Business apathy

When former World Trade Organization (WTO) director-general Pascal Lamy, was asked during a 90-minute online “chat” in late February 2006: “In your view, what should be the role of the business community in order to bring the Doha Round to a successful conclusion?” He responded: “If the business community is uninterested in the Doha negotiations, it will be a struggle to close them successfully. So the business community should assess where its interests lie and make its position known to the governments concerned.” His words have proven to be prescient. The Doha Round has yet to be completed since it was launched almost 20 years ago. There is a lack of political will – usually driven by the business sector pushing their governments – to bring it to a successful conclusion.

Nothing is local

If you ask yourself what is Doha, Geneva, and the WTO, you are in the same boat as I was when I was country manager for IBM Philippines and Thailand. I had very little idea of what the WTO (then GATT) was. Nor did I care much for it, or for international trade policy for that matter.  I was preoccupied with issues that affected my company at the operational level such as domestic regulatory issues affecting taxes, labor, competition, procurement, etc. It was only when I joined government that I realized that in an interconnected world, nothing is local anymore. You cannot ignore what is going on outside your own market because they somehow impact your bottom line even if you are not currently active overseas. I was ambassador to Brussels when it hosted the mid-term review of the progress made in the Uruguay Round of negotiations which made me appreciate the value of multilateralism and of a liberal world order to global prosperity.

ABAC

My appreciation of how business can impact trade took a gigantic leap when I was tasked to organize the APEC Business Advisory Council (ABAC) in 1996. This was a business advocacy group created by the APEC Leaders in 1995 to provide business inputs to the work of APEC to integrate the economies of the region. ABAC was an advocate for the whole of business and not for specific industries or firms. Its value was that it represented views formed from actual experience in the field supported by studies and surveys. One of its most significant insights presented to APEC governments was the emergence of the global value chain (GVC) business model. Simply put, products and services are no longer purely local, but the aggregation of processing undertaken in various locations around the world as a result of firms looking for the most efficient way of making a product. A country’s competitiveness, therefore, would hinge on how cheaply and efficiently it undertakes that processing. We know now that burdensome government regulations and inefficient services like banking, logistics, packaging and a whole host of services can make a country uncompetitive. So it is not just the exporters, but the whole economy that determines this competitiveness.

Why Phl-US FTA?

Why do I bring this up? I came to this realization as I began the process of organizing a workshop on the issues and prospects of a Philippine-US Free Trade Agreement. Those who responded were those that were directly affected, or could benefit directly from such a preferential trade agreement – exporters, particularly garments and steel products or US companies that operate here. Mainstream businesses – particularly those that cater to the domestic market – have not shown an interest. Yet they have as much stake here not only in terms of competition in their domestic market, but more important, in taking advantage of the dynamic impact of such a preferential trading arrangement in terms of new market opportunities, increased foreign investments, and on internal economic reform.

There is an apparent disconnect between the business sector and government policymakers who pursue efforts to create a liberalized environment for commerce to flow because experience and empirical evidence show it is good for the country.  And yet you barely hear of the business sector urging the government to do so. Those who make noise are those who feel they will be adversely affected. Exporters and traders and consumers who benefit are less heard. For the vast majority of business, however, there is indifference. They just don’t see its immediate relevance to their bottom line.

Are we competitive???

So what we are seeing is more apathy and fewer advocacies for beneficial foreign trade policy from our business sector. It is no wonder that our negotiating positions have been more defensive rather than offensive. Governments respond to business needs and when it only hears those that are affected negatively. So it is not surprising that it has taken a defensive position in its trade negotiating stance and has not actively sought preferential arrangements. Our comfort zone has been within the ASEAN framework where we will be the outlier if we did not participate. The only true bilateral FTA we have is with Japan and with the EFTA countries.

In contrast, Brunei, Malaysia, Vietnam and Singapore are members of the CTPP. Indonesia and Thailand have been far more aggressive in pursuing bilateral FTAs. With the Doha Round still in limbo and participation in ASEAN-led FTAs not giving us a distinct advantage over our other ASEAN partners viz-a-viz third country markets, the prospect of an FTA with the United States seems like a golden opportunity.

Of course, concluding such an agreement is not a given. There is still formal negotiations to be conducted and congressional assent from both sides to be secured. But it is worth giving a shot. Here is a concrete proof of why. The China-US trade war has led to an exodus of manufacturers seeking to avoid punitive tariffs imposed by both sides. They are not making a beeline to the Philippines, but are heading to our ASEAN neighbors, particularly Vietnam, Cambodia and Malaysia. In these companies’ perception, we do not present a competitive edge. A Philippine-US FTA would give us that distinct advantage.