Trade and Industry Secretary Ramon M. Lopez has urged the Senate to immediately concur the ratification of the Regional Comprehensive Economic Partnership (RCEP) as the effectivity of the world’s largest free trade deal is set to take effect first day of 2022.
Lopez was worried that with still pending Senate concurrence, the Philippines will not be onboard RCEP by January 1, 2021.
Lopez, however, expressed appreciation of the support of the Senate in moving forward this important free trade agreement. At the 32nd Session of the 18th Congress of the Senate of the Philippines, Sen. Aquilino “Koko” Pimentel III called for the Senate concurrence to the ratification of the RCEP Agreement, highlighting that the RCEP can fuel the country’s economic development, especially amidst the context of the COVID-19 pandemic.
But the trade chief noted that there are only few remaining working days in the legislative calendar of the 18th Congress. Lopez stressed the need to act immediately on the concurrence of the RCEP Agreement.
The ratification of the RCEP has been facing strong opposition from the farmers, fishers and other non-governmental organizations, which questioned the benefits the trade deal would bring to the country and to the poor Filipinos.
Nonetheless, Lopez highlighted that for the past years, the Philippine economy has been experiencing a fast-paced growth, averaging 6.6 percent before the pandemic, and now recovering to 4.9 percent year-to-date (September).
In the third quarter of 2021, Lopez pointed out that the Philippine economy grew by 7.1 percent -- the fastest in the ASEAN region for that period. Exports have rebounded even higher than pre-pandemic by 5 percent, while foreign direct investments in 2021 are 36 percent higher than 2019 and 40 percent higher than 2020.
“Not joining RCEP or delaying our participation will cause disruption in this momentum. Investments will shy away from the countries who are not participating, and there will be capital flight and lost investment opportunities,” Lopez reiterated.
In addition, staying out or delaying the participation of the Philippines in the Agreement sends a signal to the international community, including potential investors, that the Philippines is not inclined in promoting greater openness, create a more business-friendly environment, encourage closer integration of economies, and provide a more stable and predictable rules based system of trade. “This may impact the country’s ability to attract foreign direct investments, especially when compared with our ASEAN neighbors that are already part of the RCEP. This may also affect other international trade engagements we are pursuing” added Lopez.
“If our goal is to strengthen the Philippine economy, following the detrimental impacts of the COVID-19, non-participation or delayed participation in RCEP is not a strategic move,” according to Lopez.
In 2020, the region represented 51 percent of Philippines exports, 68 percent of PH imports, and 58 percent of the country’s investments. A number of Philippine key trading partners and competitors are present in this Agreement, and if the Philippines is not part of this FTA, trade and investments would be diverted away from the country to the detriment of our local businesses and peoples.
As other countries in the region enjoy the preferential treatment arising from enhanced market access, wider sourcing of raw materials, and strengthened and transparent trading systems, the existing linkages of the Philippines to the global value chain may deteriorate as investors and businesses look to other countries for better economic environment and opportunities. Even Philippine exports could become less competitive (including electronic and agricultural products) as intermediate goods used as inputs for further production and manufacturing become more expensive in comparison to the country’s competitors.
Lopez further warned that delayed or non-participation in RCEP will not only cause missed opportunities, but also economic costs.
He explained that to date, six ASEAN Member States (AMS) and five ASEAN free trade partners (AFPs) have deposited their respective instruments of ratification.
With this, he said, the RCEP Agreement is set to enter into force by 1 January 2022, and these countries will be able to take advantage of the enhanced market access to trade in goods, services, and investments that the RCEP offers --- leaving behind other countries who have yet to implement the RCEP, including the Philippines.
Non-participation to RCEP will cause the Philippines to miss out on this opportunity to facilitate the much-needed economic growth and recovery. Dr. Francis Mark A. Quimba of the Philippine Institute for Development Studies (PIDS) has even showed that delayed or non-participation to RCEP would lead to a 0.26 percent decline in real GDP of the Philippines.
Quimba said initial estimates showed that while East Asian countries stand to benefit the most in terms of increase in exports, the Philippines and Viet Nam stand to gain the most in terms of real GDP due to lower trade costs and higher factory gate prices.
“Economies that fail to ratify the agreement (when the rest of the countries do) will be adversely affected. The Philippines and Vietnam are among the countries that have positive export growths once the RCEP is in effect, and much of the growth is coming from new-product margin where innovations stem,” said Quimba.
Furthermore, according to the UNCTAD Report, RCEP represents 50 percent of the global manufacturing output; 50 percent of global automotive output; 70 percent of electronics; 26 percent of Global Value Chain (GVC) Trade Volume; 60 percent GVC for Electrical/Machinery, Petroleum/Chemicals, Textile/Apparel, Metal & Transport Equipment, 35 percent Contribution to Global Exports of Electronics and Machineries; and the main GVC hubs of big economies such as South Korea, Japan and China. Therefore, Philippine participation in this trade deal is critical in ensuring preferential access to these value chains.
A study conducted by Dr. Caesar Cororaton, a Research Fellow at the Virginia Polytechnic Institute and State University (USA) and a Visiting Scholar at the De La Salle University (DLSU), noted that the RCEP is estimated to improve the country’s trade balance by as much as US$ 128.2 Million, increase overall welfare by $541.2 Million, contribute to a 1.93 percent real GDP growth, and lower poverty incidence by 3.62 percent in 2031. The said study also provides an insightful analysis on the significant gains of the Philippines from RCEP, not only in terms of trade and GDP, but also in the area of poverty reduction and overall welfare.