Free Trade 37: Multiple Concerns and Regulations in the ASEAN

The next and 25th Association of South East Asian Nations (ASEAN) Summit will be held this coming  November 12-13 in Myanmar. Among the preparations for this, the Department  of Foreign Affairs (DFA) is conducting consultation with some stakeholders in the Philippines to explain its position on certain issues and get feedback from the public.

Yesterday, the DFA consultation with civil  society organizations (CSOs) for the 25th ASEAN Summit plus related matters -- PH advocacies in the 23rd and 24th Summit, 47th ASEAN Foreign Ministers Meeeting -- was held at the DFA Auditorium, main building in Pasay City. DFA Under Secretary for Policy Evan Garcia gave the welcome message and an overview of the recent ASEAN Summit and this coming event in Myanmar.

An update on the ASEAN Intergovernment Commission on Human Rights (AICHR) was given by the PH Representative to the Commission, Rosario Marcelo. Ms. Daza of ASEAN office in DFA was the event moderator while Assistant Secretary Luis Cruz was the discussant in the consultation with CSOs.

Issues on (1) foreign policy and national security, (2) economic diplomacy and ASEAN economic integration, and (3) social protection for overseas Filipinos were discussed.

Most NGO participants lobbied for more social protection re human rights, labor rights, environmental protection, some even calling for postponing economic integration. No other free trader in the room except me, as usual. Fellow free marketer Kenneth Varona accompanied me but he did not speak, thanks Kenneth.

All CSO leaders were given the floor to first introduce themselves and their institutes or organizations in round 1, then in discussing their position on the presentation of DFA advocacies and agenda as earlier presented. Some spoke longer than others, as usual. 

When my turn came, I just argued on four points.

1. Rule of law on the SCS/WPS conflict. China's communist government is a bully and would unshamelessly bully its own citizens. It would even deprive its people access to facebook, twitter and  youtube. No independent NGOs, no big citizens assembly, people can be imprisoned if they do so. But internationally, China can be ashamed. Thus, the need for endless, continuous, internationalization of the conflict. Do not be tempted by the militarist approach. China is shameless internally/domestically but can be ashamed internationally.

2. Food security. Thailand and Vietnam are the world's top rice exporters, they are our neighbors. Cambodia and Myanmar are approaching that stage too of being major rice exporters. They have abundant, wide, flat lands with good irrigation that are suitable to rice farming. Hence, they have cheap rice there while we have expensive rice due to trade protectionism. Our neighbors should prioritize us in cases of emergencies like large scale destruction of rice crops due to heavy flooding. 

3. Energy security. The 3 power plants in Batangas that run on Malampaya's natural gas supply about 45% of total Meralco customers (M.Manila, Bulacan, Rizal, Cavite; and Laguna?). Malampaya's gas output is slowly declining and will be depleted by 2022-24, or 10 years or less from now. Nat gas is abundantly available in some of our neighbors. Brunei is 99% dependent on nat gas for its power; Singapore is 78% dependent on nat gas, about 45% for thailand, etc. Successor to Malampaya is question mark, so we need to import LNG Our neighbors should prioritize us. We don't want to go back to candles and noisy gen sets in houses and shops.

4. Economic integration must proceed. Do not postpone or delay it. While some sectors have expressed reservations about it, the argument of "hindi tayo handa" (we're not ready) with more economic competition and integration has been argued in the 60s, in the 70s, 90s, until now.

I could see some smirks, raised eyebrows from some NGO leaders in the room when I said that. It is expected from a protectionist perspective. It is a policy dialogue so diversity of ideas is expected.

If I have to illustrate a supply-demand graph. Supply curve 1 (S1) is the status quo curve. S2 is free trade supply, moving to the right of S1 because domestic supply expands with the entry of more products and services from abroad, giving local consumers more choices, more options re quality and prices.

Having more regulations though -- labor regs, environmental regs, energy regs, human rights/gender regs, health regs, LGU regs, etc. -- effectively a form of bureaucratic protectionism, will restrict the entry of more foreign goods and services. This shifts S2 back to S1 position, or worse, to S3, to the left of S1. Meaning higher prices, lower aggregate supply. Local consumers will be penalized and worse off.

The draft presented by DFA as PH agenda for the 25th ASEAN Summit contains many social concerns that can divert the main purpose of integration -- more trade, freer flow of goods and services across countries who are ASEAN members. Yes, ASEAN is more than trade, there are human rights and other political and social concerns. But trade is the single most important aspect of the association. Countries that have less trade also have more human rights violations, like Myanmar and Laos. Countries that have more trade also have more economic prosperity and less human rights violations, like Singapore and Thailand.

I believe that the only considerations in regulating foreign trade is if things involve public health and safety. Like bringing in guns bombs, poisonous substances, fake medicines, virus-infected animals, etc. All other goods should be allowed entry with the minimum or zero restrictions and taxation as this will significantly bring down prices and benefit consumers, especially the poor.

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See also:
Free Trade 33: ASEAN Economic Community 2016, February 16, 2014
Free Trade 34: ASEAN's Bilateral and Regional FTAs, February 27, 2014
Free Trade 35: EU-FNF Forum on 'FDI Engine for Job Growth', May 15, 2014
Free Trade 36: Taxation, Regulations, Trade and Rule of Law in ASEAN, August 05, 2014

Business 360 16: ASEAN Economic Community 2016, March 20, 2014
ASEAN Tax Reform Initiative, April 10, 2014
EFN Asia 25: The ASEAN Economic Community in 2015, July 23, 2014
Stratbase Forum on ASEAN Competitiveness, July 25, 2014

Energy Econ 25: Coal Use and GDP Expansion, Is There a Correlation?

* This is my article in thelobbyist.biz last Friday.
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Energy is development. The more energy and electricity that an economy can provide for its citizens and private enterprises at low price and stable supply, the bigger is the growth and development potential of the economy.

There is growing public interest for renewable energy like solar and wind and this is fine. But when there is also corresponding high opposition to coal, petroleum and even natural gas, then public policy is distorted, like more taxation of conventional sources, royalties for Malampaya natural gas. While the renewables are guaranteed of high electricity prices that will be passed on to the consumers, via feed in tariff (FIT) for wind, solar, biomass and run-of-river hydro. People do not recognize and appreciate the value that conventional energy sources have played in alleviating poverty and underdevelopment in the developing world.

For instance, there are claims like “more coal energy = more climate crime”, or “more coal power plants are anti-developmental.” How true or untrue are these and similar claims?

Let us check some regional and global energy and economic data. In particular, global coal consumption as this is among the pet peeves of those pushing for more environmental regulations, energy rationing and carbon taxation.

In 2010, the latest comparative energy data of Asian Development Bank’s (ADB) Key Indicators, slightly more than one-third of the Philippines’ total energy production came from coal. For Indonesia, it is 40 percent. Those that are highly dependent on natural gas are Brunei, Singapore, Thailand, Malaysia and Vietnam.

Table 1. Energy Mix in the ASEAN, 1990 vs. 2010, Percent of Total Energy Production

Source: ADB, Key Indicators for Asia and the Pacific 2013

Here now is the global data for coal consumption.

Table 2. Top Coal Consumers Around the World, 1985 to 2013

(in Million Tons of Oil Equivalent,MTOE))

Source: http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy.html

The last column is not part of the original data, added and created only in this paper.

The above numbers show the following:

First, China consumes half of all coal power in the entire planet as of 2013, and the level is almost 5x that of their 1985 consumption level. Its appetite for more coal power seems to remain the same in the coming years.

Second, India and Indonesia join China as among the world’s biggest consumers of coal. India’s 2013 consumption was 4.7x larger than its 1985 consumption. Indonesia’s is 60x much larger. This is because Indonesia has become a major coal producer and exporter in recent years.

Third, by continent and economic group, Asia-Pacific countries consume nearly three-fourth of the total coal output of the planet. Coal however, is least preferred in Africa as well as South and Central America. And it is in the Asia-Pacific where substantial economic growth and poverty alleviation has been happening for the past three decades or more.

Now,  let us review global economic growth over the same period.  The figures for 1995, 2005, 2011 and 2012 are also given for additional information that some readers may wish to see. Data from the International Monetary Fund (IMF).

Table 3. GDP Size Based on Purchasing Power Parity (PPP) Valuation, 1985 to 2013

(in Billions of international dollars)

Source: IMF, World Economic Outlook April 2014 Database, www.imf.org

The last column is not part of the original data, added and created only in this paper.

Notice that countries highlighted in bold in Table 2 are generally the same as those highlighted in Table 3. Meaning those that consumed coal energy faster also grew economically faster. Of course this is not to say that coal power consumption is the primary or sole important contributor to faster economic growth.

We now lay down the major players in both coal consumption and GDP growth over nearly three decades. Is there any correlation?

Table 4. Ten Fast Coal Consumers and their GDP Expansion, 1985-2013

Sources: Tables 2 and 3 above.

This summary table shows the following:

* Of the 10 countries that were fast coal consumers over the past 28 years, meaning their 2013 coal consumption were at least 4.5x their 1985 level (in contrast to many other countries with coal consumption multiples of only around 2.5x),   eight have high GDP expansion over the same period. For instance, China and India GDP levels have multipled by 25x; S. Korea and Malaysia GDP levels multipled by nearly 10x, in just 28 years.

* Only Mexico and the Philippines in the above table, fast coal consumers, whose  GDP expansion were the not-so-fast of less than 6x.

*  Singapore and Vietnam economy expanded by 11 - 12x, also very fast compared to many other countries, even though they are not major or fast coal consumers. They are largely dependent on natural gas, as shown in Table 1.  

* This crude comparison has established  a general correlation between coal consumption and GDP expansion. Of course other studies would use more sophisticated econometric models to make any categorical statement. But such finding is easy to explain.

Coal is relatively cheap and a stable energy source. A 100 MW coal power plant can deliver 100 MW 24 hours day, not 80 or 60 MW or lower. In contrast, a wind or solar power plant with rated cap of 100 MW will be very lucky if it can deliver 40 MW sustained for 24 hours. Usually their average dependable capacity is only around 20 percent, or just 20 MW only. So how can an economy develop fast if there is frequent brown out, because the power plant can deliver only 10 or 20 or 25% of its rated capacity? Industries and factories, malls and offices depending on wind and solar must have back up generator sets running on expensive fuel, that must run any hours daily, and this will raise their cost of production and operation.

The WWF yearly campaign of "celebrate darkness" even for one hour is idiotic.  WWF gets lots of money from donations and UN or government funding, by promoting irrationality in energy policy.

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See also:

Energy Econ 21: Joint Statement on EPIRA Implementation, May 27, 2014

Energy Econ 22: FEF on FIT for Solar Power Plants, June 13, 2014

Energy Econ 23: Death of Australia's Carbon Tax, July 17, 2014

Energy Econ 24: NPC Debt, PSALM and Universal Charges, August 02, 2014