Wednesday, June 06, 2007

The egghead disconnect

The Philippines and Japan are in the process of ratifying a bilateral free trade agreement. In principle I am no fan of bilateral agreements - broad multilateral is more of my thing. But (as usual) I am bothered by the remarks of a Philippine Senator calling for"safety nets", because "Thousands of Filipino workers in factories making garments and electric appliances, and assembling automobiles stand to lose their jobs."

Now where did that figure (vague though it is) come from? The analysis is thought-provoking:

The chair of the Senate committee on economic affairs said his studies showed that 20 percent of Philippine products covered by the JPEPA would be adversely affected because the deal would reduce duties on Japanese exports to the Philippines to zero from between 10 percent and 30 percent.

“The domestic industries that would be affected are in garments, electronics such as toasters, washing machines and cooking ranges, and automobiles and spare parts,” said Roxas.

He noted that the three sectors were the country’s top dollar exports.

Now let's get this straight: these sectors are competitive enough to be able to export. But somehow they are threatened by the fact that we are repealing our tariffs? It boggles.

What's really happening? Well it's this cross-hauling thing: while we export a lot of these industrial products, in the same aggregated categories we are importing. So in some finer categories we are competitive, in some we are not. The latter is threatened by Japan's exports.

So how big is the threat and what to do about it? As a matter of fact the first part of the question has been answered, "not much." A bunch of eggheads have already done that study. See here. In short: Gains on the Philippine side mostly arise from lower prices and higher imports. Increased export is minimal (except services exports) because our main exports are already charged low to zero tariffs on Japan's side. Output adjustment on the Philippine side ranges from 0 to a whopping -0.04%. (Yeah, that's right, it's already in percent.)

By some awesome display of nonchalance, this research is ignored.

Well at least the good Senator didn't call for abrogating the agreement! Just putting safety nets. But then demanding these safety nets could be a ruse to put an end to the whole thing. In any case, such "safety nets" would use public funds, putting them in real danger of being wasted or worse, stolen.

(For an informative discussion about the bilateral trade agreement - which I mistakenly characterized as "free" - read here.)

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