The Philippine Senate has resumed deliberations on the Regional Comprehensive Economic Partnership. RCEP is a trade agreement among the members of the Association of Southeast Asian Nations (Asean) plus China, Japan, South Korea, Australia and New Zealand. Facing objections mainly from the agriculture sector, the Senate has not yet approved the agreement.
Why are we in the agriculture sector against RCEP?
Clearly, we are ill prepared to compete with our regional counterparts under RCEP. Our farmers continue to suffer from low productivity, high production costs, poor quality of products, and inability to sustain supply. Bringing goods from the farms to consumers remains expensive. Our products cost more than imports; more so, if the latter are subsidized, smuggled or undervalued. Local traders have to lower their prices to farmers in order to compete with cheaper imports.
These same problems make it difficult to be competitive and sell our products abroad. Yes, we export a lot of bananas, pineapples, coconut-based and fishery products, but nothing much else. Meanwhile, our competitors have been innovating and improving, displacing many of our exportable products—including coconut juice and patis—while supplying us with products that we can and should produce locally, like mungbean, peanuts and black pepper. It has long been this way.
The outcome is huge and increasing agricultural trade deficits. We import much more than we export. And the gap widens every year.
All RCEP countries, except Japan, sold more agricultural products to us than we exported to them in 2019. Around the same time, the value of our exports reached $5.8 billion, the lowest among the large economies in Asean and only slightly higher than Myanmar’s. Regionwide, we posted the highest trade deficit, surpassing Singapore, which imports most of its food, and smaller countries like Cambodia and Brunei.
Will RCEP membership reverse these trends? Most likely not, unless we first fix our production and marketing woes.
Knowing that we are unprepared, why hurry to join RCEP?
Some economists claim that our country will gain a lot. However, most of their projections are based on economic theories and unrealistic assumptions that rarely play out in the Philippine setting.
This has been proven many times in the past. Instead of reaping billions of dollars from exports and other benefits—as promised when we entered the World Trade Organization (WTO) in 1995—we incurred over $7 billion in trade deficits, lost over a million jobs in agriculture, and saw agriculture’s contribution to our gross domestic product shrink from 20 percent to 10 percent.
Free trade simply has not worked for our agricultural sector, particularly our small farmers and fisherfolk. How then can we believe all these rosy projections about RCEP, if the people making them have been so wrong previously?
RCEP supposedly offers significant export opportunities for our products through tariff reductions, and also grants other preferential arrangements with our trading partners.
But almost all these market access opportunities are already available to us under the Asean Trade in Goods Agreement (ATIGA) and the Asean FTAs with China, Japan, Korea, Australia and New Zealand. RCEP will just consolidate, but will not replace, these FTAs. These FTAs will remain in effect. We can still utilize them, even if we don’t join RCEP.
It is therefore difficult to believe warnings that non-membership will cause the loss of our export markets in other RCEP countries. If that were true, how come we registered—over the past six years—the highest level of quarterly exports during the first three months of 2022, even though we were outside RCEP when it came into force this year?
Any new trade opportunity arising from RCEP will not be exclusive to the Philippines. All other RCEP members can take advantage of these opportunities. We may be good in producing some products; but if others are better—in terms of price, quality and reliability—we will still lose out to them.
The threat of trade diversion will come from our inability to match our competitors. This will be a challenge, with or without RCEP.
Mere membership in RCEP also does not mean that our exporters will automatically enjoy trade privileges. They must still secure certificates of origin to prove that their products comply with local content and other requirements in order to qualify for preferential RCEP tariffs.
Incentives for foreign investments under RCEP will likewise be available to all other members. There is therefore no assurance that investors will come to us, just because we join RCEP. Some investors might leave, not because we are outside RCEP, but because they would prefer locating in countries with less traffic, crime, corruption, and cost of doing business.
Let us now review our commitments under RCEP.
Customs duties on 75 percent of our agricultural tariff lines will immediately be set to zero. Tariffs on another 8 percent will be phased out over several years. Another 7 percent will be subjected to partial tariff reduction. The balance of 9 percent—involving ultra-sensitive products like rice, corn, meats, coffee and sugar— will not have any tariff cuts. RCEP proponents claim there is no need to worry.
But what if something goes wrong, and import surges occur?
WTO rules allow us to temporarily impose safeguard duties on top of our regular tariffs. This will arrest the surge by making subsequent imports more expensive. There is no limit to the additional duties that can be imposed.
However, RCEP provisions for “transitional safeguards” concern us a lot. They set a cap or limit on the amount of safeguard duties, if an import surge occurs. No additional duty is allowed beyond this cap, even if proven insufficient.
RCEP defenders nevertheless cite two paragraphs in RCEP’s legal text on trade remedies, which state that member-countries can apply the WTO’s safeguard provisions in lieu of the RCEP transitional safeguards.
We are unconvinced. No right thinking country will resort to RCEP’s restrictive safeguards, knowing it can follow WTO rules that do not limit the trade remedies. So why did the RCEP negotiators devote seven-and-a-half out of nine pages dealing with RCEP transitional safeguards, only to supersede it at the end? Until now, we have not received a convincing explanation from government.
We also remain skeptical of arguments that joining RCEP will force government to enable our farmers to compete and benefit from trade. These promises are not new, but agriculture has yet to receive the priority and support that it needs and deserves.
Government must produce a realistic plan to make RCEP and trade work for our farmers and ensure that we are able to counter threats to vulnerable sectors. It should be reinforced with policy pronouncements, clear strategies, firm budgetary commitments, and time-bound targets.
This is the crucial missing element in the ongoing RCEP debate and the root cause of the agriculture sector’s resistance, exacerbated further by the current administration’s penchant to prioritize imports over local production.
The current Senate should defer further action on RCEP. President-elect Ferdinand “Bongbong” Marcos Jr. and the incoming Congress can then review the agreement and craft the country’s trade policy, consistent with an overall plan for the revitalization and competitiveness of Philippine agriculture.
Raul Montemayor is the National Manager of the Federation of Free Farmers.