A few days ago, WTO Director-General Pascal Lamy expressed concern about the increasing number of free trade or regional agreements.
I have, for several years, been advising caution regarding FTAs. Economists say there are no free lunches; free trade agreements are not free, either.
I've been baffled that business, academic, or policy leaders who oppose increased trade and the WTO are so enamored of the idea of FTAs. The problem with that thinking is that it is inconsistent: why worry about increasing obligations under the WTO but be so gung-ho with regard to the more specific and intricate demands of FTAs?
If people are disturbed by the complexity of the subjects involved in multilateral negotiations, these subjects (such as market access, tariff reductions, and non-tariff barriers) will be no less demanding in FTA discussions. In fact, the FTAs that the Philippines has entered into or negotiated involves subjects that are not even covered by the WTO talks (i.e., competition policy, trade facilitation, government procurement, and investment). Quite significantly, these FTA discussions are usually done one-on-one, thus relinquishing the comfort of numbers that multilateral negotiations (such as the Doha Round) brings.
Unfortunately, the complexity doesn't stop at the negotiation stage. My biggest concern about FTAs is what happens after the negotiations. It is all well and good for government and the academe to seriously push for FTAs, but once these agreements take effect it will be the ordinary Filipino that will bear the brunt of the FTA demands. The bureacratic requirements alone of FTAs are immense, for the simple reason that a country would deal not just with one FTA. To illustrate, the Philippines has already entered into two FTAs (AFTA and ASEAN-China) and has negotiated or is negotiating around five or so more.
The most apparent difficulty to be brought about by these interlocking agreements have to do with the rules of origin (ROOs). ROOs are needed to determine whether imported goods, which nowadays normally consist of materials from different countries, qualify for the preferential treatment under the FTA. ROOs are extremely complicated and a lack of mastery thereof could result in - on the export side - a failure to take advantage of the opened market (thereby rendering the FTA inutile for that country) or - on the import side - a probable increase in "technical smuggling."
The FTAs' bureacratic needs don't stop at ROOs. These go on and on: the overlapping jurisdictions of dispute settlement systems between the multilateral trading system and the different FTAs, customs procedures, sanitary and phytosanitary measures, technical barriers to trade, environmental standards, investment rules, intellectual property protection, and trade remedies.
However, after all those complex procedural rules, the benefits to be expected from FTAs are not guaranteed. Some of the benefits are theoretical and based merely on economic modeling (and to see how models are not to be completely relied upon, one only has to look at the subprime investment crises). Other benefits require certain conditions to be fulfilled (such as for professionals to pass national entrance exams of the host country or sanitary measures for exported fruits). Another problem is that some of the supposed benefits were culled by our government from data or studies done by foreign governments. The trouble with making conclusions based on such data is obvious.
Some people argue from the supposed "street smart" perspective of opportunity cost: that since other countries are entering into FTAs, then so should we. This is not street smarts, this is mere herd mentality. Countries are different from each other. What worked for Thailand or Singapore (assuming it did work) may not necessarily work for us.
The losses to be borne by our citizens are real and not theoretical. The leeway that the WTO agreements give to countries is not present in FTAs. FTAs result in much lower tariffs, which means lower revenue for the government and loss of jobs. These losses are to be set against the theoretical benefits promised by FTAs. In the case of the 15-year-old ASEAN FTA, the Philippines still has not fully attained the benefits expected from it.
At a time when multilateral negotiations are slowing down, rather than rushing into FTAs, I suggest that the government instead focus on increasing our country's productivity, improving governance, and strengthening our institutions.
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