BWorld 78, If the US becomes protectionist, who loses?

* This is my article in BusinessWorld last August 03, 2016.

The purpose of free trade is to make cheap things remain cheap and the purpose of protectionism is to make cheap things become expensive. Protectionism imposes high tariff, taxes, fees, charges, and more paper work to complicate things that are otherwise simple and easy to do.

As the US presidential election nears, many issues have become convoluted as expected in any major political exercise.

One issue that gets murky is trade.

Mr. Donald Trump has been vocal about some of his protectionist pronouncements like attacking the US involvement in the Trans-Pacific Partnership (TPP) while Mrs. Clinton is less gung-ho about protectionism.

Last July 26, 2015, Bloomberg produced an article, “If Trump Wins, Asia Loses.” This story was shared by many Filipinos in Facebook and other social media platforms because the Philippines was mentioned.

“An investor survey conducted earlier this month by Nomura Holdings, Inc. flags a long list of worries under a Trump presidency: from a possible rise in trade protectionism…

The Philippines faces risks because of possible immigration restrictions. The US is host to 35 percent of the total number of Filipinos working abroad, and Nomura estimates they account for about 31% of total worker remittances, a key source of foreign inflows for the local economy.

The Philippines has one of the biggest export exposures to the US in Southeast Asia and Trump’s pledge to bring jobs back to the US may threaten the nation’s burgeoning business process outsourcing sector. The industry caters mostly to US companies and attracts revenue that may equal the size of total worker remittances, about 9% of GDP, over the next two years, according to Nomura.”

There are a number of misinformation stated in this report.

One, in trade theory and practice, the big loser in protectionism policy is the protectionist country, not its trade partner/s.

By making otherwise cheap goods from abroad become expensive, that country is penalizing its own consumers and manufacturers. In which case, the title of the piece should be “If Trump (and protectionism) wins, America loses.”

Two, the US’ merchandise trade exposure in Asia is huge, indicating that US households and businesses make substantial income and savings when they export to and import from Asia than Europe or Central and South America. In 2014, 27% or more than one-fourth of its exports went to Asia, its second biggest continental trade partner next to its North American neighbors, and bigger than Europe. And almost 40% of its imports that year came from Asia or slightly lower than its imports from North America and Europe combined at 46.5%.

Three, while the Philippines exported $8.4 billion to the US in 2014, it also imported $10.1 billion from the US, so it makes little sense to antagonize the Philippines with protectionism when the US earns more from the partnership. The US BPOs here means those US companies provide good services and backup support to their customers worldwide by utilizing cheaper and efficient personnel in the Philippines.

The table shows merchandise trade of the United States by origin and destination, 2014, $ million and percentage.

Four, a graphical presentation that the bigger loser of protectionism policy is the protectionist country, not the trade partner/s would look like this: Imagine a supply-demand curve with equilibrium or market-clearing price of P* for all trading countries. Country A becomes protectionist, its supply curve moves to the left so its new equilibrium price goes up to P1, higher than P*, or P1 > P*.

In contrast, countries B, C,... remain free traders, their respective supply curves move to the right, their new equilibrium price moves lower to P2, or P2 < P*. Consumers and manufacturers in these countries will be happy with more supply of various products and result in lower prices owing to trade diversion from protectionist to other free trader economic partners. There will be some short-term business dislocation, true, but firms and people adjust or even anticipate these changes and have plans B and C in place, including bigger trade among non-protectionist economies.

If America -- whether under Mr. Trump or Mrs. Clinton -- will become protectionist, America loses, not Asia. Free trade, more choices, more economic freedom, is the best policy that a government can give to its people.

Bienvenido S. Oplas, Jr. is a SEANET Fellow, head of Minimal Government Thinkers, and both institutes are members of the Economic Freedom Network (EFN) Asia.

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See also:
BWorld 71, Free trade and higher income, July 11, 2016 
BWorld 75, How to profit from urban congestion, July 30, 2016 
BWorld 76, Solar can never power the PH and Asia, August 06. 2016 BWorld 77, Migration and housing, August 10, 2016

Agri Econ 14: NO to Further Extension of Agrarian Reform

Three weeks ago, there was a report that after President Noynoy Aquino met with several farmer leaders, he was persuaded to have another extension of agrarian reform (AR) in the Philippines, from end-June 2014 (last weekend) to another two years, mid-2016.

This is wrong. Endless extension of forced land redistribution is wrong. Agrarian reform in Japan, S. Korea and Taiwan took only three years or less, zero extension. Here, it is 42 years now, plus two more years? Then extend again when the next administration comes to power?

If one has 10 hectares or more of inherited land from his parents, or he bought an idle and unproductive land for a bargain, and he wishes to jump into agri-business, most likely he will postpone doing it and keep the land idle in the meantime, or use it for pasture, other low value land use, just pay the real property tax at the municipal or city hall. Because if he develops it into high value crops farming, the Department of Agrarian Reform (DAR) will soon knock on his door to say, "As reward for making your idle land become productive, your land will be forcibly taken from you and be redistributed to your workers at low, DAR-valuation price."

When former President Marcos issued his AR program in 1972, it was "land to the tillers". I think it was in the Comprehensive AR Law (CARL) of 1998 that it was expanded to "land to the landless workers" as well.

Endless, no time table AR and forced land redistribution is among the major reasons why agricultural investment and development in the PH is low. There is high uncertainty of government coming in to forcibly take the land away from agri-businessmen and be given to workers who may have little or zero entrepreneurial skill and interest.

The populists and AR campaigners do not realize the damage to rural development of their advocacy. Rural entrepreneurship is not for everyone. If AR did not work well in the PH after 42 years, what makes the advocates think that it can work for the next two years or more?

Even if AR in the PH will be implemented for the next 100 years, it will not work, and some people will always blame the "landed elite", never the AR beneficiaries themselves, never the AR implementers, never the bleeding heart campaigners. 

Assume that you are the landowner of 10 or 20 hectares that you inherited from your parents. Assume further that you voluntarily give away the land to me and a few other workers at a low price, and it so happens that I and my fellow AR beneficiaries' entrepreneurial skill will not even allow us to have a successful sari-sari store. So what do we do with the land that you gave? Most likely, something like 99 percent, we sill sell it to someone else so we can pay back the small price that you charged us, plus it can give me some money to buy a tricycle, expand my house or move elsewhere, plus buy a flat tv, new ref, etc. Then I go back to being a landless person. And AR is defeated.

Repeat: entrepreneurship is not for everyone. If people see or count some successful entrepreneurs, they do not see or count those who tried but folded after a few months or years. 

When I was working at the House of Representatives in the 90s, I talked to one Congresswoman from Northern Mindanao. She said that a large rubber plantation in Basilan was successfully AR'ed, meaning the entire land was successfully and forcibly redistributed to the rubber workers. End of good story? No.

The rubber workers know little about marketing, finance and selling their produce, like who can buy their rubber at a good price and good terms, what new technology to maximize rubber output, and so on. What the AR beneficiaries did, they cut the big, mature rubber trees and planted bananas. And since the land may be conducive for rubber but not for bananas, output was low and so they were back to subsistence farming, but they are small landowners at least. End of somehow good news? No.

Subsistence farming means low income, means poverty. So some of these ex-rubber workers started selling their land. And they are back to landless workers. So AR has been defeated. From poor landless workers to brief small landowners and back to poor landless workers, despite successful land redistribution, despite all the good intentions.

Meanwhile, Dr. Raul Fabella of UPSE wrote a paper, CARPER: A time to let go in BusinessWorld early this year.

CARP Extension with Reform (CARPER or RA 9700) which extended the 1988 Comprehensive Agrarian Reform Law (RA 6657) will itself expire in June 2014. By the end of 2012, 4.49 million hectares shall have been acquired and distributed. That figure represents 84% of the 5.37 million hectares targeted for distribution.

By 2014, the CARP shall have distributed 5.05 million hectares, leaving but 321,000 hectares or an accomplishment rate of 99%. By then 2.6 million farmers shall have gained some form of ownership to an average 1.2 hectares of land (this column owes much to Dr. Fermin Adriano’s “Sustaining the Momentum of Inclusive Growth in the Post-CARP Scenario”). One can argue that CARP and CARPER represent one gargantuan obeisance to the principle of equity: 202,000 hectares acquired and distributed per year for 25 years!

S. Korea did its own AR program in the 50s or early 60s, in just three years or less. Entrepreneurship plus modern technology allow the S. Korean farmers to have  high productivity. See this youtube clip. Rice planting, evenly spaced, is done by a small tractor.

It can be done too here in the PH, if corporate, large-scale and high tech farming is allowed and not demonized. 

On another note, there is a similar debate in S. Korea as in the Philippines -- to retain rice protectionism. Consumers want cheaper rice via rice trade liberalization, rice producers (or perhaps agri NGOs and other protectionist NGOs, accredited rice importers) want expensive rice via trade protectionism. Contained in this news report.

Protectionism is wrong. It penalizes the consumers, the majority of the population. And even rice producers themselves are net consumers on some months, like when they have a bad harvest, or a strong storm or huge pest attack damage their crops.

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See also:
Agri Econ 9: On Agrarian Reform and Agri Credit, April 29, 2013
Agri Econ 11: Protecting Land Properties by the Poor in India, April 22, 2014
Agri Econ 12: Presentation at WASWAC-BSWM Seminar, May 13, 2014
Agri Econ 13: What and Where to Plant, Nature vs. Government Planning, June 24, 2014

Free Trade 34: ASEAN's Bilateral and Regional FTAs

There are a number of good trade data on Asia-Pacific free trade agreements (FTAs), from an Economic Research Institute for ASEAN and East Asia (ERIA), Discussion Paper ERIA-DP-2013-02,  “Taking ASEAN+1 FTAs towards the RCEP:  A Mapping Study” by Yoshifumi FUKUNAGA and Ikumo ISONO . Thanks to Aiken Tafgar for the heads up.

One such data is this. 

Where: FTA - free trade agreement;
CEP - comprehensive economic partnership
Thus, AANZFTA - ASEAN-Australia-NZ FTA
ACFTA - ASEAN-China FTA
AIFTA - ASEAN-India FTA
AJCEP - ASEAN-Japan CEP
AKFTA - ASEAN-Korea FTA

So aside from ASEAN + 3 (CJK) and ASEAN + 6 (CJK + I, A, NZ) multilateral FTAs, there are bilateral FTAs with ASEAN taken as a bloc or one economy.

Indonesia protectionism is still high; India too, and surprisingly, Malaysia too. Here's another table, when or what year they intend to have zero tariff (ie, 100% trade liberalization with their bilateral partners). CLMV means Cambodia, Laos, Myanmar, Vietnam, considered 4 "laggards" in trade liberalization, although Vietnam does not appear to be a trade "laggard" these days.

Below, more revealing data on protectionism hidden under "depends on FTA" Case example is Indonesia. Wow! It should be CLMI (cambodia-laos-myanmar-indonesia) instead of CLMV. Not to mention the many non-tariff barriers.

Many protectionist groups often cite the north-south or rich-poor countries divide in opposing free trade policies, but what if the trade issues concern our neighbors in the ASEAN? Or other Asia-Pacific countries like India, Korea and Australia?

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See also:
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 33: ASEAN Economic Community 2016, February 16, 2014

EFN Asia 34: Chatib Basri on Subsidy and Protectionism for the Poor

My first exposure to international and regional free market network was in 2004. First in the US in April-May that year when I was one of the International Fellows of Atlas, then in Hong Kong September of that year, during the Economic Freedom Network (EFN) Asia Conference 2004, sponsored by the Friedrich Naumann Foundation (FNF) and co-sponsored by five Beijing- and Hong Kong-based institutes.

Among the great presentations in the HK conference was one by Dr. Chatib Basri, who was then a faculty member of the University of Indonesia and individual member of EFN, now Indonesia's Finance Minister.

This is his first slide after the title. I remember my eyes brightened at these clear and erudite words from two of the intellectual giants of the free market literature.

 The two questions that his paper wanted to explore and answer...

He presented short-run impact of eliminating fuel and electricity subsidies, which actually benefit the non-poor.

These slides are interesting, about bribes given by the public to certain government officials and bureaucrats as regulations are plentiful, complicated and costly.

Free Trade 30: BIPOR and APTIR

Many national and multilateral agencies are known for being Bureaucracies Instigating Protectionism, Outings and Revelries (BIPOR). For instance, to have real free trade as in freedom to trade by the people, there is little or no need for endless negotiations if economies will declare unilateral trade liberalization, like what Hong Kong has done. Just open the borders to various goods and services from many countries at zero tariff, zero regulations except the trading of guns, bombs, fake and substandard medicines and food products, poisonous substances and a few others that can harm public health and safety.

With protectionism, trade negotiations can take 20, 50, 100 years or more. There are dozens or hundreds of reasons and alibis why some government agencies want explicit protectionism via high or multiple tariff, or an implicit one through non-tariff barriers (NTBs) like health and sanitary restrictions, labor and gender regulations, environmental and ecological regulations. So for various national governments and multilateral trade negotiators, prolonged negotiation means prolonged outings, international revelries and galas. BIPOR is ugly.

This coming Tuesday afternoon, 7 January 2014, there will be a forum, the Philippine launch of the Asia-Pacific Trade and Investment Report 2013 (APTIR), at the UP School of Economics (UPSE) Auditorium, Diliman campus, Quezon City. The event will be jointly sponsored by the Center for the Advancement of Trade Integration and Facilitation (CATIF) and the Philippine Center for Economic Development (PCED).

APTIR is an annual publication of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP). This year’s report is entitled  “Turning the Tide: Towards Inclusive Trade and Investment.”

Here is the tentative program, the speakers and panelists.

As I am no fan of the UN and its various attached agencies, the report’s title, “inclusive trade” – addition to inclusive growth, inclusive development, inclusive democracy, inclusive business, inclusive environment,… -- reminds me of what governments and the UN never ever mention explicitly but is very clear and implicit in their minds, inclusive pockets. All those “inclusive ______” require more taxes and borrowings to finance.

The UN and many governments never fail to highlight income inequality rising, at the national, regional and global levels. Thus, the repeated use of "inclusive _______."

The main purpose of more international trade is to give the people more choices. Consumers and users of finished or intermediate products or capital goods like machines and trucks, are better off if they can compare prices and quality across many producers and manufacturers worldwide. And producers worldwide are forced to keep innovating and improving their products and services at more affordable prices to keep pace with innovation by their competitors.

As productivity and innovation keep rising, the income and asset share of the hardworking and efficient people rise fast relative to the income and asset share of the less industrious, less ambitious people in society, and that is how inequality rises as an inevitable phenomenon. 

I browsed through the web about APTIR and I saw this report, http://www.unescap.org/tid/projects/epti-day1.pdf

I think it is wrong to say that (trade-led) "growth is not benefiting the very poorest". Would non-growth or very slow growth benefit the very poor? Definitely not. Growth, no matter how perceived to be "very inequal" has the potential and actual effect of uplifting the condition of the poor. A rich household that has become richer because of more international trade will soon have two or more big houses. Each additional big house will require new construction workers, electricians, plumbers,carpenters, architects and other skilled laborers and professionals. When the big house is finished, it will require new house helpers, gardeners or other maintenance workers. The kids will have a driver each, possibly a nanny each and so on. Which creates new jobs for the poor, even for the unskilled ones.

More questionable statement by the UN ESCAP paper, that international trade has "little impact on employment opportunities."

At least the paper has recognized the role of information and communications technology (ICT) to reduce poverty. Until about three decades ago, only very rich people could afford to have a mobile phone. These days, even ordinary farmers, jeepney and taxi drivers, have mobile phones. The gadget helps improve their productivity in terms of getting information re their products/services' pricing and customers availability.

BIPOR and APTIR, we need free trade, as in our freedom to trade, to buy and sell with the minimum restrictions, regulations and taxation that contribute to higher prices of internationally-traded goods and services.

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See also:
Free Trade 27: Proposed EU-PH FTA and TRIPS Plus, September 24, 2012
Free Trade 28: Exports and Prosperity, March 11, 2013 
Free Trade 29: ASEAN and Education Competitiveness, November 16, 2013
Business 360 8: TPP, RCEP, SAARC and Free Trade, June 17, 2013

EFN Asia 18: Jeju Forum's Economic Panels

* This is my guest post today in the EFN Asia website.

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In less than six weeks, I will fly to Seoul, then Jeju, S. Korea, to attend the Jeju Forum for Peace and Prosperity, May 29-31, 2013. The Economic Freedom Network (EFN) Asia will participate in one of the panel discussions on Day 2, and I will be the rapporteur for that panel.

There will be plenty of panel discussions on those 2 1/2 days forum. To accommodate them all, there will be about five simultaneous discussions on each time block. See the list of topics here.

Day 1, May 29, I plan to attend session 1-D, "Cultural Exchange and Tourism Promotion in Asia Pacific Region". To achieve more peace and prosperity in the region and the world in general, mobility of goods and  services/people should be made as free as possible. People will think less of war and conflict provocation if they see the beauty of other places and countries, if they understand the cultural practices in other places and hence, realize the need for more tolerance, to respect diversity among people. Human rights are respected in the process as people learn to be more tolerant of other people's cultural belief and practices, their social and economic aspirations. 

Then on the next panel, I plan to listen to session 2-A, Making Ideas Work: Challenges and Opportunities for Think Tanks in Asia. Many of the co-sponsors and partners of the Jeju Forum are think tanks, government and private. For me, the main purpose of think tanks, Minimal Government Thinkers included, is to explore new ways, more efficient and less costly ways, to attain a particular vision for the country, for the region, and the world. And that vision is a society where people have freedom and a peaceful environment so they can pursue more social and economic prosperity, both for the present and future generations.

Many private think tanks though are constrained by funding. That is why among the biggest think tanks in Asia and the world are government-owned ones, their funding are assured yearly from taxes. One problem here though is that their research agenda and content is subject to explicit or implicit pressure from the politicians and officials of the national government. 

On Day 2 morning, I hope to attend session 3-C, Asia-Pacific Development and the Future of Korean ODA.  I do not believe in the overall effectivity of Official Development Assistance (ODA) as it is a government to government (G2G) transfer of money and resources. If one or both is/are corrupt, then its effectivity in uplifting the lives of poor people in the less-developed country is immediately compromised if not negated. So the main beneficiaries of this G2G transfer are the politicians and officials, employees of the recipient governments. 

I think the best people to people (P2P) transfer of resources is via free trade (goods and services), more foreign investments and tourism. Nonetheless, I have to hear what the speakers have to say on the subject. There could be new things and development in this area. 

Disclosure: I was a former Korea International Cooperation Agency (KOICA) scholar, a two-weeks seminar on "Technology and Policy" in 1996 when I was still working at CPBO, House of Representatives. I enjoyed that seminar, I learned many things, aside from the many trips, hotel transfers, nice food, mountain resort tour, and warm, friendly Korean hosts and tour guides.

Or I might skip this session and attend the session on 3-A, Coping with North Korean Nuclear Quagmire - What Options are Available? I like a quip from a friend in Korea who said, "A dog that barks loud does not bite". Exactly my sentiment, that the war mongering pronouncements by the North Korean leader Kim Jung-Un was more addressed to his countrymen, sort of saying, "My people, we will take on the mighty US and S. Korea militarily, so prepare for more hardships in life." The military confrontation is highly uncertain but economic hardships of the ordinary North Koreans will be a certainty.

A "World Leader's Session" will follow these sessions, before lunch. I think this is where past Prime Ministers or Presidents of some Asian countries will speak in a big plenary hall.

After lunch, I want to hear session 4-A, East Asian Regional Integration with ASEAN as the Driving Force. I think this is a good formulation. East Asia is actually dominated economically by the "big 3" -- China, Japan and S. Korea. But problem is that there are several lingering conflict among them. Like the on-going territorial dispute over small islands between China and Japan, which affects trade and investments on both countries. And the China "big brother" assistance to North Korea, which irritates the people in South Korea. I do not know if previous Japanese colonization of S. Korea is still a bitter memory for ordinary Koreans until now or not.

ASEAN member countries though, have few conflicting issues and have more issues and interests in common. In particular, the ASEAN Free Trade Area (AFTA) that will fully materialize just two years from now, in 2015. ASEAN is about 650 million consumers: About 250 M Indonesians + nearly 100 M Filipinos + nearly 90 M Vietnamese + 68 M Thais + 62 M Myanmars + 30 M Malaysians , these six  countries alone have a combined population of almost 600 M people already. I heard one Malaysian diplomat who defined AFTA as "Agree First, Talk After".

Then, OUR session, the EFN Asia time, from 3:40 - 5:00 pm, session 5-A, Economic Prosperity in Asia: Dealing with Economic Nationalism. The line up of speakers may not have been finalized yet, but a friend from Kuala Lumpur, the President of Institute for Democracy and Economic Affairs (IDEAS), a free market think tank in Malaysia,  Wan Saiful Wan Jan, will be the moderator and I will be the rapporteur.

Wait, is there no inconsistency between session 4-A and 5-A? The former focuses on economic integration while the latter talks about economic nationalism and protectionism? Well, both are realities and happening at the same time. For instance, the Philippine economy will have free trade with its neighbors in the ASEAN but will retain its generally protectionist policy to other countries. 

In a period of global economic uncertainties and financial turmoil, the tendency of many governments is to become more protectionist, restrict imports to "protect local jobs". But what if local jobs and businesses will be more productive if they use cheaper raw materials, machines and capital goods from abroad? And by turning to protectionism, an economy loses the goodwill of other countries that have been its trade partner for many years? These are among the questions and issues that our panel speakers will tackle, directly or indirectly.

In the next round of sessions, I will most likely attend session 6-A, Unraveling the Dynamism of the Asian Economy: Patterns of Cooperation and Conflict in Trade, Finance, and FDI. This will be an appropriate follow up to sessions 4-A and 5-A. Identifying sources of cooperation and conflict -- in trade, finance and foreign direct investments. I would like to believe that in either cases of conflict or cooperation among Asian neighboring economies, the prospect of competition among themselves to attract more foreign trade, more foreign capital and investments, should be in the minds of Asian government officials. This way, they cannot be too rigid and inflexible in their policies to please local players and even local oligarchs. 

Lots of exciting panels to attend and listen to. I am getting more excited to attend the Jeju Forum.

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See also:

EFN Asia 14: Conference 2012 Resolution on Populism, November 21, 2012, 

EFN Asia 15: Distortions of Welfare Populism,  January 17, 2013 

EFN Asia 16: Participation in Jeju Forum for Peace 2013, March 19, 2013 

EFN Asia 17: Zubair Malik as President of FPCCI, April 05, 2013

Free Trade 27: Proposed EU-PH FTA and TRIPS Plus

Free trade and intellectual property rights (IPR), these are among my favorite topics to discuss and debate. Here are my latest papers on these subjects,

Free Trade 26: "Buy Local" and Protectionism, June 24, 2012
On IPR Abolition 17: Copyright by a Government Corporation, September 02, 2012
IPR and Medicines 24: Balancing Costly Innovation and Cheaper Drugs, March 20, 2012

The Department of Trade and Industry (DTI) called for a public consultation on “One Country One Voice” (OVOC) regarding the proposed EU-Philippines Free Trade Agreement (FTA) on September 20, 2012. I read about the invitation last September 13 and quickly confirmed my attendance.

Fearing that such proposed FTA might contradict certain provisions of the Cheaper Medicines Law of 2008 or RA 9502, a joint statement was released by MeTA Philippines, Coalition for Health Advocacy and Transparency (CHAT), Ayos na Gamot sa Abot-kayang Presyo (AGAP) and the Fair Trade Alliance (FTA). Below are screen shots of portions of the eight-pages position paper. I checked the websites/blog of AGAP, FTA and MeTA, it’s not posted there.

Below are the exchanges we have the past few days. Copy-pasting them with no alteration, so pardon our French and whatever typo errors, just showing the raw exchanges. I am adding some photos of the event that day.

A bit long, about 17 pages including images/photos, so grab your favorite snacky and enjoy the ride.

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September 20-21, 2012:

Hi Pau,

I am sorry that I did not read the attached paper on the joint position of Meta-CHAT-FTA on this issue. I saw this during the MeTA meeting yesterday as Gov Obet presented this. I spoke and commented that the conclusions seem to be an over-reaction to the IPR issue on medicines. Why?

I am not a lawyer but my understanding is that a national legislation like RA 9502 which deals with amending the IP Code on medicines has supremacy over whatever treaty that the Senate and the Executive branch may enter into any country or block of countries. In this case, should it be true that the proposed EU-PH FTA will have provisions extending  patents of drugs, I don't think it will have supremacy over RA 9502 and hence, can not be implemented.

My feeling is that whatever TRIPS Plus provisions will apply to other sectors -- patents on softwares and cell phone applications, see the fight between Samsung and Apple for instance; copyrights on music and movies, see the rampant counterfeiting of DVDs, albums, etc.; or trademark infringement on the brand and logo of huge companies. I read in some newspapers how some individuals caught stealing and using the trademark of other companies so they can sell their copycats at high price. Even Kumon, the tutorial school, its logo and trademark is being stolen by some entities and they too teach "kumon education" and charge the same rate but pay zero royalties to the original brand, and their style may just be a bogus and inferior.

I still have to see the actual document, even in its draft form, of the proposed PH-EU FTA pertaining to medicines. As Daisy Cembrano of GSK said yesterday, after RA 9502, the innovator companies have practically ceded many of their IPRs in the country.

Free Trade 26: "Buy Local" and Protectionism

* This is my article last Friday in the online magazine,
http://www.thelobbyist.biz/perspectives/less-gorvernment/1324-qbuy-localq-and-the-folly-of-protectionism
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People engage in trade because they benefit from it. While there are losers in trade, there are also gainers and overall, there is “net gain” in trade, whether domestic or international trade. This fact continues to evade the consciousness of many protectionist groups and advocates, like the campaigners of “Buy Local” movement.

I notice recently the sharing in facebook of a photo, “Top 10 Reasons to Buy Local”. Among such reasons are: strengthen local economy and support community groups, reduce climate change impacts, and create more good jobs.

I also have some reasons for free trade and why protectionism is wrong.

1. Filipino producers and exporters of pineapples, bananas, mangos, other fruits will be unhappy if their current buyers abroad would reduce if not stop buying from them as those consumers embrace "buy local" in their countries.

2. "Buy local" strengthens the local economy, fine. But when people buy imported goods, like imported laptops, imported cellphones, they also strengthen the local economy by improving the productivity of people via modern technology.

3. “Buy local” creates more local jobs, fine. But when people buy cheaper imported rice and other agricultural products, people realize some savings, they use those savings to buy other goods and services that they may not be inclined to buy if they did not make savings elsewhere,

4. “Buy local” reduce climate change impacts, wrong. Climate change is mainly natural, natural climate cycles of warming-cooling-warming-cooling. Even if people will stop international trade and throw all ships, trucks, cars and appliances, global warming will still occur naturally.

5. “Buy local” is loving/supporting our own. Yes, we need to support our own, our own lives, our personal interest as consumers. Producer 1 (a Filipino) sells some nice running shirts for P500. Producer 2 (a Thai or Vietnamese) sells a similar running shirt with similar quality for P300 only. Producer 3 (another foreign supplier/exporter) sells similar shirt for P275. Since people love their own selves, then they would know from whom to buy..

Trumpeting "buy local" is not protectionism per se, not yet, but a prelude to it. How would one convince other people and policy makers to impose (or retain existing) tariff and non-tariff restrictions to imported goods if not trumpeting "buy local" as a clear alternative.

Even the most protectionist farmers and producers are actually aspiring for free trade somewhere. They want their sector, sub-sector, or products, say rice, to be protected from foreign competition. But they want free trade and free choice when they want tractors and their parts, toys, shoes and clothes for their kids and family. Or they want free trade when they need to buy a new appliance/s.

A poor household whether in rural or urban areas, benefit from rice free trade. What used to be P40 per kilo rice can be sold for, say, P30 per kilo. That household realizes a “consumer surplus” (the difference between what a consumer is willing to pay vs. what he actually paid) of P10 per kilo. If they consume 2 kilos per day, they realize a P20 per day savings or P140 per week. This household will not throw away that P140 per week consumer surplus. They will use it to buy an extra kilo of chicken, or extra 1.5 kilo of tilapia, or extra 2 kilos of vegetable X, and so on.

So the “buy local” campaign peddles the pernicious and false argument that patronizing imported goods is bad for the economy. In reality, whatever can help the various economic actors to become more efficient producers, ie, producing the same or more output for less input, is good for the economy and the local citizens. If importing better quality tractors compared to locally-manufactured ones will improve the per hectare harvest of certain crops, then the “buy foreign” has contributed to higher economic output, higher income of local farmers.

Trade protectionism, economic nationalism, even cultural purism, do not contribute, or contribute very little, to economic growth and world peace. Free exports and free imports of various goods and services expand people’s horizon and network to other culture and economic system abroad. This contributes to greater understanding of other people in other countries with their specific cultural belief and practices.

A “buy local” campaign may look innocent and harmless because there is no government coercion involved. Not yet. What the campaign is doing is mainly to precondition the belief of other people that “buy foreign” is not good and hence, must be slapped with various restrictions by the government. Or existing restrictions like tariff and non-tariff barriers (health and sanitation reasons, climate adaptation and “save the planet” reasons, etc.) to imported goods should be retained for many more years and decades to come.

As societies progress, the people’s aspirations to acquire better products, better technologies, better production processes, also rise. A persistent and widespread “buy local”, “avoid foreign” campaign and advocacy is a regressive and counter-productive move. We should embrace more global economic integration, more mobility of goods and services, more mobility of people -- entrepreneurs, professionals, workers, students, etc. – across countries and continents. Economic and individual freedom is enhanced this way.
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See also:
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
Free Trade 23: FNF on Free Trade Agreements, February 10, 2012
Free Trade 24: Trade and Improving Health Outcome, February 15, 2012
Free Trade 25: Excess Supply or Demand and Trade, June 05, 2012

Free Trade 20: Prohibiting 2nd-hand Imported Vehicles

Cars and other vehicles represent mobility and hence, freedom. If one has a car in good running condition, one can visit many places with ease and convenience compared to taking various public utility vehicles (tricycles, jeepneys, buses, vans) and waiting for their turn to move. Thus, car ownership is no longer a luxury but a necessity for people to move their goods, services, family, especially babies, children, old and sick family members.

Used or 2nd or 3rd-hand (or more) cars and other vehicles have market for poorer members of society. Like me, I'm still driving a 2nd hand pick up which I bought in 1999, still in good running condition but have a number of mechanical and electrical defects.

Now a leading Liberal Party (LP) official at the House of Representatives, Cong. Erin Tanada of Quezon, is proposing a House Bill banning and prohibiting the importation of used and 2nd hand cars and other vehicles. His chief of staff and my friend way back in UP since the 80s, Jeck Cantos-Reyes, posted it in her facebook wall yesterday, hoping to get more public support to their proposal.

Below are the major exchanges in Jeck's wall. I removed the family name and profile pic of two of Jeck's friends who debated with me. What is important here are the message and ideas being floated upon, not the personality per se. I'm a free marketer and free trader through and through, my blog readers won't hear or read any praise or compliment for protectionism from me, they will read it from people who debate with me. Hence, I am posting the comments by Mars and Catherine below.
-----------

Jeck Reyes-Cantos via Erin Tañada

yes...let's push this bill.

Group reiterates call on the ban of second-hand vehicle imports - ZamboTimes Online

www.zambotimes.com

MANILA — Fair trade advocates, including several major labor organizations, have again strongly opposed the importa

 ·  ·  · Share · 16 hours ago · 

http://www.zambotimes.com/archives/41208-Group-reiterates-call-on-the-ban-of-second-hand-vehicle-imports.html

HOMEFORUMSSPORTS WORLDJOBSABOUT US

Friday, January 6. 2012 Group reiterates call on the ban of second-hand vehicle imports

MANILA — Fair trade advocates, including several major labor organizations, have again strongly opposed the importation of second-hand vehicles even as they expressed full support for the passage of House Bill No. 5279, an Act Establishing the Comprehensive Motor Vehicle Development Act, authored by Quezon Rep. Lorenzo R. Tanada III.

The bill, which is now with the House Committee on Trade and Industry, lays down wide-ranging incentives for the automotive manufacturing industry, including the provision of "demand side" incentives, such as exploring the possibility of setting up affordable and accessible financing schemes to allow even low-income families to afford vehicles for business, commercial or personal use.

HB 5279 also prohibits the importation of second-hand vehicles, except for certain kinds of motor vehicles used for special purposes, such as fire trucks, ambulances, funeral coaches, crane lorries, among others....

• 
  

  Nonoy Oplas jeck, this is protectionism, not liberalism. Erin is with LP right, and LP stands for liberalism, not protectionism.
  

  16 hours ago · 
• Jeck Reyes-Cantos the tanadas have always been the mavericks in the LP, nonoy. :)
  

  15 hours ago · 
• 
  

  Nonoy Oplas i know, but i'm talking about the policy. Restricting importation is protectionism. A poor household who pays a lot for tricycles, then jeepney, then tricycle again each day, can save if they can have a cheap 2nd or 3rd hand car, whether imported or locally bought. Why deprive poor households like them if such cheap 2nd hand cars are available from abroad?
  

  15 hours ago · 
• Jeck Reyes-Cantos that logic can be applied to any other good as well - rice, shoes, etc. if it is done, ano pa ang maiiwang industry that will provide employment for our people, nonoy? what about the other local industries that are backwardly linked to this sector?
  

  15 hours ago · 
• 
  

  Nonoy Oplas Even rice farmers also want free trade: cheap hand tractors and parts, cheap toys, shoes and clothes for their kids, cheap tv and appliances for their houses, etc. They only want sectoral protectionism but want free trade in all other sectors. Free trade means free choice, di ba.
  

  15 hours ago · 
• Jeck Reyes-Cantos oh yes...but we are for fair trade, not free trade. tulog na muna ako, noy!
  

  15 hours ago ·  ·  1
• Emmanuel  
  
  
  
  

  meron bang local manufacturing of vehicles? I don't think there is. Meron tayo, jeep and jeepneys with imported parts. Sa perspective ng resource conservation, mas mabuti nang gumamit ng second hand kesa itapon lang sa mga dump sites ang lumang vehicles. think of how much mineral resources are wasted. with more new manufacturing of vehicles, there will be more demand for iron and steel: meaning more mining. more manufacture of plastics, rubber, glass, etc.

  
  

  10 hours ago · 
• Jeck  hi manny! just to clarify. the bill is for banning the IMPORTATION of second hand vehicles, most especially yung mga right hand drives na kino-convert sa left hand (dahil me safety issues) at tsaka yung mga yun, patapon na from other countries. the bill is not against the sale of locally manufactured 2nd hand vehicles. meron tayong local manufacturing/assembly although paliit talaga nang paliit na ang volume.
  

  7 hours ago ·  ·  1
• Mars  
  
  
  
  

  hi, all. i

   support erin's call in banning the importation of secondhand vehicles especially those converted from right-hand to left-hand, moreso, polluting the environment. kahit LP tingin ko is for a balanced economic & trade policies, a balanced fair & free trade regime. we nurture what we have & develop it further & we open up if we dont locally produce it, laluna kung raw materials or ginagamit directly sa production. SenMar Roxas is the father of EO 156, banning 2ndhand imported vehicles. currently what we have are assemblers (japanese/US cars), auto parts employing roughly around 77,000 workers. employment goes up if we view it in an integrated manner. we also have local 2ndhand vehicles which can easily absorb the demand. so why import if we can source it pala locally? bakit kailangang patayin ang hanapbuhay? wala pang dolyar na lumabas.

  
  

  5 hours ago · 
• 
  

  Nonoy Oplas 
  
  
  
  

  I notice that in almost all discussions on trade policies, only the perspective of local suppliers is considered, never the consumers. I cited the case of a poor household who pay lots for multiple rides each day. The reason why Divisoria, Quiapo, Baclaran, tiangge-tiangge (market-market) are attracting budget-conscious consumers, is because these places offer near free-trade prices and commodities. When people want cheap clothes, cheap food, they don't lobby in front of DTI or Malacnang or Congress to demand subsidized food or subsidized clothing. They instead go to Divisoria, etc., zero politics involved.
  
  Persistent protectionism is anti-consumers, especially the poorer consumers. What if a local 2nd or 3rd hand cars are 2x more expensive than imported 2nd hand cars, why deprive the poor who want to get the cheapest car as much as possible? Will Congress or Malacanang subsidize and pay for the price differential between the two sets of 2nd hand cars? Definitely No, they only want restriction and protectionism, never mind the consumers, the poorer ones especially.

  
  

  4 hours ago · 
• Catherine Pasali po ha. First, can we define poor? If we are talking about those who can barely put on the food table, I think owning a car is the least of their worries. HB 5279, as mentioned in the article, also wants to set up affordable and accessible car financing schemes. As previously mentioned as well, we have locally produced 2nd hand vehicles that "poor" households can avail of.
  

  4 hours ago · 
• 
  

  Nonoy Oplas My question was: " What if a local 2nd or 3rd hand cars are 2x more expensive than imported 2nd hand cars, why deprive the poor who want to get the cheapest car as much as possible? Will Congress or Malacanang subsidize and pay for the price differential between the two sets of 2nd hand cars?"
  
  Feel free to answer them, thanks.
  

  4 hours ago · 
• Catherine  If we are talking strictly of the contents of the bills, then the answer is no. However, once again, the bill is all for the setting up of affordable and accessible financing that would enable those who want to own cars to be able to.
  Again, we are only talking about prohibiting the importation of secondhand vehicles. It must be noted that we have our own locally produced secondhand vehicles. For example, there are legally acquired repossessed cars available through banks.
  
  In addition, there are currently no banks extending loans to people who intend to buy imported secondhand vehicles. The risks are too high for the banks to take.
  
  

  However, they do have auto loan programs for those who wish to buy secondhand cars that are produced domestically.4 hours ago · 
• 
  
• Mars  hi noy. i believe that every consumer is also a producer, and vice versa.
  

  4 hours ago · 
• 
  

  Nonoy Oplas 
  
  
  
  

  If that bill 

  wants the poor (and its subjective or objective definition) to allow the poor to buy their own cheap cars, no need for those "accessible financing" (via tax money again?) since those folks would find their own way of financing to buy a really cheap car. Like the carindeira owners who transport their raw food via multiple rides which can be costly.
  Mars, not all consumers are producers -- babies, children, retired people, the jobless, the physically and mentally defective people, etc. My beef is really that of prohibition and restriction by government through such bills like Erin's. Each individual pursuing his/her own econ interests is making own computations which options can give him/her value for money. If such imported 2nd hand cars are much cheaper than local 2nd hand cars, why shd govt prevent them from buying it?Why restrict and prohibit?
  

  4 hours ago ·  ·  1
• 
  

  Nonoy Oplas I always believe that trade protectionism is one form of dictatorship. The trade bureaucrats and local interest groups want to dictate, to impose their will, on ordinary mortals and consumers -- which product they can buy and which ones they cannot. Freedom to choose is killed via trade dictatorship.
  

  3 hours ago · 
• Catherine  If upon entering the Philippines, imported 2nd hand vehicles pay correct taxes and fees, locally produced 2nd hand cars will be cheaper.
  

  3 hours ago · 
• 
  

  Nonoy Oplas 
  
  
  
  

  then so be it. Use import taxes as a form of protectionism, not outright prohibition like the Erin Tanada bill. That bill I think will violate WTO rules on tarrification. Convert quotas and other quantitative restrictions (QRs), etc. into tariff. If you impose 500% tax, so be it. But by doing so, you will increase the incidence of smuggling and more corruption in the BOC. Remember, people want cheap goods, they don't care whether these are smuggled or not. Cheap clothes, cheap food, cheap fuel, cheap toys, cheap cars, cheap cellphoes, cheap laptops, cheap iPad,...

  
  

  3 hours ago · 
• Catherine  ‎"Protectionism" has helped economies grow and they are still being used by developed countries. Why kick away the same ladder they used to reach the top?
  

  3 hours ago · 
• 
  

  Nonoy Oplas Really, you dont go to divisoria, baclaran, tiangge-tiangge, midnight sales, where prices are dropped low to approach free trade prices? Protectionism expanded BOC and govt corruption. People want things to be cheap while protectionism want things to be as expensive as possible.
  

  3 hours ago · 
• Catherine  Blind and direction-less protectionism can prove your theory correct. However, policies and programs that would ensure industries are ready to compete before opening the floodgates are must-haves.
  

  3 hours ago · 
• 
  

  Nonoy Oplas Answer the questions: (1) you dont go to divisoria, baclaran, tiangge-tiangge, midnight sales, where prices are dropped low to approach free trade prices? (2) People want things to be as cheap as possible while you advocate protectionism ("direction-less" or otherwise) which will make things as expensive as possible?
  

  2 hours ago · 
• Catherine  Bakit biglang naging about me?  

  Pero kung ikakasaya nyo po ay sasagutin ko. I rarely go to Divisoria. I went there to accompany my mom or my aunt. I personally want affordable products but it does not stop there. I also look for reasonably priced QUALITY products. For whywould I buy "cheap" products if I have to replace them every now and then. Same with cars, in the long run I might end up spending more on maintenance and repair when I buy 2nd hand imported cars because I am not sure if all declared info (age, mileage, emission) are accurate.
• 
  
• 
  

  Nonoy Oplas That's the point. You go (or don't go) to Divisoria, Baclaran, Quiapo, tiangge-tiangge (literally market-market), SM midnight sales, etc. because you want free choice, based on your (or any other consumer's) needs and priorities (lower price for its own sake, low price with good quality, good quality despite high price, etc.). The bottom line is more choice, more options, more freedom. Protectionism ("direction-less" or otherwise) simply kills choice, simply kills more options. The government -- like the proposed Erin Tanada bill -- say you ordinary mortals, getting a 2nd hard car from abroad is killed, forget about it, you have no option but buy only local 2nd or 3rd hand cars. See the point, cheers.
  

  6 minutes ago · 

• Jeck Reyes-Cantos hi noy, irene and everyone! nalingat lang ako ay haba na ng thread dito. was offline the entire day today as i had meetings. hey, i enjoyed reading the exchanges. noy, you're the forever free choice, no government is best set up. :) and there are those of us who still entertain the thought that there is room for industrial policy, creating employment and domestic industries and the two shall not meet. your points noy and the counterpoinrts of catherine, mars, would be very useful when we prep ourselves for the debates. salamat ng marami!
  

  Tuesday at 9:08pm ·  ·  2
• 
  

  Nonoy Oplas slight correction Jeck. I advocate free trade, free market, minimal govt, not zero govt. Govt has a role in free trade -- restrict and regulate trading of bombs, guns, poisonous substances, etc, fake/counterfeit medicines, etc.
  
  Meanwhile, I just talked to an American friend last night, he observed that 2nd hand cars here are generally expensive compared to the US, Japan, etc. Japan has a law that imposes higher taxes for older vehicles so that car owners dispose their 6 yrs old or more cars even if they are in good running condition (there are almost no potholes in Japan's roads) simply bec the tax is high, cheaper to get a new car. So Japan, US, etc. have big problem of dumping those big volume of cars in recycling plants even if they are in good condition. If these are made available to poorer Filipinos, they will be riding cars instead of tricycles or kuliglig or jeeps, all of which are worse pollutants than cars.
  
  Some will say that we should limit the no. of cars here to "save the planet", but why target restriction of cheaper 2nd hand cars to the poor? Why not restrict cars also to the rich and middle class? And such restriction mentality is a good breeding ground for future totalitarianism. More restrictions, more prohibitions.

I hope that Cong. Erin Tanada and other LP members in the House will reconsider their proposal. Liberalism is advocating for more freedom, more choice, more options, not more restrictions.
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See also:
Free Trade 1: Estonia's Free Market, Globalization, May 09, 2006
Free Trade 2: Unilateral Trade Liberalization, May 17, 2006
Free Trade 3: Protectionism Perpetuate Poverty, September 05, 2006
Free Trade 4: FTA in APEC, July 09, 2007
Free Trade 5: Business , Rock Music and Cycling Globalization, July 17, 2007
Free Trade 6: Counterfeit Drugs Worldwide, December 21, 2007
Free Trade 7: Class War, Eco-protectionism and Climate, April 02, 2008
Free Trade 8: Global RIce Price, May 13, 2008
Free trade 9: Parallel Importation of Medicines, May 22, 2008
Free Trade 10: More on Unilateral Trade Liberalization, July 15, 2008
Free Trade 11: Global Petition, Keynes, March 19, 2009
Free Trade 12: Trade and World Peace, April 28, 2009
Free Trade 13: Benefits of Dumpiing, June 16, 2009

Free Trade 14: Import Substitution, AFTA, China, January 08, 2010
Free Trade 15: Customs Bureaucracy, November 09, 2010
Free Trade 16: Price Equalization vs. Export Subsidies, May 03, 2011

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