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By Jose M. Galang Jr.
, Editor-in-Chief
BANGKOK, Thailand — With the signing earlier
this week of agreements for the establishment of free trade areas
with China and Japan, the restructuring and upgrading of domestic
industries should now be an urgent priority for the 10 member states
of the Association of Southeast Asian Nations (Asean), of which the
Philippines is a founding member.
More importantly, given the size of China’s
markets and the lower costs in producing there, it will be for
Asean’s benefit if it pushes forward an economic integration
program to put the region’s industries on a stronger footing in
competing on the world markets, experts agree.
Conversion into free trade zones will involve
the opening up of economies through deep cuts in import tariff rates
that now give domestic industries a protective cover against goods
produced in other countries. Freer movements of goods and services,
economists believe, help speed up economic development and raise
living standards of people.
Without any effort to prepare domestic
industries for these free trade arrangements, however, many are
likely to encounter severe dislocations or even perish, according to
economists.
In the Philippines, for instance, several
private corporations and industry groups have been griping against
what they describe as “unfair competition” from a range of
manufactured goods brought into the country from China. However,
there has also been a notable rise in a range of Philippine-made
products — such as office equipment and their parts and
accessories, automatic data processing machines, telecommunication
equipment, and transistors and semiconductors — sold to China.
Recent trends in the Philippines’ trade with
its partners in both Asean and the Asia Pacific Economic Cooperation
(Apec) forum, another regional grouping that brings together
economies on both sides of the Pacific Ocean, show an “increasing
integration” with the rest of these regions, according to Mario B.
Lamberte, president of the state-run think tank Philippine Institute
of Development Studies (PIDS).
The volume of trade in certain commodities
between the Philippines and its partners in Asean and Apec showed
increased during the 1990s decade. These increases involved “a
wide range of products,” Lamberte told heads of PIDS’
counterpart research organizations in other Asean countries during a
recent forum in Bangkok.
However, the same data, Lamberte said, “seem
to suggest … China’s increasing participation in the global
trade poses a big threat to [the Philippines’] economic prospects
in the sense that it draws investments away from the Philippines and
with its low-wage labor it competes with the Philippines’
exports.”
“China has already absorbed huge amounts of investments some of
which could have gone to the Philippines,” Lamberte said. “This
needs appropriate response by the Philippines by way of
restructuring its industries so that it can maintain, if not
enhance, its competitiveness and at the same time exploit the
opportunities offered by China’s openly joining the world economy
(through its accession to the World Trade Organization).”
The Philippines is not alone in harboring this
sentiment. Prominent Japanese economist Ippei Yamazawa, president of
the Institute of Developing Economies (IDE) which is now under the
aegis of Japan External Trade Organization (Jetro), said in that
forum that recent advancement of the Chinese economy and Chinese
firms has also caused “a feeling of uneasiness and threat” to
the rest of East Asia.
“Although its majority view China’s dynamism
as a strong engine supporting East Asian development and other
economies will benefit from it, there has emerged persistent
requests for restrictive measures and protection against China by
sectors and firms directly competing with China,” Yamazawa said.
As such, a major policy issue now shared by many
Asean member economies is “how to promote the upgrading of their
industrial structure and enhance the international competitiveness
of their industries,” he said.
One of the reasons for the crisis of 1997-98
that crippled Southeast Asian nations has been the “serious
problems” in the structure of their own economies. As an economic
group, Asean has also been faulted for failing to come up with
coordinated solutions to that crisis.
These factors, along with the emergence — and
perceived threats — of China as an economic giant, have provided
the impetus for recent initiatives for regionalism, including the
free trade zones that now will be worked out over the next 10 years.
But other than the visions of transforming the
region into a vast manufacturing power and natural resources in the
world’s biggest free trade zone, the agreements have been vague,
reports from the Asean summit that formalized the deals indicated.
Recent predictions are that the coming
negotiations over the terms of the Asean-China free trade
arrangement could be tough. Findings from a study made by IDE showed
that the two are “competitive in almost the same industries.”
“This implies that Asean Four (referring to
Indonesia, Malaysia, the Philippines and Thailand that have almost
similar levels of economic development) and China have been
developing rivalry with each other,” according to Daisuke
Hiratsuka, director of IDE’s Research Project Division.
These industries include traditional export
commodities, particularly apparel, footwear, and furniture. Both
Asean and China, the report added, have also been vying
competitively and moving up from the import substitution stage
(where industries, availing of state incentives and tariff cover,
produce mainly for the domestic market) to the export stage in light
machinery, in such product categories as home electrical appliances,
office and communication apparatus, and personal computer and
peripheral equipment.
In the case of motorcycle and commercial vehicle
production, Thailand and China have advanced to the export stage,
and stand ready to serve as the base for an Asean-wide development
of the automotive industry in the coming decade.
Hiratsuka also noted that as a low-wage country,
China is gaining competitiveness in miscellaneous manufactured goods
– such as kitchen sinks, sanitary goods, stationary goods, and
musical instruments – while Malaysia, the Philippines and Thailand
are “losing their competitiveness.”
This latter finding, the IDE research official said, suggests that
“quality improvement, or a shift to the production of advanced
goods, is essential for further development in light machine and
parts industries.”
The rise of China, Hiratsuka said, has
“brought about the severe market price competition not only in
Asean but also in Japan, forcing both of them to upgrade their
domestic industries through continuous improvement of quality with
diversification of those advanced products.”
To correct their competition in the same fields,
Asean and China will need to have a “coordinated division of
labor,” he said. “This should be done with due consideration to
the large role played by foreign firms.”
With production facilities for the manufacture
of “state-of-the-art” goods already in place in Asean countries,
the governments of these host states “should aptly provide foreign
firms with ‘quality’ investment environments in the long run,
with a view to nurturing indigenous firms and hence supporting
industries,” the IDE official said.
On the formalization of a free trade pact with
Asean, the president of Jetro Bangkok, Yoshihiro Otsuji, describes
the move as “the most significant move in Japan’s foreign
policy.” He notes that Japan has developed ties with Asean in
“many fields, including trade, investment, industrial cooperation,
finance and culture.”
The Asean-Japan free trade agreement, he added,
should include not just a conventional trade pact but also “a
broad range of other elements such as trade and investment
promotion, support for Asean’s integration, support for the shift
to market economies in the new members of Asean, human resource
development, and intellectual and cultural exchange.”
Otsuji, in recent comments originally published in Japanese, has
pointed out that China’s recent economic development has been
basically similar in nature to that of Asean in the 1980s and early
1990s in that “the investment that has powered it has been from
overseas.”
“In this sense it is not a threat to the East
Asian regional system but signifies the expansion of its horizon,”
he said.
The Jetro Bangkok president, who used to be
posted in Hong Kong (which, he said, made him an “authentic
China-watcher”), cites what he describes as the “crucial
difference” between China and Asean countries: “Even though
China expresses its strong commitment to move toward a market
economy, its political and economic regime — as captured in the
very term ‘socialist market economy’ — remains fundamentally
different from the liberal political and economic systems seen in
Asean and elsewhere.”
That, Otsuji says, makes Japan “remain
uncertain about the implications of [China’s] aspiration for
superpower status and wonder whether its development strategy and
economic policies may also be different from those of the Asean Five
(Indonesia, Malaysia, the Philippines, Singapore and Thailand).”
How the shape of Asean’s free trade zones with
China and Japan — with India also lining up to secure the same
arrangement — will take its final form in the coming months will
be an interesting development to watch indeed.
(Manila Times Editor-in-Chief Jose M. Galang
Jr. is in Thailand as a senior fellow in the Asian Public
Intellectuals Program of The Nippon Foundation of Japan. He is
looking into globalization issues concerning selected Southeast
Asian economies.)
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