The Philippines as ‘Ukay-ukay’ Republic

The other week, Laborem Exercens gave space to the collective statement of over 140 farmer, worker and small business organizations asking the Senators “to vote NO to rcep.” Malacañang warned the senators that the Philippines “cannot afford to be left behind” in the imagined rcep bandwagon in asia. The country will miss the opportunity to export more and build a stronger economy under a regional free trade arrangement that is touted to be the biggest in the world. rcep’s members include the east asian dragons (China, Japan and South Korea), the countries down under (australia and New Zealand), and the nine asean members (with the Philippines, the 10th asean member, still awaiting Senate ratification of rcep).

The government’s economic planners were economical in their explanations on how such an imagined opportunity will be lost. An RCEP-LED trade liberalization means more exports, stronger industrial and agricultural sectors, and more investments and jobs for Filipinos. Non-ratification of RCEP means “maiiwan ang Pilipinas sa Asya.”

The farmer, worker and small business organizations that signed on to the “NO to RCEP” campaign have taken a contrary position. Ratification now means further stagnation of the country’s industrial and agricultural sectors. These sectors will easily be pummeled by exports coming from the East Asian dragons, the countries down under, and the more competitive Asean members such as Singapore, Thailand and Vietnam. This, in fact, is the conclusion made by Dr. Rashmi Banga, a senior economist of UNCTAD, a UN body monitoring global trade flows since the 1980s.

The more developed countries in the RCEP bloc will gain more in terms of bigger markets for their products. Not the Philippines and the poor Asean members lagging behind in development. The methodology used by Dr. Banga involves analysis of the present structures of the economies of the different trading partners, assessment of the comparative growth and decline of the economic sectors and subsectors of each country, estimation of the relative values or gains acquired or lost by the different trading partners before RCEP, and projections of what are likely to happen once RCEP becomes fully operational. This methodology is clearly more logical and scientific compared to the usual CGE modeling being done by Neda, which is based on imagined “perfect competition” conditions.

But should the Philippines reject RCEP fully?

What the “NO to RCEP” statement drafted under the leadership of the Federation of Free Farmers is saying: “Let us not put the cart before the horse.” The point is to have the Philippine economic house in order. This means having a credible survival and competitiveness program in place before diving into a bolder trade liberalization program (zero tariffs for most products originating from RCEP countries).

In relation to this, three major programs are needed. First, a program to enhance the competitiveness of Philippine industry and agriculture by lowering the cost of doing business. How can the country beat Vietnam in manufacturing and agricultural production when Vietnam’s electricity is 40 percent cheaper? Of course, there are other unresolved cost-of-doing-business issues that must be addressed. These include the perennial bureaucratic red tape, anarchic port and transport systems, and yes, smuggling that kills the local products through tax avoidance (misdeclaration, undervaluation).

The second sine qua non is having an effective trade remedy program. The “NO to RCEP” coalition has been bombarding Neda, DA and DTI with complaints on the absence of an effective program to defend domestic producers and to counter dumping and import surges. A remedy program should be accessible to all Philippine producers, especially the small farmers and home-based micro entrepreneurs. The trouble is that the RCEP document is clear on trade liberalization but vague on trade disputes and the settlement of such disputes.

The third program is focused on the upgrading of the overall competitiveness of Philippine industrial and agricultural producers. This means the nation should get its act together, e.g., buy-pinoy movement (look how aggressive America and EU are on their respective buy domestic programs), increased budget on R&D and innovation in support of local producers, greater academe-industry-agriculture collaboration, and public-people partnerships (e.g., farmer-government and labor-government partnership, not just corporate-government or PPP partnership).

Without the foregoing readiness program in place, saan pupulutin ang Pilipinas?

In the TWG hearings convened by Senate President Migz Zubiri and Senator Loren Legarda, the “NO to RCEP” coalition pointed out that the foolhardy effort of some quarters to push for ratification despite the absence of a clear survival and competitiveness program means the country is indeed headed to become an “Ukay-ukay Republic.” Note that in the 1980s, when the Imf-world Bank team unilaterally imposed on the debt-saddled Philippines a program of “agricultural deregulation” and “import liberalization” sans any survival competitiveness program, the two economic sectors sharply shrank and the country’s dependence on imports, including “ukay-ukay” garments and textiles, grew.

In the mid-1990s, after the Senate ratification of Philippine WTO membership, the industrial and agricultural sectors continued to stagnate. The Philippines became a “net agriculture-importing” country. Industries such as the tile industry, Marikina shoe industry, foundry, tire manufacture and so on disappeared. On the other hand, new “ukay-ukay” products such as Japan and Korean auto parts and appliance “surpluses,” including second-hand vehicles, emerged and began flooding the market.

Today, after the passage of the Rice Tariffication Law in 2019, the Philippines has cemented its position in the world rice market as the biggest importer. Meantime, rice consumers failed to get the promised cheaper rice, that is cheaper than the pre-rtl prices of 2017.

With the proposed ratification of RCEP despite the clear absence of a survival and competitiveness program for the real sectors of the economy, it is not difficult to imagine what will happen. The Philippines shall indeed become an “Ukay-ukay Republic.”