There is a populist and persistent belief that free trade
means weakening, if not, bringing about the death of local manufacturing
industries because they will not be able to withstand competition from more
advanced economies abroad.
This belief has been repudiated many times in countries
including the Philippines. And there is a new paper that repudiates this belief
again.
Former NEDA Secretary Dr. Cielito Habito discussed a new
paper at the Department of Trade and Industry (DTI) pre-summit roundtable,
based on their research at the USAID-funded Trade-Related Assistance for
Development (TRADE) Project.
The roundtable was part of the preparations of the DTI
and the Board of Investments (BoI) in an important event they are jointly
organizing, the “Manufacturing Summit 2016: Trabaho at Negosyo” this coming
Nov. 28-29, 2016 at the Makati Shangri-La Hotel.
Besides plenary sessions, breakout sessions to be held
will cover seven topics, one of which is International Trade Policy and Free
Trade Agreements and Dr. Habito’s discussion was in preparation for this
session. I was among those invited by the DTI for the pre-summit roundtable,
thanks to Assistant Sec. Rafaelita Aldaba.
In January 2010, the ASEAN Free Trade Agreement (AFTA)
became operational. The import tariffs on nearly all products traded across the
ASEAN-6 (Brunei, Indonesia, Malaysia, Philippines, Thailand, and Singapore)
dropped to 0, some at 5% maximum. What happened to Philippine manufacturing by
2010 onwards? Dr. Habito showed this data (see Table 1).
Philippine manufacturing did not weaken nor did it die
with freer trade. From an average growth rate of only 3% per year in 2004-2009,
it went up to an average of 7.8% per year from 2010-2015.
Other sectors -- fixed investment, durable equipment,
private construction, exports -- also showed faster growth rates under a freer
trade regime, about three to four times faster than average growth in
2004-2009.
Ciel also showed slides where Philippine exports have
moved up the value chain.
For instance, the Philippines exported around $200M of
boilers, nuke reactors, machineries, optical, technical, medical apparatus,
etc. to Indonesia in 2013 alone.
As we moved to freer trade, to zero tariff, our
manufacturing and exports became more dynamic, more competitive, more job
creating and more forex-earning.
One may also credit the past Aquino administration for
keeping with trade liberalization agenda compared to its predecessor Gloria
Arroyo administration.
Freer trade benefitted not only the Philippine economy
but also almost all other ASEAN countries (see Table 2).
The above numbers tell us the following.
One, the size of manufacturing output of the six
countries have expanded significantly in just five years. The Philippines’ has
grown from $26.5B in 2009 to $38.9B in 2014.
Two, in terms of manufacturing annual growth rate,
Malaysia, the Philippines, and Singapore experienced faster growth rates while
Thailand and Vietnam experienced slower expansion -- but they nevertheless
reported growth.
Three, manufacturing as percentage share of GDP has
declined for all the countries above. This is not something to be taken
negatively because almost all countries have shown this trend, with the
declining share of agriculture and manufacturing and rising share of services.
Some policy measures that the DTI, other departments, and
Congress should consider to further improve the country’s manufacturing and
trade capacity would be the following:
1. The government should help improve the economy’s
competitiveness. Very often it is not “what government should further do” but
rather, “what government should NOT do and intervene,” like fewer taxes,
regulations, restrictions, and bureaucratic processes.
2. Some factors that deter more investments in
manufacturing in the country are outside the scope of DTI, like expensive and
unstable electricity supply, slow Internet, poor infrastructure. More
competition in these sectors should be encouraged.
3. There are winners and losers in free trade, there are
also winners and losers in protectionism. Overall, there is “net gain from
trade” while there is net loss under protectionism. Tables 1 and 2 above have
shown and quantified some of these gains, so we should never backtrack from
further liberalization.
4. Over the long term, we should consider adopting
unilateral trade liberalization, one-way free trade policy, both in tariff and
non-tariff measures (NTMs), and ultimately in services too. Hong Kong and
Singapore are good examples of unilateral liberalization regimes, their exports
of goods and services are much larger than most countries in the world despite
their small population.
5. NTMs as indirect barriers to trade should be relaxed
through time and ultimately abolished. The main purpose of trade policy should
be consumers protection and empowerment, to allow the local consumers to have
more choices in buying and selling, to have more access to more markets and
economies abroad.
Bienvenido S. Oplas, Jr. is the head of Minimal
Government Thinkers and a Fellow of SEANET. Both institutes are members of the
Economic Freedom Network (EFN) Asia.
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See also:
BWorld 48, On unilateral trade liberalization, March 17, 2016
BWorld 59, Free trade and Norwegian salmon, May 28, 2016
BWorld 64, The WTO and trade agreements, June 17, 2016 BWorld 65, PH exports growth from 1960-2014, June 22, 2016
BWorld 71, Free trade and higher income, July 11, 2016
BWorld 78, If the US becomes protectionist, who loses? August 11, 2016
BWorld 88, Economic freedom and human rights, October 31, 2016
BWorld 89, President Duterte's outbursts and PH economic momentum, November 12, 2016
BWorld 90, Who should set the energy mix, government or consumers?, November 12, 2016
BWorld 90, Who should set the energy mix, government or consumers?, November 12, 2016
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