The Philippines would benefit in the infrastructure and supply chain pillars of the IPEF but it would benefit more if a separate digital economy agreement would push through, according to an international think tank.
Gregory Poling, director and senior fellow of Director and Senior Fellow of the Center for Strategic and International Studies, dissected the benefits of the Philippines if it participates in the new US initiative during an economic briefing on “The US Indo-Pacific Economic Framework (IPEF): What’s in it for the Philippines?” hosted by the Makati Business Club and the American Chamber of Commerce of the Philippines.
The IPEF is an initiative by the Biden Administration to seek partners for an economic bloc to counter China’s growing influence. Unlike the Regional Comprehensive Economic Partnership (RCEP), the IPEF is not a traditional trade agreement and will not include the lowering of tariff barriers. In hosting the briefing, AmCham and MBC said the President Biden administration’s IPEF raises numerous concerns and questions on how the Philippines will place itself as two global powers, China and the US, position themselves in the ASEAN region. This also brings about the question of which strategies will serve the country better in the long run.
The IPEF has four pillars: everything related to trade, environment, labor, digital economy and trade facilitation; supply chain resiliency; infrastructure and decarbonization; and anti-corruption taxation.
But Poling noted that the first pillar does not provide market access to trade as the Biden administration does not expect to get an approval for ratification from an unfriendly Congress.
Poling also raised uncertainty in the first pillar because the US is unilaterally demanding from partners without really offering any concessions, he said there are clear benefits in the three other pillars, making the whole package workable.
According to Poling, one reason the Philippines failed to ratify RCEP is because it offers no additional market access for its products. So far, 14 countries in the Indo Pacific, including the Philippines, are joining the IPEF, making the world largest economic bloc.
With issues hounding pillar one, Poling said there is a probability to carve a separate digital economy deal in the IPEF. Like-minded countries like the Philippines that already agree on the types of standards and privacy regulations that could be easily codified will have easier time forging an agreement.
“This should be enormously attractive to the Philippines. The Philippines has far ahead, the most open digital economy,” he said. He added that Philippines is just behind Singapore and is head and shoulders above Indonesia and Vietnam. The Philippines is also leading Malaysia and Thailand when it comes to online regulatory standards that are attractive to the US, Japanese and Korean companies in particular.
“But that does not mean there is no room for future regulation. I think the US is starting to finally recognize that we’ve lost some of the General Data Protection Regulation (GDPR) debate,” he said. GDPR is a regulation in EU law on data protection and privacy in the European Union and the European Economic Area. The GDPR is an important component of EU privacy law and of human rights law, in particular Article 8 of the Charter of Fundamental Rights of the European Union.
While these things can be negotiated, Poling cited the thriving BPO sector, among others, that makes greater market access abroad and greater regulatory coherence in bigger economies like Japan the US are very attractive to Philippine firms and Philippine IT companies to ensure supply chain resiliency.
He further noted of the Philippines’ comparative advantages particularly in high-technologies given the existing economic zones with western technology locator firms.
Since these firms are already existing in the Philippines, Poling said, the country could benefit from a diversion of some of the supply chains from China. Vietnam, which has gotten ahead of the supply chains from China, will continue to benefit, but the Philippines is “pretty well placed to get a piece of this pie.”
On the infrastructure pillar, he said, the Philippines is going to welcome that not just because of any potential funding of any sort, but because it is also a priority of the new Marcos administration as it was under then President Duterte.
The infrastructure pillar is expected to facilitate more funding from the US, Japan and Korea through multilateral development banks.
On the fourth pillar, anti-taxation pillar, Poling said “nobody really knows what it means or why it’s there.” But he said that anti corruption and taxation has been a big part of Biden’s administration’s message abroad.