PH to lose papaya, garment exports if RCEP is not ratified

The Philippines, the second largest papaya exporter in ASEAN, is seen to lose its papaya exports market to Malaysia if the country fails to join the Regional Comprehensive Economic Partnership (RCEP), which will abolish the 24 percent tariff on the exports of this tropical fruit.

During the RCEP Senate hearing Tuesday, Feb. 7 chaired by Senator Loren Legarda, Trade and Industry Assistant Secretary Allan B. Gepty cited papaya as among the country’s agricultural produce that will be disadvantaged by not participating in RCEP.

The mega free trade deal phases out the 24 percent papaya tariff over a ten-year period or at 2.4 percent annual reduction, he said.

At present, the Philippines ranked second largest papaya exporter in ASEAN, the first being Malaysia.

Should the Philippines cannot participate in RCEP, Gepty explained that the country’s papaya exports would be slapped with 24 percent duty. This means, the Philippines’ papaya export is more expensive than the papaya exports of Malaysia, which will be entitled to lower duty immediately and zero duty on the tenth year of RCEP.

“If we do not join RCEP, the effect is we have to pay 24 percent duty on our papaya if we export to other RCEP countries such as Korea and Japan,” Gepty said.

Aside from papaya, Gepty said garment is one export that the Philippines should be taking advantaged by participating in RCEP.

Gepty explained that the Philippines can source raw materials for garments from 14 RCEP member countries like China for export to other RCEP countries like Japan and Korea. This is because RCEP has simplified and easier system on Rules of Origin (ROO) where it only requires 40 percent regional value added (RVA) to be able to export to its member countries.

It would be easier also for the Philippines to comply with the 40 percent RVA because it is a member of a huge free trade area, unlike in a small FTA where sourcing is limited.

In his opening remarks at the RCEP hearing, DTI Secretary Alfredo E. Pascual reminded the senators that RCEP is an ASEAN-led FTA, aimed at maintaining ASEAN’s centrality within the broader region.

“It is not just a simple trade agreement providing enhanced market access and a stable regulatory framework. It is a strategic tool in ensuring the region’s continued economic advantage, and will help to maintain a balance of power within the region,” said Pascual.

Among the ASEAN 10, only the Philippines has not yet ratified the RCEP deal. The previous Senate failed to concur Malacanang’s ratification of the trade treaty because of strong opposition from the agriculture sector.

As other countries in the region enjoy the preferential treatment arising from enhanced market access, wider sourcing of raw materials and a strengthened and transparent trading system, Pascual warned that 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 the country’s exports, Pascual said, 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 competitors.

RCEP is expected to further promote economic efficiency of member states, strengthening linkages in sectors such as manufacturing, technology, agriculture, and natural resources, as well as reinforcing MSME participation in the global value chain network.

Through improved market access for goods and services as well as stable and predictable rules, RCEP provides a platform to encourage more investments in the country.

However, Pascual highlighted that RCEP is not only a policy tool for trade liberalization and market access. RCEP provides a framework of rules and disciplines to ensure regulatory consistency, creating a conducive business environment that is key to ensuring the confidence of the business sector, and spurring further economic growth.

Considering that a number of key trading partners and competitors are also participating in this agreement, Pascual emphasized that “Delays in Philippine participation will result in the diversion of trade and investments toward countries already within the regional bloc, at the expense of our local industry and people.”

As demonstrated by the high anticipation among foreign investors for the Philippines to be part of this Agreement, and alongside the recent economic reforms undertaken by the country such as amendments to the Public Service Act, Foreign Investments Act and Retail Trade Liberalization Act, “we are indeed sending a signal of our readiness and seriousness to accelerate the country’s economic recovery and overall standing in the global trading environment.”

“Thus, while we recognize the concerns raised by some sectors, it is important to understand the bigger picture and view RCEP in terms of the opportunities it can bring to us. We are situated in a dynamic region of the world and we cannot afford to remain out of its further economic integration,” the trade chief concluded.