FairTrade-Philippines’ Statement on RP-US Agreement

RP-US Bilateral trade talks: What is the real score?

Something is cooking in the Philippine trade corridors.

After concluding the Japan-Philippine Economic Partnership Agreement (JPEPA), the government appears to be pursuing a similar bilateral free trade agreement (BFTA) with the United States. But like in the JPEPA, the RP-US trade talks are shrouded in secrecy. No consultation with the country’s business community, with the trade unions, with the broad civil society movement and other stakeholders in society. No draft agreement being released or circulated. Even both chambers of Congress are kept in the dark about the state of play in the RP-US trade talks. Just like in the JPEPA case, specific details of the negotiation parameters and goals are known only to a handful of negotiators.

And yet, the bits and pieces of information appearing in the newspapers suggest that the BFTA talks are actively and seriously being pushed by some quarters in the government. First, Undersecretary Tomas Aquino, the same DTI official who negotiated JPEPA, was reported to have headed the ‘4th trade mission’ in Washington related to a possible BFTA. Second, Ambassador Donald Dee, the President’s roving trade negotiator, has admitted that his group in the garments industry, CONGEP or the Confederation of Garments Exporters of the Philippines, is seeking a ‘sectoral’ BFTA, principally one focusing on garments. Third, there are reports that in exchange for duty-free access to garments exports, the United States is asking for greater market access for American rice, wheat and soybeans.

Is a sectoral BFTA focusing on garments in the works? Or is the sectoral BFTA talks really preparatory to the forging of a full-blown BFTA covering trade, investment and other areas of the economy? What is the overall framework by which some members of the executive branch are negotiating the BFTA, sectoral and otherwise?

We, at the Fair Trade Alliance, are deeply concerned about the above developments and the secrecy attending the RP-US trade talks, exploratory or otherwise.

We appeal to these officials and to President Gloria Macapagal-Arroyo – let prudence reign, if one may borrow the words of PIDS President Josef Yap in describing the agitated response of those proposing BFTAs. In this context, we would like to express our views in support of prudence and a halt to any RP-US trade talks –

First, a sectoral BFTA does not make sense. The US Trade Representative Office is not empowered to conclude a bilateral on a sectoral basis. We are afraid that this talk about a sectoral BFTA is only a cover for what is really happening, which is a negotiation in support of a full-blown BFTA. Of course, nobody can prevent the United States to unilaterally offer duty-free access to certain goods to favored developing countries under its Generalized System of Preferences or GSP.

Second, the fact that market access for American rice, wheat and soybean is being mentioned indicates that the ongoing RP-US trade talks have a broader scope of coverage other than what a so-called sectoral bilateral seems to suggest.

Third, gaining duty-free access in the American market for Philippine garments is not a guarantee that our apparel industry will win in the said market. The case of Mexico is instructive. After the signing of the l994 North American Free Trade Agreement (NAFTA), Mexico’s maquiladora (border) industries, primarily garments, boomed. This turned out to be very temporary for, after a while, Mexico’s garments exports to their US neighbor began to decline, while China has succeeded in sustaining its garments export boom and in cornering a greater share in the American market despite the high tariffs imposed on Chinese exports. The lesson is clear – duty-free privileges can not compensate for other handicaps such as low level of productivity and poor textile-garments integration in an exporting country like the Philippines.

Also, those who are familiar with the global garments industry will readily testify to the fact that a BFTA has a very strict ROO or Rules of Origin, which is the reason why some countries hesitate to conclude a BFTA. In the US-Singapore BFTA, which is the US template for BFTAs with other Asian countries, Singapore was unable to overcome the US demand for the application of the ‘yarn forward rule’, which means US yarn has to be used in any garments exports to the US instead of the cheaper Asian fabrics or yarns. Moreover, the ROO chapter has very detailed verification-inspection provisions, which will cause nightmares to exporters seeking to avail of the duty-free privilege.

Fourth, a full-blown BFTA with the US has serious implications on Philippine agriculture. The US is an agribusiness power which can dump, as it has been doing to a certain extent, surplus agricultural products, which are being produced in abundance in the United States because of the multi-layered subsidy system. The fact that rice is being mentioned as a trade-off for garments should alert and alarm our farming community. In a full-blown FTA, rice, corn, livestock and other products are likely to swamp the Philippine market at the expense of marginal producers at home.

Fifth, the US has been pushing for BFTAs globally to promote non-trade concerns or the so-called Singapore issues such as investment, government procurement, trade facilitation and competition policy, which it failed to push in the WTO. These Singapore issues curtail the flexibility of a country to pursue its own development agenda based on its own development priorities. For example, in the name of free competition and free trade, the US can and does insist that a developing country partner in a BFTA should not give priority or special assistance to domestic corporation, no matter how strategic to the economy such a corporation is. This is the reason why Malaysia and other countries loudly protested in Cancun in 2003 the US push for the Singapore issues.

And finally, sixth, a BFTA seeks to strengthen PROTECTION to the more developed trading partner. This time the protection is in support of the intellectual property rights (IPRs) covering innovations and technological products produced by the latter. The problem is that these IPRs give virtual monopoly pricing privileges for holders of patents which last for 20 years. This is the situation in the drug industry, which is dominated by the big pharmaceutical companies such as Pfizer. Through the BFTAs, these drug companies want a TRIPs Plus agreement, meaning extending the life time of a patent and the coverage of what is patentable in order to prevent other domestic producers, especially the generics companies, in producing products that have already earned them monopoly profits for 20 years. In fact, the IPR section is the main battlefield in any US BFTA, for the idea is to safeguard the interests of American MNCs in the pharmaceutical industry, agriculture and so on.

So overall, there are serious implications for the economy if the Philippines is to conclude a BFTA with the United States. Indeed, the best options at the moment are to let prudence reign and to have a halt on the negotiations.

Instead, it is high time that the government, the trade negotiators in particular, to be transparent about the process, report on what is going on and conduct genuine consultation with all stakeholders – business, farmers, trade unions, civil society groups and Congress. After all, what is at stake are jobs and livelihoods of the people no less.

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