The Economy and the Nation

Wigberto E. Tañada, Lead Convenor

Isang maalab na pagbati sa ating lahat!

Idinaraos natin ang kumperensyang ito sa gitna ng mainit na krisis pampulitika na dinaranas ng bansa.   Subalit tulad ng alam nating lahat, ang krisis sa pulitika ay nakaugat sa krisis sa kabuhayan.   Kung tayo’y magpapalit man o hindi ng lider, hindi maiiwasan na kasabay harapin natin ang mga usapin sa ekonomiya, sa kalakalan at sa hanapbuhay, sapagkat ang mga ito ang susi sa pambansang kapanatagan at kaayusan. Anuman ang pananaw natin sa pulitika, mahalagang mahalaga na magkaisa tayo sa ugat ng krisis sa ekonomiya at sa solusyon sa krisis na ito.

A stagnating economy

Let me reiterate:  the political crisis hounding the nation today is deeply inter-linked with our economic crisis.  In fact, the economic crisis is fueling the political one, and to a great extent, vice versa.

And yet, the different economic technocrats, past and present, have been saying and are continuing to say that the government’s economic policy and direction are basically sound.   In fact, they claim that the economic reforms, such as the unpopular E-Vat are in peril due to the political noises emanating from society.

But are our economic policies indeed sound?

Our country has gone through EDSA uprisings, and yet we remain stuck with double-digit unemployment, double-digit underemployment, increasing fiscal deficit and ballooning sovereign debt.  Both the Social Weather Station and Pulse Asia report that over half of the nation’s families rate themselves as  poor, and that as much as 15 per cent of the total Filipino families, or roughly two million families,  are even experiencing hunger.  Meaning they know only  one meal  —  the altanghap or almusal-tanghalian-hapunan.

Our industries are in a dismal state.  They are either falling or shrinking, with many factories operating below capacity.   Except for banana and pineapple, our agriculture has been in a state of stagnation since 1980.  Yes, services are growing, but mainly in the retailing and malling industries, which cater to the families of OFWs.  A large part of the growing service sector is the informal sector composed of the numerous micro and solo enterprises found in the ever-growing slum colonies all over the country.  As the social scientists tell us, the informal sector is a coping mechanism for those who can not find jobs in our weak industrial and agricultural sectors, for those who are displaced from their jobs and for those who  are poorly educated to qualify for jobs overseas.

In Asia, we are the only country which has not moved out of the l997-98 Asian financial crisis.  Thailand, South Korea and Malaysia, which were badly hit, are all back on the high-growth radar, registering almost full employment.    We are also the only country in Asia which is experiencing de-industrialization, while all others have been experiencing robust industrial growth.   Even Vietnam is now poised to overtake us.  Overall, our economy has not moved forward but has instead deteriorated or stagnated.   For example, in the early l980s, both Thailand and the Philippines had a per capita GDP of about $1,000; today, Thailand has a per capita of $2,000, while the Philippines still has a per capita of $1,000.

A crisis in directions

So why are they continuing to say that our economic policy is basically sound?   Ganito na ang resulta, pero sinasabi pa rin nila maganda pa rin ang ating patakaran.  Di ba ang sukatan kung maayos o hindi ang patakaran ay makikita sa bunga at ibinubunga nito?

Two weeks ago, the Philippines made a report to the Trade and Policy Review Body of the World Trade Organization in Geneva. The Philippine Report appears harmless until one comes across a short note, the official claim that the liberalization program pursued by the government under various administration, past and  present,  has been generally positive for  the economy.  Thus, the recommendation for  the Philippines to go full steam ahead with the further liberalization of the economy as  outlined in the 2004-2010 Medium Term Philippine Development Plan or MTPDP.

Also two weeks ago, and in the midst of the current crisis, we heard proposals from some of our leaders to further open up the economy through constitutional change. Supposedly, there is a need to ‘modernize’ the Constitution by deleting the few remaining nationalist provisions of the charter, which they claim is the cause of our economic backwardness and why we have become Asia’s industrial laggard. They argue that deleting the nationalist provisions of the constitution will surely encourage more investments and therefore provide more jobs to our people. They want the old Parity Agreement with the United States, which gave the Americans the same rights as Filipino citizens to own lands, exploit natural resources, operate public utilities and own media, not only to be revived but to be extended to all foreigners.  And yet, they are silent on the fact that the new tiger economies in Asia – China, India, Thailand, Malaysia and Vietnam – all continue to have more protectionist laws than those of the Philippines.  In fact, all these countries have tariff rates, both in industry and agriculture, which are much higher than those of the Philippines. For example, the tariff rates of Thailand are three times those of the Philippines in industry and agriculture.  And yet, these countries are able to attract more foreign investments and capture more markets for their exports.

So  why are our economists still bent in pushing for the unilateral and all-out liberalization program when we know that it has not worked for us despite nearly four decades of implementation? Every time we ask our economists about poverty and trade liberalization, their stock answer is that we have not liberalized enough. And yet, as early as l997, our economy was already rated as one of the most open in the world by IMF. WorldBank, and the Bank of International Settlements of Switzerland.  We are one of the most open, with most of our tariff rates down to zero to five.  This is why very few are using the Form D of the AFTA, a form you use for intra-ASEAN trading to take advantage of the AFTA’s 0-5 tariff rates, since the Philippine tariff rates for the rest of the world are also 0-5 %.  This is why imports come in freely into our country, and which is further abetted by rampant smuggling.  And yet, here are the economists telling us we have not liberalized enough?  Ano ba sila bulag?  Sa Asya, Singapore lamang ang mas bukas sa atin, pero ang bansang ito ay matagal nang bukas sa kalakalan sapagkat isa itong entrepot economy.

At ngayon, pati ang ating Saligang Batas gusto pa nilang pakialaman.

The NDA challenge

This is why we are gathered here in this Conference. We want to propound alternative solutions or approaches to our growth and economic development.

Tinkering with the Constitution and purging it of its nationalist provisions will not solve the economic crisis. Nor will be the continued reliance on a lazy, haphazard, accelerated and one-sided liberalization program.  The problem precisely is that we have been a victim for far too long of the wrong economic policy prescriptions formulated and dished out by some of our economists and technocrats heavily influenced by the IMF-World Bank

For our economy to grow and for people to have jobs, we need to develop industries producing goods and services accepted by the markets, both at home and overseas.  We need to create jobs and wealth by developing industries and productive capacities.

But for these industries to thrive, we need an enabling environment. Easier way of registering business, without any kotong. Lower cost of doing business. Better infrastructures.  Predictable rules.  Peace and order.

We also need an equalizing environment. Why give the foreign exporters so many advantages, allowing their goods to come in at lower tariffs and giving fiscal incentives, while ours are subjected to all kinds of taxes?   Why treat the local investors unfairly, calling even some of them as rent-seekers, and then hailing foreign investors as heroes when they treat our country only as a good market to sell their products but not a good place to produce them?

We also need a caring environment.  We need to treat our local producers as part of the family.  We need to patronize each other’s products.  We need to share technology and skills with one another and help push up, not push down, our own.  For how can we compete against China Inc. or India Inc. or Thailand Inc. if we are badly divided and busy tearing up each other’s business?

The point is that we need to change, if not reverse, economic policy gears, if we have to create jobs and wealth for our people.  This is what this Conference is all about – to draw up an alternative development agenda, which the government, old or new, can carry out.

We will be proposing and submitting to you later, FTA’s draft of its National Development Agenda (NDA) to address the various trade and development issues confronting the nation. NEDA’s Medium-Term Development Plan is defective and inadequate as it is still based on the old neo-liberal framework of one-sided liberalization.

What are we  proposing?

So what should be the thrust of the NDA?

Let me highlight a few points.

At the outset, let me state that we are not starting from scratch.  Many of the reform measures we are pushing under the NDA, especially those dealing with trade issues, are products of past brainstorming sessions and workshops among the affiliates and friends of the FTA.  With industry, with labor, with farmers, with informal labor and with civil society. We have also raised these in our dialogues with some executive and legislative officials in or out of   Malacanang or Congress.

What are some of these reform measures?

First, we demand full transparency and consultation with industry and other stakeholders in all trade talks.  This is why we denounce the efforts of the government negotiators to hide from the public the negotiations on the ‘Early Harvest’ bilateral agreement with China and the ‘Economic Partnership Agreement’ bilateral agreement with Japan.

Second, we demand that every trade negotiation should be based on a clear development framework, which outlines and strategizes how the country can maximize gains and minimize pains from any agreement.  Unfortunately, the government does not have any outside of the general liberalization framework.  Thus, in the forthcoming Hong Kong Ministerial Conference this December, it is not clear what position the government will take in the following crucial areas:

  • The Non-Agricultural Market Access (NAMA), which seeks to cover fishery, footwear and other industrial goods not previously covered by the WTO discipline.  Since the market opening formula being pushed by other countries is uniform, the Philippines stands to lose given the earlier unilateral liberalization measures it had taken.  We demand a recognition crediting of our earlier liberalization, the non-application of their proposed formula on our NAMA goods and the non-inclusion of fishery and footwear in the agreement.
  • The General Agreement on Trade in Services (GATS), which seeks to cover all service industries, including those dealing with public services such as health, education and so on.  Without any public consultation on affected sectors, our government has recently made commitments to open information technology, construction, distribution, energy, environmental, and tourism services.  We also do not know what our negotiators are still planning to offer in the succeeding negotiations.  Hence, we demand full transparency and consultation on GATS and for public services to be out of the GATS negotiation.
  • The Agreement on Agriculture (AoA) is very contentious.  We support the government’s efforts to share information and  consult the different sectors on special products, special safeguards and the quantitative restriction on rice.  But we demand that the government takes a stronger stand on global inequality arising from subsidies provided by developed countries.

Third, we  demand a recalibration upward of industrial and agricultural tariffs of our locally-produced goods based on our maximum binding rates under the WTO and based on the specific development requirements of major industrial sub-sectors.   As mentioned, our overall average tariff, averaging 7.4 per cent, is very low compared with our ASEAN neighbors who have not only higher tariffs but also maintain various non-tariff barriers. And while recalibrating the tariffs upward, the government should  try to harmonize the conflicting interests of the different segments of certain industrial sectors as well as invest in the necessary physical and institutional infrastructures to enhance our overall competitiveness.

Fourth, we demand the creation of the Philippine Representative Trade Office to harmonize and centralize all global trade concerns. In the present set-up, there is no mechanism of accountability on trade negotiations. There is no single office that handles trade agreements related to WTO, ASEAN-AFTA, JPEPA, and other bilaterals. Different agencies handle different areas, which make our negotiations dispersed, variant, confused and non-transparent, resulting in a weak bargaining position.  If we want consistency, accountability and strategic coordination in our negotiations, then the Philippine Trade Office, which shall  be multi-sectoral in nature, must be set up to strengthen and consolidate our efforts in the global trade talks.

Fifth, we demand an honest-to-goodness campaign against smuggling by treating it as a heinous offense and making it a priority program of the President. Smuggling bleeds the country dry, fleecing it with foregone revenues amounting to as much as 175 billion pesos a year. If the Anti-Smuggling Bill that has now passed in Congress but pending in the Senate can become a law the additional revenues collected can be used   for the needed social services for our people.

On the fiscal crisis which is facing the nation and is likely to haunt our country in the coming years, the proposal of FTA is for the government to impose an across-the-board import surcharge instead of resorting to divisive and painful taxes which hurt the local producers and consumers the most.   According to the study of PIDS, every one per cent import surcharge raises at least P8 billion for the country.  So a 5-7 percent increase, good for three years, can more than equal the expected revenues from E-Vat, which is likely to reduce the tax-paying capacity of the local producers.  Together with the added revenues from a more aggressive anti-smuggling campaign and a recalibration of tariffs upward, the fiscal crisis could be over in a year or two.  Further, the proposed import surcharge shall equalize the playing field for our local producers, who have been subjected to the mindless unilateral liberalization program of the neo-liberals.

Sixth, it is high time that we go back to the basic but important principles or values of damayan, bayanihan, and tangkilikan to develop a strong agro-industrial and entrepreneurial base to sustain a pro-Filipino economy and development. We call this the tangkilikan economics and I urge all of you to support the tangkilikan economics in the light of the overwhelming failure of the neoliberal doctrine to lift the people out of poverty.

Finally, however, we need deep structural reforms for our economy.

As our numerous FTA documents have pointed out, our agro-industrial base is badly eroded.  Without a strong agro-industrial base, a nation’s competitiveness is impaired.  We need to sort out in this Conference how this can be rebuilt, deepened and broadened.  In the process, we shall be addressing issues of job creation, welfare enhancement and so on.

Of course, we also have to address institutional issues.  We need to put an end to the slow-motion implementation of land reform which has driven away investments in agriculture and in addressing the heavy burden of servicing our huge debt.  There should be decisiveness and political will in these areas.

In closing, FTA wishes to state that who ever sits in Malacañang ,it is important that our leader must muster the political will to institute bold economic reforms now that represent a break from the past, from the accelerated, one-sided and uncritical liberalization policy regime.  We need to break away from this policy regime if we are to usher in a new tomorrow for this long-suffering nation.

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