by Lovely A. Carillo
THE Philippines can expect to feel birth pains from the full implementation of the Asean-China Free Trade Area, or ACFTA, which took effect last January 1. But the business sector of Davao City is confident that it will benefit from the agreement in the long term.
It took the Association of South-East Asian Nations (Asean) almost a decade to implement the world’s third largest regional agreement that will cover the almost two billion people making up the member countries of the ACFTA, including China and the six founding Asean members-Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. Two other regional agreements are the European Union (EU) and the North American Free Trade Agreement (NAFTA).
“Free trade will always be initially painful since it will make things a bit different from what we have become accustomed to economy-wise, as we will be competing with products from the other areas in terms of production, quality and price,” former Davao City Chamber of Commerce and Industry, Inc. president Simeon Marfori said.
Marfori, who turned over the Chamber presidency to Engr. Robert Quinto last December, said this would mean equal footing for all competitors, not only in the local market but especially in the Asean market. After the adjustment period, he said, Davao can expect an overall positive effect from the agreement.
“The best that we can expect from the ACFTA is low prices of consumer goods,” he said. Davao City, he added, has a competitive advantage over the other countries when it comes to agriculture, mining, services and manpower.
Dabawenyos should, however, realize that the key to being competitive is to produce products at the least possible cost so we can sell it at a cheaper rate compared to our competitors, he said.
“It means we should not insist on producing onion as an agricultural product if we incur a higher cost than say China, or some other countries that can produce the commodity at a lower cost,” he said.
Marfori said Davao already has a winner in its banana products for export, both the upland and the lowland types. There are other fruits and crops we have not really fully explored in the export market, including pineapples and pomelos, he added.
As a result of the ACFTA, the founding countries of Asean are required to eliminate tariffs and other investment barriers on up to 90% of products, from textiles, to vegetable oils and steel, effective last January 1. Exempted from this are future members of the Asean, Vietnam, Laos, Cambodia and Myanmar, which will cut their tariffs gradually until these are totally eliminated by 2015.
Fear of China
But while the agreement is a shout-out to the whole world that Asean is open for business, not all countries are ready for freer trade. Even the agreement itself has been criticized for lack of a rigorous mechanism when it comes to settling disputes.
Some Asean countries are also fearful of China’s effects on their economies, considering the low price of products from that area even before the agreement took effect.
Quinto said when it comes to competition under the ACFTA, “We are at an advantage because we are an exporting country and our agribusiness products do not really compete with China.”
However, Quinto admitted that we will be the loser when it comes to the manufacturing sector because no one can beat China when it comes to pricing. He admitted that we do not face any chance of winning against China when it comes to the production of microchips.
“But with, or without, the removal of tariff or the implementation of the Free Trade, we will always be a winner when the Philippine Peso has a cheaper conversion rate as against the US dollar as it would make our products cheaper in the world market,” he said.
Fears about the effects of the ACFTA implementation are valid, but the agreement will have different impacts on the Asean members. Grassroots level farmers in South East Asia are expected to benefit from the opportunity to export agricultural products to China under very competitive terms, thanks to the ACFTA Early Harvest Programme.
However, these very same farmers will now have to compete with imported products from China that are more competitive. Indonesia had indicated this nervousness earlier when several associations asked for the temporary exemption of eleven additional industries from the agreement to include tools, transportation, steel and iron, plastic, electronics, footwear, food and beverages, forestry and plantations, machinery, creative industries and downstream chemical industry.
WTO a dress rehearsal
Marfori said that while the full implementation started early this month, he doubts they will be able to fully implement the new tariff rates since he believes there is as yet no implementing rules and regulations and even the Bureau of Customs has not yet released the list of new tariff rates.
“This means there is still time to prepare and to do that, both the government and the private sector should work together to make sure that the agriculture sector is given the right training and technology,” he said.
While there has been little preparation time for the private sector, he said, we have been more or less prepared by the World Trade Organization which is a grander agreement. The private sector has a lot of things to do, like getting more investments. The government too, he said, should now work closely with the private sector so they can get their act together.
The ACFTA is seen as the largest agreement yet in terms of population. It is expected to create total trade of about $1.23 trillion and regional gross domestic product of about $2 trillion. But more than the figures, the agreement is expected to bolster trade between the Asean and China at a dramatic pace, considering that this has already been happening even before the ACFTA, with China’s share in the total trade of Asean increasing from 2.1% in 1994 to 7% in 2003.
The Asean’s largest trading partner at present is the United States with 14% total trade, followed by Japan with 13.7%, European Union with 11.5% and now China with 7%. This is expected to grow further with the implementation of the ACFTA.
Davao City is expected to be proof of this growth, with the help of its export products, with agriculture on top of the list. The city also has an existing sisterhood agreement with Nanning, and it considers this already a step towards the right direction, hopefully leading to some benefits when ACFTA is finally fully implemented in the real world.
