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Bienvenido “Nonoy” Oplas Jr.
Minimal Government Thinkers, Inc.
lecture series on Trade and Development
in the Philippines
Presentation at undergrad class, “Comparative Economics of Southeast Asia”
Ateneo de Manila University (ADMU), Quezon City 22 January 2015
I. Trade Theory: Comparative Advantage, CPE,
Consumer Surplus
II. ASEAN Tariff and Trade
III. Trade Bureaucratism
IV. Unilateral Liberalization
V. Concluding Notes
The Consultant: He is fast in research and writing, fast in cooking, fast in driving. He has the “absolute advantage” over an ordinary cook, ordinary driver. He can do many things in one body, possible not to trade services with other people. Still, he decides to get the service of a helper and cook, get a driver, and concentrate on being a writer and consultant. Trade in services means he spends but in the process, he earns bigger because the per hour cost of the cook and driver is lesser than his per hour income as a consultant.
Per hour 6 hours 12 hours
Consultant 75 450 900
Driver, Nanny, Cook/helper 35 210 420
Net gain from trade/ outsourcing 40 240 480
People do not have to produce everything they need or want, even if
they have the skills and resources to make them. Specialization and
trade will make people from across borders and countries better off.
David Ricardo formulated that theory, that a country that trades for
products it can get at lower cost from another country is better off than
if it had made the products at home.
Even if a country has absolute advantage (cheaper cost, etc.) in
producing two or more goods, it is better off if it concentrates on
producing that good/s where its efficiency is highest, and buy/import
from another country that good/s where efficiency is not so high.
2010 2014 2015
Vietnam n.a. 6.46 n.a.
Cambodia 4.84 5.72 n.a.
Laos 1.38 0.78 0.48
Myanmar 1 0.55 0.20
Philippines 0.18 0.13 0.11
Malaysia 0.41 0.05 0.05
Indonesia 0.06 0.04 0.03
Thailand 0.01 0.01 0.01
Brunei 0 0 0
Singapore 0 0 0
ASEAN Trade in Goods Agreement (ATIGA) tariff rates for inter-ASEAN trade. ASEAN member states (AMS) to eliminate import duties on all products traded among them by 2010 for the ASEAN-6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand) and by 2015, with flexibility to 2018, for Cambodia, Laos, Myanmar and Vietnam (CLMV).
Source: Tariff Commission, Philippines
2000 2013 Multiple
Singapore 137.95 410.28 3.0
Malaysia 98.23 228.45 2.3
Thailand 69.15 224.91 3.3
Indonesia 62.12 182.55 2.9
Vietnam 14.48 132.14 9.1
Philippines 38.08 56.70 1.5
Brunei 3.91 11.43 2.9
Myanmar 1.96 11.20 5.7
Cambodia 1.40 6.53 4.7
Laos 0.33 2.26 6.8
2000 2013 Multi
ple
China 249.2 2,209.63 8.9
Japan 479.32 714.93 1.5
S. Korea 172.27 559.63 3.2
Hong
Kong 201.86 458.96
2.3
Taiwan 151.46 303.74 2.0
Source: ADB, Key Indicators of Asia and the Pacific 2014 The Multiple, 2013 over 2000, is not part of the ADB data; added only in this paper.
2000 2013 Multip
le
Singapore 134.68 373.02 2.8
Thailand 62.18 249.53 4.0
Malaysia 81.96 205.99 2.5
Indonesia 33.52 186.63 5.6
Vietnam 15.64 132.12 8.4
Philippines 33.81 65.74 1.9
Myanmar 2.32 13.76 5.9
Cambodia 1.94 9.49 4.9
Brunei 1.11 3.61 3.3
Laos 0.54 3.02 5.6
2000 2013 Multi
ple
China 225.09 1,950.38 8.7
Japan 379.88 832.44 2.2
Hong
Kong 212.8 523.66
2.5
S. Korea 160.48 515.59 3.2
Taiwan 140.63 269.24 1.9
Source: ADB, Key Indicators of Asia and the Pacific 2014 The Multiple, 2013 over 2000, is not part of the ADB data; added only in this paper.
Trade liberalization results in more importation, Not bad because most imports are
productivity-enhancing goods like new machines and trucks, raw materials and
intermediate products for major export commodities, computers and mobile
phones, oil and other energy products.
Trading
across
borders
(rank)
Docs. to
import
(number)
Time to
import
(days)
Cost to import
($ per
container)
Singapore 1 3 4 440
Malaysia 11 4 8 560
Thailand 36 5 13 760
Brunei 46 5 15 770
Philippines 65 7 15 915
Indonesia 62 8 26 647
Vietnam 75 8 21 600
Myanmar 103 8 22 610
Cambodia 124 9 24 930
Laos 156 10 26 1,910
Source: WB-IFC, Doing Business 2015 Report
Ease or Unease of international trade, ASEAN:
Price/kilo
P1
P2
P3 Full protectionist price
Smuggling price
Free trade price
P3 > P2 > P1
Why make cheap imported rice become expensive? Rice export powerhouses Vietnam and Thailand have natural advantages not present in the Philippines: (a) Huge rice land, about 10 M hectares each, vs. the PH’s 4.5 M hectares (b) Contiguous land irrigated almost whole year by Mekong River and other
river systems, ours is scattered in an archipelago; and (c) They have only 1 or 2 typhoons a year, we have about 20 on average.
Crop damage is lower.
The World Trade Organization adopted the first worldwide trade reform in its history on Thursday, after years of stalemate, months of deadlock and a final day's delay following an eleventh-hour objection. The agreement means the WTO will introduce new standards for customs checks and border procedures. Proponents say streamlining the flow of trade will add as much as $1 trillion and 21 million jobs to the world economy. "We have put our negotiations back on track," WTO Director-General Roberto Azevedo told a news conference… However, he said WTO members needed to find a way to speed up negotiations in the future. "We cannot wait another 17 or 18 years to deliver again,"
Source: Richard Baldwin, 'Unilateral Trade Liberalization", Center for Trade and Economic Integration, CTEI 2011-04, http://graduateinstitute.ch/.../working.../CTEI-2011-04.pdf
Agri products, economies in general are more protectionist. Stark
cases are Korea, Turkey, Egypt and Thailand.
"The expansion of global value chains should cause leaders to revisit the idea of unilateral opening. New political blocs of import-dependent manufacturers and services providers are growing in many countries, counterbalancing the old protectionist interests. Especially since trade negotiations are time-consuming—the Doha Round is in its 12th year and TPP talks have been underway since 2010—governments need to ask themselves why they're waiting to open their own economies to trade."
Trade results in lower prices, enabling consumers to buy more with their paychecks. Estimates published by the Institute for International Economics suggest that totally free merchandise trade would save American consumers about 1.2% of U.S. GNP; Japanese consumers about 5% of Japanese GNP; and Korean consumers about 4% of Korean GNP… Trade also introduces more competition into domestic markets, undermining anti-competitive practices that usually prevail when domestic producers face few foreign challenges. Industries shielded from foreign competition often charge higher prices, have little incentive to hold down costs and often indulge slack management style. By injecting greater competition into sheltered domestic markets, international commerce forces national producers to live up to their potential. Free trade exposes countries to new production and management techn. that foster higher productivity at both the firm and industry level…
V. Concluding Notes
• Free trade means free individuals, free enterprises. Restrictions
to trade is restricting potential economic development.
• Governments should reduce restrictions on people and goods
mobility. (a) reduce tariffs and non-tariff barriers (NTBs); (b)
simplify visa requirements and issuance, reduce the cost of
migration; (c) focus on rule of law function, go after real
criminals and not ordinary migrants who only wish to improve
their condition.
• Smuggling can be beneficial to consumers in the form of
lower prices compared to protectionist prices. But this expands
corruption in government. No to protectionism, no need for
smuggling, just abolish or cut trade restrictions.
• Free mobility of people and services across countries and continents will result in commodity and factor price equalization (CPE and FPE) over the long term, all other things being equal.
• Countries with expensive labor due to labor deficit and low population will experience decline in labor cost once additional and competing labor of similar skills from abroad come in.
• Unilateral liberalization – no need for or minimum of negotiations, just open the borders at zero tariff – is pro-development. No regulations except bringing in or out of guns, bombs, poisonous substances, other products that are threat to public health.
