EU-PH trade deal: The hazards of Free Trade Agreements

November 14, 2012

by superadmin

Amid slowing growth and increasing unemployment in EU countries, a free trade agreement with PH is perceived as EU’s way out of its economic crisis

IBON Features—The Asia-Europe Meeting (ASEM) concluded this week with the European Union (EU) pressing for Asia to further open up their markets. This was after talks with several Asian countries hit a stumbling block over the dismantling of trade barriers.

With the Philippines, the European Union (EU) has signed this year the EU-PH Partnership Cooperation Agreement (PCA), which is considered a first step in drafting the EU-PH free trade agreement (FTA).

An FTA with the EU has serious implications for the Philippines. For one, the PCA is explicit in promoting so-called development cooperation in key investment areas important to EU’s interests such as transport, energy, agriculture and fisheries. The EU will also provide technical assistance and expertise packaged in official development assistance (ODA) aimed at improving local systems including technology. This of course would greatly benefit the EU, ensuring that mechanisms in their areas of interest are in place and meet EU standards.

Cause for concern

The PCA is a prerequisite ‘framework’ instrument which will be the basis for any free trade agreement with the EU. Further trade liberalization in agriculture and industry, strengthening intellectual property rights (IPR) protection and expanding into services and investments are the highlights of the EU-PH PCA. The public, including local business sectors, were left out of the negotiations.

Amid bouts of fiscal crisis, slowing growth and growing unemployment in EU countries, the FTA could be perceived as the EU’s way out of its lingering economic crisis. The PCA stipulates national treatment for European transnational corporations and investors, seeking equal privileges with that of Filipino businessmen and companies. Aside from being unconstitutional, providing equal rights to European practitioners is a threat to local industries and could edge-out the country’s local capacities.

Accessible and affordable health services become areas of concern because the looming FTA is seen to favor pharmaceutical products and health facilities of EU-based corporations in health. This will further drive up public costs of health services. The data protection, plant variety protection and geographical indications clauses of the agreement may also affect vital economic areas such as Filipino farmers’ access to and control of seeds as well as general access to cheap technology. This will further hamper improvements in the struggling sector of agriculture and can peg it at the level of sheer exporter of raw materials.

What are FTAs?

Crisis-stricken developed countries such as the United States, EU and Japan increasingly resorted to bilateral FTAs when multilateral World Trade Organization (WTO) negotiations were stalled in the mid 1990s. FTAs increased these countries’ access to third world markets by removing their trade barriers.

FTAs are packaged to promote mutual development between countries involved. However, because of the underdeveloped nature of its economy, the Philippines is seen to be at the losing end of FTAs. With the absence of Filipino fundamental industries and with its backward agriculture even slowing unprecedentedly in the recent years, the Philippines surrenders its resources to the demands of its trading partner under the clauses of ‘best practices’ and ‘international standards’. Despite its fiscal troubles, the EU is still the more developed, more advanced party to the agreement. For instance, as opposed to Philippine agriculture, the EU farm sector is highly subsidized.

Philippines’ bilateral agreements

The Philippines was one of the countries to fast-track liberalization, despite calls from various sectors to rethink jumping into the globalization bandwagon. In 1999, the country entered the Association of South East Asian Nations (ASEAN) FTA or AFTA, which was devised while the ASEAN was likewise reeling from 1998 Asian financial crisis.

Under the Common Effective Preferential Tariff (CEPT), which is AFTA’s tariff reduction mechanism, 95% of the Philippines’ industrial tariffs (taxes paid by importers of industrial goods and services) have been reduced to zero to five percent. Although rice and sugar tariffs remained at 40% and 28%, respectively, the country would be almost on a 100% trade in goods liberalization by 2010.

Meanwhile, the Japan-Philippines Economic Partnership Agreement (JPEPA) was ratified in the Philippines in 2008 to supposedly boost the local economy and provide job opportunities for Filipinos in Japan. This was despite heavy opposition by various sectors which asserted that JPEPA will only serve to open-up Philippine resources to benefit Japanese corporations.

Studies already show that the Philippines has not substantially gained from the trade agreement with Japan. For one, considered improvements in trade and investments between the two countries have been observed even when JPEPA was not yet in place. In terms of employment, only one Filipino nurse passed the rigid process non-nationals must endure to work in Japan under JPEPA. The gravity of impending automotive factories’ closure threatening the retrenchment of some 74,000 Filipino workers and the Philippines becoming a dumping ground of Japan’s toxic waste due to specific JPEPA clauses elicited further public criticism of the agreement. Eventually, even its proponents were compelled to retune their positive projections on JPEPA benefits as the global crisis worsened and displacements and industry shutdowns affected even Japanese companies in the Philippines.

Looming FTAs

The United Kingdom (UK) was the last to review the EU-PH PCA before it was finalized for signing. Under the current administration, the agreement was signed at the executive level without the benefit of public consultation. Before its finalization, certain suggestions made by the Philippine negotiating panel pertaining to the phrasing of certain provisions wary against disadvantaging the country’s status and capacity as trading partner have actually already been adjusted in favor of the EU.

Still fresh from clinching the EU-PH PCA despite its apparent bias against Philippine interests, the Aquino administration is now keen on joining the US-dominated Trans-Pacific Partnership (TPP). No less than the US Ambassador to the Philippines Harry Thomas said that joining the TPP could expand Philippine markets, create employment and help reduce poverty – but the Philippines might have to first consider revising its Constitution’s economic provisions to allow full foreign ownership of the country’s resources. The US itself declared who stands to benefit from the circle when it said that in joining the TPP, it hopes to ‘boost economic growth and increase American exports in the Asia-Pacific Region’ by concluding ‘an ambitious, next-generation Asia-Pacific agreement that reflects US priorities and values.’

Trade agreements that benefit the people

Similar to the country’s experience with JPEPA, the Philippines will be at a disadvantaged position and at the losing end of any trade and investments deal forged with the EU – especially given the huge size of the EU economy and far advanced levels of economic development of its member countries.

In the absence of any comprehensive impact assessment of the various FTA deals it has forged and the long-term impact of the trade and investments liberalization especially on the country’s manufacturing and agricultural sectors, the Philippine government’s rationale in jumping into the bandwagon of FTA deals negotiations should not be taken as if FTAs whether multilateral or bilateral are ends in themselves.

FTAs are not something necessarily forced upon any sovereign country. The Philippines is within its right as a presumably sovereign country to refuse a deal that will on balance prove more detrimental than beneficial for the country’s overall and long-term socioeconomic development. Considering the country’s history, the development aspiration of the government that should figure in its FTA negotiations is the long-term goal of national industrialization. But an EU-PH FTA guided by the PCA and any other FTAs thereafter will only frustrate this meaningful aspiration, trample upon the right to self-determination and subvert national sovereignty over the country’s resources.

It is high time for government to evaluate the impact of FTAs on the Philippine economy before considering entry into another pact. Moreover, giving priority to the protection and fast-tracking of agriculture as well as nurturing its own industries has become more urgent than ever, deal or no deal. IBON Features