants are expensive, and their cost will be passed on to us in the form of higher generation charge. From P4-5/kwh to P7 or higher.

Repeat that: the main problem is in power generation, not in power distribution or transmission.

A good observation from Mr. RDC:

I think the point that the Secretary of Energy was trying to make was that no law, not even the EPIRA, was able to foresee all situations and contingencies. A lot of the problems in the electric power industry now are a result of inadequate safeguards against forces that are outside anybody's control--politics having a lot to do with it which affects the economy and thus everything else.

True. No laws and regulations, past and present, can really foresee the future. All new regulations and restrictions are reactions to past and current problems and issues. By the time these issues were “addressed”, new issues would come out and the new regulations will not be able to capture or anticipate them.

Re power brown outs, here again is a chart from the DOE. Check projections for April-May 2014, or 2-3 months from now, the power reserves will be very thin, maybe only 100 MW. If the horizontal line, total power supply, will not go down, say a 100 or 200 or 300 MW power plant will suddenly conk out, then we will have no brown out this coming April-May. Knock on wood.

Mr. RDC added, “To put power supply in perspective, demand for power increases every year and yet there has been only one power plant that saw the light of day from the time it was put on the drawing board during the time of EPIRA (at least, in Luzon)--that of GN Power in Bataan. A lot of the plants that came on stream during the EPIRA implementation were conceived and were commenced prior to EPIRA. The commissioning for the next new plant will be next year, if I'm not mistaken."

My friend suggested further that being an electricity , he should not pay for anybody sleeping on or learning their job. I suggested that the government – the DOE, EMB/DENR, BIR/DOF, LGUs, etc. -- are NOT sleeping on their job. They are wide awake. Someone wants to put up a new power plant, they are all awake to impose and enforce various regulations, restrictions, permits, taxes, fees, royalties, until very few, GN Power included, has the stomach and financial resources to pay for all those bureaucracies.

Meanwhile, here's a new development on the sector. From interaksyon, posted last night.

MANILA - A day after an agency in-charge of Malaya Thermal Power Plant (MTPP)drew flak for not running it in November, the Department of Energy has formally designated the facility as a 'must-run' unit (MRU) for the electricity spot market.

The DOE issued Department Circular 2014-01-0003 designating the 650-MW Malaya Thermal Power Plant (MTPP) as an MRU in the Wholesale Electricity Spot Market (WESM)….

See also: 

Wednesday, February 12, 2014

Free Trade 32: Hong Kong's Unilateral Trade Liberalization and John Cowperthwaite

Nice article about Hong Kong below, written by a friend, Larry Reed, President of the Foundation for Economic Education (FEE) in the US. Slightly shortened, see the original article here. The territory's unilateral trade liberalization policy -- no trade negotiations, no hiring of trade negotiators and bureaucrats with frequent travels, no finger-pointing of who caused the collapse of trade negotiations -- is a major factor for its fast growth and stable development. In addition, its low taxes, or absence of tax on certain transactions, attracted more businesses, which created more jobs. Businesses bidding up for more workers, so wages keep rising even if HK has no minimum wage law for many decades then.

The Man Behind the Hong Kong Miracle

Three cheers for Hong Kong, that tiny chunk of Southeast Asian rock. For the twentieth consecutive year, the Index of Economic Freedom—compiled by The Wall Street Journal and the Heritage Foundation—ranks Hong Kong (HK) as the freest economy in the world.

Though part of mainland China since the British ceded it in 1997, HK is governed locally on a daily basis. So far, the Chinese have remained reasonably faithful to their promise to leave the HK economy alone. What makes it so free is music to the ears of everyone who loves liberty:  Relatively little corruption. An efficient and independent judiciary. Respect for the rule of law and property rights. An uncomplicated tax system with low rates on both individuals and business and an overall tax burden that’s a mere 14 percent of GDP (half the U.S. rate). No taxes on capital gains or interest income or even on earnings from outside of HK. No sales tax or VAT either. A very light regulatory touch. No government budget deficit and almost nonexistent public debt. Oh, and don’t forget its average tariff rate of near zero. That’s right—zero!

This latest ranking in the WSJ/Heritage report confirms what Canada’s Fraser Institute found in its latest Economic Freedom of the World Index, which also ranked HK as the world’s freest. The World Bank rates the “ease of doing business” in HK as just about the best on the planet.

To say that an economy is “the freest” is to say that it’s “the most capitalist.” Capitalism is what happens when you leave peaceful people alone. It doesn’t require some elaborate and artificial, Rube Goldberg contrivance cooked up by tenured central planners in their insular ivory towers. But if we are to believe the critics of capitalism, HK must also be a veritable Hell’s Kitchen of greed, poverty, exploitation and despair.

Not so. Not even close.

Maybe this is why socialists don’t like to talk about Hong Kong: It’s not only the freest economy, it’s also one of the richest. Its per capita income, at 264 percent of the world’s average, has more than doubled in the past 15 years. People don’t flee from HK; they flock to it. At the close of World War II, the population numbered 750,000. Today it’s nearly ten times that, at 7.1 million.

Positive Non-Interventionism

The news that the HK economy is once again rated the world’s freest is an occasion to celebrate the one man most responsible for this perennial achievement. The name of Sir John James Cowperthwaite (1915–2006) should forever occupy top shelf in the pantheon of great libertarians. Some of us just write about libertarian ideas. This guy actually made them public policy for millions of citizens….

… He served in the British Colonial Administrative Service in HK during the early 1940s. After the war he was asked to come up with plans for the government to boost economic growth. To his credit, he had his eyes open and noticed that the economy was already recovering quite nicely without government direction. So while the mother country lurched in a socialist direction at home under Clement Attlee, Cowperthwaite became an advocate of what he called “positive non-interventionism” in HK. Later as the colony’s Financial Secretary from 1961 to 1971, he personally administered it.

“Over a wide field of our economy it is still the better course to rely on the nineteenth century's ‘hidden hand’ than to thrust clumsy bureaucratic fingers into its sensitive mechanism,” Cowperthwaite declared in 1962. “In particular, we cannot afford to damage its mainspring, freedom of competitive enterprise.” He didn’t like protectionism or subsidies even for new, so-called “infant” industries: “An infant industry, if coddled, tends to remain an infant industry and never grows up or expands.” He believed firmly that “in the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.”

… Statistics, no matter how accurate or voluminous, are no substitute for sound principles. Powered by an abundance of the latter under Cowperthwaite, the HK economy soared during his tenure.  Writing in the November 2008 issue of The Freeman, Andrew P. Morriss noted that in his decade as financial secretary, “real wages rose by 50 percent and the portion of the population in acute poverty fell from 50 to 15 percent.” It’s hard to argue with success. After Cowperthwaite’s retirement in 1971, less principled successors dabbled in social welfare spending but they financed it through land sales, not increased taxation. Tax rates to this day are right where the old man left them.

See also:
Free Trade 29: ASEAN and Education Competitiveness, November 16, 2013
Business 360 8: TPP, RCEP, SAARC and Free Trade, June 17, 2013 

Free Trade 30: BIPOR and APTIR, January 03, 2013 

Free Trade 31: FTAs, EPAs and the Heckscher-Ohlin Theorem, January 10, 2014 
John Cowperthwaite, Statistics and Central Planning, January 23, 2014

Tuesday, February 11, 2014

MeTA 16: Day 1 of Conference 2014

The 2014 Medicines Transparency Alliance (MeTA) Philippines forum 2014 started today, here at the Bayanihan Center of Unilab Complex, Pasig City, Metro Manila. Attendance is big, 100+ people attending. I see many new faces here compared to past MeTA PH fora.

Below, they key speakers, from left: Former Bulacan Gov. Roberto "Obet" Pagdanganan, MeTA Philippines Chairman, gave the Opening Remarks. Dr. Tim Reed, Health Action International (HAI, Amsterdam, the International MeTA Secretariat). Dr. Deirdre Dimancesco of WHO in Geneva, and Dr. Francisco Tranquilino of the UP College of Medicine, also Chairman of the Ethics Committee, Philippine College of Physicians (PCP). He gave the Keynote Speech. 

In his brief speech, Dr. Tim Reed noted that "Multistakeholder engagement is clearly achieved in this forum" as the participants come from different sectors and agencies -- government, corporate and industry players, and civil society organization. 

Dr. Art Catli of the Pharmaceutical and Healthcare Association of the Philippines (PHAP) introduced Dr. Tranquilino. Said that the latter is a very popular, well-sought speaker, giving countless speeches here and abroad; that he is a "terror" teacher at UP; a workshorse, a researcher who has published dozens of academic articles, an ambassador of good will. 

Dr. Tranquilino disclosed his past and present engagement in the pharma industry, most of which were with the innovator companies. He started discussing "striking a balance" between innovation and government regulations. 

Medicines save lives, but developing new medicines now take 11-15 years out of 20 years total patent period. Many compounds that were originally discovered and were patented do NOT become medicines, if they do not pass the various clinical trials for safety, efficacy and other criteria. In the last decade, there was dying of pipelines of new revolutionary drugs, resulting in more mergers and consolidation of big pharma companies.  

The Mexico City Principles (MCP) for voluntary codes of ethics of businesses especially in biopharmaceutical sector was adopted by APEC member countries to help reduce corruption, bribery, and at the same time protect public health. 

The next session was on “Multistakeholder advocacy for adherence to the MCP”. The speakers were, from left: Tomas Marcelo "Beau" Agana, Past President of the Philippine Chamber of Pharmaceutical Industry (PCPI), the federation of domestic or national pharma manufacturers and drugstores; Teodoro "Ted" Padilla, Executive Director of PHAP; Atty. Florina Agtarap of the Department of Justice (DOJ) Office of Competition; Dr. C. Diza of the Food and Drugs Administration (FDA); and Dr. Melissa Guerrero of DOH National Center for Pharmaceutical Access and Management (NCPAM). Moderator was Yolanda Ibarle, MeTA Project Director.

Dr. Guerrero said that there are ethical issues in government processes, they have to address those upfront. She hopes that MeTA Philippines and its multi-stakeholder partners can help the DOH urge the local government units (LGUs) abide by DOH rules on the selection of suppliers, truthful procurement of medicines.

Dr. Diza said that FDA will hopefully develop guidelines or an Administrative Order (AO) specifying what needs to be followed from the MCP.

Beau Agana of PCPI talked about their draft Code of Ethics, an APEC workshop for voluntary code of ethics in 2012. Relationship building becomes problematic in pharmaceutical marketing under information asymmetry condition, he said. Code of Ethics will temper maximizing personal interest of doctors and other 3rd party decision makers, and prioritize patients' interests. He added that  patients have started to turn to pharmacists, not their doctors, in their medicines purchase. 

Ted Padilla of PHAP said that they have their Code of Ethics early, that penalties are imposed on  violating member firms and personel. Monetary sanction, a fine, is more effective in tightening behavior. Transparency is essential, there is no substitute to being transparent and honest, and medical decisions must always be made with the best interest of the patients, he added.

During the open forum, some concerns were raised regarding the procurement process and practices of LGUs, not only of medicines but also medical supplies, equipment and facilities.

My main concern in being involved in topics like this is how civil society and voluntary organizations will have greater role in promoting transparency and competition in the economy. Very often, self-regulation by industry players themselves are better than government regulations, restrictions and politics. Manufacturers, wholesalers and retailers who sell only good quality products because they have concern for their customers, or because they are scared that they will be scandalized if their products are discovered to be unsafe and/or ineffective. 

See also:
Health Transparency 12: MeTA Philippines Dynamism, October 02, 2012 
Health Transparency 13: MeTA International Visit to Manila, April 16, 2013 

Health Transparency 14: IMS-CHAT Meeting, April 18, 2013, Friday, July 12, 2013 

MeTA 15: Forum 2014 on Healthcare Ethics and Transparency, January 30, 2014