What's Happening in the Philippine Free Trade Agreements?

4Americas, on the other hand, is a preferentialtrade agreement. Thus, its scope of activity remainslargely limited to trade and investmentalthough it has been used as a forum for discussingand implementing standards for laborand the environment (Choi and Caporaso2002). Efforts are currently being pursued towardthe formation of the Free Trade Agreementof the Americas (FTAAs) which would rivalthat of the EU’s economic union. Meanwhile,although East Asia lags far behind interms of institutionalization, the main focus ofRTA activity has shifted away from Europe inthe last two years toward Asia Pacific, specificallythe East Asian region.Shift to regional/bilateral FTAapproachCountries traditionally favoring most favorednation (MFN) liberalization are increasinglybeing drawn into RTAs. They now see FTAs ascomplementary to the WTO process. Moreover,issues that usually take time or have a “deadlock”before the multilateral negotiations arebrought by them in the RTA forum, as seenbelow in the examples of Japan and the UnitedStates.Japan. Japan has abandoned its “single track”approach to multilateral WTO. Among the reasonsare: (1) its growing disenchantment withthe GATT/WTO; 5 (2) China’s threat to replaceJapan as the primary driving force for economicgrowth and integration in the region; and (3)It was in the late 1990s when the region saw movesto institutionalize free trade agreements throughbilateral FTAs and other initiatives. Now, there is anincreasing trend toward an East Asian economicintegration. East Asian regionalism appears to becharacterized and stimulated more by dynamicdevelopments in markets rather than by formalpolitical institutions...the need for a domestic structural reform catalyst.Japan’s FTA initiatives consist of a dual ortwo-track approach that is negotiating withASEAN as a whole and bilaterally with individualmember countries.USA. On October 26, 2002, President GeorgeBush announced United States’ trade initiativewith the ASEAN called the Enterprise for ASEANInitiative (EAI). Under the EIA, the US and individualASEAN countries will jointly determineif and when they are ready to launchfree trade agreement (FTA) negotiations. Forthe United States, FTA has become an importantelement of its trade policy, a strategyknown as “competitive liberalization.” Thisstrategy is designed to simultaneously push tradeliberalization forward on the bilateral, regionaland multilateral fronts. It is meant to spur tradenegotiations by liberalizing trade with countrieswilling to join FTAs, and to pressure othercountries to negotiate multilaterally. 6East Asia FTA formationIt was in the late 1990s when the region sawmoves to institutionalize free trade agreementsthrough bilateral FTAs and other initiatives.Now, there is an increasing trend toward anEast Asian economic integration. East Asian regionalismappears to be characterized andstimulated more by dynamic developments inmarkets rather than by formal political institutions,i.e., the convergence of the East Asianmarket 7 is actually happening even prior to theformal integration phase (Krumm and Kharas2003). Nonetheless, a need for a formal FTA is______________5This is due to the breakdown of the WTO ministerial talksin Seattle in December 1999 and the dissatisfaction withthe implementation of rules specifically on anti-dumpingby some WTO members.6US Congressional Research Service (2003) available atwww.crs.gov.7An example is the international production sharing schemewhich resulted in a remarkable increase and concentrationof intraregional trade.PN 2005-05PolicyNotes

increasingly being felt owing to still fragmentedmarkets within the region characterized by diversityof cultures, and economic and politicalstructures.Consequently, there is also a plethora of proposalsfor both bilateral and regional arrangementsin the region. As such, it is not unlikelythat an East Asia-wide FTA 8 would be achievedsooner or later. This is also inevitable owing tothe growing sentiment that trade liberalizationwithin the ambit of the WTO and APEC hasnot been making substantial progress. In addition,China’s succession to the WTO, the successfulintegration of the European regionthrough the European Community (EC); andthe impending FTAAs, had shaped the growingsentiment for the need to create a “strategicalliance,” if only to enable the Asian regionto face the current global trading movement.______________8The concept of a broad East Asian FTA was discussed atthe December 2000 ASEAN Plus Three summit to includeChina, Japan and South Korea. The framework for the EastAsia FTA finds its basis from the “Joint Statement on East AsiaCooperation” (Manila 1999). The Statement declared thatthe future issues of concern for ASEAN+3 would includeeconomic, monetary and financial, social and human development,scientific and technological development, cultureand information, development cooperation, and politicaland security issues. Since then, several ministerial levelmeetings and two working groups have been organized. Inthe ASEAN+3 summit, short- term measures like the formationof the East Asia Forum and East Asia Business Counciland long-term measures like the formation of the East AsiaFree Trade Area and evolution of ASEAN+3 summit to EastAsian summit were introduced. The process of the East Asianregionalism has been progressing along two tracks, onebeing financial cooperation and the other toward an Asianeconomic community (Young 2004).Developments of FTAs involvingthe PhilippinesAs early as the 1980s and in the face of growingregional integration and global competition,the Philippines’ strategy had shifted froma protectionist regime to a relatively openeconomy. In the pursuit of regional cooperation,it was a party to the establishment of theAsia Pacific Economic Cooperation (APEC) in1989 as well as the creation of the ASEAN FreeTrade Area (AFTA) in 1992. The failure, however,of the two successive rounds in the WTOas well as the rise of Asian bilateralism hadprompted the Philippines to jump into the“bandwagon” of forging FTAs. The Philippinesthen started engaging in formal FTA negotiations,both bilaterally, with Japan for an economicpartnership agreement, and interregionally,for the establishment of the ASEAN-China, ASEAN-Japan and ASEAN-India FTAs.Other prospective FTAs involving the Philippinesare the US-ASEAN, ASEAN-Korea and theASEAN-Australia-New Zealand Closer EconomicRelations (aside from other bilateralengagements) arrangements.Ongoing bilateral FTA negotiationsOn December 4, 2002, Japan’s Prime MinisterJunichiro Koizumi and the Philippines’President Gloria Macapagal-Arroyo held ameeting in Tokyo during the latter’s visit to Japanand discussed the establishment of a Japan-PhilippinesEconomic Partnership (JPEP).Based on the agreement on the basic frameworkfor negotiations in February 2004, theeconomic partnership agreement (EPA) concludedits 5 th round of negotiations last November.Negotiations were targeted for conclusionby the end of 2004 and implementationof the EPA is expected in 2005. The envisionedJPEPA has two main objectives—liberalizationand facilitation, and economic partnershipenhancement as shown in Table 1.Progress in the ASEAN economicintegrationWithin the ASEAN, the overall improvementof the region’s investment environment as wellas strong regional growth and integration hadbrought attention to two things: the realizationof an ASEAN Economic Community (by2020) and the pursuit of economic ties with5PolicyNotesPN 2005-05

6Table 1. Scope of the Japan-Philippines Economic PartnershipAgreement (JPEPA)Chapter Chapter Title DomainNo— Preamble —1 General provisions Liberalization and facilitation2 Trade in goods3 Rules of origin4 Customs procedure5 Paperless trading6 Mutual recognition7 Trade in services8 Investment9 Movement of natural person10 Intellectual property11 Government procurement12 Competition13 Financial services cooperation Economic partnership14 Information and communications enhancementtechnology15 Energy16 Science and technology17 Human resource development18 Trade and investment promotion19 Small and medium enterprises20 Broadcasting21 Tourism22 Dispute and avoidance settlement23 Final provisionsthe ASEAN’s major trading partners throughFTAs (Table 2).As seen in the above, engagement in FTAs isthus becoming a significant trade policy toolfor the Philippines. These FTA initiatives basicallyhave a two-fold domain: one is trade facilitationand liberalization, and two is the enhancementof economic relations, at least foreconomic partnership agreements. These objectivesmanifest the Philippines’ commitmentto greater trade liberalization in this era of glo-balization. With respect to the integration ofeconomies in the bilateral or regional level,these preferential FTAs are seen more ascomplements rather than threats to the multilateralsystem of the WTO.ConclusionThe foremost consideration in entering intobilateral or regional FTAs should be the Philippines’own national agenda. The country’sforeign trade policy with respect to engagingin FTAs should be guided by the followingunderlying principles and objectives of reforms:(1) global competitiveness, (2) sustainablegrowth, (3) efficiency in allocation of resources,and (4) poverty alleviation.There is no single template for an ideal FTA.However, in formulating such, a country (asenunciated in an earlier PIDS Policy Notes —PN No. 2004-09, September 2004) should atleast be able to have a clear objective with respectto: (a) the elements of an FTA, its substantivecontents and institutional framework;(b) the criteria for choosing a partner to theFTA; and (c) the assurance that the FTA shouldbe more than a FTA per se and more of amechanism toward achieving a stronger purpose.At the same time, in drafting the country’sareas for negotiation and FTA agenda, thecountry could benefit from the different modelsof FTAs entered into by the prospective partners.Finally, there should also be an explicitadherence to following consistency with theWTO.Aside from these traditional FTA issues, attentionshould also be given to the so-called enhancingfeatures of new age FTAs. Aside fromthe fact that they facilitate trade, these provisionswould also serve as institutional safetynets for each FTA partner or member state. Theobjectives of the FTA would be better achievedPN 2005-05PolicyNotes

7Table 2. Prospective ASEAN+ FTAsFTA PartnerStatus of NegotiationChina – Signing of Agreement on Services and Dispute Settlement Mechanism in November 2004– Recognition by ASEAN 10 members of China’s “market economy” status on September 4, 2004– FTA establishment by 2010/2015 for ASEAN-6/Cambodia-Laos, Myanmar and Vietnam (CLMV)– Implementation of ASEAN-China FTA for Trade in Goods on January 1, 2005 (Early Harvest Program implementedJanuary 1, 2004 except Philippines)Japan – Target conclusion of FTA by April 2007 and implementation by 2012/2017 ASEAN founding/new Members– Formal negotiation by April 2005– Realization of ASEAN-Japan Closer Economic Partnership in 2012India – 6th Meeting on ASEAN-India Trade Negotiation Committee in September-October 2004– Implementation of Early Harvest Program on November 1, 2004 with complete tariff elimination by 2007/2010(ASEAN-6/CMLV)CER (Australia – ASEAN-CER Commemorative Summit in November 2004 (FTA launch)and New Zealand) – FTA negotiations to start in 2005European Union – Launch of the Trans-Regional Trade Initiative (TREATI)- A New Partnership with South East Asia in July 2003South Korea – Completion of the Joint Study on the feasibility of ASERAN-Korea FTA@ Negotiations to commence in 2005– Realization of FTA by 2009United States – Enterprise for ASEAN Initiative (EAI) announced on October 2002if, in the case of a developing country, provisionson cooperative undertakings, support andassistance in the areas of technology transfer,human resource development, environment,SMEs and infrastructure development are included.In drafting the Philippine FTA policy, considerationof the following would prove to be useful:• Intra- and intergovernmental coordinationmechanisms for coordinated policy decisionmakingprocess;• Participation of private sector through businessadvocacy, consultation, observer status innegotiations; and• Networking of negotiators, academe/expertsand business/industry sector as well ascivil society.Finally, multilateralism should still be the ultimategoal. Preferential agreements could beentered into, bilaterally, where benefits can bemaximized or specific concerns addressed,and regionally where the arrangement canserve as catalysts for development and mechanismfor a more orderly global trade order. Inthese endeavors, consistency with the WTOin the long run should always be kept in mind.ReferencesKrumm, K. and H. Kharas (eds). 2003. East Asiaintegrates: a trade policy agenda for sharedgrowth. The World Bank.Medalla, E. and D. Lazaro. 2003. The future of aJapan-Philippines economic partnership. DevelopmentResearch News (DRN) XXI, 5 (September-October).Makati City: Philippine Institutefor Development Studies.———. 2004. Exploring the Philippine FTA policyoptions. PIDS Policy Notes No. 2004-09.Makati City: Philippine Institute for DevelopmentStudies.PolicyNotesPN 2005-05

8For further information, please contactThe Research Information StaffPhilippine Institute for Development StudiesNEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, 1229 Makati CityTelephone Nos: 892-4059 and 893-5705Fax Nos: 893-9589 and 816-1091E-mail: emedalla@pidsnet.pids.gov.ph; lthea@pidsnet.pids.gov.ph;jliguton@pidsnet.pids.gov.phThe Policy Notes series is available online at http://www.pids.gov.ph. Reentered assecond class mail at the Business Mail Service Office under Permit No. PS-570-04NCR. Valid until December 31, 2005.Young, J.C. and J. Caporaso. 2002. Comparativeregional integration. In Carlsnaes et al. Handbookof International Relations. SAGE Publication.Young, S. 2004. Varieties of regionalism in EastAsia: a critical assessment. Paper presentedat the PECC Forum Seminar “RTAs and theFuture of Regional Integration in East Asiaand the Asia Pacific,” 16 April, Beijing.New PublicationsRural Finance in the Philippines: Issues and Policy Challengesby Gilberto M. LlantoThis book, which is co-published with the Agricultural Credit Policy Council (ACPC), providesa review of carefully selected literature and descriptions of valuable experiences that could leadto a policy research agenda on rural finance. Such an agenda must be drawn from a vision topromote the provision of efficient, broadly based, and sustainable financial products and servicesto various rural economic agents. The agenda should aim at producing research studiesthat will offer recommendations to policymakers on how to remove the constraints on both thedemand for and supply of financial services and products in the rural areas.2005. 122 pages. 6” x 9”. PhP130.00. Foreign order (excluding postage and handling): US$7.00. ISBN 971-564-082-6Sustainable Tourism Challenges for the Philippinesedited by Ramon Benedicto A. AlampayTourism holds the promise of increased employment and income opportunities for Filipinos,particularly in the coastal and rural areas of the country. Through tourism, the Philippinesaspires to become a stronger player in the integrated travel industry of today. This volume, acollection of research papers funded by the Philippine APEC Study Center Network (PASCN),reflects the scope and complexity of sustainable tourism development. The various papers alsomirror the complexity of sustainable tourism development, and they hint at the multidisciplinaryapproach that this mode of tourism needs to succeed. Each paper provides a unique academicangle on sustainability and tourism.2005. 304 pages. 6” x 9”. PhP525.00. Foreign order (excluding postage and handling): US$28.00. ISBN 971-564-083-4PN 2005-05PolicyNotes