In their paper titled “JPEPA: Why the Need to Ratify”, economists Josef
Yap, Erlinda Medalla and Rafaelita Aldaba outlined the arguments in
support of the ratification of the Japan-Philippines Economic
Partnership Agreement (JPEPA). In brief, the arguments include the
following claims: a positive impact on gross domestic product (GDP),
generation of jobs, and poverty reduction. Such impact is expected to
result from greater access to the Japanese market in terms of trade and
movement of natural persons and from declining prices, rising incomes,
and increased Japanese foreign direct investment (FDI). Fail to ratify,
and we lose all these opportunities.

This is the same kind of threat economics that economists deployed in
the 1994 World Trade Organization (WTO) debate. In that debate, the
executive, with the support of free trade economists, bamboozled
everybody by saying that if we did not ratify the country’s membership
in the WTO, we would lose the opportunity to create half a million new
jobs in industry and another half million jobs in agriculture every
year.

Now we are back in the same old game: Ratify or we lose trade, ratify or
we lose markets, ratify or we lose jobs, ratify or we lose investments.
They are pointing a gun at us.

However, we now have the benefit of experience of the results of the
trade liberalization that we undertook. Trade liberalization has failed
to deliver on its promises. We did not see the modernization in
agriculture; it remains trapped in low productivity. We did not see the
massive expansion in industry; it has stagnated, with services picking
up the employment of the expanding work-force. We did not see the
employment and income revolution we were promised. Instead, what
liberalization created was disillusionment and lack of faith in
opportunities in the home country, intensifying the pressure on
Filipinos to leave for work abroad.

Given this backdrop, it is doubtful whether threat economics will have
the same efficacy as before.

In addition to being made skeptical by experience, many of the
projections on JPEPA overemphasize the positive and hide the negative.
For instance, Yap, et.al. claim that declining prices and rising incomes
will reduce poverty, with more than 200,000 persons moving up the
poverty line. Such emphasis on the overall effect fails to note the
distributional effects. The analysis of Caesar Cororaton from which the
overall effect appears to have been derived, has the following detailed
findings: With JPEPA, the contraction in agriculture intensifies,
agricultural wages decline, and unemployment rate in agricultural labor
deteriorates, as the reverse holds for industry, particularly non-food
manufacturing. Income inequality worsens.

Yap, et.al. claim that JPEPA can boost the growth and competitiveness of
auto parts makers and car assemblers. Yet Article 27 of JPEPA and its
implementing guidelines explicitly recognize trade in “used four-wheeled
motor vehicles.” Auto workers unions are furious about this because out
of the 200,000 new vehicles registered annually at the LTO (Land
Transportation Office), only 80,000 to 90,000 are locally assembled by
the members of the Chamber of Automotive Manufacturers of the
Philippines (CAMPI) and about 30,000 to 40,000 are produced by jeepney
manufacturers. These mean that about 80,000 are imported, many of them
second-hand used vehicles from Japan. In contrast, Japan’s EPA with
Malaysia has a clear provision on the cooperation to enhance
competitiveness in the Malaysian automotive industry. Malaysia and
Thailand, the favored hub of Japanese automakers and auto parts, have
explicit and strict rules against trade in second-hand vehicles and
parts.

Yap et.al. claim that the Philippines is expected to lead the deployment
of nurses and caregivers to Japan. Will Japanese health workers simply
look away as Filipinos fill up the health care positions? Can our health
workers learn the Japanese language quickly? Also, what will be the
impact of this on our own health care at this time when skills problems
are already being felt given the exodus of nurses to traditional
destinations?

In terms of market concessions, Yap et.al. claim that almost 95% of
Philippine industrial and agricultural export will face zero duties
immediately from the implementation date. What is not said is how much
of these already have a zero tariff base in the first place. The goods
that Japan was protecting at the time JPEPA was being negotiated will
mostly be subject to phased liberalization. In addition, Japan asked for
the exclusion of more tariff lines from the coverage of liberalization.
Much is said about our already very low tariff levels within the 0 to 3%
range. In other words, with nothing more to liberalize, we must be
getting a good deal. Yet obviously we liberalize some more as they do
not dispute the estimated PhP3.7-4.2 billion projected foregone tariff
revenues for the first year of JPEPA implementation alone.
More important, however, is that the very low base tariff range for the
Philippines is what was wrong with the JPEPA negotiation in the first
place. The very low tariff range was the result of the deep, universal
and unilateral trade liberalization based on the belief that it was the
country’s ticket to economic progress. But while this achieved the
general lowering of consumer prices, it failed to produce the promised
restructuring, employment and income effect.

The unilateral trade liberalizers will never see the problem in the
liberalization we undertook. See, for instance, Yap et. al.’s analysis
of the auto parts sector: it is weak and underdeveloped due to “lack of
capital and technology." It will not be about the withdrawal of tariff
protection and content requirement in fact weakening this industry. But
the recent news report about Toyota Motors is instructive. Tokuichi
Uranishi, vice president of Toyota for planning in Tokyo, said that the
aggressive trade liberalization of the Philippines in the auto industry
has made it difficult for Toyota to decide how to maintain its assembly
plant in Sta. Rosa.

Given the outcome of the Philippine liberalization strategy, other
competing strategies can lay better claim to effectiveness in achieving
growth and poverty reduction. For instance, Harvard professor Dani
Rodrik positively revisits other strategies:

– Import-substituting industrialization apparently worked well
in a very broad range of countries in terms of raising domestic
investment and enhancing productivity. The proximate cause for the
collapse of many of the economies that followed this strategy was more
their inability to appropriately adjust macroeconomic policies to
external shocks, rather than being imposed by the trade strategy.

– The success of the outward-oriented industrialization strategy
of the East Asian tigers, rather than being attributable principally to
opening up, had to do substantially with the active role taken by these
governments in shaping their allocation of resources.

– Recent success stories of China and India follow dual tracks
of state and market mechanisms, rather than across-the-board
liberalization.

The Philippines had the opportunity to adjust its baseline tariff range,
considering that it goes beyond the country’s tariff bindings in the
World Trade Organization (WTO), when the WTO negotiations collapsed in
the Cancun Ministerial Conference in September 2003. That was an
opportunity for the country to recast its trade and industrial policy,
no longer tied down by the simplistic formula of deep, unilateral, and
universal trade liberalization. Had it done that, the bilateral
negotiations with Japan and with other countries would have started from
a point of higher leverage.

Unfortunately for us, instead of seizing the opportunity to make prior
adjustments, we went straight ahead to pursuing efforts to “deepen
economic integration” via the bilateral and regional agreements route.
This they did with limited consultation and without public access to
information.

In place of informed and accountable policy-making, what we get is
threat economics.