Keep Trade on the Agenda – This Week’s APEC Summit

(Part 1 of 2)

Angelica Mangahas, Deputy Executive Director & Security Specialist at the ADR Institute

The Asia-Pacific Economic Cooperation (APEC) Summit has become so well-known as a talking shop that the annual gathering, wherever it’s held, is known best for having world leaders dress in the host’s national attire. Indicating the Summit’s remarkably low stakes thus far, few—if any—can say in concrete terms what it would mean for the Summit to succeed or fail. With the bar set low, many have taken to discussing the summit in terms of their favorite geopolitical issue, pairing APEC with the recent International Tribunal for the Law of the Sea (ITLOS) ruling, with US Freedom of Navigation operations, or with the sideline Philippines-Vietnam Strategic Partnership agreement.

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In the process, we risk losing sight of APEC’s primary goal, which is the expansion of trade and investment between far-flung countries on either side of the Pacific. And while a formal trade pact between APEC’s 21 members is not on the cards in Manila, 12 of its members are well on their way to finalizing the wide-ranging Trans-Pacific Partnership (TPP) agreement. While the Philippines is not part of the first group of negotiating states in the TPP, members of the Aquino administration have already signaled the country’s interest in exploring the prospects of future membership. Thus, as world leaders shuttle between Manila’s hotels and the conference center, we need to begin discussing how to keep trade on the Philippine agenda and how to make sure the entire country can benefit.

Philippine interest in the Trans-Pacific Partnership

Soon after coming into office in 2008, the Obama administration extended invitations to a select group of states to join negotiations for a multilateral free trade agreement (FTA) to be known as the Trans-Pacific Partnership. Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam concluded the multi-year negotiations a little over a month ago, on October 5. If ratified by the US Congress—no small hurdle—the TPP would represent the United States’ first multilateral trade deal since the launch of the North American Free Trade Area (NAFTA) in 1994.

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Officials from the Philippine Office of the President, Department of Foreign Affairs (DFA), and Department of Trade and Industry (DTI) have gone on the record to express interest in joining the TPP at the earliest opportunity. At an ADR Institute round-table discussion in July, Foreign Affairs Secretary Del Rosario said that the Philippines will be joining the succeeding group of interested states. On his part, Trade and Industry Secretary Domingo has said that the Philippines is studying how accession would occur in order for the country to be in a position to decide “as soon as the agreement is finalized and the text becomes publicly available.”[1] To this end, the Philippines began technical consultations with first-group states; by October 2015, it had held consultations with Australia, Canada, Malaysia, Mexico, New Zealand, and the United States.[2] DTI also announced that it had begun dialogue with interested sectors, including from civil society.[3]

The Philippines already has bilateral or multilateral trade agreements with seven of the twelve first-group states, leaving five—Canada, Chile, Mexico, Peru, and the United States—without deals thus far. Among these five, the Philippines may stand to gain the most from joining an agreement with the United States, which is the only top trading partner with which the Philippines does not have an FTA or reduced tariff scheme (see Table 1 below).

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Steps and hurdles to accession

Talk has circulated that the Philippines would have been unable to join the agreement because of prescriptions under the constitution and other laws. No specific legal provisions have been formally identified by the government, although Secretary Domingo has said that the DTI is studying provisions related to the “environment, labor and investment on the equity side because we have many restrictions.”[4] However, constitutional and other legal restrictions are common concerns for countries negotiating trade deals; when these restrictions surface, countries may be given a period of time to revise their respective legal regimes prior to acceding to a deal, as appears to have been the case with Vietnam for the TPP. As a result, these limitations need not be insurmountable obstacles to states with enough interest in joining.

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Now that the text has been released, the Philippines must wait for the original members to complete their respective processes of ratification. If a minimum of six states representing 85% of the combined GDP of the proposed trade area successfully ratify the TPP and other prerequisite treaties in their respective domestic legislature, the treaty will enter into force. Once the treaty is in force, a process that may take a year or longer, the Philippines may then formally lodge its interest to join as a first step.

Nevertheless, the Philippines need not only demonstrate an interest in joining and complying with the trade provisions set out in the recently released text. As in the text, future accession will also be:

subject to such terms and conditions as may be agreed between the State or customs territory and the Parties, and following approval in accordance with the applicable legal procedures of each Party and acceding State or customs territory” (highlight my own).

Once a state like the Philippines formally conveys its interest in joining, a working group will be established, open to all the original TPP states, to negotiate the terms and conditions for the accession. At this stage, concerns about legal restrictions, if not yet amended, will be formally raised if the other parties see it necessary. With the Philippines’ agreement to these terms and conditions, it can then be invited to become a party to the agreement.

Working toward joining

Pressure is back on Philippine agencies to speak out on the bridges the countries needs to cross on the road to ratifying the agreement. At the very least, the Philippines can begin steps to comply with the known legal prerequisites to accession. For example, Article QQ.A.8 of the agreement lists the international agreements and treaties that each member party must ratify. The Philippines has not yet ratified two of the conventions: the International Convention for the Protection of New Varieties of Plants (1991) and the Trademark Law Treaty (1994). Ratifying these treaties can help the Philippines reduce delays toward accession, while signaling to the original TPP members the seriousness of its intention to join the trade agreement.

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Second, because the approval of a Philippine accession must occur in “accordance with the applicable legal procedures of each Party and acceding State or customs territory,” it would be beneficial for the Philippines to considering forging “building block” trade agreements with countries like Canada, Mexico, Peru, or Chile.[5]  With building-block deals in place, “upgrading” the Philippines to TPP status through these individual countries’ respective processes would be a simpler task. With the exception of these four countries and the United States, the Philippines already has trade agreements with the remainder of TPP states.

Finally, but most importantly, the Philippines is likely to need to amend its constitutional restrictions on foreign ownership as a prerequisite to joining. Article 9.4 of the TPP’s chapter on investment states:

“Each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.”[6]

Revising the foreign ownership limitations in the 1987 constitution could easily become a controversial issue domestically and, with sufficient attention, become an issue for the 2016 elections as well. The DTI, DFA, and other interested national agencies must be expected to clearly explain the case for constitutional amendment, in the same way that all current TPP members have had to engage their own domestic audiences in favor of the deal. Clarity on the purposes of amendment and all other economic reforms can only come from regular, early, and sincere discussion in the public eye—something that this year’s APEC Summit could be an excellent platform for launch.

Conclusion

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Finally, the heads of state from the 12 members in the TPP are expected to have a sideline meeting at this week’s summit, potentially also including states like South Korea, Indonesia, and the Philippines that have already expressed preliminary interest in joining the bloc. The Philippines should take advantage of its platform as host economy to signal itself as a serious candidate for accession. First, it should show its APEC guests the importance it places on the trade and investment arm of the country’s foreign policy agenda, by not letting the trade discussion become eclipsed by security concerns. Second, the government should launch a domestic discussion of the constitutional and other economic reforms the country needs to become better integrated in the world economy and secure the gains of trade.If APEC is to be a useful talking shop and not just a loud echo chamber, we need to begin the conversation now by keeping trade at the top of the agenda.

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References:
[1]
 http://www.interaksyon.com/article/109465/ph-closely-monitoring-developments-in-trans-pacific-partnership-agreement

[2] http://www.interaksyon.com/article/109465/ph-closely-monitoring-developments-in-trans-pacific-partnership-agreement

[3] http://www.interaksyon.com/article/109465/ph-closely-monitoring-developments-in-trans-pacific-partnership-agreement

[4] http://www.gmanetwork.com/news/story/304347/money/economy/phl-not-ready-to-join-trans-pacific-partnership-trade-chief

[5] http://www.businessmirror.com.ph/phl-right-at-the-door-of-us-led-tpp-dti/

[6] https://medium.com/the-trans-pacific-partnership/investment-c76dbd892f3a

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