Poverty to worsen if PH stays outside RCEP — study

Published May 15, 2022, 10:50 AM

by Bernie Cahiles-Magkilat

Severity of poverty in the Philippines could further worsen if the country will continue to stay outside of the mega trade deal Regional Comprehensive Economic Partnership (RCEP), an economist warned.

The poverty impact was explained by Dr. Caesar Cororaton, Research Fellow at Virginia Polytechnic Institute and State University, in his two simulations on the “Philippines and RCEP Cost Benefit Analysis” during a webinar on “Impacts of Non-ratification of RCEP in the Philippines” organized by the American Chamber of Commerce of the Philippines.

Based on his simulation, Cororaton said that if the country will join RCEP the country’s poverty incidence will be reduced by 0.26 percent in 2022 and further reduction to 1.37 in 2026 and higher cut of 3.62 percent in 2031.

This means, poverty severity will also be reduced by .27 percent in 2022 and 1.69 percent in 2026 before gaining higher positive impact reduction of 3.82 percent in 2031.

However, the simulation also showed that if the Philippines is outside RCEP, poverty incidence in the country could worsen by .05 percent in 2022, to .23 percent in 2026 and a higher 1.11 percent in 2031.

Likewise, severity of poverty could worsen to 0.10 percent in 2022, going higher to 0.48 percent in 2026 and 1.22 percent in 2031.

“It’s an increase in poverty essentially because of the economic contraction,” said Cororaton.

This is because, Cororaton said, the 11 RCEP countries will create more trade within the free trade area, resulting in trade diversion away from non-RCEP countries. RCEP countries will invest and do trade in RCEP countries because they provide lower cost of trade and lower cost of production.

For the RCEP area, exports will expand by $1.7 billion in 2022 and $1.8 billion in 2026 and $23 billion in 2031.

As the Philippines remains outside the trade bloc, Cororaton said trade diversion would negatively affect consumer price index that will impact skilled wages, unskilled wages, returns to capital and land rent.

As a result, the Philippine exports may be reduced by $7.1 million in 2022 to $52.4 million in 2026 and further deepening to $130 million in 2031. Likewise, Philippine imports could also contract by $7.9 million in 2022 to $73.7 million in 2026 and $194.5 million in 2031.

But if the Philippines will join RCEP, there could be an additional $29.1 million exports in 2022 to $151.5 million in 2026 and higher $339 million in 2031. Imports would be limited to $700,000 in 2022, to $71.5 million 2026 and $128 million in 2031 as the country’s exports growth outpaced imports in the RCEP area.

Major gainers among Philippine industries include semiconductors, fruits and vegetables, and machineries and equipment, the study showed.

“Trade liberalization in RCEP generates trade creation effects and will be benefit the Philippines in terms of higher GDP growth, lower commodity prices, higher factor prices, higher household income, positive net exports, higher welfare, and lower poverty,” said Cororaton.

He further added that all positive effects could be maximized if complementary policies are implemented to increase productivity and competitiveness of Philippine exports,” he concluded.