free trade

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.

Transcript of BSAIII's answers at Youth 2010: Bumoto Para sa Pagbabago

Transcript of Sen. Benigno S. “Noynoy” Aquino’s answers at Youth 2010: Bumoto Para sa Pagbabago, ANC Presidential Youth Forum, January 29, 2010, De La Salle University-Manila

Transcript of Answers at the DLSU Youth Forum

Question from Ingga Bianca Sobreikerri of St. Scholastica’s College

Ingga Bianca Sobreikerri: Senator, kayo po ba ay sang-ayon sa Reproductive Health Bill at paano po ninyo ilulunsad at ipaliliwanag sa ating mga kababayan ang ganitong batas gayong ang inyong pamilya ay kilala bilang maka-Diyos?

Senator Noynoy Aquino: Ang posisyon po namin ay tinatawag na responsible parenthood, ang statistics po namin ay ganito, ang sabi po kanina ng isa nating katunggali wala po tayong population problem. I think we will all agree that if you at one parameter for instance education, there is a problem in classrooms anywhere from 20 to 40 thousand, we are not already able to meet the needs of the people who are already here and that responsible parenthood basically says each parent should be reminded, ipaalala natin sa bawat magulang may dinala kayong anak sa mundong ito, mayroon kayong obligasyon na paaralin, pakainin, may tirahan na maayos, damitan at iba pa.

Hindi po puwdeng bahala na kung ano ang mangyari dun sa anak, yun lang po ang minumungkahi namin. Ngayon po, ano ang solusyon po diyan? Mayroon po tayong educational campaign na ipapaalala po itong mga responsibilidad na ito, yung paghuhubog ng konsensiya at yung values po, iniimbitahan po natin ang bawat isang simbahan na maki-lahok at ibahagi yung kanilang mga pagtu-turo para maliwanagan yung paghuhubog ng konsensiya, nasa atin pong Saligang Batas na mayroon pong separation of Church and State, tayo ay isang demokratikong bansa, hindi po marapat na ang gobyerno po natin ay magdi-dikta sa sinoman kung ilan ang anak na dapat nilang dalhin sa mundo, kung paano nila pa-planuhin ang kanilang pamilya, pero mayroon pong obligasyon nandiyan po sa Saligang Batas na ang gobyerno, ipaalala sa bawat isa na mayroon po tayong tungkulin sa pamilya na nagiging “nuclear family” o susi sa lahat ng pagre-resolba sa lahat ng ating problema.

Huling paalala lang po, noong EDSA po, mayroon tayong humigit kumulang 50 milyon katao,ngayon po ay nasa 93 hanggang 97 ang tinatayang mga mamamayang Pilipino. Geometric ang progression sa population at kung tayo ay parang walang nakikita, walang sasabihin at walang naririnig, siguro po yung mga bata na hindi na nagkakaroon pagkakatong matunghayan ay lalong hindi magkakaroon ng pagkakataon kung tayo’y patuloy na mananahimik.

Questions from a panel of De La Salle University-Manila students

Panel member: Sa pagpasa ng batas ukol sa contractual employment sa mga kumpanya, paano po ninyo ire-resolba ang mga issue ng security of tenure o employment sa ating bansa?

Senator Noynoy Aquino: Yun nga po ang problema, contractualization does not have security of tenure that there will be mutually exclusive, ang tanong nga po dito, mayroong kontrang isyu po dun yung comparative advantage natin versus other countries, labor lang po for the most part ang ating dear value added, tapos we’re pricing ourselves out of the market, yung aming plataporma, stresses education and education enhances the skills, the skills and job potentials that will open up because of an enhance and more skill full labor force hopefully will ensure the tenure and potentials for having meaningfull and dignified jobs here in the country and as well as abroad.

Gusto kong sugpuin ang “contractualization” at the same time ayoko namang patayin yung mga negosyo na kakaunti na lamang nandiyan na ang dami na nga pong lumikas sa ating bansa, wala naman ho talagang makikita sa solution sa extreme positions, saan ba yung happy compromise dito? Natutugunan yung kapakanan ng mga manggagawa, natutugunan din naman yung pangangailangan ng mga negosyo para maka-compete sa global market, huwag po nating kalimutan malapit na po tayong ma-obliga under various treaties na magbukas ng ating mga pinto sa dayuhang mga kalakal at mga produkto, so kailangan na po tayong maka-laban sa ating domestic market at mangyayari po yan, kung talagang naka-focus, yung isa po saking mga panukalang batas yung kung paano ibalik yung konspeto ng bawat kompanya na ang pananawa dapat ay hindi kayo o kami kapag nagtutugunan at nag-uusap ang management at labor pero bumalik tayo dun sa tayo, kompanya natin ito, paano natin palalaguin ito? Ang mga minungkahi natin dito ay yung productivity incentive.

Panel member: Sinabi po ninyo sa inyong palatastas na hindi po kayo magnanakaw, pero paano naman po ang ibang opisyal? Ang taong ko po, mayroon na po kayong nagawang kongkretong mga paraan bilang isang mambabatas para siguraduhing mahuli at mapanagutan ng mga ahensiya o mga opisyal na napatunayang nagnakaw sa kaban ng bayan o naging kasama sa katiwalian?

Senator Noynoy Aquino: Salamat sa tanong mo, palagay ko naman hindi ka absent nung nandoon tayo sa mga ZTE hearing, nandoon tayo kasama sa impeachment, nagtatanong tama ba yung paratang dun sa hello Garci, among other things, kasama ako sa impeachment for that matter, sinubukan narin nating iwasto yung sistema, doon sa AFP, DND budget, pagka-tagal tagal, 1974 pa po, hindi po subject to public bidding yung kanilang paggugol ng budget na yun, isang taon po ay umabot ng P1.8 billion ang tinatayang savings is between 5 to 10 percent, we could have saved a hundred and 80 million and devoted it to something else. Pero ang dulo po nun, I think I have proposed an amendment accepted to GAA for something like 9 or 10 budget seasons already kaya lang pinapalusutan at ginagawaan ng paraan para magkaroon ng failure of bidding, ang dami pa po nating ginawa, na hindi lang tayo naging interesadong itaas yung sarili nating bangko dahil tumutugon lang po ako sa ipangako ko na paglilikungkuran ang taong bayan, hindi ko na kailangan pang ipagmalakihan pa kung ano iyong ating nagawa.

Questions from Ted Failon, host of the forum

Ted Failon: Mayroon bang nagawa si Pangulong Arroyo na dapat niyang panagutan pagkatapos ng kanyang term?

Senator Noynoy Aquino: Sa akin po pananaw, YES. Ang problema po dito….

Ted Failon: Kung YES sa paano pong paraan?

Senator Noynoy Aquino: Dapat po magkaroon tayo ng closure sa lahat ng issues, ang issue nga po dito yung kulang ng transparency, mayroon po tayo for instance yung fertilizer scam na kalian naimbestigahan, 4 years after the crime was committed, kailangang may katiyakan sa kaparusahan, kung tao po ay hindi mamamansin dito sa mga issues na walang closure, para narin nating sinabi na ituloy natin itong sistema na mali sa atin pong palagay. Paano natin hahabulin yan? Nandiyan po ang ating mga korte, nandiyan po yung ating mga investigative arms, pero may obligasyon din naman tayo na protektahan ang karapatan ng lahat, dahil sabi nga po ng aking ama, yung pagtatanggol sa karapatan lalo ng kalaban mo ang talagang batayan kung talagang may demokrasya o wala, yun po ang hahabulin natin. Pangako ko po ay closure on all of the issues, kailangan pong magkaroon ng resolution kung sino ang may kasalanan ay kailangang may tiyak na kaparusahan.

Ted Failon: Ginoong Aquino, ano po kaya ang pinakamabigat na isyu na dapat nyang panagutan?

Senator Noynoy Aquino: Napakahaba po ng listahan, baka kulangin po tayo.

Ted Failon: Isa lang po.

Senator Noynoy Aquino: I think she has destroyed a lot of institutions that we have replied upon to have a vibrant and functional democracy. Ang dami na hong nagkwestiyon. Pati simbahan kinukwestyon. Pati ang ating mga korte nakukwestiyon. Dulo po nito, may gagawing kasalanan, sasabihing sagot pulitika lamang at parati hong nabibinbin na malaman natin ang katotohanan. Tuloy yung dapat mali ay tila sa ating pananaw ay naging sistema na. Naging syang palakad at kalakal po sa ating bansa na talagang nagpapahirap sa ating mga kababayan.

Closing statement

Senator Noynoy Aquino: Magandang hapon ho sa lahat. Ako’y nagpapasalamat sa pagkakataong ito. Palagay ko po ang pinuno, klaro ang mga posisyon sa lahat po ng isyu. Mahirap po sundan kung pabago-bago o naliligaw paminsan-minsan at bumabaliktad ang kanyang mga desisyon. Sa katanungang mayroon bang kasalanan si G. Arroyo, dapat mayroon tayong paninindigan. Tama o mali ikaw ang mag didikta sa buong gobyerno kung uusigin o hindi. Pag tayo po ay sasagot na nakakakaba ng konti, bakit ang unang papasok sa ating kaisipan ay hindi ko idedepensa ang sagot ng isang katunggali. Bakit ho depensa kaagad kung gayong nasa oposisyon sya? Kailangan ho suriin natin kung ano ang pinanggalingan natin, dahil sinasabi ng lahat, marami ang mali sa kasalukuyang sistema. Tayo ho ba ay nagpanatili sa sistemang yun o tinututulan natin yung mali? Pakitingnan po ang aming mga record. Maraming salamat sa lahat.

[Archived from the official campaign web site of President Benigno S. “Noynoy” Aquino III]