LET ME go to the heart of the issue: is openness to international
trade the magic formula that will lift the sinking Philippine economy
from the mire? Or is it a mere paper boat that will keep the economy
afloat only in rosy promises and presidential speeches?
For decades now, our government has looked upon international trade
as the solution to our development problems. Since the 1980s, successive
administrations have pursued a series of unilateral trade liberalization
programs covering every sector of the economy from manufacturing and
services to agriculture. To say, however, that our government pursued
these programs independently would be utterly false. These programs
were actually loan conditionalities imposed by the International Monetary
Fund and the World Bank.
The country’s commitments to the opening of Philippine trade
can also be seen in our membership in international trade groupings.
The Philippines is party to the ASEAN Free Trade Agreement (AFTA)
and the Asia-Pacific Economic Cooperation (APEC) at the regional level.
At the global level, we are one of the proud founding countries of
the World Trade Organization.
The Result: A Economy in A Shambles
Has trade liberalization benefited the country?
A serious study of the performance of the Philippine economy in the
past decades would reveal a less than desired outcome of trade liberalization.
At the macro level, we find that:
We have become an import-dependent country, as reflected by the trade
deficits we have had since the 1980s.
In the agricultural sector, since the country’s accession to
the WTO, we have become a net agricultural importer. In comparison,
countries such as Thailand, Indonesia, and Malaysia are net agricultural
exporters. One reason why our neighbors have left us behind is the
declining productivity in Filipino farms. Growth in the agricultural
gross value-added in the Philippines is one of the lowest in ASEAN.
The share of agriculture in GDP has steadily declined, from 24.6
percent in 1985 to 20 percent in 1999. In terms of employment generation,
from 1999 to 2000, agriculture lost more than 2 million jobs.
In the manufacturing sector, electronics has become the country’s
biggest export earner. However, contributions of other products in
total export earnings have declined. The share of the garments sector
and of other manufactured goods in total exports deteriorated in the
1990s.
Trade reforms have not led to robust growth rates in manufacturing.
Its share in the country’s GDP remained constant at 24-25 percent
from 1985 to 1999. As a result, not many jobs are being created in
the manufacturing sector.
The Problem with Trade Liberalization
What went wrong? Why didn’t the magic of trade liberalization
work?
First, our local industries remain internationally uncompetitive.
This is partly a result of government’s failure to deliver the
infrastructure and policy support needed by the agriculture and manufacturing
sectors.
Indeed, Filipino industries have the responsibility to develop their
competitiveness to be able to survive under a liberalized trading
environment. But the fact is, they cannot do it alone. Government
still has an important role to play. Unfortunately, governmental support
has proven to be inadequate.
The second factor is the country’s dependence on low value-added
products for its export earnings.
Government always boasts that the poor performance of other export
products has been more than compensated for by very high growth rates
in exports of technology products, specifically electronics. But hold
the happy thought. There is a big problem with the country’s
dependence on electronic products for its export earnings.
These commodities have low value-added. Their import content is very
high. One study confirms that for electronic products such as semiconductors
and simple circuit products, local content is just 20 percent and
25 percent respectively. This means that the primary domestic input
is just labor.
The third factor has to do with management of exchange rate.
The de facto policy of currency control up to the second half of
the 1990s resulted in an artificially strong peso that made imports
cheap. This led to a surge in imports, hurting domestic import-competing
firms. Because of cheap imports, Philippine exporters relied more
on imported inputs. The result is low value-
added in the country’s exportable goods.
The fourth factor is the little importance given to trade defense
measures.
Anti-dumping laws, countervailing measures, and other safeguards
were enacted four to five years after we entered the WTO. Within that
period and even until now, we have no trade remedies to implement
that will effectively protect local industries from unfair trade practices
such as dumping and price undercutting.
The fifth factor is the policy of blind trade liberalization itself.
While programs to modernize and enhance the competitiveness of local
industries remain insufficient, government is still zealously implementing
unilateral trade-liberalization programs and thus expose local producers
to international competition. For your information, our government
is unilaterally reducing our tariff rates much faster than what it
promised to do in the WTO. Our commitment in the WTO was a minimum
reduction of 33 percent to be implemented within 10 years—from
1995 to 2004. But because we are in such a hurry to open our economy,
we already unilaterally reduced our average tariffs for agricultural
goods by 52 percent and for manufactured goods by 49 percent by the
year 2000.
The sixth factor is the global trade environment.
The GATT-WTO Agreements were supposed to have ushered in freer trade
and a level playing field to enable developing countries to successfully
compete in the international market. The WTO agreements generally
required reduction in trade-distorting policies such as high border
protection and subsidies. The country’s accession to the WTO
was precisely premised on such projected benefits. Slowly, however,
many problems have emerged.
One, developed countries continue to protect their markets by applying
higher tariffs on products of export interest to developing countries.
Also, markets in industrialized countries are restricted through the
use of non-tariff barriers such as anti-dumping measures, health and
safety standards, etc. Two, subsidies in developed countries also
continue to be high. In 1998, for instance, domestic support in countries
belonging to the Organization of Economic Cooperation and Development
(OECD) amounted to US$363 billion.
Nationalist Prescription
So what do we need to do now?
Technocrats from government argue that the problems we are facing
right now on the economic front are adjustment problems; and that
accordingly, in the long run, industries will adjust to the new competitive
trade environment as resources flow to more efficient sectors, or
as industries find comparative advantage, thus leading to accelerated
growth.
However, while we wait for the benefits to materialize, employment
and income are contracting, and poverty remains a huge problem. How
long can we afford to wait before government heeds our calls? The
argument is encapsulated in the words of a prominent 20th-century
economist. Responding to an observation about what can be expected
in the long run, he said: “In the long run, we are all dead.”
