ASEAN trade expansion and RCEP

* This is my article in BusinessWorld last June 09, 2017.

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Despite various protectionist rhetoric by many world leaders against free trade, deep inside they know that there are “net gains” from trade and there are “net losses” under protectionism and restricted trade. Thus, while the multilateral trading agreement under the World Trade Organization (WTO) is not moving significantly, bilateral and regional free trade agreements (FTAs) are everywhere.

Trade within the Association of Southeast Asian Nations (ASEAN) is among the most dynamic in the world because of their consensus on faster unilateral trade liberalization policy and near zero tariff for all 10 member-countries since 2016. The region of some 630 million consumers would naturally attract the attention of its neighbors that want to source many of their needs and imports and want to export many of their products and services.

Thus, the ASEAN + 6 (Japan, China, South Korea, India, Australia, New Zealand) evolved and later these 16 countries moved towards creating the world’s biggest FTA covering half of the planet’s total population + the Regional Comprehensive Economic Partnership (RCEP).

Plenty of negotiations still ongoing but member-countries are hoping that RCEP will be formalized within the next two years. The main thorn in the agreement is not on tariffs but on non-tariff barriers (NTBs) or non-tariff measures (NTMs).

Last May 8, Stratbase-Albert del Rosario Institute (ADRi) organized a small group economists’ roundtable discussion on the “Global Geopolitical Situation: its Impact on Australian and Philippine Economies” at the Manila Peninsula Hotel. The main speaker was Mark Thirlwell, chief economist of Australia Trade and Investment Commission (Austrade).

It was a good forum with lots of useful data and insights. Among Mark’s points were the following: (a) Global tariffs are still low but have stopped falling, (b) Free Trade Agreement (FTA) coverage has grown but may have plateaued, (c) Non-tariff barriers are rising, including temporary barriers like anti-dumping, countervailing duties and safeguards, (d) trade liberalizing measures are surpassed or outnumbered by discriminatory/protectionist measures, and (e) ASEAN countries fit this global pattern as shown in these two very clear charts.

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During the ASEAN Summit in Manila, Malaysian PM Najib Razak reemphasized the need to reduce the NTBs or non-tariff measures (NTMs) in the region, which have surged from 1,634 in 2000 to 5,975 in 2015.

Mark also said that e-commerce is also enabling trade citing the role of eBay, Amazon, and he asked if the world has already attained “peak trade” as global trade/GDP ratio has somehow plateaued at around 63% over the past few years. I argued during the open forum that like “peak food” (formulated by Thomas Malthus and later by Paul Ehrlich, others) and “peak oil” (formulated in the ’70s, reformulated in the ’90s), “peak trade” will not happen.

The average merchandise exports/GDP ratio from 2010-2015 of these Asian economies are as follows: Hong Kong 352.2%, Singapore 260.7%; Vietnam 152.7%; Malaysia 134.7%; Taiwan 114.6%; Thailand 113.6%. Yearly data I got from the ADB’s Key Indicators, November 2016 report. These are exports of goods alone. If exports of services are included, the ratio will grow much higher.

20170608bc46cASEAN countries should proceed with further trade liberalization and reduce the number of NTBs/NTMs at least among themselves. There is economic prosperity in trade expansion and misery in protectionism.

The WTO and trade agreements

* This is my article in BusinessWorld last June 13, 2016.

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Free trade means free individuals and a free society.

People who cannot find certain goods and services at specific quality from local producers given their limited personal or household budget may be able to find those from foreign producers. And people who cannot sell their products or services to local buyers may find those buyers abroad.

And this highlights the beauty of free trade: No trade will occur unless both parties, the buyer and seller, will benefit. There are losers and gainers in free trade of course, the same way that there are losers and gainers in no trade (autarky) or restricted trade. Overall, there are “net gains” in free trade where the advantages outnumber the disadvantages.

Global free trade is supposed to be facilitated by the World Trade Organization (WTO) when it was created in 1995. But 21 years later, this is far from happening.

Regional trade agreements (RTAs) and even trans-continental agreements were invented such as the ASEAN Free Trade Area (AFTA), Regional Comprehensive Economic Partnership (RCEP), and the Trans-Pacific Partnership (TPP).

This topic was discussed during the recently concluded big annual international conference, “Jeju Forum for Peace and Prosperity 2016,” held in Jeju, South Korea. The forum also had a panel that had the theme, “Trans-Pacific Partnership: an Assessment of its Political Economy” sponsored by the Friedrich Naumann Foundation for Freedom (FNF) and the Economic Freedom Network Asia (EFN Asia) last May 26, 2016.

The discussion moderator was Dr. John Delury, Associate Professor at the Graduate School of International Studies, Yonsei University, Seoul, South Korea. The discussants were Dr. Sethaput Suthiwart-Narueput, Executive Chairman of the Thailand Future Foundation (TFF), Kwon Tae-shin, President of the Korea Economic Research Institute (KERI) in Seoul, and Dr. Keisuke Iida, Professor at the University of Tokyo Graduate Schools for Law and Politics, Japan. The opening remarks was given by Dr. Lars-Andre Richter, Resident Representative of FNF Korea Office.

Panel Rapporteur was Pett Jarupaiboon, who is also the also the Program Manager of EFN Asia, based in Bangkok, Thailand. Pett shared his notes with me.

The three discussants are all liberal economists and are pro-free trade, pro-WTO, but they disagree and debate on the role of the TPP.

In particular, Mr. Kwon and Dr. Iida were critical of the WTO because of the lack of progress in global free trade. Dr. Sethaput argued that RTAs like TPP would undermine the progress of the WTO.

Here are the main arguments of the discussants.

(1) Mr. Kwon, KERI, South Korea. TPP members will enjoy an increase in exports and income from an enlarged market size, and they will also enjoy more consumer welfare due to a decrease in import prices and intensive competition. According to a recent study by the Peterson Institute for International Economics, if TPP takes effect in 2017, the GDP of TPP member countries is likely to increase by 0.5%-8.1% in 2030, compared to the GDP forecast in an event of non-adoption of TPP.

(2) Dr. Iida, Univ. of Tokyo, Japan. TPP has a rule-making function, and these rules as provided in international relations as well as who wrote them are important issues. For the US, joining TPP is part of a larger strategy of “pivoting” to Asia or rebalancing to Asia. The US was preoccupied with the wars in Afghanistan and Iraq and was not paying enough attention to Asia. Therefore, TPP was part of the toolkit to achieve this new policy for the Obama Administration. For Japan, which has to rely on the US for security, TPP meant mending the fences with the US following a series of recent frictions including the planned relocation of one of the most important marine bases in Okinawa to outside Okinawa.

He added that TPP is seen to benefit Japan, projected at 2.6% of GDP (accordingly to the Cabinet Office), a significant number considering that its potential growth rate minus TPP membership is mere 0.5%.

(3) Dr. Sethaput, TFF, Thailand. A multilateral system with non-preferential treatment covering many countries like the WTO is better than mega-regional trade regimes like TPP and RCEP. Why?

(a) TPP is subject to the usual problems of trade diversion: increased trade among members, lesser trade with non-members.

(b) TPP is not just about trade, it also includes other issues like investor and intellectual property protection, labor and environmental standards, etc.

(c) The investor-state dispute settlement (ISDS) mechanism provides international arbitration that benefits US corporates. The US Trade Representative notes on its Web site that “the United States has never lost an ISDS case.”

(d) RCEP is a better alternative, has less non-trade baggage, uses the best elements of the multilateral system, like WTO dispute settlement, TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights).

(e) Ultimate goal should be the Free Trade Area of the Asia-Pacific, which includes all the existing members of APEC including China and Russia. This can be achieved through either expanding the TPP or merging TPP and RCEP.

Personally, I believe that the best trade policy is unilateral trade liberalization. Be friends to all countries and economies who can bring in the best products and services at best qualities and at the best or most competitive prices into our shores and shops. This will bring down the cost for all local manufacturers in need of cheaper capital goods, cheaper raw materials, and intermediate products, which will result in cheaper production processes. Local consumers will also benefit for obvious reasons. And those countries will likely return the favor with zero or very low tariff for Philippine exports too.

Since this is far from happening, the second best policy is multilateral and global free trade. This is not happening too. So the third best policy is joining mega-RTAs like the TPP and RCEP. The worst policy of course is autarky or no trade, or even very restricted trade.

The Philippines and all ASEAN members are already RCEP members. The Philippines should proceed applying for TPP membership. The dreaded provision ISDS is actually important and useful. It simply protects foreign investors who come to other TPP member-countries based on TPP rules, when other member-countries will suddenly change the rules midway. The ISDS in effect will help prevent members from arbitrarily changing rules on trade, investments, IPR, competition and other policies.

Bienvenido S. Oplas, Jr. is a Fellow of SEANET, President of Minimal Government Thinkers, which is a member of EFN Asia.
minimalgovernment@gmail.com

TPP, RCEP and other regional trade agreements (RTAs)

I am reposting this article from the EFN Asia website, written by a friend, Sethaput. One of those pro-free trade but anti-TPP papers.

As a free marketer like Sethaput, for me, the best action is unilateral, one-way trade liberalization. Just give the consumers and producers more choices, more options, more freedom where and whom to buy or sell. This is unpalatable to many sectors of course, similar to advocating significantly shrinking governments and foreign aid institutions, so its chance of being adopted is very small.

So the second-best solution is multilateral, worldwide liberalization. But this is not happening too, look what’s happening at the WTO negotiations, 21 years after it was created in 1995. So the third-best solution is regional liberalization via regional trade agreements (RTAs) like the ASEAN FTA (AFTA), ASEAN Economic Community (AEC), Regional Comprehensive Economic Partnership (RCEP), and the Trans Pacific Partnership (TPP).

The no-no option or solution is protectionism, via high tariff or various non-tariff barriers (NTBs) and restrictions.

Photo below, during the panel discussion at the ALF, 19 February 2016.
From left: Julian Morris of Reason Foundation (US) as session chair/moderator, Sethaput (Thailand), Vivek Dehejia, IDFC Institute (India) and Razeen Sally, IDEAS Chair in Political Economy and Prof. at the National University of Singapore (he’s Sri Lankan).

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TPP, RCEP, FTAAP …ARE THEY REALLY GOOD FOR DEVELOPINGCOUNTRIES?

Monday, 14 March 2016

Dr Sethaput Suthiwart-Narueput

Thailand Future Foundation (www.thailandff.org)

(Remarks delivered at Asia Liberty Forum (ALF), 18-20 February 2016, Kuala Lumpur. Remarks represent the views of the author and not necessarily those of the Foundation; sethaput@thailandff.org.)

———

Let me start with a few general observations on whether regional trading agreements (RTAs) are good for developing countries, before moving specifically to the Trans Pacific Partnership (TPP).

First, RTAs are not as good for developing countries as multilateral liberalization under the WTO.  Although they are often inappropriately called “free trade agreements,” these RTAs are really preferential trading agreements, and subject to the usual problems of trade diversion and complicated rules of origin.  While individual developing countries may benefit from the preferential access offered by RTAs, developing countries collectively as a group would be much better served by greater progress in multilateral liberalization.

Second, recent RTAs like the Trans Pacific Partnership (TPP) are not just (or mainly) about trade, but about a whole lot of other things, many of which are not in the interests of developing countries.  As Jeff Sachs has noted, the TPP is really 4 deals in 1, encompassing a preferential trading agreement; regulatory standards for trade; labor and environmental standards; and regulations covering investor protection, intellectual property (including the expansion of copyright and patent coverage), and service sectors.  As such, the bulk of the 30 or so chapters of the TPP agreement are not really about trade.  With the TPP, we seem to have gone from trade agreements with some standards and other non-trade related baggage thrown in, to an agreement on standards and regulations with some trade thrown in.  As noted by many economists, much of this shift has probably been driven by US corporate interests: “The TPP and TTIP seem to be about corporate capture, not liberalism[1]” (Rodrik, 2015); “[TPP] is largely about Hollywood and pharma rather than conventional exporters[2]” (Krugman, 2015).

Third, by design, developing countries typically have much less bargaining power under RTAs than multilateral agreements.  The TPP is no exception.  As Jagdish Bhagwati has noted, the US managed to obtain better terms by sequentially bargaining with smaller countries first before essentially offering a “take it or leave it” deal with larger countries such as Japan.  The asymmetry in bargaining power is reflected in the very language of the agreements.  In the side agreement on labor standards between the US and Malaysia under the TPP, for example, the words “Malaysia shall” appeared 34 times while the words the “US shall” appeared zero times.  Perhaps in the spirit of partnership, the words “Malaysia and the US shall” did manage to appear together once, in the context of securing funding for some technical assistance.

More worrisome, the lack of bargaining power extends to dispute settlement.  Under the multilateral system, developing countries have recourse to the WTO dispute settlement mechanism.  By contrast, under the TPP, the Investor-State Dispute Settlement System (ISDS) provides international arbitration to “ensure that Americans doing business abroad receive the same kind of protections…that are available to companies and investors doing business in the US under US law.”  The US Trade Representative (USTR) helpfully goes on to note on its website that “the US has never lost an ISDS case.  We have had only 13 cases brought to conclusion against us and the US has prevailed in every case.”  Not surprisingly, the lack of favorable outcomes has deterred others, with only one new case brought against the US in the last five years.

Fourth, nevertheless, individual developing countries can and do gain from RTAs.  Estimates by both the World Bank and the Institute of International Economics (IIE) using computable general equilibrium (CGE) trade models of the net benefits to Vietnam and Malaysia from joining the TPP are on the order of around 8+% of GDP cumulatively through 2030, though these estimates are likely to be on the high side for reasons discussed further below.  At the same time, other countries in the region, notably Korea and Thailand, lose out from not being in the TPP.

Let me now turn to the next part of my remarks and try to answer the following question:  In light of the above observations, what position should an old-fashioned, liberal economist from a developing country in Asia take in good conscience towards the TPP?

This is not such an easy call.  Do we tap into our collective or national conscience?  The TPP undermines the multilateral approach and thereby yields an inferior collective outcome for developing countries.  But despite very uneven bargaining power, it can generate benefits for the individual developing countries who decide to join the club.  Do we give greater weight to politics or principles?  Trade agreements have an unfortunate tendency to bring out a wide variety of NGOs and special interest groups in protest, for protectionist or other reasons.  Bedfellows matter.  If we take a position against the TPP, do we want to be seen to be allied with such protectionist interests?  Alternatively, do we want to be seen supporting a RTA like the TPP which has such illiberal parentage and baggage?  The TPP extends copyright and intellectual property (IP) protection far beyond the WTO TRIPS guidelines.  The TPP also seeks to impose higher environmental and labor standards on trading partners in an attempt to promote what it sees as “fair trade.”  But what does it really mean for trade to be “fair”?  The USTR provides some insight into its thinking on this question on its website: “When the rules are fair, Americans can out-compete anyone in the world.”  A corollary must be that if Americans can’t compete, then trade by definition isn’t fair!

On balance, this old-fashioned liberal economist from Asia would tend to say “no” to the TPP, for reasons of both principle and pragmatism.  Why?

First, principles and precedents matter.  We should not abandon the principle that RTAs should be first and foremost about trade and establish a precedent whereby RTAs are commonly and excessively loaded with all manner of other non-trade related baggage.  As Jagdish Bhagwati has written in the context of India and the TPP:

“We are open to trade liberalisation in PTAs but we will not sign on to all the non-trade features built by US lobbies into the TPP under the pretence that these are the marks of a ‘modern’ trade agreement.  Thus, if we want to join a golf club, we must know how to play golf; but we cannot be expected to go to Church and sing madrigals with the other members! – Jagdish Bhagwati[3]

The TPP risks undermining other principles as well.  In a “governance-challenged” region such as Asia, probably the single most important principle to uphold is the rule of law.  However, the TPP provides a means for US corporations and investors to circumvent the rule of law by resorting to arbitration under the ISDS mechanism.  What kind of signal does this send regarding equal treatment under the law?  Excessive corporate recourse to arbitration has already started to raise such concerns even in domestic court cases in the US.  Think of how easy it would be to fan the flames of protectionism here in Asia by claiming that these trade agreements provide one law for locals but another for foreigners.

Second, from a purely pragmatic standpoint, the economic gains and losses from TPP for individual countries are not all that large and are probably less than commonly supposed.  Let’s start with the losses.  Thailand has the unfortunate distinction of being the country that is usually estimated to lose out the most from TPP, but even here the losses are not huge: only around 0.9% of GDP cumulatively through 2030, or a CAGR of less than 6 basis points.  If I were to compromise my liberal economic principles, I would want to do it for more than just 6 basis points.  What about the gains?  The devil is in the details as each country’s circumstances are different, but chances are that the gains to a Thailand or Indonesia would be less than those to Malaysia and Vietnam just because new entrants to the TPP would have to negotiate with all the other signatories.

Of course, for many signatories, geopolitical and other non-economic considerations are likely to be an equally important part of the TPP calculus.  But there are several reasons for believing that the estimated gains to signatories might be less than commonly supposed.  First, not surprisingly, the estimated gains focus solely on the stuff that can be quantified, basically trade and investment flows.  The models and estimates pretty much ignore the much more difficult to quantify effects of the TPP such as the higher labor and environmental standards, much tighter IP protection, and ISDS.  But just because these effects are difficult to quantify doesn’t mean that they have zero cost to developing countries.  Second, the models rely on historical time series data for their calibration, data which may not reflect future prospects.  The World Bank model, for example, relies on data up to 2011.  But trade growth prior to 2011 was much higher than it is today or it is likely to be going forward for some time.  Less trade means less gains from trade which probably means less benefits from TPP.[4]

This brings me to my last point.  Mega-RTAs like TPP, TTIP or RCEP undermine the multilateral trading system.  A dangerous, self-fulfilling dynamic is created.  We decide to participate in RTAs because we can’t conclude Doha and we can’t conclude Doha because we decide to participate in RTAs.  Big trade deals get a large amount of policy and public attention and eat up a lot of political capital.  Do we really want to use what scarce political capital we have for an illiberal trade deal like the TPP?  Even if we were to believe that the multilateral route is dead and that RTAs are the only game in town, we should make sure that we choose the best game for us.  Why not try instead to work on RCEP to make it the best of all possible RTAs, one loaded with much less non-trade baggage and one which makes best use of the best principles and elements of the multilateral system?

———-

[1] Dani Rodrik, “The Muddled Case for Trade Agreements,” Project Syndicate, 11 June 2015

[2] Paul Krugman, “TPP at the NABE,” NY Times Blog, 11 March 2015

[3] Jagdish Bhagwati, “India should not toe the US line on the Trans-Pacific Partnership,” Hindustan Times, 28 Sep 2015

[4] A third and more subtle reason has to do with the specification of the baseline or counterfactual scenario.  As is typical, most of the modeling effort and attention is focused on analyzing the policy scenario at hand, i.e., TPP.  But the baseline is equally important in determining the size of the estimated gains since the gains are just calculated as the difference between the TPP and baseline scenarios.  But what if the right baseline scenario to use is a world where multilateral liberalization is more successful?  Or if RCEP is quickly implemented?  The corresponding gains from TPP would probably be reduced.

SAARC, RCEP and free trade

* This is my article in Business 360 magazine in Kathmandu, Nepal, December 2015 issue.

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SAARC, RCEP and free trade

Free trade is beautiful. A seller decides the price that he/she thinks will optimize the sale of goods and/or services. A buyer comes and if he/she thinks the price is commensurate to the quality, he/she gets it, or walks away to find another seller who will give him/her good value for money. Things happen voluntarily, little or no coercion involved. Trade can happen only if it benefits both parties and hence, public welfare is served.

Elevate the scene at the international or  global level and the same principle happens. Trade can happen only if it benefits both the sellers and consumers overall. Otherwise, there  is temporary “market failure” where supply does not need demand or vice versa, until market solution involving new pricing and product/service quality comes in.

Free trade negotiations at the World Trade Organization (WTO) keep dragging into minor and not-so-significant changes despite years of talks, meetings and what some people say as frequent “junkets”. Thus, bilateral and regional talks and free trade agreements (FTAs) and economic partnership agreements (EPAs) arose.

These FTAs and EPAs are not exactly “free trade” deals because there are still so many preconditions and protectionist measures involved. With human and economic  evolution through time, member-countries of such FTAs are moving towards real free trade in  the future.

One such regional FTA is the South Asian Association for Regional Cooperation (SAARC) composed of eight countries – Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Potential members in the future are China, Myanmar, plus other observers: Iran, Japan, Mauritius, S. Korea, Australia, EU, US.

SAARC was formed to promote peace, stability, progress and economic cooperation in the region. Among the mechanisms to attain this goal is the establishment of the South Asia Free Trade Area (SAFTA) where traded goods among member-countries will have zero customs duties by 2016.

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The 5th column, exports expansion over the past 14 years, is not part of the ADB report and is added only in this paper.

There is a huge disparity in trade performance in the association as two countries have expanded their exports more than six times (6x) while four countries were still unable to  export more than $1 billion in 2014.

Another regional trade agreement is the ASEAN FTA (AFTA) composed of the 10 member-states of the Association of South East Asia Nations (ASEAN): Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

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The creation of the ASEAN Economic Community (AEC) by end-December 2015, zero export duties among member-states, will be a huge market market of around 620+ million people, slightly higher than the combined population of the US + EU.

A bigger FTA is the Regional Comprehensive Economic Partnership (RCEP) composed of all ASEAN countries + 6 partner economies: China, Japan, S. Korea, India, Australia and New Zealand.

Table 3. Merchandise exports of the 6 ASEAN partners in RCEP, in $ Billion

2000 2005 2010 2014 Expansion, 2000-2014
China 249.20 761.95 1,577.75 2,342.75 9.4x
Japan 479.32 595.70 767.82 689.92 1.4x
S. Korea 172.27 284.42 466.38 572.66 3.3x
India 45.30 103.50 255.09 317.07 7.0x
Australia 63.98 106.21 212.03 239.74 3.7x
New Zealand 13.29 21.70 31.36 39.43 # 3.0x
* Hong Kong 201.86 289.32 390.13 473.65 2.3x
* Taiwan 151.46 198.17 273.59 312.50 2.1x

# New Zealand, 2013 data

RCEP is looking at a semi-FTA among the 16 countries by 2015.

It may sound ironic that socialist governments in China and Vietnam were able to maximize their integration with global capitalism that they experienced exports expansion of 10x and 9x respectively, in just 14 years.
Some national laws and taxes like gross sales tax (GST) or value added tax (VAT) can distort a free trade policy. For instance in the Philippines, while most imported goods are levied with zero to three percent import duties, they are slapped with 12 percent VAT and that immediately raises the price of previously cheap imports. Lots of oil smuggling in the country for instance, is done not so much to avoid the one or three percent import duties for oil products, but to avoid the 12 percent VAT.

Asian people may consider the policy of unilateral trade liberalization over the long-term. Trade with no political preconditions, no prolonged trade negotiations and disputes. Such policy has been practiced by some dynamic economies like Hong Kong and Singapore.

All goods are allowed at zero tariff, except for a few regulated items like guns, bombs, poisonous substances, fake medicines, disease-tainted meat products, and so on.

We are far from that ideal trade policy, so we have to live with the reality of continued intervention by governments in trade like SAFTA, AFTA  and RCEP. These trade alliances are better than economic nationalism and protectionism.

RCEP and TPP for the Philippines

* This is my article in BusinessWorld last December 10, 2015.

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The Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) will take shape by Dec. 31, or just three weeks from now. The 10 ASEAN member states will be more integrated regionally to become one single production base, movement of most goods will become unhampered with zero tariff, except for a few goods that are subject to some tariffs and import quotas, and various nontariff barriers.

Professionals and highly-skilled individuals will also be able to move more freely. Some people fear that this will mean “invasion” by other professionals of their generally niche markets reserved generally for the locals (aka local monopolies). But they should also look it as an opportunity for them to reach out and expand their businesses, services, and consultancies to our neighbors in the region.

Now there are two “mega” free trade agreements or areas (FTAs) that are being prepared for the Philippines and few other countries in the region. They are called “mega” because of the hugeness in both consumers or population size, and economic or gross domestic product (GDP) size.

One is the Regional Comprehensive Economic Partnership (RCEP) and it is composed of 16 countries: the ASEAN-10 plus six partner economies that regularly attend the annual ASEAN Summit. The six partners are the giant economies of North and South Asia, China, Japan, South Korea, and India. Plus Australia and New Zealand.

RCEP is not a new initiative, it has been planned since about a decade ago but we do not hear or read it often because the AEC and Trans-Pacific Partnership (TPP) tend to dominate the news. It is supposed to materialize this month too, but some hurdles have come in, but it is expected to become a reality within the next two years.

The other mega FTA is the TPP and it is composed of 12 countries: five from North and South America (US, Canada, Mexico, Peru and Chile), four from ASEAN (Malaysia, Singapore, Vietnam, Brunei) and Japan, Australia and New Zealand.

From the original four members (Brunei, Singapore, New Zealand, and Chile) that constituted the Trans-Pacific Strategic Economic Partnership Agreement, it was joined by eight other countries, later expanded to 12, and the group started to be called TPP in 2008. The TPP Agreement was signed only last month, and each member country must ratify it before it will be implemented. This will take about two years or by 2017.

Here are the relevant data on population and economic size of the two mega FTAs. (See Table)

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The four biggest economies in the planet in PPP values — China, USA, India and Japan — are in both RCEP and TPP. RCEP is smaller than TPP in GDP nominal values but larger than TPP in PPP values. RCEP is said to be China-led while TPP is US-led.

In population size, RCEP is really huge with a combined population of some 3.45 billion people in 2014, almost half of the global population of 7.1 billion. TPP group has a combined population of only 0.8 billion.

People are not only consumers, they are also producers, as entrepreneurs and workers; as manufacturers and sellers. So a bigger population is a bigger consumer and production base especially if the population’s skills keep improving.

And in terms of merchandise exports, RCEP is larger than TPP. Note that China’s exports are larger than the combined exports of US and Canada.

Taking the three factors together — GDP size, population and exports — membership in both is better than membership in “either” or just one. Thus, the four ASEAN economies are lucky to belong to both RCEP and TPP. Various NTBs, hidden from the public but are felt by exporters and traders are imposed by many countries, developed and developing. By being a member of either or both mega FTAs, these NTBs are significantly relaxed and hence, there is greater market access for these four ASEAN countries to those giant economies in North Asia and North America.

The decision of the Philippine government to join the TPP in the next round of membership expansion is wise and correct.

The US will remain to be the most innovative huge economy in the planet for the next decade or two. It is important that the Philippines can gain greater market access to it. Fears of the application of strict intellectual property rights in copyright and patents of newly-invented medicines and vaccines are based more on alarmism than reality as reflected in the actual texts of the TPP Agreement. This will be tackled in a future paper of this column.

Regardless of the rhetorics against free trade, many people and consumers in the planet want more choices, more options, more freedom in choosing where they want to buy and sell various products and services. Governments, in turn, are swayed by the preferences of their citizens.

Bienvenido S. Oplas, Jr. is a Fellow of the South East Asia Network for Development (SEANET) and President of Minimal Government Thinkers, Inc. Both are members of the Economic Freedom Network (EFN) Asia. minimalgovernment@gmail.com

TPP, RCEP and IPR

The Institute for Democracy and Economic Affairs (IDEAS) and South East Asia Network for Development (SEANET) hosted a forum on the Trans-Pacific Partnership Agreement (TPPA) last May 7, 2015 in Kuala Lumpur, Malaysia.

Photo below, from left: IDEAS’ CEO Wan Saiful Wan Jan, US Trade Representative Ambassador Michael Froman, IDEAS Council Member Tan Sri Dr Munir Majid, and Head of Economics and Capital Markets at the Employees Provident Fund (EPF) Nurhisham Hussein.

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Below, good audience, SRO with high media coverage. Both photos from SEANET facebook page.

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id1The Star in KL reported this last May 8:

CIMB Asean Research Institute chairman Tan Sri Munir Majid (pic) said the country could not rely on either the US-led Trans-Pacific Partnership (TPP) or the Regional Comprehensive Economic Partnership (RCEP), perceived as a China-dominated trade pact.

He pointed out that Malaysia needed to achieve a balance and not be “overwhelmingly dependent on one country”, and therefore, membership of one does not exclude membership in the other nor less focus on the Asean Economic Community, which would be “realised” at the end of the year….

However, Munir said accession to the TPP, considered as a “gold-standard” trade agreement of the 21st Century, would make Malaysia more transparent, as the pact covered investment and trade in goods and services, as well as competition policies, the environment, intellectual property rights, investment rules, labour standards and the role of state-owned enterprises (SOEs).

“The TPP or anything else that can bring more transparency is a good thing,” he said.

But public perception of the pact remains negative, with the forum disrupted by two protestors from a patient-advocacy group, who unfurled a banner protesting against the perceived threat that the pact would bring to medicine costs….

Mr. Majid is correct in saying that Malaysia, or any other Asian country being invited in TPP (US-led) and/or RCEP (China-led) should not rely on either trade alliances in setting its trade and economic policies. He is also correct in saying that membership in  the  TPP would  force all would-be member-countries to become more transparent, like having a competition  law. Governments of mother multinational companies (and there are so many MNCs now) need to  know how their companies will be treated in case they will  be hauled to  courts for “anti-competition” accusations and harassment.

About the anti-intellectual property rights (IPR) activists, maybe they are from the same activist group/s who attended our workshop discussion at the ASEAN People’s Forum last month in KL. I already explained in that discussion that medicines IPR apply only to newly-invented, patented medicines, and not to old, off-patent, generic medicines. There are so many of the latter already, useful, disease-killer, cheaper medicines. Besides, out of the 20-years patent life of newly-invented medicines, the commercial life is only about 8-10 years as the first 10-12 years of the drug molecule is spent on various clinical trials (with animals, then with mildly sick people, then with seriously sick people, etc., involving thousands of patients in various continents.).

Even if the drug molecule has produced good results in the first 2-3 clinical trials, if it fails in the 4th or last trials, then further molecule research is discontinued, no new medicine despite all the huge spending and time consumed.

The Philippines I think, is not invited yet by the US to the proposed TPP, The PH has many pretensions in public policies at the  moment — like a protectionist constitution  that disallows foreign investments and competition in many sectors and pampers only local businessmen, absence of a competition law, local  governments that can  challenge, even over-ride certain  policies of the national government, etc. Examples of the latter are (a) dishonor of the mining permit of a huge Tampakan gold mining in Davao by the provincial government, despite  huge infrastructure investments by the company and getting approval from various national government agencies, and (b) Manila City government disallowing cargo/container trucks from getting or  delivering containers at the international port of Manila.
A country or economy can leapfrog these trade alliances via  unilateral liberalization in trade (goods and services) and investments. It automatically creates good  will to all other countries, and gives its local consumers and  producers huge freedom where to buy and  sell, at competitive  prices and good qualities.