The Philippine Senate will soon resume deliberations on the regional comprehensive economic partnership. RCEP is a trade agreement between the Philippines and other members of the Association of Southeast Asian Nations (ASEAN) plus China, Japan, South Korea, Australia and New Zeeland. Faced with objections mainly from the agricultural sector, the Senate has yet to approve the deal.
Why are we in agriculture against RCEP?
Clearly, we are ill-prepared to compete with our regional counterparts under RCEP. Our farmers continue to suffer from low productivity, high production costs, poor quality produce and an inability to maintain supply. Getting goods from farms to consumers remains expensive. Our products cost more than imports; even more, if the latter are subsidized, smuggled or undervalued. Local traders need to lower their prices to farmers in order to compete with cheaper imports.
These same issues make it difficult to compete and sell our products abroad. Yes, we export a lot of bananas, pineapples, coconut products and fish, but not much else. During this time, our competitors have innovated and improved, replacing many of our exportable products – including coconut juice and patis – while providing us with products that we can and should produce locally, such as mung beans, peanuts and black pepper. It has been like this for a long time.
The result is enormous and increases agricultural trade deficits. We import much more than we export. And the gap is widening every year.
All RCEP countries except Japan sold more agricultural products to us than we exported to them in 2019. Around the same time, our export value reached 5.8 billion US dollars, the lowest value among major ASEAN economies and slightly higher than Myanmar. . Regionally, we posted the highest trade deficit, surpassing that of Singapore, which imports most of its food, and smaller countries such as Cambodia and Brunei.
Will RCEP membership reverse these trends? Probably not, unless we fix our production and marketing issues first.
Knowing that we are unprepared, why rush to join RCEP?
Some economists claim that our country will gain a lot from it. However, most of their projections are based on unrealistic economic theories and assumptions that rarely materialize in the Philippine context.
This has been proven many times in the past. Instead of deriving billions of dollars from exports and other benefits – as we promised when we joined the World Trade Organization (WTO) in 1995 – we ran deficits of over $7 billion. trade, lost over a million jobs in agriculture, and seen agriculture’s contribution to our gross domestic product drop from 20% to 10%.
Free trade just hasn’t worked for our agricultural sector, especially for our small farmers and fishermen.
How then can we believe all these optimistic projections about RCEP, if the people who made them were so wrong before?
RCEP is supposed to provide significant export opportunities for our products through tariff reductions, and also grants other preferential agreements with our trading partners.
But almost all of these market access opportunities are already available to us under the ASEAN Trade in Goods Agreement and ASEAN FTAs with China, Japan, Korea, Australia and New Zealand. RCEP will only consolidate, but not replace, these FTAs. These FTAs will remain in effect. We can still use them, even if we don’t join RCEP.
It is therefore difficult to believe the warnings that non-membership will lead to the loss of our export markets in other RCEP countries. If this were true, how come we recorded – in the last six years – the highest level of quarterly exports in the first three months of 2022, when we were outside RCEP when it was coming into force this year?
Any new business opportunities arising from RCEP will not be exclusive to the Philippines. All other RCEP members can take advantage of these opportunities. We can be good at making certain products; but if others are better – in terms of price, quality and reliability – we will still lose them.
The threat of trade diversion will come from our inability to compete with our competitors. It will be a challenge, with or without RCEP.
Nor does RCEP membership simply mean that our exporters will automatically enjoy trading privileges. They must still obtain certificates of origin to prove that their products meet local content and other requirements in order to qualify for RCEP’s preferential rates.
The foreign investment incentives under RCEP will also be available to all other members. There is therefore no guarantee that investors will come to us, simply because we join the RCEP. Some investors might leave, not because we are outside of RCEP, but because they would prefer to locate in countries with lower trafficking, crime, corruption and lower cost of doing business.
Let’s now review our RCEP commitments.
Tariffs on 75% of our agricultural tariff lines will be immediately reduced to zero. Customs duties on an additional 8% will be phased out over several years. An additional 7% will be subject to a partial tariff reduction. The balance of 9% – involving ultra-sensitive products such as rice, corn, meat, coffee and sugar – will not benefit from any tariff reduction. RCEP supporters say there is no need to worry.
But what if something goes wrong and import surges occur?
WTO rules allow us to temporarily impose safeguard duties in addition to our regular tariffs. This will stop the surge by making subsequent imports more expensive. There is no limit to the additional duties that may be imposed.
However, RCEP’s “transitional safeguards” provisions are of great concern to us. They set a ceiling or a limit on the amount of safeguard duties in the event of an import surge. No additional right is authorized beyond this ceiling, even if it turns out to be insufficient.
However, RCEP advocates cite two paragraphs of RCEP’s legal text on trade remedies, which state that member countries may apply WTO safeguard provisions instead of RCEP’s transitional safeguards.
We are not convinced. No sane country will resort to RCEP’s restrictive safeguards, knowing that it can follow WTO rules that do not limit trade remedies. So why did RCEP negotiators devote seven and a half by nine pages to RCEP’s transitional safeguards, to replace them at the end? So far, we have not received a convincing explanation from the government.
We also remain skeptical of arguments that joining RCEP will force the government to allow our farmers to compete and benefit from trade. These promises are not new, but agriculture has yet to receive the priority and support it needs and deserves.
The government needs to produce a realistic plan to make RCEP and trade work for our farmers and ensure we are able to counter threats to vulnerable sectors. It should be reinforced by political declarations, clear strategies, firm budgetary commitments and time-bound objectives.
This is the crucial missing piece in the ongoing RCEP debate and the root cause of resistance in the agriculture sector, exacerbated by the current administration’s penchant for prioritizing imports over local production.
The current Senate is expected to postpone any further action on RCEP. President-elect Bongbong Marcos and the new Congress can then review the agreement and shape the country’s trade policy, in line with a comprehensive plan for the revitalization and competitiveness of Philippine agriculture.
Raul Montemayor is the national leader of the Free Farmers Federation (FFF).