The recent 2023 Global Risks Report of the World Economic Forum identified the cost-of-living crisis as the most severe global risk coming in the next two years, amid the inflationary pressures and the global supply chain disruptions caused by the conflict between Russia and Ukraine.
Alarmingly, a prolonged cost-of-living crisis threatens to further widen the inequality gap in society, which was already worsened by the COVID-19 pandemic. This looming socio-economic threat may ultimately lead to social unrest and political instability.
In the case of the Philippines, headline inflation accelerated to 8.1% in December 2022, the highest since November 2008. This brought the average inflation rate for 2022 to 5.8%, which was substantially higher than the 3.9% recorded in the previous year.
There is no doubt that the Philippines needs to be resilient from risks that both emanate internally and externally. An opportunity arises with its eventual participation in the free trade agreement (FTA) called the Regional Comprehensive Economic Partnership (RCEP).
Signed in November 2020, the RCEP aims to deepen economic integration in the region and strengthen the economic partnership among participating nations, which could ultimately generate more jobs and employment opportunities, as well as to improve people’s standard of living and overall welfare.
Signatories to this free trade agreement were the 10 member states of the Association of Southeast Asian Nations (ASEAN) as well as South Korea, China, Japan, Australia and New Zealand.
The Philippines and Myanmar have yet to ratify the RCEP. While the RCEP was ratified by then Philippine President Rodrigo Roa Duterte in September 2021, it has yet to be ratified by the Senate over concerns of protecting the country’s agriculture sector.
On paper, the ratification of the RCEP could contribute to ramping up the economic recovery of member states as it aims to strengthen their relations through greater trade and investment. After all, collaboration is key to move forward together.
In the case of the Philippines, the RCEP could open more opportunities for a bigger market for its exports, which could help narrow the country’s persistent trade deficit.
Latest data from the Philippine Statistics Authority (PSA) show that the country’s total external trade in November 2022 grew by 3.6% year-on-year, amounting to US$ 17.88 billion. However, imports continued to dominate the country’s total trade as it accounted for 60.3% of the total.
On the other hand, only 39.7% were goods exported by the Philippines. The result is a negative trade balance which, incidentally, has become more pronounced since 2016. A negative trade balance impacts a country’s gross international reserves, exchange rate, and inflation rate.
The RCEP seeks to eliminate trade barriers and enhance investment opportunities, as local industries are encouraged to engage in the free exchange of goods. This trade agreement could provide the Philippines with greater access to bigger markets for its export products – and reduce the share of imports in the country’s total external trade – and even drive industries to increased production to meet the demands of new markets that will be opened up by the RCEP free trade agreement.
Pursuing a more investment-led growth will not only enable the creation of more quality jobs and employment opportunities for Filipinos but also transform the economy into a more resilient and productive one.
With the reduction of tariffs, local industries, especially those that have the country’s competitive advantage such as raw materials and electronic products, may be encouraged to produce more and engage in further trade with other countries. This should lead to increased job opportunities for Filipinos, stimulate the economy, and accelerate post-pandemic recovery.
On the other hand, with the reduction of tariffs, larger import volumes may flow to the Philippines that could, in turn, exacerbate the country’s alarming trade deficit. With fewer restrictions and stiffer competition, a higher influx of cheaper goods may drive domestic enterprises out of business, therefore undermining the livelihoods of Filipinos.
Worse, the impact of a trade imbalance on the gross international reserves, exchange rate and inflation could undermine government initiatives for sustained economic growth. Hence, the problem is not the RCEP per se but to mobilize and strengthen the country’s ability to turn the trade pact to its advantage.
The Philippines cannot hesitantly sit on the sidelines while its neighbors are already committed to aggressively engage in free trade. The government has to fast-track the necessary safeguards to position itself in a level of strength amid the trade deals.
The government also needs to implement urgent measures to lower the costs of doing business for domestic manufacturers or producers to enable them to compete with incoming imports. These and more can materialize through the right government policies and legislation.
If the government can respond quickly, the country’s participation in the RCEP will translate to increased real benefits for the Philippines as this FTA will enable the country to have more access to export markets, investments, and jobs for millions of Filipinos.
Unnecessary delay in the Philippines’ involvement in the RCEP will result in the country missing many important opportunities for growth and in mitigating the risks of a looming global crisis in cost of living. Hence, there is no better time to call for immediate collective action than now, before we get shut out and again left behind by competing economies.
Venice Isabelle Rañosa is a research manager at think tank Stratbase ADR Institute.