RCEP cannot break what is already broken

CONCERNS about possible consequences of lowering trade barriers, particularly through the Regional Comprehensive Economic Partnership (RCEP), are misplaced. Critics fear that local markets will be flooded with imports, and that will be the death knell for local industries, especially agriculture. As others have said, though, the reality is that agriculture was already broken long before the Senate ratified that trade pact.

The economic managers welcomed the approval of the Senate resolution concurring in the ratification of the Regional Comprehensive Economic Partnership (RCEP) agreement on February 21, 2023. Photo from Department of Finance Fb page

As mentioned before in this space, RCEP is important to the Philippines for at least three reasons. One, the treaty provides local goods with access to foreign markets. RCEP is now the largest free-trade area in the world that includes the 10 members of the Association of Southeast Asian Nations or Asean plus China, Japan, South Korea, Australia and New Zealand. Of course, Filipinos need to be export-oriented to capitalize on the opportunities from more access.

Second, RCEP helps attract foreign investments to the country, perhaps those from regions not covered by the pact. Western investors, for instance, do not have to set up factories in China to cater to its large market. They can locate elsewhere, like the Philippines, and still get access to that market.

Of course, the Philippines needs to be more competitive. Also, we were the last country to ratify RCEP, meaning others have first-mover advantage in inviting investors.

Third, RCEP benefits peace and stability in the Indo Pacific region. As suggested by columnist Rigoberto Tiglao, trade and related economic interests could become the focus of regional states, rather than territorial disputes.

Already broken

Even if one remains skeptical about RCEP, he or she would be wrong to assume that it harms local farmers and agriculture in general. That sector was already unproductive and problematic long before ratification.

Consider that nearly half of Filipinos live in rural areas, and yet the agriculture sector contributes less than 10 percent to gross domestic product (GDP). That figure seems consistent with the sector's past performance, suggesting that protectionist policies have failed.

There are other troubling figures. Last year when the total GDP growth exceeded forecasts, agriculture increased less than a percent. Fisheries, a part of agriculture, contracted by 5 percent. Also, people who work or rely on agriculture, fisheries and forestry account for more than half of the country's poverty incidence.

The Philippines seems to be, as they say, scraping the bottom of the barrel when it comes to agriculture. RCEP cannot make it worse, and there may be no other way but up.

Still, the authorities tried to allay concerns about the trade pact. Secretary Arsenio Balisacan of the National Economic and Development Authority said this in a statement: “Based on the 2021 trade data from the International Trade Center, under the RCEP, only 15 agricultural commodity groups corresponding to 33 tariff lines will have lower tariff rates compared to some Asean+1 FTAs.” FTAs stand for free trade agreements, and plus 1 refers to the bloc's trade pacts.

“This is equivalent to only 1.9 percent of the total 1,718 agricultural lines and only 0.8 percent of the total agricultural imports,” he explained. “Of these 33 tariff lines, 17 are raw materials, eight are intermediate products, while only eight are final goods.”

In other words, the Philippines has been gradually lowering barriers to imported agricultural products long before RCEP. That has been the policy trend since the Philippines joined the World Trade Organization in 1995. Meanwhile, the economy has been growing since then.

Besides, the government has good programs to revive and modernize agriculture. One is the Rice Competitiveness Enhancement Fund, which promotes farm mechanization, seed development and credit assistance, and provides other services to farmers. Also, the Marcos government wants to invest in irrigation and other agriculture infrastructure. And the new Philippine Development Plan has strategies for uplifting farmers and their sector.

With all those programs, productivity hopefully improves. And that is where RCEP pays off. Export-ready goods, such as mangoes and bananas, will have more access to even larger markets. Also, RCEP could incentivize farmers of other goods to increase their productivity and improve quality so that they too can earn more.