What’s the Score 10 Years After?


Unfair rules in global trade are killing our industrial and farm products

Wigberto E. Tañada, Lead Convenor

Trade is a powerful instrument to promote growth, job creation, and sustainable development  if it is based on a clear and balanced development framework and if it provides weaker parties, such as the Philippines, space to push their own development priorities based on flexible trade commitments.

However, trade can also be an instrument in perpetuating global inequality. Was it not during the American colonial period (1900-l940) when “free trade” was used in transforming the Philippines into an exporter of cash crops and minerals and an importer of finished American goods? This colonial free trade experience, shared by many “hewers of wood and carriers of water” in the developing world, was the basis of a world divided between the haves and the haves-not.

Today, developed countries and their neo-liberal economists have been talking about free trade once again, this time to promote a romanticized notion of a borderless global economy. We are being pressed by the developed states  and even by some of our own economic technocrats  to embrace a new round of trade liberalization in support of free trade through a cacophony of trade agreements under the World Trade Organization (WTO)  Agreement on Agriculture, Non-Agriculture Market Access, General Agreement on Trade in Services, and Trade-Related Intellectual Property Rights. This is what the Hong Kong’s Ministerial Conference in December this year is all about.

We in civil society know better. A decade of WTO membership and a quarter of a century of pursuing the neo-liberal dogma favoring an accelerated and one-sided liberalization have neither alleviated poverty nor increased jobs in the Philippines.

Many in the developing world have also become painfully aware of the imbalances in global trade. The issue is not further trade liberalization per se but fairness in global trade rules. Why open up to global trade the agriculture sector of the Philippines and other developing countries when the developed countries do not play fair by subsidizing their farmers to the tune of US$1 billion a day? This distorts global trade in agriculture and subverts the capacity of small farmers in developing countries to compete.

Why not recognize the right of developing countries to develop their industrial and agricultural sectors and maintain jobs in these sectors? Why undermine the power of government in the delivery of basic services, such as health and education, by opening this up in favor of transnationals and big corporations. Why reduce the capacity and flexibility of developing countries in producing cheaper drugs? Why not give life to the WTO’s oft-repeated clause on the inherent right of developing countries to a “special and differential treatment” in global trade since not all countries are created equal and have different capacities? Why kick away the ladder to higher development through a one-size-fits-all trade liberalization formula?

False Hopes

Unfortunately, our government has not clearly defined where it stands on key issues tabled in the forthcoming ministerial conference in Hong Kong. Yes, it has joined the global battle of the Group of 20 developing countries against the trade-distorting agricultural subsidies provided by the developed countries and the efforts of the Group of 30 or so nations seeking full recognition of the right of developing countries to “special products” and “special safeguard mechanisms.” But during the recent official WTO assessment of Philippine liberalization compliance, the government failed to point out the devastating impact on the economy of the existing trade liberalization program and the need for the country to have some breathing space from it. Further, we read with dismay the official claim that trade liberalization has been good for the Philippines in general and that the government is prepared for more of it.

But has trade liberalization really been good for the country?

In l994, during the debates on Philippine membership in the then newly organized WTO, I cautioned my colleagues in the Senate not to foolishly rush such membership, if no readiness program for our industry and agriculture had been crafted and if the supposed safety nets for our workers and farmers were not fully in place. The late Sen. Blas F. Ople and then Sen. Gloria Macapagal-Arroyo ignored our arguments, citing the imaginary gains for the economy that early membership would cause, including the imaginary jobs that such membership would create.

Today, the jury is out. Many of the promised gains did not materialize.

The proponents promised half a million new jobs a year in industry and half a million new jobs a year in agriculture. Together with the jobs being created by the fast-expanding services sector, such growth in jobs would have wiped out our unemployment problem in five to seven years. Instead, our unemployment and underemployment have deepened since. The latest figures show that we have five million unemployed and over six million underemployed.

The massive unemployment is due to the collapse of many industries such as textiles and rubber and agricultural cropping areas such as corn and vegetables. Another explanation is the failure of new industries to grow and expand. In fact, the only Philippines export winner, electronics assembly, is not even dependent on trade liberalization per se, for this industry is based on the global outsourcing by electronic transnationals to their own production outfits based in duty-free economic zones or industrial parks.

Our agricultural exports have steadily declined while our agricultural imports have risen tremendously. We are now a net agricultural importing country and the ratio of agricultural imports to exports is now close to two-to-one. Trade liberalization and agricultural deregulation are killing local agriculture.

Another reason for the colossal collapse of industry and agriculture is the failure of the government to crack down on smuggling and import dumping, abetted by the precipitate shift to the WTO’s “transaction valuation.”

This system of valuation has been widely abused by importers and corrupt customs officials to mean simply “as declared by the importers themselves” (in sharp contrast to the old home-consumption valuation based on the value of goods as sold or priced in the exporting countries themselves). Thus, we have shoe importers declaring a pair of leather shoes to cost as low as $.50 (50 US cents) a pair, which means payment of super-low tariffs of 7 percent (or $.035) and 10 per cent VAT (or $.050), or a total of less than P5 total tax for a pair that fetches between P500 and P1, 500 at Greenhills.

Homemade Tragedies

Of course, some of our problems are homemade.

As provided by the WTO, we enacted safety net laws against dumping and export subsidies. And yet, we have a weak state incapable of decisively implementing these laws.

The United States, European Union, Australia, Thailand, India, Brazil, and other countries routinely impose safeguard tariffs as high as 100 percent, or sometimes as much as 200 percent, against sudden import surges. Here, importers have no difficulty securing court injunctions against the impositions of safeguard tariffs, citing strangely the supposed “unconstitutionality” of the law. Worse, the Supreme Court upheld, in the case of steel and cement products, the validity of the injunctions against the safeguards law or Republic Act 8800, thus sustaining indirectly the “unconstitutionality” argument.

Given the glaring failure of the government to support local industry and agriculture through cheaper credit, more efficient infrastructures, better research and development, market development assistance, and so on, the recent court rulings on safeguards are truly a cause for national concern. The Philippines is discriminating against its own producers!

Another homemade tragedy is the Philippine adoption of a unilateral and one-sided trade liberalization program, which has made our applied tariffs much lower than our binding rates under the WTO and virtually equal to the free-trade 0-5 percent tariffs under the ASEAN’s Free Trade Agreement (AFTA). With our tariffs equal to only one-third of those of Thailand and much lower than those of China, India, Brazil, and South Africa, our industrial and agricultural products cannot compete, not in such an uneven playing field.

Due to this unilateral trade liberalization, imposed as part of the IMF-World Bank structural adjustment conditionality way back in l980 (and implemented vigorously since), our tariff rates are virtually the same as those of the developed countries. However, there are big differences  the developed countries maintain peak tariffs as high as 200 percent or more for sensitive products (we do not have any), they have developed a complicated system of product certification which keeps out unwanted imports (such as what Australia has done with our mango and banana exports), and they can act decisively on import surges (while we have succeeded in rendering RA 8800 inutile and in making the Philippine economy one giant ukay-ukay center for virtually everything).

A Riot of Proposals

In the meantime, the country is being bombarded with new trade liberalization proposals. Aside from those mentioned above, there are proposals for an “ASEAN Economic Community” and Priority Integration Projects (PIPs) under the ASEAN.

It was only when Chinese Premier Jintao visited the country that our officials admitted that an “early harvest program” with China had been inked. This has naturally alarmed our vegetable farmers in the Cordilleras because smuggled GMO vegetables from the Chinese mainland are the ones killing the local vegetable industry.

An economic partnership agreement is also being negotiated with Japan by a handful of technocrats who have refused so far the requests of Congress for a copy of the draft text, the tentative list of included and excluded products, and the commitments that each country is making.

The non-transparent process of trade negotiation is also extended to the Philippine-US bilateral free trade agreement, which the beleaguered Arroyo administration has recently announced as in the pipeline. If the US-Singapore bilateral free trade agreement is any guide, such a bilateral agreement with the US and other countries dangerously limits the flexibility of the country in crafting and pursuing its own development agenda. For aside from the usual zero-tariff regime, bilaterals also include non-trade issues such as investment, government procurement, trade facilitation and competition policy, the very issues that were roundly rejected by developing countries and led to the collapse of the WTO’s Cancun Ministerial in 2003.

Development for Whom?

Of course, the basic issue remains: what is the overall development framework that the government is pursuing in relation to all these trade initiatives?

For whom are we liberalizing? Are we not supposed to be winners, too? What then and where are the safety nets and adjustment measures that we are undertaking to ensure a win-win and painless transition for our society, for our workers and farmers, in particular? What are the corrective measures that the government should have by now instituted to make the rules fair and just to our very own producers?

The evidence is clear and more than compelling. It is beyond reasonable doubt. The Structural Adjustment Programs and the neo-liberal policies we have been implementing have not worked to our advantage. In fact, it has further damaged and eroded our already weak agro-industrial base.

It is now time to have a serious re-assessment of our trade and development priorities and a major overhaul of our existing trade policy regime.


Special Report published in NewsBreak September Special Edition, “How fair is free trade?”



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