The Philippines in a Liberalizing Trade Environment:

11  Download (0)

Full text


The Philippines in a Liberalizing Trade Environment:

Issues and Prospects

Jason Patalinghug

Southern Connecticut State University, 501 Crescent St. New Haven, CT 06515 USA e-mail: [email protected]


Free trade agreements (FTAs) have mushroomed in the Asia-Pacific region over the past fifteen years.

The Philippines is trying to forge several of these agreements in order to stay competitive. This paper examines the emergence of the Association of South East Asian Nations (ASEAN) as well as the ASEAN Free Trade Agreement. This paper will discuss the advantages for the country by joining both the AFTA and the Japan Philippines Economic Partnership Agreement. It will also discuss several free trade agreements that are in effect in the region as well as efforts by the country to join the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). For the country to be a member of the TPP certain institutional reforms are needed to be put in place. The studies examined in this paper show that these FTAs in general have a positive effect on the Philippine economy.

Keywords:Free trade; Philippines; Trade policy; Asia; International Relations.

JEL Classification:F13; F15; F6.


The Philippines is moving into a new era of openness and liberalization. There is now a growing trend of regional cooperation among countries. Free trade agreements (FTAs) have also mushroomed in recent years. These trends have caused several countries to rethink and retool their trade agendas. Governments must learn how to balance the needs of domestic industries with the opportunities of free trade.

This paper will attempt to examine the different aspects of trade liberalization in the Philippines.

This paper will also discuss regional cooperation mechanisms such as the ASEAN Free Trade Agreement (AFTA) and the Philippines-Japan Economic Partnership Agreement (PJEPA). It is the goal of this paper to present the options and prospects that lie ahead for the Philippines in terms of its trade relations with other countries. It shall also examine the trade policies the country has implemented. It shall also try to present the advantages that the new trade arrangements present.

The paper is organized as follows: The second section gives the review of related literature.

Third section will tackle the several free trade agreements that various Asian nations have entered into over the past years. The fourth section deals with the evolution of ASEAN. The fifth section looks into AFTA and the benefits and mechanism of more open trade among


countries of the Asia-Pacific region. The sixth section looks into the potential gains of JPEPA.

Finally, the seventh section will give the paper’s conclusion.

Review of Related Literature

The Philippines has a long history of protectionist regimes. Prior to the 1980s, the country was a classic case of the “import substitution syndrome” (Austria, 2001). In recent years, both the Philippines and its neighbors have moved towards more open trading relations. There is increasing consideration about becoming more focused and aggressive in pursuing bilateral or regional arrangements. As such, engagement in FTAs is becoming a significant trade policy tool for the Philippines (Medalla and Lazaro, 2004). Avila (2004) conducted a comparative analysis of five selected bilateral free trade or closer economic partnership agreements which comprises of Japan-Singapore Economic Partnership Agreement (JSEPA), the New Zealand-Singapore Closer Economic Partnership (NZSCEP), the United States-Singapore Free Trade Agreement (USSFTA), the Singapore-Australia Free Trade Agreement (SAFTA), and the Korea-Chile Free Trade Agreement (KCFTA). Such bilateral agreements were examined against their consistency with the World Trade Organization (WTO), comprehensiveness measured in terms of scope and depth of the liberalization, the degree of flexibility defined in terms of coverage exemptions given to members and the level of institutionalized, referring to the organizational and implementing aspects of the agreement. He stated that all these guiding principles would help determine if the bilateral agreements go beyond their commitments under WTO rules.

Meanwhile Yasutake (2004) measured the impact that a Philippines-Japan FTA would have on the Philippines and concluded that the benefits outweigh the costs that free trade would bring.

Several venues for regional cooperation have been put up over the decades. One of them is the Association of South East Asian Nations (ASEAN). Pasadilla (2004) traced the origins of ASEAN. She stated that ASEAN was initially formed as a political bloc to solve political and territorial disputes and also to serve as a buffer against communism. Eventually, the group has evolved into more of an economic bloc promoting close cooperation between member countries.

Austria and Avila (2001) stated that the creation of the ASEAN Free Trade Area (AFTA) was the region’s response to the growing economic might of China.

Free Trade Agreements in Other Asian Countries

Bilateral agreements have become an alternative way of having a guaranteed access to foreign markets. The failure of the World Trade Organization meeting in Cancun and the collapse of the Doha round of multilateral trade negotiations had increased the demand for such preferential arrangements adding the fact that some structural changes in the global economy and the growing interdependence between national economies encouraged several countries to enter in a bilateral agreement (Avila, 2004).

Table 1 gives a sample of several free trade agreements between among countries in the Asia- Pacific region. The table shows trade agreements between countries in the Asia-Pacific region (denoted by A) and agreements between an Asia-Pacific country and a country on the other side of the Pacific like the US or Mexico (denoted by TP). Lee and Park (2005) note several characteristics based on this table. First, most of these agreements came into effect after the 1997 Asian financial crisis. This could be because governments across the region felt the need to stabilize the regional economy through increased trade and cooperation.

Second, with the notable exception of Singapore, most Asian countries are newcomers when it comes to enacting these trade agreements. Singapore’s eagerness to engage in bilateral agreements is rooted from its own vulnerability due to its being a trade-dependent economy


(Avila, 2004). That country wants to enact as many bilateral trade arrangements as possible so that it can maximize gains from freer trade by becoming a ‘hub’ country (Lee and Park, 2005).

Third, Lee and Park (2005) state that bilateral agreements are preferred to regional agreements because they are less costly and they provide countries valuable lessons in regionalism. Fourth, low transactions costs due to shared borders do not matter as much anymore due to advances in information and communication technology that enhance the gains from international trade and finance. Thus, Asian countries are pushing for interregional agreements with countries like the United States while Australia and New Zealand are seeking trade agreements to prevent them from being isolated economically. Lastly, Lee and Park (2005) show that there are initiatives within the region to enlarge trading blocs.

Table 1. Selected Asia-Pacific trade agreements

Agreement Type Year Signed Year Implemented Australia-NZ A 1983 1983

AFTA A 1992 1993

NZ-Singapore A 2000 2001 Japan-Singapore A 2002 2002 China-Hong Kong A 2003 2004

US-Singapore TP 2003 2004 Australia-Singapore A 2003 2003 Korea-Chile A 2003 2004 ASEAN-China A 2004 2005 Australia-US TP 2004 2005 Australia-Thailand A 2004 2005 NZ-Thailand A 2005 2005 Korea-Singapore A 2005 2006 Japan-Malaysia A 2005 2006 China-Chile TP 2005 2006 ASEAN-Korea A 2006 2007 Japan-Philippines A 2006 2008 Japan-Thailand A 2007 2007 Japan-Indonesia A 2007 2008 Japan-Brunei A 2007 2008 Japan-Chile A 2007 2007 ASEAN-Japan A 2008 2008 NZ-China A 2008 2008 China-Singapore A 2008 2009 Australia-Chile A 2008 2009 Singapore-Peru TP 2008 2009 Malaysia-NZ A 2009 2010 Japan-Mexico TP 2009 2009 China-Peru TP 2009 2010 NZ-Hong Kong A 2010 2011

China-Taiwan A 2010 2010 Malaysia-Chile TP 2010 2011 Korea-US TP 2011 2012 Legend: TP (Trans Pacific), A (Asian)

Source: Petri et al., 2011.

Free trade agreements between two or more countries foster greater reciprocal benefits and contribute to economic growth (Avila, 2004). One of the more recent trade agreements that has come into effect is the Korea-US Free Trade Agreement (KORUS) which began implementation in 2012. Yaylaci and Shikher (2014) found that KORUS would increase American manufacturing exports to Korea by 56.9% and it would increase Korean manufacturing exports to the US by 18.9%. There would also be an increase in manufacturing jobs in both countries.


Both countries will see an increase in specialization in industries where they have a comparative advantage in. Lastly there will be a modest increase in welfare for both countries.

However, these arrangements can produce some adverse effects. Non-member countries can be negatively impacted due to the discriminatory character of free trade areas. These agreements can thus serve as a deterrent to the creation of multilateral agreements (Lee and Park, 2005).

There could be a high cost to being excluded which could bring about welfare and efficiency losses for competing countries. Governments of non-member countries will come under pressure to join these free trade agreements from their own local businesses since these firms do not want to suffer the disadvantages of not being a member of the club (Lee and Park, 2005).

Singapore has been involved in several free trade agreements over the past decade and a half.

Among the countries that Singapore has signed an agreement with include the US (2004), Japan (2002), Australia (2003), New Zealand (2001), Korea (2006), China (2009), and Peru (2009).

The country has been actively pursuing these agreements in order to ensure that external sources of growth are not limited due to structural impediments. These agreements also provide a buffer against a rising China (Liu, 2007).

In 2002 Singapore and Japan established the first intra-Asian regional trade agreement which came to be known as JSEPA. This agreement made 99% of bilateral trade and 94% of Singapore’s exports to Japan duty free. It is estimated that the global gains from this agreement would exceed $9 billion (Toh, 2006).

Malaysia entered into an FTA with Japan in 2006. It is known as the Japan Malaysia Economic Partnership Agreement (JMEPA). According to Rahman et al. (2008) the FTA has not had a significant effect on the trade between the two nations. However, this could be due to the fact that the FTA has only been recently implemented.

Australia and Thailand started their FTA in 2005. A study by Athukorala and Kohpaiboon (2011) examined the effects of the Thailand Australia Free Trade Agreement (TAFTA). They found that TAFTA has expanded trade between the two nations. They also found that most of this increased trade can be attributed to increased importation of Thai products to Australia with motor vehicles forming the bulk of these increased imports. They also found that TAFTA has not significantly increased Australian exports to Thailand.

Avila (2004) made a comparative study of five free trade agreements in the Asia Pacific region.

The FTAs that he studied were the Japan-Singapore Economic Partnership Agreement (JSEPA), the New Zealand-Singapore Closer Economic Partnership (NZSCEP), the United States- Singapore Free Trade Agreement (USSFTA), the Singapore-Australia Free Trade Agreement (SAFTA), and the Korea-Chile Free Trade Agreement (KCFTA). He found that the five agreements did not deviate much from the rules and regulations of the WTO. There is an immediate removal of tariff and non-tariff barriers for all agreements except for the KCFTA, which has a phase-in timetable for disposing of tariffs. These agreements were also not singularly focused on issues related to cross-border goods trade. However, Avila found out that the five agreements had significant differences between them. These agreements had different ways of defining rules of origin that raises the possibility of confusing and contradicting regulations which could make regional trade more challenging. Another significant difference is that some countries decided to take the negative-list approach to services liberalization while others decided to do the positive-list approach. Lastly, the manner of how national standards and policies are harmonized varies from country to country.

The content of the agreements goes beyond cross-border goods trade issues that shows willingness, among member countries, to commit to opening measures over and above their current WTO obligations. Such FTAs may be characterized as WTO-plus arrangements that include trade in services, investments and other new issues like government procurement, competition policy, and even labor and environment standards in the case of USSFTA. The


agreements allowed certain flexibilities in the provision of trade remedies, negotiated exemptions and deferred time frames for tariff elimination. All of the agreements reviewed by Avila included a provision on dispute avoidance and settlement. Members have agreed to establish a system of dispute settlement procedures including investment disputes. The provision focuses on consultations, negotiations, conciliation and arbitration rather than the application of trade sanctions.

Evolution of ASEAN and AFTA

Early attempts at forming a regional alliance in Southeast Asia were not so successful. In 1959, during Malaysian Prime Minister Tunku Abdul Rahman’s visit to the Philippines, the idea of the Southeast Asian Friendship and Economic Treaty (SEAFET) was floated. Both the Philippines and Thailand joined Malaysia in this endeavor but the idea fizzled as other countries expressed no interest in joining. However, this proposed treaty raised hopes of establishing a regional organization and these three countries formed the Association of Southeast Asia (ASA) in 1961.

However, ASA collapsed when the Philippines withdrew due to its objections over Malaysia’s claim over Sabah (Keling, et al., 2011). Another regional organization, MAPHILINDO (Malaysia, Philippines, and Indonesia) was not too successful as well due to competing national interests.

ASEAN started out from its modest beginnings aimed at addressing peace and security concerns in the Southeast Asian region, not primarily to tackle trade issues. Initially, it existed for an obvious political purpose, that is, to solve territorial and political disputes peacefully. It was established in 1967 amidst political turmoil and insurgencies in the region. Indonesia had just emerged from a period of confrontation with Malaysia as well as a bloody coup that ousted President Sukarno; Singapore had just separated from Malaysia, and the Philippines was claiming the Malaysian state of Sabah. In addition, Thailand was dealing with a communist insurgency in its northeastern provinces. Two countries that border Thailand, Laos and Cambodia, were also dealing with their own communist insurgencies at the time. Meanwhile, China was in the throes of the Cultural Revolution; Vietnam was at war; and Myanmar was not interested in any international organization (Pasadilla, 2004).

These occurrences called for a drastic effort to develop a grouping initiated by Indonesia, Malaysia, Philippines, Singapore, and Thailand. The leaders of these countries signed an agreement, known as the Bangkok Declaration that emphasized their desire to end external interference and take primary responsibility in regional affairs.

In 1976, the ASEAN leaders formed the ASEAN Secretariat mainly to improve coordination among members (Treaty of Amity and Cooperation). This emphasized more concretely the ASEAN’s fundamental principle – that of non-interference in each other’s internal affairs.

The organization experienced expansion in the 1980s and 1990s. In 1984, Brunei Darussalam joined the group after gaining its independence from the United Kingdom. The end of the Cold War in the early 1990s saw the communist states of Indochina join the group. Vietnam joined ASEAN in 1995 followed by Laos and Myanmar in 1997 and Cambodia in 1999.

Several challenges faced the region in the 1990s. The opening up of China to the world economy, the spread of globalization, the end of the Cold War and the economic reforms in Eastern Europe that came with it, and the emergence of trading blocs like the European Union (EU) and the North American Free Trade Agreement (NAFTA) presented competition for ASEAN.

ASEAN’s response was to assume a more integrated region, a free trade area. Thus, the ASEAN Free Trade Area (AFTA) was established in 1992 with the objective of increasing ASEAN’s competitive edge as a production base for the world market. AFTA pushed for reducing and


eventually abolishing tariff and non-tariff barriers to trade among its members. This is done through the CEPT (Common Effective Preferential Tariff) Scheme where intra-regional tariffs will be reduced to 0-5% within the 15-year time period from 1993. By 2010, more than 99% of the tariff lines in the CEPT inclusion list had been eliminated in the six original AFTA members (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand), while around 95–99% of tariff lines had been brought down to the 0–5 percentage range for the new members (Cambodia, Laos, Myanmar, and Vietnam) (Okabe and Urata, 2013). Also, a larger scope of products was included that were originally excluded such as unprocessed agricultural products.

Measures to complement and supplement the removal of tariffs and other border barriers were included such as harmonization of standards, reciprocal recognition of tests and certification of products, and removal of barriers to foreign investment (Austria and Avila, 2001).

Liberalization has also been extended to service trade with the conclusion of the ASEAN Framework Agreement on Services (AFAS) in 1995.

AFTA was formed due to the growing trend in regionalism in other parts of the world as evidenced by NAFTA and the EU. Another factor that led to the formation of AFTA is that Southeast Asia had undergone a transformation from being highly dependent on exports to markets outside the region to being more economically interdependent. Intra-ASEAN trade has been growing steadily since the 1980s. By the 1990s, exports to and imports from other ASEAN countries, in terms of percentage of total, have increased in most countries. Much of the growth in trade among ASEAN countries can be attributed to intra-firm trade among transnational companies (TNCs) operating in the region. These firms, most of them from Japan, desire to have an optimal procurement system for their vertically integrated operations. In the late 1980s, Japanese firms were scared of losing their competitiveness due to rising wages at home and an appreciating Yen. These firms relocated some of their production processes, particularly those that were relatively more labor-intensive and a few capital and skill-intensive ones to the Newly Industrializing Economies (NIEs) and then to Southeast Asia, where wage rates are relatively cheaper (Pasadilla, 2004). Table 2 shows that trade among ASEAN countries increased significantly from $517 billion in 2016 to $651 billion in 2018.

While ASEAN has been promoting unity in all of Southeast Asia in terms of trade and regionalism, they have always envisioned to engage their external partners, particularly Japan, China and South Korea. Since 1973, ASEAN has had a dialogue with Japan, with South Korea since 1989 and with China since 1991 (Pasadilla, 2004). This grouping of the ASEAN countries and China, Japan, and South Korea is known as ASEAN+3 which held its first summit in 1997.

In 1994 the ASEAN Regional Forum (ARF) was formed. It consists of the ten ASEAN member countries as well as 13 other partners which include the US, the EU, Australia, and Canada. The purpose of this forum is to create intensive dialogue with countries especially those in the Asia Pacific region in matters pertaining to politics and security (Keling et al., 2011).

Table 2. Intra-ASEAN trade (in million US$)

2016 2017 2018

Brunei 2,783 3,126 3,194

Cambodia 5,484 6,648 7,986 Indonesia 68,648 78,687 92,058

Laos 4,659 6,191 7,547

Malaysia 97,150 113,242 126,824 Myanmar 9,431 11,512 12,874 Philippines 30,896 36,735 41,148 Singapore 162,108 179,036 200,429 Thailand 94,259 104,437 102,222 Vietnam 41,159 49,561 56,448 ASEAN 516,575 589,174 650,729 Source: ASEANstats


ASEAN has evolved from an organization devoted mainly to addressing security issues into a more closely integrated trading bloc. The main driving force towards increased regional integration is economics. The underlying driving force for East Asian integration is economics.

Some factors for increased Southeast Asian integration include the prospect of competing in the large Chinese market, the increased leverage that a trading bloc brings in a multipolar world, the fear that growing trade deficits in the US might spark a backlash against goods from the region, globalization, and the spread of regionalism in other parts of the world. There are however benefits and costs to becoming a more integrated free trade area. Some perspectives on benefits and costs of different FTA follow.

The Philippines, the TPP, and the RCEP

The Trans-Pacific Partnership (TPP) originated from the Trans-Pacific Strategic Economic Partnership Agreement (known as P4) which was signed by Brunei, New Zealand, Singapore, and Chile in 2006. By 2010 negotiations included the original P4 countries along with Australia, Malaysia, Peru, the US, and Vietnam. Eventually this group has expanded to include Canada and Mexico in 2012 and Japan in 2013. The TPP member nations account for about 40 percent of the global economy (Rahman and Ara, 2015). The goal of the 12 nation TPP is to expand trade and investment across the Asia Pacific region through the elimination of tariffs and non- tariff barriers, the harmonization of trade regulations, and the elimination of investment barriers (Cororaton and Orden, 2014). The Philippines has been touted as a potential new member of the TPP. Using a global computable general equilibrium model, Cororaton and Orden (2014) show that there is an overall welfare gain to Philippine participation in the TPP. Their results show that participation results in trade creation for the country while non-participation incurs both trade diversion effects as well as opportunity costs. TPP participation also results in higher wages for workers and improved returns to capital. Cororaton and Orden also point out that the TPP can serve as a catalyst for domestic policy reform.

Another plurilateral agreement in the Asia Pacific region is the Regional Comprehensive Economic Partnership (RCEP) which was launched in 2012. This 16-nation partnership consists of the ten ASEAN countries plus six countries that ASEAN has an FTA with: Australia, China, India, Japan, South Korea, and New Zealand. The RCEP member nations have a total population of over 3 billion people and a trade share estimated at around 28 percent of global trade with a gross domestic product of around US$21 trillion (Rahman and Ara, 2015). Clarete (2014) examined the benefits of the Philippines joining both the TPP and the RCEP. Since the Philippines is a member of ASEAN, it is already a party to RCEP. If it does not join the TPP it may miss out on opportunities available to countries like Singapore and Malaysia which are part of both agreements. Non-participation in the TPP results in lower Philippine exports while participation results in both higher exports and imports. Clarete also found out that the TPP generates trade both within the group and with the rest of the world while the RCEP mainly creates trade between the group and the rest of the world.

Table 3 shows the top ten main destinations of Philippine exports in 2019 while Table 4 shows the top ten main sources of Philippine imports in the same year. It is clear that most of the main trading partners of the country are either members of the TPP, the RCEP, or both. What the studies by Clarete (2014) and Cororaton and Orden (2014) have shown is that it is in the best interests of the Philippines to join these groupings. However, for the Philippines to join the TPP certain institutional changes must be made. These include a strengthened intellectual property rights system as well as making changes to the 1987 Constitution in order to open up certain sectors such as education, media, transportation, utilities and the practice of certain professions to foreign participants. While joining both groups is beneficial it might create inefficiencies and headaches for the Philippines. Another issue that needs to be dealt with is whether these FTAs can actually increase trade. An Asian Development Bank survey of Philippine firms showed


that only 20% reported the use of incentives under AFTA. This can be due to lack of information or the costs of compliance with different rules of origin (Robles, 2012). Robles (2012) states that it is of strategic importance that the Philippines be aligned with a Pacific- based FTA (TPP) and an ASEAN-based FTA (RCEP). The Philippines is thus hedging its foreign policy strategy in the region. Joining the TPP serves as a boost to American efforts to maintain a presence in Asia while joining the RCEP promotes ASEAN as the focal point of regional trade.

Table 3. Philippine exports 2019

Country Total Trade (US$ million) % Share

USA 11,456.67 16.3

Japan 10,629.15 15.1

China 9,628.61 13.7

Hong Kong 9,621.43 13.7

Singapore 3,825.15 5.4

South Korea 3,208.61 4.6

Thailand 2,957.53 4.2

Germany 2,708.20 3.9

Taiwan 2,231.48 3.2

Malaysia 1,802.80 2.6

Others 12,255.89 17.4

Total 70,325.60 100.00

Source: Philippine Statistics Authority.

Table 4. Philippine imports 2019

Country Total Trade (US$ million) % Share

China 24,535.69 22.9

Japan 10,128.50 9.4

South Korea 8,229.31 7.7

USA 7,723.74 7.2

Thailand 6,792.04 6.3

Indonesia 6,596.10 6.1

Singapore 6,487.87 6.0

Taiwan 4,647.17 4.3

Malaysia 4,497.63 4.2

Germany 2,702.23 2.5

Others 25,064.44 23.3

Total 107,374.74 100.00

Source: Philippine Statistics Authority.

Gains from JPEPA: Empirical Evidence

Yasutake (2004) analyzed the potential impact of the JPEPA on the Philippine economy. The main exports of the Philippines were in the areas of services, electrical products, garments and textiles, and processed agricultural products. Metal products was the top import followed by other industries, chemical products, services, and electrical products.

The results from Yasutake’s (2004) study showed several things. First, removing tariffs on imports from Japan results in 2.36–8.58 percent increase in total imports from Japan. Overall, imports would grow by 0.35-0.61 percent while exports would increase by 0.42–0.72 percent.

Second, although there are huge increases in imports of crops and processed agricultural goods, the actual effects should not be significant since the share of these imports from Japan is small.

The more important sectors in Philippine-Japan trade are the electronics, metal, and chemical sectors. These sectors imports from Japan increased by 2 to 14.9 percent. On the other hand, the total output of producer goods will not change significantly. Third, there was not much factor


re-allocation found in the results due to the assumption of equal prices for all factors except sector specific factors and the full employment assumption. Lastly, welfare in all households, which is measured by both compensated and equivalent variation increased due to the decrease in the prices of consumer goods. The results show that the welfare effects are bigger in higher income households compared to lower income households which implies that the elimination of tariffs on imports from Japan does not necessary solve the problem of income inequality. One possibility is that only households with higher incomes can afford the cheaper consumer goods while the lowered prices of Japanese consumer goods will not affect much the consumption patterns of lower income households.

Overall, Yasutake’s (2004) study shows that holding all else constant, lowering tariffs on Japanese imports increases the welfare of Philippine households. These effects could be magnified if there is an increase in employment and manufacturing due to increased trade that the lower tariffs bring. Other factors that can increase welfare would be increased foreign direct investment and increased factor mobility (e.g. labor and capital) between the two countries.

JPEPA was signed on September 9, 2006. It is the first and so far, only bilateral trade agreement that the Philippines has signed. Medalla and Ledda (2013) examined the effects of this agreement of the Philippine economy. They found that overall the effects were positive. First, their findings show that there were no major adjustment costs. There is evidence of increased trade as Japan is now the top trading partner of the Philippines as well as a favored destination for Japanese foreign direct investment. There is also increased access for Philippine goods in the Japanese market.

Second, by signing the agreement the Philippines avoided the costs of non-participation. The agreement enabled the country not to be left behind by its neighbors. Third, the Philippines benefits from the cooperation elements of the agreement. These elements provide mechanisms to redress complaints of perceived unfairness, timetables for the review of the agreement and grounds for renegotiation. Lastly, the agreement has provided the Philippines with an opportunity for institution building. Because of the tedious process of hammering out the agreement, the Philippine government has learned to engage stakeholders especially those from civil society when it comes to negotiating trade agreements. The public too is now more aware of the ramifications of these agreements.

Aldaba et al. (2015) examines how Philippine firms have reacted to free trade agreements and based on the survey that they administered they found out that these firms have been slow to take advantage of FTAs. The authors recommend that the government improve on their promotional and training activities to make firms more knowledgeable about FTAs. Other recommendations include the government working closely together with business associations and chambers of commerce, the Bureau of Customs setting up a system to monitor FTA utilization, a review of certificates of origin access procedures, and harmonizing rules of origin with other countries in the region.


WTO, ASEAN, APEC, AFTA, EU, and NAFTA, and other acronyms fill up a lot of space in newspapers and economic journals these days. This is but a reflection of the growing wave of trade liberalization sweeping the world today especially in the fast-growing Asia-Pacific region.

This paper has surveyed recent studies regarding free trade and regional cooperation in the Philippines. It is apparent that the trend of openness is definitely here to stay for years to come.

For the Philippines to be competitive in the global arena it must come up with a strategy so that it can get the most out of the different regional and bilateral trade mechanisms. In recent years institutions like the Philippine Institute for Development Studies have conducted studies regarding the different facets of trade liberalization in the Philippines. The goal is to come up


with a strategy for the country’s trade relations. What is needed is implementation of a viable trade strategy which would be beneficial to all Filipinos as well as the implementation of a plan that allows businesses to fully harness the advantages of these free trade agreements. The government must present clear objectives and direction as to where the country needs to go.

There should be strong institutional frameworks as well as criteria to choose which trading partners we could benefit the most from. The risks from liberalization should thus be minimized. The Philippines is definitely at a crossroads. It has large amounts of untapped natural resources. It also has a large youthful labor force with a high level of education which can benefit from higher wages as a result of a participation in these FTAs. These agreements might bring in the foreign investment the country needs to improve its infrastructure so that it can support the country’s current growth trajectory.


1. Aldaba, R.M., Medalla, E.M., Yap, J.T., Rosellon, M.A.D., del Prado, F.L.E., Mantaring, M.C. and Ledda, V.M, 2015. How are Firms Responding to Philippine FTAs? Discussion Paper No. 2015-22.

Makati City, Philippines: Philippine Institute for Development Studies.

2. Appleyard, D. and Field, A, 2002. International Economics. 4th ed. McGraw-Hill.

3. Athukorala, P. and Kohpaiboon, A, 2011. Australian–Thai Trade: Has the Free Trade Agreement Made a Difference? Australian Economic Review, 44(4), pp. 457–467.

4. Austria, M, 2001. Liberalization and Regional Integration: The Philippines’ Strategy to Global Competitiveness. Discussion Paper No. 2001-09. Makati City, Philippines: Philippine Institute for Development Studies.

5. Austria, M. & Avila, J. L, 2001. Looking Beyond AFTA: Prospects and Challenges for Interregional Trade. Discussion Paper No. 2001-10. Makati City, Philippines: Philippine Institute for Development Studies.

6. Avila, J. L, 2004. A Comparative Study of Bilateral FTA/CEP Arrangements. Discussion Paper No.

2004-28. Makati City, Philippines: Philippine Institute for Development Studies.

7. Baldwin, R. and Wyplosz, C, 2009. The Economics of European Integration. 3rd ed. McGraw-Hill.

8. Bowles, P. and MacLean, B, 1996. Understanding Trade Bloc Formation: The Case of the ASEAN Free Trade Area. Review of International Political Economy, 3(2), pp. 319-348.

9. Capling, A. and Ravenhill, J, 2011. Multilateralising Regionalism: What Role for the Trans-Pacific Partnership Agreement? The Pacific Review, 24(5), pp. 553–575.

10. Clarete, R. L, 2014. Going Regional: Which Mega Trade Deal Should the Philippines Join? Bangko Sentral ng Pilipinas-University of the Philippines Professorial Chair Lecture Series.

11. Cororaton, C.B. and Orden, D, 2014. Cost and Benefit Analysis of Possible Philippine Participation in the Trans-Pacific Partnership Agreement. Working Paper No. 2014-1. Blacksburg, VA: Virginia Tech Institute for Society, Culture and Environment Global Issues Initiative.

12. Das, G.G. and Andriamananjara, S, 2006. Hub-and-spokes Free Trade Agreements in the Presence of Technology Spillovers: An Application to the Western Hemisphere. Review of World Economics, 142(1), pp. 33-66.

13. Keling, M.F., Som, H.M., Saludin, M.N., Shuib, M.S. and Ajis, M.N, 2011. The Development of ASEAN from a Historical Approach. Asian Social Science, 7(7), pp. 169-189.

14. Lee, J.W. and Park, I, 2005. Free Trade Areas in East Asia: Discriminatory or Non-discriminatory?

The World Economy, 28(1), pp. 21-48.

15. Liu, Y, 2007. Facing the Challenge of Rising China: Singapore’s Responses. Journal of Policy Modeling, 29(3), pp. 505-522.

16. Medalla, E.M. and Lazaro, D, 2004. Exploring the Philippine FTA Policy Options. Policy Notes No.

2004-09. Makati City, Philippines: Philippine Institute for Development Studies.

17. Medalla, E.M. and Ledda, V.M, 2013. Philippines-Japan Economic Partnership Agreement (PJEPA): An Initial Ex-post Review. Discussion Paper No. 2013-12. Makati City, Philippines:

Philippine Institute for Development Studies.

18. Okabe, M. and Urata, S, 2013. The Impact of AFTA on Intra-AFTA Trade. Discussion Paper 2013- 05. Jakarta, Indonesia: Economic Research Institute for ASEAN and East Asia.

19. Park, I, 2009. Regional Trade Agreements in East Asia: Will They be Sustainable? Asian Economic Journal, 23(2), pp. 169–194.


20. Pasadilla, G.O, 2004. East Asian Cooperation: The ASEAN View. Discussion Paper No. 2004-27.

Makati City, Philippines: Philippine Institute for Development Studies.

21. Petri, P.A., Plummer, M.G. and Zhai, F, 2011. The Trans-Pacific Partnership and Asia-Pacific Integration: A Quantitative Assessment. Working Paper Economics Series No. 119. Honolulu, HI:

East-West Center.

22. Rahman, K.M., Mollah, R.I., and Murad, M.W, 2008. Japan-Malaysia Free Trade Agreement:

Expectations and Achievements. Journal of Comparative International Management, 11(1), pp. 29- 42.

23. Rahman, M.M. and Ara, L.A, 2015. TPP, TTIP and RCEP: Implications for South Asian Economies. South Asia Economic Journal. 16(1), pp. 27–45.

24. Robles, T, 2012. Testing the (Pacific) Waters: Philippines’ Options in Regional Economic Integration. Commentaries No. 178. Singapore: Nanyang Technological University Rajaratnam School of International Studies.

25. Toh, M.H, 2006. Singapore’s Perspectives on the Proliferation of RTAs in East Asia and Beyond.

Global Economic Review, 35(3), pp. 259-284.

26. Van de Haar, E, 2011. Philippine Trade Policy and the Japan-Philippines Economic Partnership Agreement (JPEPA). Contemporary Southeast Asia, 33(1), pp. 113–139.

27. Yasutake, T, 2004. Philippines-Japan Free Trade Agreement: Analyzing its Potential Impact Using a Computable General Equilibrium Model. Discussion Paper No. 2004-40. Makati City, Philippines:

Philippine Institute for Development Studies.

28. Yaylaci, O. and Shikher, S, 2013. What Would Korea-US Free Trade Agreement Bring?

International Economic Journal, 28(1), pp. 161–182.




Related subjects :