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.
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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

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

In the new facebook group that I created and moderate, Government and Taxes, Liberty and Responsibility, a friend, Dr. Yolanda "Yolie" Robles (former Dean, UP College of Pharmacy, Director at the Philippine Pharmacists Association, PPhA), posted in early December last year. The exchanges that followed were nice. Posting the exchanges as is. I just added the diagram of the Hechscher-Ohlin Theorem (HOT) here, not part of the original exchanges.
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December 4-6, 2013

Yolanda Robles HI Nonoy. Thanks for adding me to the group. I just attended an AIM-KOICA event in Makati with the theme: Korea as a Partner of ASEAN, Furthering Cooperation for Enhanced Partnership and Common Prosperity through ODA. In this, the NEDA Representative gave a concise report on what the present government does in terms of poverty reduction and employment generation. Comments from the participants include: "the focus of employment generation is still on services, and which may require more college graduates rather than those with lower educational attainment. The greater number of poor and unemployed are those in the latter group. Why not also reinvigorate manufacturing which could employ more people of different educational attainments." Well, what's your say on this?

Nonoy Oplas Thanks Yolly. I am not sure if there is an existing Japan-ASEAN EPA (Econ. Partnership Agreement), sort of a soft Free Trade Agreement (FTA). So S. Korea should be initiating a Korea-ASEAN EPA too.

About the comment, I think it is a misconception that those in the services sector are mostly the college graduates. Not true. The services sector include (a) trading, wholesale and retail including ambulant and public market vendors; (b) Transpo, storage and communication which includes airlines, buses, jeepneys, taxi, shipping lines, pump boats for hire, etc.; (c) real estate, renting and business activities that include hotels, inns, lodging houses; (d) public administration including LGUs, and (e) other services like restos, karaoke bars, etc.

It is not good to dichotomize the economy as "manufacturing and agriculture are crucial, services are non- or less-productive". Food manufacturing will become hollow if there are no supermarkets, convenience stores, sari-sari stores (all under the service sector).

Yolanda Robles Thanks for your comment. I think the surplus college graduates take also jobs intended for high school and vocational graduates. That's why less jobs are less available to the latter group. The surplus of college graduates reflects the greater preference for white collar jobs, the mismatch between education and human resource needs, among others. As for trade agreements, there is such a thing as ASEAN + 3. The 3 refers to China, Japan and Korea which ASEAN countries have trade agreements with 

Nonoy Oplas Yes, there is an ASEAN + 3, but it is only during the annual ASEAN summit, and not an EPA or FTA. So those 3 north Asian countries China, Japan, S. Korea initiate their own EPA or FTA with ASEAN as a bloc. Thus, a China-ASEAN FTA (I think to materialize by January 2015), a Japan-ASEAN EPA, and a S. Korea-ASEAN EPA/FTA. Since dealing with ASEAN as a bloc is more bureaucratic and more time consuming, some countries strike a bilateral EPA or FTA, that is why we have a Japan-Philippines EPA (JPEPA) and so on.

Yolanda Robles Yes, you are right. It was mentioned that Japan, South Korea, and China have country-specific agreements with some ASEAN countries and the current direction is to deal with ASEAN as a block 

Nonoy Oplas Meanwhile, here is an old graph that I developed in a talk on free trade, Atlas-FNF conference in Kuala Lumpur in 2005. Trade protectionism penalizes consumers and protects local producers, that is why free trade is being pushed to remedy the price distortion caused by protectionism.

I saw Dr. Poch Macaranas of AIM this afternoon, he's the former Director of the AIM Policy Center. He said he is helping in the ASEAN FTA (AFTA), ASEAN Economic Community (AEC) and related issues, which should materialize by January 2015 (12 1/2 months from now) but has been moved to December 2015 or 2 years from now. I thanked him for that piece of info. 

Being an advocate of free trade, I can only say that once trade is politicized and bureaucratized, instead of having free, unconditional trade between and among people, it becomes "trade with permission" from government.

Bonn Juego Noy, again, your kind of economics does not know how to create a wealthy nation in the PH context, how capitalism itself can lead to productivity explosions for the benefit of the entire economy. Good that NEDA understands the qualitative differences that different economic activities - manufacturing, agriculture, services - have for economic growth and the whole socioeconomic development process. My approach, of course, combines, among others, Marx, Schumpeter, and Keynes. As I said, I find yours more like the 'libertarianism' of Ayn Rand and the Koch Brothers, than the 'liberal' economics of Smith, Ricardo, Hayek, and Friedman who at least have a sense of moral philosophy. Anyway, greetings from stormy Scandinavia!