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RCEP: Boon or Bane for Marcos’s Government?
Bane most likely, critics say
By: Viswa Nathan
After almost two years of shillyshallying, the Philippines is joining the Regional Comprehensive Economic Partnership (RCEP) as the last of the present 14-member Asia-Pacific free trade grouping. The others are Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, New Zealand, Singapore, Thailand, and Vietnam.
RCEP, conceived over a decade ago at the 2011 ASEAN summit in Bali, Indonesia, is to abolish 90 percent of tariffs on trade among partners within 20 years of operation. It has the potential to become the world’s largest trade bloc covering 2.2 billion people, 30 percent of the world population, a mixed group of high-, middle-, and low-income economies. It’s a mammoth concept, which, if it succeeds, would shift economic gravity toward Asia and make the 21st Century the Asian Century.
The critical question, however, is: would it help the Philippines?
As soon as the Philippine Senate voted to accede, the national farmers’ group, Samahang Industriya ng Agrikultura (Sinag), warned it would hold the Marcos administration accountable should the accord hurt the country. In a report (‘Unprepared’: Critics see more farmers’ woes under RCEP) on February 23, the local media, Inquirer.Net, quoted Sinag executive director Jayson Cainglet as saying, “we will remind and hold them accountable for what they promised, including withdrawing from RCEP if things turn out for the worse.”
These fears may well be misplaced. According to the Philippine Department of Trade and Industry, the country’s schedule of commitments excludes its major agriculture products, thus keeping the import tax on such items unchanged to protect local farmers.
Nonetheless, many in the country fear that joining RCEP is not a wise move. Senator Risa Hontiveros, the lone dissenter during the senate vote on ratifying the RCEP, was reported to have cited 131 organizations representing millions of people—farmers, fishers, traders, and fair-trade advocates—opposing the move.
Such concern, however, is not peculiar to the Philippines. India, which participated in the early negotiations and was seen by many as a desirable antidote for China assuming the role of first among equals, decided to back out, fearing that tariff abolition could open up the gates for cheap Chinese products to flood the Indian market and undermine its small and medium industries.
The concern of Philippine farmers is that even without RCEP, cheap Chinese farm produce imported legally as well as smuggled into the country has posed a perennial threat to their produce, thus, their livelihood. Consequently, the country’s harvest area has shrunk by 33 percent over the past four decades—from 13.25 million hectares in 1986 to 8.92 million in 2020. The government now imports a wide range of food items from grains to vegetables, meat, milk, and even the staple of the poor, the easy-to-grow casava, in increasing volume. As a result, food imports in 2021 totaled US$15.7 billion, while imports competing against local produce drove the rural population’s contribution to Gross National Income down from 32 percent in 1946 to 19 percent in 1986 and 10 percent in 2021, although they represent 52 percent of the population.
A free trade association is unlikely to change this state of affairs. And there is more to worry about. The country hasn’t mechanized as its neighboring countries have, hampered by low buying power on the part of farmers, an overabundance of rural labor, very small landholdings per farmer, the high cost of machines, and inattention by the government to mechanizing agriculture, cutting into competitiveness.
The Philippines buys more from each RCEP partner than it sells to them. Thus, it suffers a trade deficit with each partner. In 2021, the deficit ranged from US$5.58 million with Cambodia to US$16.66 billion with China, totaling US$49.2 billion with all RCEP partners. Such a level of trade deficit is unlikely to diminish anytime soon. It is more likely that the balance of the Philippines’ goods trade would worsen by US$264 million a year. So a senior economist with the United Nations Conference on Trade and Development, Rashmi Banga, estimates that tariff abolition, the central objective of RCEP, could cause the Philippines a significant loss of tax revenue.
In this situation, how would President Marcos Jr’s ambition to uplift the country to upper middle-income status by raising Gross National Income (GNI) per capita to the equivalent of US$4,256 by 2024 or before he reaches mid-term in office pan out? He has put himself on the hook to agricultural interests by naming himself agriculture secretary when he took office last July.
A local economist said on the condition of anonymity that the administration opting to join RCEP is as unwise as its attempt to create a sovereign wealth fund. “We don’t have what it takes to be successful on these fronts,” he said. According to him, the president trying to be hands-on in areas he has no expertise, like agriculture, is the main stumbling block in intelligently strategizing the country’s economic future.
Citing Peter Wallace, a current affairs commentator in the Philippine Daily Inquirer, he notes that the agriculture sector “has worsened” with the president doubling up as the agriculture secretary. As Wallace said, the president “just doesn’t have the time to be fully on top of what’s happening.”
The economist points out that most of the crises under this administration—the sugar debacle, the onion crisis, etc.—were in the Department of Agriculture. It is time, he says, for the president to take a step back and reflect on his leadership in the past eight months.
Has his administration bothered to determine why the country’s harvest area has shrunk? In 1986—the year the president’s father was deposed from power—the harvest area was 13.25 million hectares. But since then, it has steadily reduced, falling to 8.92 million hectares in 2020.
When it is determined, and appropriate remedial measures are instituted, the agriculture sector would rise from the pit it is in now and lessen the country’s dependence on imports to feed its population. And until it happens and the trade deficit is brought under control, participation in RCEP, says the economist, would do more harm than good to the country.