APEC

They’re Baaaaaaack!

The APEC summit in Hawaii (photo courtesy of UPI.com)

In uncharacteristically blunt language, US President Obama as host of the APEC summit in Hawaii called on China to act like a “grown up” saying “enough is enough” and that it was time for the People’s Republic to “operate by the same rules that everybody operates” threatening dire consequences unless the yuan appreciates by 20-25%.

The US has been pressing China to allow its currency the yuan to appreciate more quickly to make American products more affordable to Chinese residents and similarly make Chinese exports less attractive to US based consumers. President Hu’s pragmatic response–allow imports to rise without necessarily liberalizing the currency exchange regime–is typical of the Middle Kingdom.

Unlike America’s faith in free markets, China would rather deliberately get prices wrong if it would allow it to maintain a healthy trade surplus with the US. This after all was the same path to development that the US took when it was still in its “catch-up” phase with Western Europe.

Yet America, with its penchant for universal principles (“we hold these truths to be self-evident”) is now in the game of preaching free trade, open markets and property rights in the Far East just as it preached democracy in the Middle East. China is instinctually groping for a particularistic response. Although sounding undiplomatic, I like Pres Obama’s rhetoric because it gave away an important concession in the development debate.

“Gaming the system” or the notion of applying the tools of industrial policy to generate a competitive advantage for nascent industries in global trade as a legitimate means to catch-up with more advanced economies while a country is still relatively underdeveloped has been acknowledged. In the local vernacular, “saling pusa” which refers to little children allowed to participate in a game without having the same rules applied to them would be the way America views the Chinese.

For those who believe that lowering trade barriers helps promote growth, the following graph taken from Dani Rodrik’s paper to the UN should help dispel that notion. It shows a positive albeit insignificant correlation between tariff levels and economic growth. At best, no correlation can be inferred between lowering barriers to trade and growth, which is why the Philippines despite having very low tariffs relative to its ASEAN neighbors, has not been growing strongly. As I mentioned in my last piece, higher barriers to entry actually have been found to induce domestic innovation that in turn leads to new exports.

Source: Dani Rodrik (2001), The Global Governance of Trade--As If Development Really Mattered: A UNDP Background Paper

This should help comfort those distressed by that CNBC press release that the Philippines is the worst place for doing business in Asia. It should also be noted that in their top ten worst places, India and Indonesia were included. If these are the sorts of countries that we are in league with, then we really should not be too bothered.

Despite that dubious title, one should actually pay attention to the fact that the CNBC pronouncement was based on the World Bank’s Doing Business Report. Many of the measures in this report simply do not apply to businesses within the special economic zones which is more relevant to foreign investors. Furthermore, petty corruption actually allows many of the so-called barriers for entry to be removed.

The main roadblock to foreign direct investments is actually the desire of business to operate with the same protection of contracts and property rights wherever they are along with low costs to entry without the necessary tax burden and industrial labor costs that are needed to foster this. On the other hand, ordinary citizens that politicians seeking re-election (as in the case of Obama) try to please don’t want unfair competition for their labor from less developed countries which try to create a system of arbitrage to attract foreign investors.

It isn’t that investors want a level playing field. Consumers by and large don’t really mind whether a producer competes fairly for a slice of their hip pocket. That means for a country seeking to attract foreign investors increasingly ceding a lot of its national policy-making abilities to Western bodies and institutions to gain access to its markets. Hence the rhetoric of Obama who is trying to create a narrative that would pit the economies in the region against China.

Having ceded the scene for the better part of a decade to Beijing which has forged a free trade deal with ASEAN (CAFTA, the China-ASEAN Free Trade Area), Washington is trying to regain the initiative with its Trans-Pacific Partnership agreement that boasts the commitment of nine APEC countries and counting. China has objected to not being invited to join the agreement. This is clearly a bid by the US to isolate it and strengthen its economic clout in the region.

This week, as he travels en route to the East Asia summit in Bali, Indonesia, the US president is scheduled to make a stopover in Canberra to address the Australian parliament and sign a deal that would increase US troop presence in a base located near Darwin. The two nations have already beefed up the ANZUS mutual defense treaty by allowing allies to invoke it in the case of cyber attacks just as it was used in justifying Australian participation in the US war against terror.

This posturing is clearly aimed at containing Chinese ambitions in the region. America is trying to prevent Australia and its other allies (Japan, Korea, Thailand, and the Philippines) from following in the footsteps of Germany which has been compromised as a NATO ally due to its economy’s dependence on exports to China. Australia sees the need to boost its military capability to help counter the military build-up of China while relying on iron ore exports to China for sustaining health in its economy. Other countries in the region notably Vietnam and the Philippines will seek protection under the US security umbrella given tensions with China over the Spratlys.

PM Julia Gillard earlier this year commissioned her own white paper that would create a strategic road map for Australia in the “Asian century.” Upon her return to Australia, she announced a new position on uranium exports to India, the other emerging power in the region. This back-flip on her party’s existing position to maintain a ban until India signs the Nuclear Non-Proliferation Treaty occurred after a meeting with President Obama .

Meanwhile State secretary Hilary Clinton is set to travel through Bangkok and Manila en route to Bali. She will no doubt seek to emphasize the theme that America is back in business in the region. P-Noy has been keen to float his own ideas about a solution to the Spratlys among allies, but membership in the TPP is very much in doubt as certain hurdles including constitutional restrictions on foreign ownership and weak protection of intellectual property rights prevent the Philippines from being admitted.

This means that the Philippines will engage in free trade with China via CAFTA, while having a military alliance with the US. This is probably the best possible outcome–a good way to counter-balance each competing force on either side of the Pacific. Australian PM Julia Gillard put it best when she said this week,

It is well and truly possible for us in this growing region of the world to have an ally in the US and to have deep friendships in our region including with China.

But for how long this formula will work only time will tell.

Aquino on Warpath against travel advisories

The Inquirer published that President Aquino confronted President Obama and other APEC leaders with regard to travel advisories:

Mr. Aquino said he was able to speak with Obama on the sidelines of the 18th Asia-Pacific Economic Cooperation (APEC) summit, which ended Sunday.

“We mentioned to President Obama our displeasure with the US travel advisory and he promised that he would look into it and pleaded for understanding,” Mr. Aquino said.

Obama was the second leader that President Aquino had confronted over the issue of the travel advisory while attending the APEC forum. On Saturday, he raised the issue with Canadian Prime Minister Stephen Harper during their bilateral talks.

Mr. Aquino has been on the warpath since the United States and Canada, along with France, Australia, New Zealand and Britain, issued on Nov. 2 warnings of an imminent attack for the first time in shopping malls in Metro Manila. Japan later issued a toned down version of the travel advisory.

Mr. Aquino has complained that there was no basis for the alerts and that his government was not consulted.

Noy slams APEC allies over travel advisories

Noy slams APEC allies over travel advisories
By Aurea Calica
The Philippine Star

YOKOHAMA – President Aquino appeared in fighting form before other heads of state during the Asia-Pacific Economic Cooperation (APEC) Summit here, lashing out at his counterparts for recent adverse travel advisories on the Philippines.

Mr. Aquino was particularly irked by the travel advisories coming from countries that he said are supposed to be allies of the Philippines.

He said the advisories had been issued amid efforts of his government to encourage investors to come to the country.

Mr. Aquino, who attended the APEC CEO Summit here along with New Zealand Prime Minister John Key, was the one who got the most attention from businessmen, as several questions were thrown at him over how they could invest in the Philippines in the light of the adverse travel advisories.

Mr. Aquino and the New Zealand leader were joined by business and industry leaders led by Asian Development Bank (ADB) president Haruhiko Kuroda, DHL CEO Hermann Ude and All Nippon Airways Co. Ltd. chairman Yoji Ohashi, who is also vice chairman of Nippon Keidanren.

Mr. Aquino and Key were separated by a coffee table and delivered their speeches before the question and answer portion.

Mr. Aquino sternly answered the question on travel warnings against the Philippines, which elicited laughter from the crowd.

Key, for his part, seemed to have reddened  serious and blushed while Mr. Aquino voiced his displeasure over the advisories. New Zealand was among six countries that warned against travel to the Philippines, citing imminent terror attack.

Host nation Japan the other day joined the other nations that issued adverse travel advisory against the Philippines, but this time, warning against robbery and kidnappings.

Mr. Aquino lamented that other countries should be more considerate to their allies vis-à-vis their responsibility to warn and protect their own citizens.

Mr. Aquino though thanked the businessman during the forum for bringing up the issue of adverse travel warnings. He said the Philippines “unfortunately is not one of the tourism powerhouses yet.”

“We have three million visitors a year, some of our neighboring countries would have as high as 22 million visitors. Unfortunately, with the terror advisories recently we were singled out as a place to avoid,” Mr. Aquino told the forum.

“Unfortunately for us, there seems to be standards when they issue these alerts. There are countries that have experienced terrorist attacks directed at tourists (and) that area placed in a category lower than the Philippines in terms of terrorist alerts,” he said.

Mr. Aquino said there are countries that have harbored terrorists who attacked other countries but they are not included in the list of travel alerts.

“We don’t understand why, on the basis of a report that actually talked about a threat that was very dissimilar to previous Islamic, fundamentalist, jihadist attacks, suddenly gains so much credence that’s enough to issue all of these alerts that unfortunately were played up by our media,” he explained.

Mr. Aquino was acerbic in his comments, eliciting laughter from the crowd, particularly when he questioned the “sincerity of our allies” in issuing the adverse advisories.

He said the travel warnings came even as the Philippines is preparing a tourism campaign on Nov. 15.

“One has to suspect the sincerity of some of our allies,” he said. “We have made our displeasure known to their ambassadors.”

Mr. Aquino told the forum that the Philippine government had implemented a new procedure that would validate any information on security threats.

“We have a new procedure put in place. You know the basis of the information given to our government came in the form of SMS (short messaging system) and it was more, in the best light it can be said, it was taken so that they will not be accused of not doing anything,” Mr. Aquino said.

“But in terms of validating the data, it seems there is no effort at all to validate and this negatively impacted on our country’s efforts and again one has to wonder why such a thing came from allies,” he added.

‘Is not unusual’

Malacañang, for its part, said the latest travel advisory issued by Japan against the Philippines “is not unusual and extraordinary.”

“These are just precautionary measures. We respect our Japanese friends on this,” Presidential Communications and Operations Office Secretary Herminio Coloma said.

Coloma stressed the responsibility of the Japanese government to ensure the safety of its citizens.

He said the Department of Foreign Affairs (DFA) is regularly holding dialogues with embassies for a “clearer understanding” of foreign governments.

“We want to know what their concerns are,” Coloma said.

What makes the Japanese travel advisory different, Coloma noted, was that text was written in Nippongo, which means only Japanese people can understand it.

“There is no English or international version,” Coloma said. “The travel advisory was written in Japanese.”

Coloma also noted the Japanese travel advisory did not mention any possibility of terror attack in the Philippines.

Japanese Ambassador Makoto Katsura explained the advisory was merely a reminder for their nationals visiting the country to take the usual precautions against criminal elements.

The travel advisory, Katsura said, is being issued by the embassy regularly, particularly in the last months of the year when a significant number of Japanese tourists travel to the Philippines.

“So we just ask them to take safety measures against any security concerns like robbery and kidnapping,” he said.

Katsura pointed out his government’s advisory was “completely different in nature” to those issued by the United States, Australia, New Zealand, United Kingdom, Canada and France.

The six nations came out with their respective advisories one after the other within a matter of days, all of which warned of an imminent terrorist attack.

Security forces confirmed they were aware of the report of a terrorist threat on the country but stressed the information should be validated.

Officials said this was the same information used by the six nations when they issued their advisories against the Philippines.

Matsura clarified the advisory did not discourage their citizens from traveling to the Philippines. What it did was only to remind Japanese citizens to “take safety measures against any security concerns like robbery and kidnapping.”

“Our advice is quite different from them. We just remind them of the possible security (risks). We advise them to take precautionary measures,” Matsura said.

Matsura said the Japanese embassy had no idea about the information used by the six nations to issue the travel warnings.

President Aquino lamented that foreign countries did not share information with the Philippines that eventually led to the spate of adverse travel advisories.

He said the six countries did not even bother to coordinate with their Philippine counterparts on intelligence matters to check if the reported terror threats were real and accurate.

The US embassy issued a statement explaining the latest travel advisory against the Philippines carried only “slight changes.”

The British government also clarified it did not issue any new advisory to its nationals but only a revised travel advisory.

The Australian and New Zealand embassies also responded in similar tones. With Delon Porcalla, Danny Dangcalan