Twenty out of 24 senators voted to ratify the Philippines\u2019 participation in the Regional Comprehensive Economic Partnership (RCEP), which is touted to be the world\u2019s largest regional trade bloc. The Philippines is the last country to ratify the pact, finally joining the trade bloc that includes ten ASEAN nations, China, Japan, South Korea, Australia, and New Zealand. In total, the trade bloc would encompass an area that generates 30% of the global GDP and 25% of global trade. It also includes 6 of the country\u2019s top 10 trading partners: China (and Hong Kong), Japan, Singapore, Thailand, and South Korea.<\/p>\n\n\n\n
The treaty is expected simplify the overlapping bilateral and multilateral free trade agreements (FTAs) amongst the participating countries and eliminate 90% of tariffs on imports from signatory countries. It also aims to ease the flow of investments, as well as establish common rules for services like financial services, e-commerce, and recognition of intellectual property.<\/p>\n\n\n\n
Multilateral free trade agreements are not always a win-win for all parties. <\/p>\n\n\n\n
Some pros: joining RCEP could reduce friction costs for listed manufacturing companies that already have an established sales and operations presence in the region, like MONDE, URC, and SMC\/FB. <\/p>\n\n\n\n
It could also open up new markets that were not previously covered by FTAs like Australia and New Zealand. In particular, San Miguel Corp. (SMC) has been aspiring to become one of the top five beer makers in the region, but it is being beaten out by American and European brands like Heineken in markets like Vietnam and Thailand, and by Budweiser in China. Reduced trade costs could help the Philippines\u2019 national beer to gain a better foothold in those markets, and give a boost to the company\u2019s export sales.<\/p>\n\n\n\n
On the other hand, some cons: more competitively priced products can gain easier entry to the Philippine market, particularly from China and Vietnam. <\/p>\n\n\n\n
Joining RCEP could also potentially widen the country\u2019s trade deficit, as we would be joining a trade bloc that includes export-heavy economies like China, Japan, South Korea, and Vietnam, while our economy has always been leaning more towards exporting raw materials and importing finished products. Unless the cost of local production is lowered, we run the risk of our local products getting overrun by cheaper imported goods. <\/p>\n\n\n\n
Aside from more competitively priced imported goods, higher quality products that used to be more expensive, or harder to find, like agricultural and dairy products from New Zealand and Australia would be cheaper and easier to import. Wider availability of these products could increase competition for local brands like Magnolia, Eden, Alaska, and others.<\/p>\n\n\n\n
In summary, a massive free trade bloc like the RCEP is incredibly complex and it would require deeper study to pinpoint the products and companies that would benefit or be negatively impacted by it. <\/p>\n\n\n\n
Consumer behavior is also a tricky thing to predict \u2013 for example, would Filipino consumers remain loyal to Lucky Me! when South Korea\u2019s Shin Ramyun and Jin Ramen become cheaper? Will Filipino drinkers continue to choose San Miguel Beer when Japan\u2019s Asahi beer, Thailand\u2019s Chang beer, or Singapore\u2019s Tiger beer hit the shelves? <\/p>\n\n\n\n
And last but not least, how much would the peso be weakened by a wider trade deficit and what would be the cost implications of a weaker peso for companies that import raw materials or tap the international debt market?<\/p>\n\n\n\n