FairTrade, Entrepreneurship and Philippine Development*

Wigberto E. Tañada, Lead Convenor

We, at the Fair Trade Alliance (FTA), congratulate the Employers’ Confederation of the Philippines (ECOP) for making entrepreneurship the central theme of this year’s Employers’ Conference. Indeed, no nation has prospered without a strong, vibrant community of entrepreneurs spearheading the growth process.

One reason why the Fair Trade Alliance, a multi-sectoral coalition composed of representatives of business, labor, farmer and civil society sectors, was formed was to help build a climate conducive for the growth of entrepreneurship and jobs, specifically for our trade policies to be aligned in the service and development of industry and agriculture. It goes without saying that without viable businesses and farms, there will be no viable jobs in the country. Our economy itself will not be viable, which is what seems to be happening.

Poor trade and liberalization policies
Have made the local business playing field highly uneven

Ironically, the local business playing field is uneven or unfair against the locals, meaning the local entrepreneurs or the domestic industrial producers and farmers are discriminated against in their own market.

A quick look at our tariff system readily bears this out. According to Ambassador Manuel Teehankee, our man in Geneva, our average industrial and agricultural tariffs are less than one-third of what Thailand apply on imports entering the Thai market. This means a Filipino exporter to Thailand has to pay three times more duties compared to a Thai exporter to the Philippines. And yet it is the protectionist Thailand which is able to generate more exports, not the liberalized Philippines.

In the ASEAN region, our tariffs are the second lowest, next only to Singapore, which is an entrepot economy. Malaysia appears to have low tariffs similar to ours, and yet, Malaysia is not only more developed and prosperous than us but is able to protect its domestic industry in a more sophisticated manner. For example, when we formed the FTA in 2001, the first thing we learned was that Malaysia has 10,000 tariff lines compared to the 5,600 of the Philippines. Thus, when the ASEAN Free Trade Agreement (AFTA) said that 95 per cent of a member’s tariffs should be included in the 0-5 per cent AFTA tariff coverage, Malaysia was able to exclude most of its sensitive products, including its Proton automotive project. Moreover, we learned that Malaysia maintains around 500 product standards similar to those enforced in Australia and the developed countries. In short, Malaysia is able to protect its domestic producers.

Outside of the ASEAN, we see China, India and other countries maintaining even much higher tariffs, as much as 40, 60 or even 80 percent for agricultural products compared to our less than 10 percent. In shoes, in the Congressional hearing conducted the other year, one Korean shoe investor in Bataan expressed dismay on why the Philippines maintains very low tariffs, around 7 percent at that time, compared to 40 per cent for Thailand and 45 percent in China.

Justice Florentino Feliciano, who served as a Presiding Officer in the WTO’s Dispute Settlement Body, was aghast when he learned about what happened in the Philippines in the 1990s, when we reduced our tariffs way ahead of many countries in the region and way below our own WTO commitments, as if we are an advanced country which can afford to open our doors in one-sided way. Justice Feliciano dubbed what our neo-liberal economic technocrats did as ‘total unilateral disarmament’.

The sad results of the total unilateral disarmament are all over the place. Instead of stronger industries and more productive investments, we have seen

  • The decimation of many domestic industries such as textile, rubber, ceramic, chemicals, battery, shoes, vegetables, livestock and so on, and
  • The decision of some still viable industries to relocate their manufacturing operations outside the country and transform the Philippines into a mere destination of their export products. This is what Colgate, Johnson and Johnson and others have done.

Yes, some foreign investments came in, but not in the amount or level predicted by these economists. Most of the foreign investments have been going to China, a country which maintains higher tariffs, which has not yet liberalized its financial sector and which has been liberalizing its economy gradually, not wholesale as what we have done.

Still part of the neo-liberal economic myth-making is the assertion that lower duties would also automatically reduce smuggling. Again, the opposite has happened. Our Alliance estimates that the government loses as much as P175 billion a year from uncollected revenues due to smuggling, both outright and technical, enough to cover the annual budgetary deficit. The National Anti-Smuggling Task Force of Angelo Reyes even came up with a higher estimate, twice our figure.

Whatever the exact figure for revenues lost due to smuggling, it is clear that smuggling is one of the vilest forms of unfair business practices. Smugglers not only do not pay the correct duties, they evade the payment of correct VAT. They kill local producers, both industry and agriculture, through unfair competition.

Need to have fair trade policies
And a balanced agro-industrial blueprint

This is why we at the FTA have been demanding for fair or equal trade rules. No, we are not advocating a return to the era of 50 percent or even higher tariffs. What we are seeking is a level playing field right in our own country. As it is, many of our producers, both in industry and agriculture, are playing with huge handicaps – power cost second only to Japan price-wise, high cost of transacting on the various requirements of government, multiple taxes and highly undeveloped but expensive infrastructures. Who will go into business if he or she knows he or she has limited chances against his/her better-protected Asian competitors?

The least the government can do, therefore, is level the field, by re-calibrating our tariffs upward, at a level at least equal to those of Thailand, China, Vietnam and other countries. In most cases, such re-calibration will still be within our WTO binding rates, which is 20 percent for industry and 40 percent for agriculture.

Of course, this is only for a starter.

The bigger target should be the overhaul of the trade and development policy regime that has been in place in the last three decades. This policy regime has not worked and has failed the country. It is time for the Arroyo Administration to make a bold break from the past by initiating radical changes in the country’s economic blueprint.

Thus, the ongoing tariff review being undertaken by the Tariff Commission should be widened into a broad trade and development review, with an eye on how the erosion of the agro-industrial base can be reversed not only through the above tariff adjustment measures but also through pro-active and forward-looking trade and development measures. In this context, the FTA proposes the following:

  • Development of an agro-industrial master plan which seeks to promote the development of viable industrial and agricultural sectors based on continuous capacity building, industrial complementation and so on. Such a master plan should then serve as a general guide for the TC in determining tariff rates for certain segments of an industry. For example, it is ridiculous to see different sub-sectors of the petrochemical industry — the downstream (plastics), mid-stream (resins) and upstream (petrochemical products) – bickering over tariff rates, simply because the government has no overall development plan for the entire industry.
  • Decisive measures against smuggling. What is needed is the will to hale big-time smugglers to courts and put them behind bars. As to under-valuation, the government should adopt the FTA’s proposal on valuation of goods such as authorizing the BOC to reject outright any shipments with dubious values instead of going through corrupt-laden haggling over valuation, adoption of practices of other countries in the estimation of goods, and adoption of the risk-management methods using ‘Revision Orders’ based on globally-published values for products.
  • Strengthening of the rules against unfair trade practices. This means the government should put more teeth in the laws against dumping, countervailing duties and safeguards. How? One, by mobilizing the country’s foreign missions overseas in actively monitoring prices, subsidies and other trade data from exporting countries. Two, by putting the burden of proof not on the injured domestic producer but on the importing parties. Three, by being decisive in imposing higher safeguard tariffs.
  • Abandonment of the neo-liberal model of growth based on one-sided liberalization process in favor of a rounded, integrated and balanced model of development which emphasizes local capacity building, R & D, industry targeting, development of the home or domestic market of 85 million Filipinos, mobilization of domestic savings and decisive measures to lower the cost of doing business.

Finally, we challenge the government to be decisive in recognizing the liberalization mistakes made in the last two and half decades under a narrow neo-liberal development framework and instituting the necessary corrective measures. This is an occasion for us to re-define our national interests and our development priorities. We must develop a trade framework based on a coherent framework of agro-industrial development and human development, with trade treated as only one of the instruments for the realization of development goals. Such a program of adjusting our tariffs and development priorities is a must if we want the Philippines to be a nation of entrepreneurs, not a nation of consumers dependent on remittances from relatives and breadwinners working overseas.

* Speech delivered at the 26th National Conference of Employers: Filipino Entrepreneur: Local Roots, Global Reach held at the Manila Hotel organized by Employers Confederation of the Philippines (ECOP), PHILEXPORT, Philippine Chamber of Commerce and Industry (PCCI) and Federation of Filipino-Chinese Chambers of Commerce and Industry, Inc. (FFCCCII), May 17, 2005

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  • Founded in 2001, the Fair Trade Alliance (FairTrade) of the Philippines is a broad multisectoral coalition of formal and informal labor, industry, agriculture, NGOs and youth pushing for trade and economic reforms.
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