By Bernie Cahiles-Magkilat
After going through the failed proposal for sectoral free trade agreement (FTA) with the US and other forms of useless exercise to further open up access for Philippine goods in the world’s largest market, the Philippines is now eyeing the possibility of forging a comprehensive bilateral FTA with the US.
Trade and Industry Undersecretary Ceferino S. Rodolfo, who is also managing head of the Board of Investments, said they have raised the possibility of forging a bilateral FTA with the US during a recent Trade and Investment Framework Agreement (TIFA) meeting with USTR (US Trade Representative).
According to Rodolfo, the USTR responded by saying that they are going to study the Philippine proposal.
The USTR, however, also noted that they are also reviewing the trade deficit that the US has with its trading partners, including the Philippines. The Trump administration is bent on imposing trade sanctions against those countries where the US has incurred huge trade deficits.
There are four bases in forging a bilateral FTA with the US, Rodolfo said.
First, is the size of the market. The Philippines has a huge market of over 100 million and has access to ASEAN with a 600 million population. It has forged bilateral FTAs with Japan and European Free Trade Association.
Through ASEAN, the Philippines has regional FTAs with many countries across the Asia Pacific, including with Australia, New Zealand, India, Japan and China. It is party to the 16-member Regional Comprehensive Economic Partnership negotiations, and is currently negotiating an FTA with the EU.
Over the past decade, two-way trade between the United States and the Philippines has grown by more than 25 percent. In 2016, US exports to the Philippines increased 9 percent to $8.3 billion, with top export categories including electrical machinery, machinery, cereals, aircraft, and soybean flour.
US services exports to the Philippines have increased by more than 60 percent since 2006 and now total $2.5 billion. In 2016, the Philippines was the United States’ 31st largest goods export market.
The stock of US foreign direct investments (FDI) in Philippines was $4.7 billion in 2015 and the stock of Philippines’s FDI in the United States was $1.2 billion in 2015. The United States is the Philippines third largest trading partner after China and Japan.
Also to be considered is the policy gap between the two countries, meaning how far it is to align their policies.
If the policy gaps are wide, then it would be difficult to forge an FTA. But Rodolfo said that under the TIFA both countries have already closed most of their issues.
“We have no issues on intellectual property, no labor issue. We have closed our gaps as we’ve amended our Public Services Act,” he said noting that the “Philippines is not doing these efforts because of the possible FTA but because this is important for our competitiveness, because industries form the backbone of the country.”
Rodolfo noted that on the issue of public health, the Philippines has already the Cheaper Medicines Act, while foreign equity restrictions on certain sectors have already been addressed under the revised Public Services Act.
Third, Rodolfo said the Philippines also conducted an internal study or gap analysis for the Trans Pacific Partnership (TPP) on hopes to finally join this high-level FTA bloc. Results of this analysis would show the level of difficulty in achieving the planned FTA with the US.
Another issue that may become basis for the FTA is on government procurement because of the Flag Law which grants preference to domestic entities. The Trump administration though has “America First” policy.
“On our part, the gaps are clear,” he said.
He added that the broader definition under Public Services Act has paved for an outcome that is acceptable to both.
At least 75 percent of the Philippines total exports to the US are already granted duty-free status or preferential import duty under the US Generalized System of Preferences (GSP).
Earlier, the US even granted the Philippine petition to include leather travel goods in the GSP, paving the way for the Philippines’ additional exports to the US market.
Asked as to the milestone for the proposed FTA, Rodolfo said the key milestone would be October-November this year when the US releases its trade deficit study among countries.
But, given the easily surmountable policy gaps, Rodolfo sees a smoother technical discussion after which the parties may proceed to drafting the framework agreement.
“We are not in a hurry,” he stressed.
On account of the preference for multilateral and regional trading arrangement like WTO and TPP by the previous US administrations, the Philippines hardly pushed for a bilateral FTA with the US.
Instead, the previous Philippine government pursued sectoral FTA for garment and textile but failed on a few attempts to pass the bill.
Also, as an offshoot of the Super Typhoon Yolanda, the Philippines was also looking for sponsors in the US Congress for a proposal that will allow duty-free entry of goods produced in areas hit by Super Typhoon Yolanda into the US market.
The Philippines wanted to propose a “minimum of seven to 10 years for the trade preference,” to encourage firms to put up operations (garments, handicraft and food) produced in the typhoon-affected areas and help spur economic activity there.