February 24th, 2023
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) said today that while he supports the Regional Comprehensive Economic Partnership (RCEP) “as a free trader,” he believes that the agreement could “accelerate the hollowing out of our domestic agriculture and manufacturing sectors” unless the government “is committed to making manufacturing more competitive and agriculture more efficient.” Salceda adds, however, that “the impacts on our country would be worse by not joining.”
“You lose out if you don’t join the competition. But you join the competition to win,” Salceda said.
“The RCEP’s most significant change is really easier rules-of-origin procedures. Any input from any member country of the RCEP is considered domestic input. As such, even when the inputs are, say, from a mix of China, Vietnam, and Thailand for complex goods, as long as they total to 40% of the value of the good, they will qualify for preferential tariffs – 97% of which ATIGA already reduced to zero.”
“It could let more Chinese and Australian complex goods into the country with zero tariffs. The outright tariff reductions are for only a handful of products, but this is the backdoor, so to speak.”
“That worries me because Indochina is already integrating. There is a seamless interconnection of economies from as high north as China to down south in Singapore. And we, along with Indonesia, are the only ones to be left out of this interconnectivity.”
“In that area, they even exchange non-tradeables, such as energy from Laos or Cambodia, where power prices are as low as 2 pesos per kwh. Thailand makes use of cheap Burmese labor. And China and Vietnam, for all their tensions, benefit from being next to each other. So, RCEP will only accelerate the integration of these economies and their value-chains.”
“That’s good news for Filipino consumers, and we are a service-driven economy, so that works. But, it will create an edge for their manufacturing sectors, versus ours. Expect petrochemicals, footwear, paper, textile, and other goods where we have marginal comparative advantages to be under threat from tougher competition.”
“Agricultural goods from that area of the world will also be cheaper – because they will be able to trade fertilizers, machinery, and other inputs with little trade barriers.”
“If we are not serious about this, the only advantage our manufacturing sector will have left is our highly trainable, tech-savvy, and Western-oriented workforce. I expect the Department of Trade and Industry to have a plan to optimize the RCEP and to fight off its risks. What is the plan to use our tax incentives, our non-tax incentives, and other tools to protect and promote manufacturing?”
“I’ve seen very optimistic projections from our economic managers about RCEP’s impacts – but I have not seen a comprehensive framework on how to actually maximize RCEP and protect manufacturing and agriculture.”
On GSP+ renewal
Salceda also believes that the Philippines will achieve renewal of the Generalized System of Preference Plus (GSP+) trade agreement with the European Union. The GSP+ allows the Philippines to export goods into the EU at preferential tariffs. The agreement expires this year.
“I think that’s in the bag. We are back in the arms of our traditional allies, without angering China. So, from a geopolitical perspective, I think the EU no longer sees our tone and position as adversarial.”
Salceda adds that he has “talks with the ambassadors of European countries, and some of their ministers are actually coming by in the coming weeks. We will have conversations. I will help explain the Philippine position.”
Asked whether losing the GSP+ privileges will be significant, Salceda says “moreso with the RCEP. We need places where we can export at preferential rates at an advantage compared to our RCEP partners. The GSP+ regime is one of those advantages.”
“So, I think we shouldn’t say it’s okay to lose these privileges. But I do think the economic team should have contingencies for if the GSP+ is not renewed, or at least if it gets renewed late.”