December 28, 2011
Little benefit from WTO
BY AMADO P. MACASAET
The Philippine economy did not benefit much from membership with the World Trade Organization, but accession was unavoidable.
This is the consensus given to Malaya Business Insight by three top bankers who all requested anonymity.
One said the globalization made mandatory by the WTO is a game for the giant economies. "It is the imperialists’ turf," he said.
The three said the most serious, in fact damaging effect, was the hauling down of tariff walls mostly on consumption goods. They pointed out that the intention is good in the sense that low tariff rates are supposed to move the producers of consumption goods to higher levels of efficiency.
It did not. Instead, the reliance on imported goods became even heavier largely because the government failed to provide incentives or create a climate that would encourage higher productivity.
In not too few cases, the Philippine government is to blame.
Jake, this was the position of our late friend, Tony Tupaz. He talked about it, upon my invitation on behalf of the Rotary Club of Pasig on February 22 ,2007. You were the club's guest on May 3, 2007 and you talk about the libel case that was filed against you and other journalists by the former FG.
The bankers pointed out that a huge fund for the modernization of agriculture, as envisioned by Edgardo J. Angara when he was agriculture secretary, was supposed to be created from tariff on imported rice.
The safety net for agriculture provides that beyond a predetermined volume, imported rice is supposed to be slapped a tariff of 50 per cent. The volume has been breached but there have been no collection at all.
They said that manufacturing is also a big victim of globalization, not only because of lowering of tariff but largely because many manufacturers chose to be importers instead of staying in the business they started with.
"All you need is a warehousing complex and a fleet of delivery trucks to make money from imports," the bankers said.
Importers do not directly create that much employment, they said.
Therefore, they explained, the importers avoid troubles with labor and the necessity of buying dollars to import raw materials.
However, they pointed out in one voice, "We would have been isolated from the world if we did not join the globalization effort."
They explained that the evil of seeing business prosper through tariff protection "was killed" by low common tariff on many products as demanded by the WTO.
That would have resulted in intense competition for survival. It did not. Importing was a better and easier alternative.
They explained that globalization is a battle between a giant and a pygmy. In the case of David and Goliath, David, the pygmy, won. A pygmy of an economy cannot "kill" Goliath with a slingshot, they said, pointing out that the Philippines does not even have the slingshot – meaning the determination which would have resulted in raising efficiency to put up a good fight.
Nevertheless, they said, membership with the WTO opened the eyes of the economy to what it is good at.
Thus, they said, the outsourcing business (BPO) and tourism-cum-gaming were born and matured rather fast.
Business process outsourcing has become so successful its leaders are now suggesting to the Department of Education that heavier emphasis be placed on English grammar.
The banking system is slowly turning to heavy lending to medium and small borrowers. That, too, they said, may have been a direct result of the inability of the Philippines to compete with the giants.
They pointed out that "small is good." They explained that the situation at present is such that the big borrowers with excellent credit records are able to raise enough funds from their own operations.
Loans are sought by borrowers the banks are indifferent to, the bankers said. Since the financial system is too liquid, depositors’ money must be invested elsewhere.
Financial institutions find lending to small-scale business a bit messy but safer. The default rate among small business people is below 3 percent.
One of the bankers explained that owners of small – sometimes backyard projects – know they would need more money to expand their business.
They cannot go back to the banks if they are discovered to be habitual defaulters. In fact, banks are slowly getting involved in micro-finance which is even more administratively messy as they have to comply with rigid requirements of the Bangko Sentral.
They pointed out that the property boom will continue because the developers have come to realize that the bulk of housing demand comes from the middle and low-middle strata of the economy.
However, they said, the developers may not be expected to take over social housing which, in the first place, is the basic function of government agencies like Pag-Ibig.
The slowdown of manufacturing, if it is a result of WTO membership, may have raised the unemployment rate. But the bankers said that is also a function of high birth rate.