The Philippines is one of the signatories to the Regional Comprehensive Economic Partnership (RCEP), which was signed on Nov. 15, 2020 after eight long years of negotiations. The free trade agreement (FTA) among the 10 member countries of the Association of Southeast Asian Nations (ASEAN), South Korea, China, Japan, Australia, and New Zealand is expected to bring significant economic benefits to its signatories.
The FTA aims to promote greater openness, create a more business-friendly environment, encourage closer integration of economies, and institute a stable, predictable, and rules-based system of trade. It will eliminate as much as 90% of the tariffs on imports between its signatories within 20 years of coming in effect.
For the Philippines, specifically, the FTA promises to be a crucial step in our shift to an investment-driven economy, given our underlying economic challenges and the lingering effects of the COVID-19 pandemic. Being an RCEP signatory will be crucial to our recovery and sustainable growth.
There is a crucial step, however, that needs to be taken before the Philippines can fully reap the benefits of being part of this agreement: Our country still has to ratify this treaty.
Only the Philippines and Myanmar have not yet ratified the RCEP. Former President Rodrigo Duterte, for his part, ratified it in September 2021 and forwarded it to the Senate for deliberation and eventual concurrence. Our senators, however, deferred their concurrence, seeing a need for safeguards for our embattled agriculture sector.
During the Senate hearings earlier this year, no less than the National Economic and Development Authority (NEDA) and the Department of Trade and Industry (DTI) argued that pursuing parallel efforts — for RCEP to boost our economy, and for efforts to improve the productivity and competitiveness of the agriculture sector — is definitely possible and in fact beneficial in the long run.
Thus, earlier this month, Senate President Juan Miguel Zubiri stated his commitment that upon the resumption of sessions this year, the Senate will prioritize the ratification of the RCEP and the passage of bills of national importance.
We hope our senators remain true to their word.
The RCEP’s specific benefits to the Philippine economy, given our peculiar situation and unique profile, are many.
Foremost, our co-signatories make up roughly 50.4% of our export markets, 67.3% of our import sources, and 58% of the source of Foreign Direct Investments (FDIs).
The RCEP will also improve our trade position, which as of November 2022 is in a deficit amounting to $3.68 billion. Imports continue to dominate our total trade, accounting for 60.3% of the total. The FTA could be an opportunity to gain access to a wider export market, increase export production, and lessen our reliance on imports by encouraging more investments, specifically in the manufacturing sector.
Investment-led growth will create higher quality jobs and more employment opportunities for Filipinos, making the economy more resilient and productive. Indeed, the RCEP will enhance investment opportunities through improved promotion, protection, and facilitation.
With lower tariffs, local industries will be encouraged to produce more and engage further in trade.
Of course, lower tariffs could be a double-edged sword and can also cause larger import volumes to flow to the Philippines, exacerbating the trade deficit. Still, I believe the exposure and increased access of the Philippines to export markets far outweigh this potential risk. The RCEP will enable our industries to compete in the international market and push our industries to be better and more efficient.
With concerns on agriculture addressed and fears assuaged, our senators must now move fast and concur with the executive ratification of the RCEP. Every day they tarry is another day of missed opportunities in export and employment. Most importantly, finally ratifying the RCEP will send a strong message to the rest of the world that the Philippines is committed to having a stable policy and regulatory environment. After all, we are aware that these are critical to attracting investments.
Another opportunity is the upgrade negotiations for the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) that were concluded substantially last November. At that time, the Philippines was not able to make ambitious commitments regarding investments because reforms, such as amendments to the Public Service Act, had not yet been passed.
But now these game-changing reforms have been enacted into law.
This is now a valuable opportunity for the Philippines to demonstrate to the rest of the world that it is open to investment. Commitments based on actual legislation offer significant assurance to the international business community that the Philippines is a good place to invest in, and that policies are not made or changed on a whim: they have solid legislative, legal basis. Thus, these critical economic reforms cannot be arbitrarily undone.
Like the situation with RCEP, the AANZFTA offers a window of opportunity that would be important to our economic recovery and growth.
Ratifying the RCEP now and seizing its huge opportunities will show that the Philippines is ready to sustain a growth trajectory.
Victor Andres “Dindo” C. Manhit is the president of the Stratbase ADR Institute.