Free Trade 35: EU-FNF Forum on 'FDI Engine for Job Growth'

Last Tuesday, May 13, I attended the EU-FNF forum on "Foreign Direct Investment: Engine for Job Growth" held at the Mind Museum, Fort Bonifacio Global City, Taguig. It was a powerhouse forum. Welcome messages given by Jules Maaten, Country Director of the Friedrich Naumann Foundation for Freedom (FNF) in the Philippines, and Guy Ledoux, Ambassador of the European Union (EU) Delegation to the Philippines.

Amb. Ledoux expressed further optimism about the Philippines and its business environment, saying that European investors are the biggest bloc of foreign direct investment (FDI) in the Philippines. A summary of the forum is also posted in the FNF website, EU FDI in PHL to Double in Five Years and there is a long quote from Amb. Ledoux there.

House of Representatives Speaker Feliciano "Sonny" Belmonte (in barong, seated right in the photo below) spoke and mentioned that he personally supports amending the PH Constitution and remove restrictions to foreign investments. He enumerated several important Congressional bills that will help encourage the entry of more FDIs. Like the Anti-trust or Competition Law, Tax Incentives Management and Transparency Act, amendments to the Build-Operate-Transfer Law, Cabotage Law, among others.

I stumbled on this data from the IMF. Not only direct equity but other forms of asset inflows were used here, hence, a total of $28.4 billion inward direct investments were recorded in 2012. But interestingly, many Philippine-based businessmen, local and foreign, sent their money to the Cayman Islands and Virgin Islands. The two are considered as among the "tax havens" around the world because of the low taxes, low bureaucracies they slap on money coming from anywhere around the world. Which should be a lesson to the central bank and other government agencies: the less that you monitor and bureaucratize foreign investments and savings, the more that that they will come to you.

source: IMF, Coordinated Direct Investment Survey (CDIS)

The four important speakers in the first session, from left: Department of Trade & Industry (DTI) Secretary Gregory Domingo; Andrew Powell, Managing Director of Bosch Philippines, Amb. Ledoux and Donald Kanak, Vice Chairman of the EU-ASEAN Business Council.

Interesting point from Bosch: the company being innovation driven, is inventing and innovating a new product every 25 minutes on average. Wow. Mr. Kanak said that by having more investments and competition, more high paying jobs are created, which provide more consumer and tax base for the country.

Sec. Domingo mentioned that one of the important assets of the Philippines is its big and young population. Yes, I fully agree. Big and young population is an asset, not a liability, that is why I never supported the RH bill, now called RH law. The average age of Filipinos, about 24 years old, is almost half that of Japan, 44 years old. Soon Japan, Taiwan, S. Korea, many European countries, will be begging for more Filipino workers and managers to run their factories, banks, hotels, offices and households. Or if their immigration policies will remain paranoid to the entry of more immigrant workers, many companies in those countries will locate here and take advantage of the country's big, young and trainable manpower.

From left: Jules Maaten, Coco Alcuaz of ANC who acted as moderator in the panel discussion of these four prominent speakers.

The next panel was bigger, five speakers and five reactors, moderated by Mr. Vergel de Dios, a veteran media man. The speakers were (1) National Economic & Development Authority (NEDA) Assistant Director-General Rosemarie Edillon, (2) Public-Private Partnership (PPP) Center Director Eleazar Ricote, (3) European Chamber of Commerce in the Philippines (ECCP) President Michael Raeuber, (4) Rep. Anthony del Rosario of Davao, and (5) Philippine Chamber of Commerce & Industry (PCCI) Honorary Chair Donald Dee.

The panel of reactors were (1) Philippine Institute for Development Studies (PIDS) President Dr. Gilberto Llanto, (2) Foundation for Economic Freedom (FEF) President Calixto "Toti" Chikiamco, (3) Makati Business Club (MBC) Project Coordinator Jose Cortez, (4) Spanish Chamber of Commerce in the Philippines President D. Javier Warleta, and (5) EU Head of Trade Section Walter van Hattum,

Toti Chikiamco pointed out that more than the high cost of electricity, what bothers many investors, those in SMEs in particular, are the high government-imposed minimum wages. Plus the various mandatory social contributions. This is a good point. Employment is a private contract between the employer and employee. A job applicant seeking high pay and many benefit package must compete with other job applicants with better qualifications and longer work experience, in landing that job. Government should come in only to enforce a private contract between the two camps if there is dispute in the interpretation and implementation of the contract. Government has no business actually setting what should be the minimum wage, the minimum benefit package, and so on. Minimum wage laws protect only those who already have jobs while providing no protection to those who are jobless or are still seeking work.

Movement of FDI is directly related to movement of goods and services across countries and continents. Free trade and free mobility of factors of production are closely linked. When the business environment at home becomes more rigid, more bureaucratic and over-regulated, more taxed, investors and professionals will seek other location where they can do business in a freer environment.

As Europe becomes more bureaucratic, economies in Asia become good prospects for investments as our politicians and bureaucrats here have not mastered yet the art of heavy bureaucratism that their counterparts in Europe and North America practice. FDI is both demand-pull and cost-push.

Lots of good speakers, and lots of food after, it was a good forum.
All photos except the table are from FNF facebook page.
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See also:
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
Free Trade 34: ASEAN's Bilateral and Regional FTAs, February 27, 2014

Free Trade 23: FNF on Free Trade Agreements

Is the Philippines mature enough for new age Free Trade Agreements (FTAs)? That question can be provocative. What if the answer is NO, what will happen -- the Philippines should not enter into new FTAs with other countries or bloc of countries? And what if the answer is YES, then the Philippines should explore even more free market policies beyond FTAs, like Hong Kong's unilateral trade liberalization policy?

It was a good forum sponsored by the Friedrich Naumann Foundation for Freedom (FNF Philippine Office).

The opening remarks was given by FNF Country Director, Jules Maaten (top left, photos below), a cool and always smiling guy who was a member of the EU Parliament for 10 years before coming to Manila. I like Jules, he's very friendly. The ballroom was full. The Secretariat counted about 120 participants but I think there was more, some people who did not register and just listened to the talks. There were many university students too, brought by their professors from different universities in Manila.

The first panel was moderated by Toti Chikiamco, President of the Foundation for Economic Freedom (FEF). The three speakers were (1) Jessica "Jeck" Cantos, Chief of Staff of high LP official and Cong. Erin Tanada, (2) Dr. Alfredo Robles of De La Salle University (DLSU), and Amb. Hye Min Lee, S. Korean Ambassador to the Philippines.

Bottom right photo is EU Ambassador to the Philippines, Guy Ledoux.

Jeck talked about the need for "industrial policy" or government intervention towards certain social and economic engineering in society. I don't actually believe in such philosophy and I have debated with Jeck and some of her friends in facebook just a few weeks ago, about Cong. Erin Tanada's propose bill to ban and prohibit the importation of 2nd-hand cars, see here, Free Trade 19: Prohibiting 2nd-hand Imported Vehicles.


Next Jeck talked about their legislative proposal to create another big government bureaucracy, the Philippine Trade Representative Office (PTRO), because they observe that there are so many existing bureaucracies and committees in charge of FTAs, trade and WTO matters, that "they lack transparency and coordination". Rightly so. Once you create agreements or new programs, it will most likely require new secretariat offices that don't intend to wither away but stay forever whenever possible.

Dr. Robles talked about the EU-ASEAN FTA, the proposed EU-Philippines FTA, and the EU-Chile FTA.

Amb. Lee talked about the S. Korean experience in FTA with other countries and most recently, with the US. He noted that the WTO system is non-discriminatory, adheres to the Most Favored Nation (MFN) philosophy whereas an FTA is an exception to MFN, a country government grants special trade and business privileges to an FTA partner country but not to other countries. He noted that during the GATT period (1947-94), there were 91 FTA; under WTO period until last year (1995-2011), there were 206 FTAs. The reason for this big jump, he said, are two-fold: (a) the success stories of regional integration like the EU and the North American FTA (NAFTA), and (b) delays in multilateral trade liberalization.

I agree with the Ambassador's analysis. Country governments, even if they are inherently protectionist, would still want limited trade liberalization. They can do that via selected FTAs but not for all countries under the WTO. Hence, the rather quick pace in securing FTAs but foot-dragging in WTO global talks.

I wanted to ask questions but noted the limited time as we have to jump to panel 2, I didn't ask. There were two questions from the floor, one about the Trans Pacific Partnership (TPP) that was initiated by the US government to certain Pacific Rim countries, and the other about the EU integration.

Oh, my photos this morning, thanks to Narwin Espirity of FNF. I sat with Mike Alunan, a fellow UP School of Economics (UPSE) alumni whom I debate frequently in the UPSE alumni association yahoogroups. I asked during the 2nd panel moderated by the famous economist, retired UPSE faculty member (and my teacher in my undergrad thesis in the mid 80s), Winnie Monsod. Other photos below: Ms. Dorothy Salvador of FNF who acted as MC at the start of the program, Dr. Erlinda Medalla of PIDS who was supposed to give the synthesis at the end of the conference but I think she did not do her job as she did not summarize the main points given by each speaker; rather, I noticed that she talked about her interpretations of the points made by the speakers, Fail. Below right, a faculty member from PUP.

The two speakers in the second panel that was moderated by Prof. Winnie were John Simon, Chief of Internal Affairs of the Bureau of Customs (BOC), and Atty. Lynn Barcenas of the TA Trade Advisory Services (headed by another friend, Atty. Tony Abad).

Boy, John is a brave guy, know why? He talked about "hopes and steps of reducing/ridding corruption at the BOC" in an audience, well a prevailing and general public perception actually, who think that BOC is a bunch of crooks. I actually admire his audacity to speak about that topic, and he looked sincere. Atty. Barcenas talked about the need for a "Strong Competition Policy", leading to legislative bills in the House of Representatives and the Senate, creating a Fair Trade Commission (FTC) and penalizing anti-competitive behavior.

During the open forum, I asked a question for both speakers. To John, I said that around 8:45 this morning, I heard on radio, about DZBB, an interview with BOC Commissioner Ruffy Biazon (a former Congressman and LP official). Comm. Ruffy recognized that the problem of corruption at the BOC is deeply rooted and he said that if its possible, the agency should be abolished and create a new office to have a fresh start. Since that is not possible as it will require major revisions in the rules of the Civil Service Commission (CSC) or possibly the Constitution, is it possible to retire all employees and officials of the BOC under an early retirement program, and the BOC should start hiring new people?

John replied that it's not possible. Many officers at the BOC have deep links and connections with many legislators, Senators and Congressmen alike, other high government officials, past and present. But still, the BOC leadership has accepted President Aquino's challenge to them to really improve transparency and reduce corruption in the bureau.

I asked Atty. Barcenas that the main creator of monopolies is actually the government: jeepney and buses monopolies of certain routes by the LTFRB, tricycle monopolies of certain routes by the LGUs; some airline routes monopoly by the CAB, shipping routes monopoly by MARINA, utilities monopoly given by Congress via legislative franchising. Even the Pangilinan-Ayala duopoly in telecom (Smart/Sun and Globe, respectively) is secured by the Constitution because of the 60-40 restrictions on foreign equity ownership and telecom requires really huge capex, difficult to find other big local businesses to put up the huge fund. So assuming there is an FTC, how can a government agency remove monopolies that were created by other government agencies? Can an FTC overrule a legislative franchise monopoly given by Congress?

She recognized that there are limits to what a competition policy and a Competition Commission can do in such cases but the policy has to be pushed to address anti-competitive behavior in certain sectors.

The closing remarks was given by EU Amb. to the Philippines, Guy Ledoux. Simple message, EU is interested to have an FTA with the Philippines if the latter is ready, free trade is mainly about helping people.

Overall, I think the forum was highly successful because many issues were explored, they may not have been answered but at least they were brought up openly. The main constraints was time, lots of good speakers but it was just for a half day activity. The buffet lunch was really nice, Dusit Thani food.

Thanks again Jules and FNF staff, for another successful activity. Being a fan of liberalism (but not of the LP), I am always happy to participate in FNF activities in the Philippines and the region (through the EFN Asia). I learn a lot, that's why I keep blogging these things, lest I will forget them.
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See also:

Free Trade 17: Consumer Surplus and Human Rights, May 27, 2011

Free Trade 18: Regional Trade and East Asian Model, July 31, 2011

Free Trade 19: Top Exporters by 2050, December 31, 2011

Free Trade 20: Prohibiting 2nd-hand Imported Vehicles, January 10, 2012

Free Trade 21: Abolish or Shrink the Bureau of Customs, February 03, 2012

Free Trade 22: Freedom to Trade, February 10, 2012