In a previous issue, we released an analysis on the Regional Comprehensive Economic Partnership. We concluded that the informal sector and small businesses will hurt most when the Philippines enters free trade with East and Southeast Asia.
Our head writer delivered the analysis to the Presidential Complaint Center. Said center sent him a letter explaining that they sent it to NEDA. NEDA then sent a letter explaining that they sent it to the DTI. The Department of Trade and Industry sidestepped our concerns, and instead told us to look at a list of benefits. We reproduce the letter and the attached benefits below.
This is in reference to your communication to the Presidential Complaints Center of the Office of the President dated 12 August 2022, under Code No. PCC-CAM-08-08-0222-166, regarding the Philippines’ ratification and participation in the Regional Comprehensive Economic Partnership (RCEP) Agreement.
The Department prepared a briefer on the Overview and Key Benefits of the RCEP
Agreement to the Philippines for your perusal and consideration. The Briefer provides updates on the status of the Philippines’ ratification of RCEP, a brief background on the Agreement including information on the tariff liberalization of agricultural lines, a study conducted, and the key benefits of RCEP to the Philippines and to SMEs.
For reference, kindly find attached for the said briefer. For further queries and
clarification, please do not hesitate to contact the office through OAsecIDTPG@dti.gov.ph. I am also open to meeting in person or through phone call to further discuss the concerns at hand.
Colleagues from the National Economic Development Authority (NEDA) may have
additional information to provide you.
Thank you.
Sincerely,
ATTY. ALLAN B. GEPTY
Assistant Secretary
Copy: Presidential Complaint Center, Office of the President
Director Bien Ganapin, NEDA
In a Study conducted by Dr. Cororaton in September 2021 entitled “Regional
Comprehensive Economic Partnership (RCEP): Estimating the Potential Impact on the
Philippine Economy”, the Philippines’ real GDP is expected to increase by 1.93 % while the trade balance between the Philippines and the trading partners in RCEP is expected to improve, and overall welfare for the Philippines will increase while lowering poverty incidence by 3.62 %.
Four (4) sectors are also seen to have notable improvement in exports, particularly
electronic equipment and
machinery equipment in non-agriculture, and
vegetable, fruits, nuts and
other food products in agriculture and food.
While the Philippines may experience a decline in exports on some agricultural sectors such as oil seeds, and several industrial sectors such as textiles, wearing apparel, chemical rubber plastic products, among others, and in service sectors such as communications and business services, the Philippines will gain larger growth in vegetables, fruits and nuts, and other food products, metals, electronic equipment, machinery and equipment, and transport services, outweighing the estimated losses in other sectors.
The study used the Global CGE and Poverty Microsimulation models and GTAP 10.1
database for the simulation. The simulations focused on
real gross domestic product (GDP),
consumer prices,
actor prices,
sectoral exports, imports, and outputs,
Trade creation and diversion, and
welfare.
The simulation also took into consideration all 15 RPCs [RCEP Participating Countries], with each RPC as an individual entity with a 10 year period of 2022-2031. The model used also took into consideration the elimination of tariffs and NTMs. Sectoral tariff rates of countries and regions calculated from the GTAP database are utilized, but adjusted to account for the tariff rates within ASEAN (ATIGA).
The computable general equilibrium (CGE) model used by Dr. Cororaton is more
sophisticated as it takes into consideration several variables and inter-market linkages that allows it to provide insights on other macroeconomic variables such as economic growth, prices, welfare, and poverty incidence among others.
Key Benefits of RCEP
The key benefits of RCEP to the Philippines are summarized as follows:
Zero or lower import tariff applied to Philippine exports such as agricultural products, automotive parts and garments in the biggest free trade area;
Wider sourcing of raw materials by Philippine manufacturers due to zero or lower import duties on their inputs as well as more flexibility in the rules of the FTA on product manufacturing;
Enhanced trade facilitation provisions that make cross border trade simpler and faster;
Time bound consultations to resolve issues on non-tariff measures;
More stable market access for services by binding existing regulations;
Stable and predictable business environment to attract more investments in the
country, as well as safeguard Philippine investments abroad;Preferential treatment for skilled Filipino professionals and business persons such as in legal, construction, engineering, and banking services;
Support for MSME development and participation of Philippine enterprises in the global value chain; Improvement in financial services such as digital banking for MSMEs and development of new financial products;
Stronger protection and enforcement of intellectual property rights to ensure the
interest of Filipino inventors, authors, performers, composers, artists, among others, are protected in RCEP countries;Boost regulatory cooperation on telecommunications and ICT services;
Provides economic and technical cooperation support that the country can avail to strengthen its competitiveness.
The RCEP Agreement has a dedicated standalone chapter on SMEs to support their
participation in international trade. Recognizing the potential of SMEs, including micro enterprises, to significantly contribute to economic growth, employment and innovation, RCEP parties agreed that the Agreement will provide a platform for economic cooperation programs and activities aimed at increasing SMEs’ ability to utilize and benefit from the opportunities created by the RCEP Agreement, such as the integration of SMEs into the mainstream of regional supply chains.
The SME Chapter seeks to promote information sharing and cooperation. Specific areas for cooperation are identified therein, such as promoting the use of e-commerce, encouraging innovation and use of technology, and sharing of best practices on enhancing the capability and competitiveness of SMEs, among others. The chapter also establishes contact points to facilitate regional cooperation on SME development.
For readers unacquainted with top-level Economics, we will break down the DTI’s response. They used a study1 by Dr Caesar Cororaton2 to justify their confidence in the RCEP. This study used a Computable General Equilibrium (CGE) model. We first must explain how CGE works.
A CGE model is a composite of equations derived from Economic theory. The choice of equations is often quite subjective. Textbook graduate theory presents some, but more often than not, each paper either derives its own equations from first principles, or it takes equations from past research applied to new subjects or locales with little modification. In Cororaton’s case, standard models for consumption, production, income, and trade were used.
The equations are then implemented in software, most often the General Algebraic Modeling System (GAMS). A few coefficients are taken from other studies, when not enough data is available to estimate them on the fly. Estimating the other coefficients, however, is the goal of CGE modelling. They are estimated using optimization algorithms - when evaluated, the result of the coefficients and equations must match the data closely. Doing so lets us know the impact of a policy change - lowering tarrifs, setting price controls, etc. Cororaton’s paper list the equations and included coefficients in the appendix.
It is hard to debunk and refute these kinds of studies. Even if one brings up the assumptions that they make (homogenous households, household head represents entire family, etc) research authors will often justify that back-of-the envelope calculations will do, and being more detailed is inefficient. The only way to falsify them is to let real life take its course.
However, these studies have implications for us. The regime cannot handle particularities, and it must assume homogeneity among citizens. Doing so works only to a point, after which the complexity which gives the regime power also undoes it. The MSME chapter can work all it wants to help the informal sector in free trade, but it will never be as efficient as it wants. MSMEs and the informal sector are too heterogenous for quick and decisive responses from bureaucratic machinery. The regime cannot adapt to edge cases here just as it cannot adapt to every Juan with a politicizable edge case when regime agenda becomes priority. While Cororaton’s projections may come true as numbers on a spreadsheet, the concrete reality will differ wildly. Only a few will benefit from the projected profits, only a few will survive the hurt in agriculture, and only a few can take advantage of government aid.
Discontent will spread among those who lost out in regime projections, of course. Yet the regime must maximize whatever output it pushes, whether sensible or garbage. It therefore must screw over citizenry to meet its own goals, and habituate them into adopting the party line. This is how the regime preempts discontent: instead of fitting models to reality, it fits reality to models.
Are you a Kapampangan who stands to lose out from the RCEP? Visit the Pampanga Mises Convention!
Kapampangan wari kang ating mawala ibat king RCEP? Tagun at sopan me ing Pulung Mises ning Pampanga!
Cororaton, Caesar B. Potential effects of the Regional Comprehensive Economic Partnership on the Philippine economy. No. 2016-30. PIDS Discussion Paper Series, 2016.
a Research Fellow at the Virginia Polytechnic Institute and State University, and a Visiting Scholar at De La Salle University (DLSU) Manila.