The Philippines and the TPP

A minor business news item that came out last week just  as President Benigno Aquino 3rd and his 63-man traveling circus were arriving in Davos for the World Economic Forum might have given the Philippine leader a little extra incentive to try to fit in among the world’s economic movers and shakers. In what had to feel like an indictment of his reverence for his mother’s deeply-flawed 1987 Constitution and his own consistent “no charter change” position, a group of visiting US business leaders in a meeting earlier this month apparently told Aquino point-blank that unless restrictive investment provisions of the Constitution were amended, there was virtually no chance the Philippines would be invited to join the ongoing talks aimed at creating the Trans-Pacific Partnership (TPP) Trade Agreement. This was revealed by Philippine Ambassador to the US Jose Cuisia Jr., speaking to reporters on the sidelines of a meeting of the US-Philippines Society on Thursday.    

TPP is a free trade agreement that is being developed by 11 Pacific Rim countries, and was initiated back in 2006 by a multilateral Free Trade Agreement among Singapore, Chile, New Zealand and Brunei Darus¬salam.The group was expanded to include the United States, Australia, Peru, Malaysia and Vietnam when formal talks on the TPP were started in 2010; in June of last year, Canada and Mexico also signed on, formally joining the latest round of negotiations held in December. Those talks, which were held in New Zealand and concluded on December 11, were the 15th round of negotiations; the next is scheduled for early March in Singapore, and while no timetable for adopting the agreement has been set, trade authorities in most of the participating countries have said that the TPP could be formally enacted within the next two years, by the time the Asean (Association of Southeast Asian Nations) common market framework comes into effect in 2015.

Until now, there seems to have been a significant difference in opinion about the Philippines’ joining the TPP between the Department of Trade and Industry (DTI) and Malacañang. In an interview in mid-September 2011, Trade Secretary Gregory Domingo expressed an interest in having the country join the talks, but acknowledged that considerable institutional reforms would have to be undertaken in order for the Philippines to qualify to be invited by the existing TPP group. During President Aquino’s official visit to the US just a week later, Domingo reportedly buttonholed US Trade Representative Ron Kirk and asked for the USTR assistance in assessing what the Philippines would need to do to be included in the TPP discussions. 

But as recently as this past October, President Aquino himself informed a forum of the Foreign Correspondents of the Philippines that he was “in no hurry” to pursue the TPP, expressing uncertainty whe¬ther it would benefit the country. 

That only seemed to change this past week with the input of the visiting Americans, when President Aquino “expressed optimism regarding the country’s TPP entry” (according to DTI’s Domingo, quoted by BusinessWorld Online) and assured the businessmen that the suggestion to amend the Constitution’s economic provisions “would be studied carefully” (according to Ambassador Cuisia, quoted by Interaksyon.com). 

The DTI estimates the benefit to the Philippines from acceding to the TPP pact would be about $10 billion in exports. 

That might be debatable, but what is not is the increasingly untenable position the Philippines is finding itself in with respect to its export markets, in particular the US, the country’s largest export customer. The Philippines has sought a regular trade agreement with the US for years, but American policy since 2007 has been to pursue multilateral rather than bilateral agreements; thus without the TPP, there is very likely no chance at any sort of pact with the US more advantageous to the Philippines than the outdated 1989 Trade and Investment Framework Agreement (TIFA). 

The two main obstacles to the Philippines’ joining the TPP negotiations are the constitutionally-enshrined restrictive provisions on foreign investment and a labor code not sufficiently aligned with the International Labor Organization’s (ILO) 1998 Declaration on Fundamental Principles and Rights at Work, which was an early inclusion in the TPP framework. The five ILO principles are freedom of association, the elimination of all forms of compulsory or forced labor, the effective recognition of the right to collective bargaining, the effective abolition of child labor and the elimination of discrimination in employment and occupations; the latter three principles are where the Philippines is said to be deficient with respect to being invited to the TPP negotiations. To a lesser extent, lagging progress in institutional reforms relating to intellectual property protections, combating the spread of counterfeit goods, reducing smuggling, and contract enforcement have also dampened the country’s prospects.

The longer the government waffles on making comprehensive reforms in critical areas—which most would say it ought to be doing anyway, TPP or no TPP—the less likely it will be able to participate. The TPP negotiations have gone through 15 rounds so far, and with each new round of discussions the specifications for participating countries—and prospective new members—become a bit narrower. In other words, the window in which the Philippines could make something less than drastic reforms and still meet the standards for joining the TPP is rapidly closing, if it hasn’t closed entirely already, which seemed to be the impression of last week’s visiting business VIPs. 

The risk of not joining the TPP is that the Philippines might very well find itself competitively shut out of key markets come 2015, particularly in North and South America and perhaps even in our own Asean backyard.

January 29, 2013

Source: Manila Times