The gravest gaffe in the process of liberalizing Philippine markets to foreign competition is the manner by which it was done… lazily and blindly. Liberalization was a leap of faith… a blind and unquestioning faith in the ability of the supposed free market to bring about growth and development. Without an overarching, long-term framework for development and a strategy to promote domestic industries and assist them in the process of restructuring, harsh competition led many local industries not to dynamism but to atrophy, and many Filipino workers not to prosperity, but to joblessness.
One would expect that after a decade of being witness to all these problems, our policymakers would have learned their lesson. But this is farthest from their minds. Even as the fifth Ministerial Conference of the World Trade Organization to be held in Cancun in September 2003 is fast approaching, our government has yet to firm up its negotiating position on all but a few of the issues to be discussed. Worse, with no comprehensive industrial promotion or development strategy, any such position that may be formulated from hereon will at best be a shot in the dark.
On top of the agenda in Cancun will be the launching of negotiations on
the so-called “new issues.” These new issues are as follows:
On Investments: The proposed negotiations are not for enhancing the
flow of foreign investments to developing countries, but for protecting the rights of foreign investors. Aimed at curbing the role of governments in guiding the entry and operation of foreign investment, an agreement for unrestricted entry and operation of foreign investment will only ensure that the potential benefits that we can get from these investments are lost, and expose us to possible adverse effects. The Philippines is only too familiar with this situation. While our open door policy towards Foreign Direct Investments has allowed us to be part of the global production chain of semiconductors, its passiveness has wedged us in the lowest value-added portion of the production chain — assembly and testing. These passive policies have also ensured that the industry does not grow roots in the local economy, and has therefore remained footloose and ready to up and leave the Philippines anytime they see fit. Furthermore, as demonstrated by the East Asian Crisis of 1997, there is a need to distinguish between short-term and long-term capital flows, as the former induces instability and fragility in financial markets and exchange rate systems.
On Competition: This agreement is likely to curb the role of developing countries in guiding the entry and operation of foreign trading firms and will only serve to disallow the management of competition, a tool that has played an important role in the growth of the East Asian Tigers. An appropriate competition policy for a developing country is one that should be able to help its process of development. Given that countries are in different stages of development and are faced with a variety of problems that are specific to their economy, rigid rules that bind the hands of developing countries to the specific standards of competition will only incapacitate these countries in formulating tailor-made policies to solve their development problems.
On Government Procurement: While current talks in the area of government procurement have so far only been for an agreement on transparency, the main proponents of negotiations in this area have explicitly stated their ultimate goal of expanding their markets in the area of government purchases. This will mean that governments will no longer be allowed to give preferential treatment to domestic producers and suppliers in any of its purchases. Again, the practice of promoting domestic industries via government’s loyal patronage has been an important development tool for early industrializers. That the US and the European Community now seek to disallow exactly what they so actively used is nothing short of unfair play.
These proposed new issues will further extend the frontiers of the trading system to new and unchartered areas and impose greater pressure on the resources of developing countries to comply with the proposed agreements. Furthermore, binding agreements on these issues will restrict the already limited national policy space of developing countries and constrain their development options. In fact, we have been witnessing a rethinking among public interest groups and even among trade experts of the wisdom of having included non-trade such as intellectual property rights within the mandate of the WTO. Clearly, to widen the WTO’s territory at this point in time is folly.
Many developing countries, along with India and many African nations, have voiced out their indignation with the proposed negotiations on investments, government procurement, competition policy and trade facilitation. Particularly, there is debate on whether or not explicit consensus has been obtained to launch negotiations on these areas. The Philippines has yet to take a stand on this matter. Will the Philippine government work with other developing countries to obstruct the inclusion of these new issues in the WTO agreements, or will it side with EU, the US, and other developed countries and launch negotiations in Cancun?