* My article in BusinessWorld, February 27, 2020.
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The Philippines’ average
merchandise trade deficit in 2018 was $3.6 billion a month, went down to $3.1
billion a month in 2019. The US and Japan remain the Philippines’ main exports
market while China remains our main source of imported goods.
While we have generally
balanced trade with the US, Japan, and Germany, that cannot be said of the rest
of our Asian neighbors including our ASEAN partners. Our biggest trade deficits
are with China, South Korea, Indonesia, and Thailand (see Table 1).
The main reason for this
is that while tariff rates with our Asian neighbors are declining — with zero
tariffs within the ASEAN — the non-tariff measures (NTMs) are increasing. The
challenge for freer trade should focus on these NTMs.
In global trade, data from
the World Trade Organization (WTO) show that the top three players are also the
biggest economies in their respective continents — China, the US, and Germany.
But the US suffers the biggest trade deficit overall, with an average deficit
of $2.6 billion/day in 2018, while China and Germany have an average trade
surplus of $1 billion/day and $0.8 billion/day, respectively.
In the ASEAN, our five
neighbors belong to the top 30 world exporters and importers in 2018.
Meanwhile, the Philippines ranked No. 47 in exports and No. 34 in imports (see
Table 2).
We now go to the spreading
coronavirus. China, the exports powerhouse, is also ground zero of SARS-CoV-2
(severe acute respiratory syndrome coronavirus 2) which causes Coronavirus
Disease 2019 (COVID-19), and the economic dislocations there in the first two
months of 2020 are huge, with many big cities looking like ghost towns and
having minimal economic activities including near-zero manufacturing.
China’s exports are other
countries’ consumer goods or raw materials and intermediate goods, even capital
goods, for their manufacturing, agriculture, and services sectors. The same way
that China’s imports are other countries’ exports of mining, manufacturing,
agriculture products.
Trade diversification, and
investment and tourism diversification are already happening — but at a slow
rate. For instance, Philippine companies that relied heavily on imports from
China have to adjust and substitute imports from Vietnam and other ASEAN
neighbors whenever possible.
While COVID-19 will take
care of the Philippines’ huge trade deficit with China, our ASEAN neighbors
must relax or reduce their NTMs vs Philippines exports to them.
In the new report, the
International Trade Barriers Index 2019 produced by the Property Rights
Alliance in Washington, DC, out of 86 countries covered, the Philippines ranked
78th or near the bottom. We scored high in NTMs (meaning we do not have many
NTMs) but we scored low in tariffs, services restrictions, and trade
facilitation.
The Philippines should not
reciprocate with high NTMs against its Asian neighbors, rather everyone should
reduce their respective NTMs. And the Philippines should address its problems
and bureaucracies in services restrictions and trade facilitation. That is the
way to freer trade and a more prosperous world. More prosperity will give us
more resources to address COVID-19 and emerging or future communicable
diseases.
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