‘Critical constraints’ seen in AEC trade

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State-run think tank Philippine Institute for Development Studies (PIDS) is urging legislators to address constraints related to the Association of Southeast Asian Nations (Asean) integration by 2015.

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In the paper titled “Regional Comprehensive Economic Partnership (RCEP): Reform Challenges and Key Tasks for the Philippines,” PIDS President Gilberto Llanto and research fellow Ma. Kristina Ortiz cited the problems the Philippines faces in the integration that needs to be resolved, particularly by lawmakers, to help attain better free-trade agreements (FTA) in the region.

“The paper calls the attention of policymakers to address critical constraints affecting the effective utilization of free-trade agreements, growth, trade facilitation and customs administration, services liberalization and investment incentives,” the paper said.

As emphasized in the paper, the integration of Asean plus 6 will create the “world’s biggest trading bloc” taking up 40-percent share of the global trade, amounting to about $26.2-trillion global gross domestic product (GDP), and consisting of 48 percent of the world’s population or 3.5 billion people.

Asean plus counts all the countries in Southeast Asian along with Australia, China, India, Japan, New Zealand and South Korea.

The PIDS researchers listed challenges such as low utilization rates of FTAs and the “noodle-bowl” effect, which shows the overlapping and burdensome effect of the multiple FTAs between several countries in the region, that would make it harder and complicated to attain more free flow of goods and services in the area.

The research fellows further discovered that the Philippines is among the lowest within the top six Asean member-countries in terms of utilization of FTAs. Based on their findings, lack of information, delays or administration costs, too many exclusions and small margin of preference were among the reasons of low utilization of FTAs by the country.

“The low utilization rate of FTAs arising from a lack of information and understanding of how to take advantage of those FTAs has to be overcome. Other reasons cited in the survey . . . show the importance of the harmonization of rules of origin requirements among countries participating in a free trade agreement,” the paper said.

“The ‘noodle-bowl’ effect can also impede the attainment of a strong and integrated regional market network, such as the Asean Economic Community [AEC] by 2015,” it added.

Fifteen FTAS
At present, the Philippines is engaged to 15 FTAs in Asean—seven signed, approved and in effect, two still under negotiation and six recently proposed—amounting to a total of $60-billion worth of trade agreements with the rest of Regional Comprehensive Economic Partnership (RCEP)-members.

“Upon conclusion of RCEP negotiations, there is expectation that the Philippines would be able to realize significant economic gains. However, the Philippines has to deal with several challenges that, if left unaddressed, could reduce those gains,” the PIDS researcher fellows said.

Llanto and Ortiz also said that policy makers need to address the following constraints: narrow fiscal space; inadequate infrastructure; weak investor confidence due to governance concerns; and market failures “that have led to a small and narrow industrial and manufacturing base of the economy.”

The PIDS research fellows pointed out the importance of the private sector, since it is the “main growth driver” of the AEC integration among countries.

“These factors, which have constrained private-sector response to the opportunities provided by greater openness in the Philippines, will also constrain private sector utilization of FTAs or any regional free trade agreement such as RCEP. Inaction or failure to address these constraints will limit the realization of benefits arising from freer and more liberalized trade in goods and services,” the PIDS researchers said.

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